History of Economic Analysis part 5 potx

CHAPTER 1 [Introduction and Plan] 1. PLAN OF THE BOOK BY HISTORY of Economic Analysis I mean the history of the intellectual efforts that men have made in order to understand economic phenomena or, which comes to the same thing, the history of the analytic or scientific aspects of economic thought. Part II of this book will describe the history of those efforts from the earliest discernible beginnings up to and including the last two or three decades of the eighteenth century. Part III will go on through the period that may be described, though only very roughly, as the period of the English ‘classics’—to about the early 1870’s. Part IV will present an account of the fortunes of analytic or scientific economics from (speaking again very roughly) the end of the ‘classic’ period to the First World War, though the history of some topics will, for the sake of convenience, be carried to the present time. These three Parts constitute the bulk of the book and embody the bulk of the research that went into it. Part V is merely a sketch of modern developments, relieved of some of its cargo by the anticipations in Part IV that have been just mentioned, and aims at nothing more ambitious than helping the reader to understand how modern work links up with the work of the past. In facing the huge task that has been attempted rather than performed in this book we become aware immediately of an ominous fact. Whatever the problems that, to snare the unwary, lurk below the surface of the history of any science, its historian is in other cases at least sure enough of his subject to be able to start right away. This is not so in our case. Here, the very ideas of economic analysis, of intellectual effort, of science, are ‘quenched in smoke,’ and the very rules or principles that are to guide the historian’s pen are open to doubt and, what is worse, to misunderstanding. Therefore, Parts II to V will be prefaced by a Part I that is to explain as fully as space permits my views on the nature of my subject and some of the conceptual arrangements I propose to use. It has further seemed to me that a number of topics should be included that pertain to the Sociology of Science—to the theory of science considered as a social phenomenon. But observe: these things stand here in order to convey some information about the principles I am going to adopt or about the atmosphere of this book. Though reasons will be given for my adopting them, they cannot be fully established here. They are merely to facilitate the understanding of what I have tried to do and to enable the reader to lay the book aside if this atmosphere be not to his taste. 2. WHY DO WE STUDY THE HISTORY OF ECONOMICS? Well, why do we study the history of any science? Current work, so one would think, will preserve whatever is still useful of the work of preceding generations. Concepts, methods, and results that are not so preserved are presumably not worth bothering about. Why then should we go back to old authors and rehearse outmoded views? Cannot the old stuff be safely left to the care of a few specialists who love it for its own sake? There is much to be said for this attitude. It is certainly better to scrap outworn modes of thought than to stick to them indefinitely. Nevertheless, we stand to profit from visits to the lumber room provided we do not stay there too long. The gains with which we may hope to emerge from it can be displayed under three heads: pedagogical advantages, new ideas, and insights into the ways of the human mind. We shall take these up in turn, at first without special reference to economics and then add, under a fourth head, some reasons for believing that in economics the case for a study of the history of analytic work is still stronger than it is for other fields. First, then, teachers or students who attempt to act upon the theory that the most recent treatise is all they need will soon discover that they are making things unnecessarily difficult for themselves. Unless that recent treatise itself presents a minimum of historical aspects, no amount of correctness, originality, rigor, or elegance will prevent a sense of lacking direction and meaning from spreading among the students or at least the majority of students. This is because, whatever the field, the problems and methods that are in use at any given time embody the achievements and carry the scars of work that has been done in the past under entirely different conditions. The significance and validity of both problems and methods cannot be fully grasped without a knowledge of the previous problems and methods to which they are the (tentative) response. Scientific analysis is not simply a logically consistent process that starts with some primitive notions and then adds to the stock in a straight-line fashion. It is not simply progressive discovery of an objective reality—as is, for example, discovery in the basin of the Congo. Rather it is an incessant struggle with creations of Our own and our predecessors’ minds and it ‘progresses,’ if at all, in a criss-cross fashion, not as logic, but as the impact of new ideas or observations or needs, and also as the bents and temperaments of new men, dictate. Therefore, any treatise that attempts to render ‘the present state of science’ really renders methods, problems, and results that are historically conditioned and are meaningful only with reference to the historical background from which they spring. To put the same thing somewhat differently: the state of any science at any given time implies its past history and cannot be satisfactorily conveyed without making this implicit history explicit. Let me add at once that this pedagogical aspect will be kept in mind throughout the book and that it will guide the choice of material for discussion, sometimes at the expense of other important criteria. Introduction and plan 3 Second, our minds are apt to derive new inspiration from the study of the history of science. Some do so more than others, but there are probably few that do not derive from it any benefit at all. A man’s mind must be indeed sluggish if, standing back from the work of his time and beholding the wide mountain ranges of past thought, he does not experience a widening of his own horizon. The productivity of this experience may be illustrated by the fact that the fundamental ideas that eventually developed into the theory of (special) relativity occurred first in a book on the history of mechanics. 