INTRODUCTION

This paper discusses an early two-sector macroeconomic model of a capitalist economy, that is Marx's so called Schema of Reproduction as set out in Volume II of Capital (1885). If we agree with Schumpeter (1954, 15) that progress in economics is very much a matter of the development of gadgets then this particular model would obviously rank high in the bringing forth of gadgets or tools for economic analysis. As one might expect the Schema of Reproduction played an important role in the development of (early) Marxian theory, particularly that of economic cycles (e.g. works of Bauer, Luxemburg, and Grossman). The Schema also influenced a type of non-Marxian economics of the cycle in the early twentieth century – mainly through the work of Tugan-Baranovsky, the first author to take up the Schema in his own work in 1895 (see also Boumans in this volume). Next, in the 1950s and 1960s the model was of influence for the orthodox economics' theories of growth and capital mainly through the work of Kalecki. A major development from the Marxian Reproduction Schema is ‘Input–Output Analysis’, a technique developed by Leontief (1941, 1953) – for which he was granted the 1973 Nobel Prize in economics – and which is used still today in the National Account Statistics of most OECD countries.

The main aim of the paper is to show the construction of a particular type of economic modelling which one might usefully call ‘knife-edge caricature modelling’. I borrow the term ‘knife-edge’ from Solow (1956, 161), and the term ‘caricature’ from Gibbard and Varian (1978).