DOBROLYUBSKA G. I., DOBROLYUBSKA Y. A. Forgotten theory of economic policy Ferdinando Galiani

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     The Italian Enlightenment’s economist Ferdinando Galiani (1728 - 1787) had a significant impact on the development of philosophy, history, economy and political theory. His economic thinking was influenced by Aristotle, Davanzati, Locke and Montanari. Galiani is most noted for his contributions to value theory, interest theory and economic policy. He recognized that there was a dichotomy between utility and scarcity, a concept that had been kicked around by philosophers since Aristotle. His most notable work «On Money» was written when he was in his early twenties, but was not widely read then because it was available only in Italian. It is in that treatise that his interest and subjective value theories were included.

     He observed that a commodity's price regulates consumption, and consumption regulates price. As the price of a commodity falls, the demand for it increases, and vice versa. The value of a good is not intrinsic; it is a calculation or ratio between goods that people make in relation to other goods. Men compare one good to another, and make an exchange only when their level of satisfaction will be equal as a result of the exchange. These views seem elementary now, but they were not so elementary when Galiani made them.

    Galiani also recognized the existence of a relationship between the price of a good and a demand for it. Rich people can afford a good that poorer people cannot. As the price of a good decreases, people from the less affluent income categories begin to purchase it, thus increasing total demand. If the price rises, some of these people will stop buying it. The rich make some purchases because it is fashionable to do so, even though the good purchased has little or no utility. It is fashionable to purchase diamonds, and unfashionable to purchase water or air. That is one reason why diamonds have a high price and water and air have a low price (or no price). This example also shows that there is a difference between value and utility. He realized that value is not intrinsic but subjective. A good's price varies with the taste and purchasing power of each individual.

    He was the first to see that interest was not a surplus, but is instead a supplement that is needed to equalize service and counter-service. According to Galiani, interest equalizes present and future money. Galiani believed that government generally should not interfere in the natural workings of the economy. A government that attempts to stimulate all sectors of the economy, agricultural and industrial, stimulates nothing. Another aspect of his economic policy theory is that an economic policy must be formulated by taking time and place into account; an economic policy that may be appropriate in one country or at one time may be inappropriate in another. Unlike the physiocrats, Galiani argued that agriculture need not always be viewed as supreme. The view that economic models must be adjusted for time and place later became a basic principle of the German Historical School. But, unlike the German Historical School, Galiani did not reject abstract theory.

Keywords: Italian Enlightenment, philosophy of history, value theory, economic policy theory, agriculture, economic models.