1 But, besides inspiration every one of us may glean lessons from the history of his science that are useful, even though sometimes discouraging. We learn about both the futility and the fertility of controversies; about detours, wasted efforts, and blind alleys; about spells of arrested growth, about our dependence on chance, about how not to do things, about leeways to make up for. We learn to understand why we are as far as we actually are and also why we are not further. And we learn what succeeds and how and why—a question to which attention will be paid throughout this book. Third, the highest claim that can be made for the history of any science or of science in general is that it teaches us much about the ways of the human mind. To be sure, the material it presents bears only upon a particular kind of intellectual activity. But within this field its evidence is almost ideally complete. It displays logic in the concrete, logic in action, logic wedded to vision and to purpose. Any field of human action displays the human mind at work but in no other field do we get so near the actual methods of working because in no other field do people take so much trouble to report on their mental processes. Different men have behaved differently in this respect. Some, like Huyghens, were frank; others, like Newton, were reticent. But even the most reticent of scientists are bound to reveal their mental processes because scientific—unlike political—performance is self-revelatory by nature. It is for this reason mainly that it has been recognized many times—from Whewell and J.S.Mill to Wundt and Dewey—that the general science of science (the German Wissenschaftslehre) is not only applied logic but also a laboratory for pure logic itself. That is to say, scientific habits or rules of procedure are not merely to be judged by logical standards that exist independently of them; they contribute something to, and react back upon, these logical standards themselves. To convey the point by the useful device of exaggeration: a sort of pragmatic or descriptive logic may be abstracted from observation and formulation of scientific procedures—which of course involve, or merge into, the study of the history of sciences. Fourth, it stands to reason that the preceding arguments, at least the ones that have been presented under the first two headings, apply with added force to the special case of economics. We shall attend presently to the implications of the obvious fact that the subject matter of economics is itself a unique historical process (see sec. 3 below) so that, to a large extent, the economics of different epochs deal with different sets of facts and problems. This fact alone would suffice to lend increased interest to doctrinal history. But let us discard it for the moment in order to avoid repetition and to emphasize another fact. As 1 Ernst Mach, Die Mechanik in ihrer Entwicklung: historisch-kritisch dargestellt (1st ed., 1883; see Appendix, by J.Petzoldt, to the 8th ed.); English trans. by T.J.Mc-Cormack, containing additions and alterations up to the 9th (the final) ed., 1942. History of economic analysis 4 we shall see, scientific economics does not lack historical continuity. It is in fact our main purpose to describe what may be called the process of the Filiation of Scientific Ideas— the process by which men’s efforts to understand economic phenomena produce, improve, and pull down analytic structures in an unending sequence. And it is one of the main theses to be established in this book that fundamentally this process does not differ from the analogous processes in other fields of knowledge. But, for reasons that it is also one of our purposes to make clear, this filiation of ideas has met with more inhibitions in our field than it has in almost all others. Few people, and least of all we economists ourselves, are prone to offer us congratulations on our intellectual achievements. Moreover our performance is, and always was, not only modest but also disorganized. Methods of fact-finding and analysis that are and were considered substandard or wrong on principle by some of us do prevail and have prevailed widely with others. Although it is possible nevertheless—as I shall try to show—to speak for every epoch of established professional opinion on scientific topics and although this opinion has often stood the test of being proof against strong differences in political views. we cannot speak with as much confidence about it as can physicists or mathematicians. In consequence we cannot, or at least we do not, trust one another to sum up ‘the state of the science’ in an equally satisfactory manner. And the obvious remedy for the shortcomings of summarizing works is the study of doctrinal history: much more than in, say, physics is it true in economics that modern problems, methods, and results cannot be fully understood without some knowledge of how economists have come to reason as they do. In addition, much more than in physics have results been lost on the way or remained in abeyance for centuries. We shall meet with instances that are little short of appalling. Stimulating suggestions and useful if disconcerting lessons are much more likely to come to the economist who studies the history of his science than to the physicist who can, in general, rely on the fact that almost nothing worth while has been lost of the work of his predecessors. Why, then, not start in at once upon another story of intellectual conquest? 3. BUT IS ECONOMICS A SCIENCE? The answer to the question that heads this section depends of course on what we mean by ‘science.’ Thus, in everyday parlance as well as in the lingo of academic life— particularly in French and English-speaking countries—the term is often used to denote mathematical physics. Evidently, this excludes all social sciences and also economics. Nor is economics as a whole a science if we make the use of methods similar to those of mathematical physics the defining characteristic (definiens) of science. In this case only a small part of economics is ‘scientific.’ Again, if we define science according to the slogan ‘Science is Measurement,’ then economics is scientific in some of its parts and not in others. There should be no susceptibilities concerning ‘rank’ or ‘dignity’ about this: to call a field a science should not spell either a compliment or the reverse. Introduction and plan 5 For our purpose, a very wide definition suggests itself, to wit: a science is any kind of knowledge that has been the object of conscious efforts to improve it. 1 Such efforts produce habits of mind—methods or ‘techniques’—and a command of facts unearthed by these techniques which are beyond the range of the mental habits and the factual knowledge of everyday life. Hence we may also adopt the practically equivalent definition: a science is any field of knowledge that has developed specialized techniques of fact-finding and of interpretation or inference (analysis). Finally, if we wish to emphasize sociological aspects, we may formulate still another definition, which is also practically equivalent to the other two: a science is any field of knowledge in which there are people, so-called research workers or scientists or scholars, who engage in the task of improving upon the existing stock of facts and methods and who, in the process of doing so, acquire a command of both that differentiates them from the ‘layman’ and eventually also from the mere ‘practitioner.’ Many other definitions would be just as good. Here are two which I add without further explanations: (1) science is refined common sense; (2) science is tooled knowledge. Since economics uses techniques that are not in use among the general public, and since there are economists to cultivate them, economics is obviously a science within our meaning of the term. It seems to follow that to write the history of those techniques is a perfectly straightforward task about which there should be no doubts or qualms. Unfortunately this is not so. We are not yet out of the wood; in fact, we are not yet in it. A number of obstacles will have to be removed before we can feel sure of our ground— the most serious one carrying the label Ideology. This will be done in the subsequent chapters of this Part. Just now, a few comments will be presented on our definition of science. First of all we must meet what the reader presumably considers a fatal objection. Science being tooled knowledge, that is, being defined by the criterion of using special techniques, it seems as though we should have to include, for instance, the magic practiced in a primitive tribe if it uses techniques that are not generally accessible and are being developed and handed on within a circle of professional magicians. And of course we ought to include it on principle. This is so because magic, and practices that in the relevant aspect do not differ fundamentally from magic, sometimes shade off into what modern man recognizes as scientific procedure by imperceptible steps: astrology was astronomy’s mate until the beginning of the seventeenth century. There is however another and still more compelling reason. The exclusion of any kind of tooled knowledge would amount to declaring our own standards to be absolutely valid 1 We shall reserve the term Exact Science for the second of the meanings of the word Science enumerated above, i.e. for sciences that use methods more or less similar in logical structure to those of mathematical physics. The term Pure Science will be used in contrast to Applied Science (the French used the same term, for instance, mécanique or économie pure, but also the term mécanique or économie rationnelle; the Italian equivalent is meccanica or economia pura, the German reine Mechanik or Ökonomie). History of economic analysis 6 for all times and places. But this we cannot do. 2 In practice we have indeed no choice but to interpret and to appraise every piece of tooled knowledge, past as well as present, in the light of our standards, since we have no others. They are the results of a development of more than six centuries, 3 during which the realm of scientifically admissible procedures or techniques has been more and more restricted in the sense that more and more procedures or techniques have been ruled out as inadmissible. We mean this critically restricted realm only when we speak of ‘modern’ or ‘empirical’ or ‘positive’ 4 science. Its rules of procedure differ in different departments of science and, as we have already seen above, are never beyond doubt. Broadly, however, they may be described by two salient characteristics: they reduce the facts we are invited to accept on scientific grounds to the narrower category of ‘facts verifiable by observation or experiment’; and they reduce the range of admissible methods to ‘logical inference from verifiable facts.’ Henceforth we shall put ourselves on this standpoint of empirical science, at least so far as its principles are recognized in economics. But in doing so we must bear this in mind: although we are going to interpret doctrines from this standpoint we do not claim any ‘absolute’ validity for it; and although, reasoning from this standpoint, we may describe any given propositions or methods as invalid—always of course with reference to the historical conditions in which they were formulated—we do not therefore exclude 2 The best way of convincing ourselves of this is to observe that our rules of procedure are, and presumably always will be, subject to controversy and in a state of flux. Consider, e.g., the following case. Nobody has proved that every even number can be expressed as the sum of two prime numbers, although no even number that cannot has been discovered so far. Suppose now that this proposition someday leads to a contradiction with another proposition which we agree to accept. Would it follow from this that there exists an even number that is not the sum of two primes? ‘Classic’ mathematicians would answer Yes, ‘intuitionist’ mathematicians (such as Kronecker and Brouwer) would answer No; that is, the former admit and the latter refuse to admit the validity of what are called indirect proofs of existence theorems, which are widely used in many fields and also in pure economics. Evidently, the mere possibility of such a difference of opinion on what constitutes valid proof suffices to show, among other things, that our own rules cannot be accepted as the last word on scientific procedure. 