Emil Lederer, Developments in Economic Theory (1936)

Emil Lederer’s journal article, presented as a conference paper, surveys fifty years of European economic theory, principally on the Continent. Its central concern is the movement from abstract systems toward explanations of concrete economic disturbances, accelerated by the war and depression. Lederer organizes his account around value and prices, distribution and computation, business cycles, and the sociology of economic knowledge. National differences matter throughout, but his deeper distinction is between theories of stationary equilibrium and theories capable of explaining growth, cumulative dislocation, and institutional change.

Postwar monetary problems, debts, wages, and unemployment compelled even committed theorists to address practical questions. Quantitative research expanded, while mathematical economics refined the analysis of equilibrium, monopoly, and elasticity. Lederer welcomes greater specialization over the proliferation of supposedly new theoretical systems, yet doubts whether increasingly elaborate stationary models can explain dynamic reality. His criticism concerns the relationship between conceptual precision and explanatory usefulness, not abstraction as such.

Marginal utility remains the dominant foundation of value theory. Lederer defends it against behaviorist objections: its psychological assumptions are formal rather than commitments to particular motives. He also rejects attempts to replace value theory with interdependent price quantities alone, since these still require an explanation of what makes them prices. Nevertheless, indivisible commodities and problems of imputation expose difficulties that repeatedly bring costs back into the argument. The same tension appears in distribution theory, where marginal productivity depends upon divisibility and diminishing returns.

In the case of increasing return, no solution can dispense with the principle of costs.

Increasing returns are decisive because they distinguish growth from stationary circulation. Assumptions tolerable for an economy without further expansion cannot simply govern a growing productive system. Adding power or social organization to marginal-productivity theory may make it more accommodating, but, Lederer argues, weakens its claim to provide a strict principle.

The practical consequences emerge in contrasting wage doctrines. Continental economists generally fear wages that exceed marginal productivity, expecting lower wages to restore profits, investment, and employment. Many American economists instead fear inadequate purchasing power: low wages can contract mass production, raise costs, and discourage investment. These differences reflect observed economic conditions as well as theoretical commitments. Lederer likewise treats Marxian value theory comparatively. It illuminates production’s interdependence, structural change, and the social basis of income, but offers less refined analysis of demand and short-run movements. Exploitation, in this account, describes a structure constraining employers and workers rather than an individual employer’s moral conduct.

The difficulty of explaining interest sharpens the conflict between stationary and dynamic theory. Continental economists seek an explanation consistent with their general principle of value; scarcity, waiting, and the productivity of roundabout production leave important questions unanswered. Lederer favors, provisionally, the view that profits and interest arise from dynamic changes rather than persist as necessary incomes in equilibrium.

If these dynamic forces subside, competition will wipe out profits as well as interest.

Technical progress, entrepreneurship, labor-market conditions, and monetary changes can continually generate profits in different places. This account permits interest to fall to zero without destroying the system and explains it through capitalism’s recurrent departures from stationary conditions.

Business-cycle theory makes those departures its central object. An adequate explanation must show why disturbances recur and accumulate instead of being corrected. Most theories identify disproportionalities, but differ over their causes; additional credit supplies indispensable fuel without making cycles exclusively monetary phenomena. Lederer emphasizes the turn from a supposedly invariant causal sequence toward historically differentiated analysis.

He particularly rejects the claim that excessive consumption at the boom’s peak produces capital scarcity and collapse. Additional saving would not cure overinvestment accumulated throughout the upswing; unused capacity and falling prices could precipitate breakdown even without credit restriction. The relevant question is the proportion between consumption and investment over the boom’s course. Recovery policy accordingly challenges the doctrine that depression must complete an automatic cleansing process.

As the upswing is not only a deviation from the "normal" path of development, but also an acceleration of the normal growth (using reserves of all the factors of production), a positive recovery policy using unused capacity is well founded.

Intervention thus belongs within economic theory rather than outside it. Once the cycle can be influenced, the organization of the capitalist system becomes open to investigation. Extreme inflation or mass unemployment may carry an economy away from equilibrium rather than toward automatic restoration. Planning raises both economic and political questions: Lederer dismisses the objection that a system without markets cannot evaluate productive resources, while treating its compatibility with democracy as a distinct politico-sociological problem.

The concluding sociology of knowledge links these disputes to economists’ selective perception. The issue is less conscious service to class interests than unconscious bias concerning which facts deserve recognition. Continental preoccupation with capital scarcity, population pressure, and diminishing returns contrasts with American attention to mass production, unused capacity, and spending. These are different diagnoses of capitalism’s difficulties: poverty and insufficient accumulation on one side, unrealized productive possibilities on the other.

The reality is approached by theoretical concepts.

This closing formulation captures the article’s methodological claim. Realism requires concepts, but concepts must confront growth, historical variation, and structural dislocation. Lederer’s survey is therefore also an argument for reorienting economics: stationary theory may supply a general baseline, yet its further refinement cannot substitute for a theory of dynamic processes.