3 This estimate refers to Western Civilization alone and in addition takes account of Greek developments only so far as they entered scientific thought in western Europe from the thirteenth century on, as an inheritance, but not of those developments themselves. As a landmark, we choose the Summa Theologica of St. Thomas Aquinas, which excludes revelation from the philosophicae disciplinae, that is, from all sciences except supernatural theology (sacra doctrina; natural theology is one of the philosophicae disciplinae). This was the earliest and most important step in methodological criticism taken in Europe after the breakdown of the Graeco-Roman world. It will be shown below how exclusion of revelation from all sciences except the sacra doctrina was coupled by St. Thomas with the exclusion from them of appeal to authority as an admissible scientific method. 4 The word ‘positive’ as used in this connection has nothing whatever to do with philosophical positivism. This is the first of many warnings that will have to be issued in this book against the dangers of confusion that arise from the use, for entirely different things, of the same word by writers who themselves sometimes confuse the things. The point is important and so I shall mention instances at once: rationalism, rationalization, relativism, liberalism, empiricism. Introduction and plan 7 them from the realm of scientific thought in our original (broadest) sense of the word or, to put it somewhat differently, deny to them scientific character 5 —which must be appraised, if at all, according to the ‘professional’ standards of every time and place. Second, our original definition (‘tooled knowledge’) indicates the reason why it is in general impossible to date—even by decades—the origins, let alone the ‘foundation,’ of a science as distinguished from the origins of a particular method or the foundation of a ‘school.’ Just as sciences grow by slow accretion when they have come into existence, so they emerge by slow accretion, gradually differentiating themselves, under the influence of favorable and inhibiting environmental and personal conditions, from their common- sense background and sometimes also from other sciences. Research into the past, clarifying those conditions, can and does reduce the time range within which it is in each case about equally justifiable to aver or to deny the existence of a body of scientific knowledge. But no amount of research can eliminate altogether a zone of doubt that has always been broadened by the historian’s personal equation. As regards economics, bias or ignorance alone can explain such statements as that A.Smith or F.Quesnay or Sir William Petty or anyone else ‘founded’ that science, or that the historian should begin his report with one of them. But it must be admitted that economics constitutes a particularly difficult case, because common-sense knowledge goes in this field much farther relatively to such scientific knowledge as we have been able to achieve, than does common-sense knowledge in almost any other field. The layman’s knowledge that rich harvests are associated with low prices of foodstuffs or that division of labor increases the efficiency of the productive process are obviously prescientific and it is absurd to point to such statements in old writings as if they embodied discoveries. The primitive apparatus of the theory of demand and supply is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary. I use this opportunity to advert to a cognate problem. To define science as tooled knowledge and to associate it with particular groups of men is almost the same thing as emphasizing the obvious importance of specialization of which the individual sciences are the (relatively late) result. 6 But this process of specialization has never gone on according to any rational plan—whether explicitly 5 All this is very inadequate and of course completely fails to do justice to the deep problems that we have been touching superficially. Since, however, it is all that can be done in the available space, I wish to add only that the interpretation above will be seen to be as far as possible removed from (a) a claim to professorial omniscience; (b) a wish to ‘grade’ the cultural contents of the thought of the past according to present standards; and especially (c) to appraise anything but techniques of analysis. Some related points will become clearer as we go alone. 6 Let me add at once that within such groups of fellow workers a specialized language is sure to develop that becomes increasingly un-understandable to the lay public. This effort-saving device could even be used as a criterion by which to recognize the presence of a science if it were not the fact that very often it is adopted, only long after a science in our sense has grown to respectable size, under pressure of the intolerable inconvenience incident to using concepts of everyday life that serve but ill the purposes of analysis. Economists in particular, much to the detriment of their field, have attached unreasonable importance to being understood by the general public, and this History of economic analysis 8 public even now displays equally unreasonable resentment toward any attempt to adopt a more rational practice. preconceived or only objectively present—so that science as a whole has never attained a logically consistent architecture; it is a tropical forest, not a building erected according to blueprint. Individuals and groups have followed leaders or exploited methods or have been lured on by their problems, as it were, cross country, as has been already explained in Section 2. One of the consequences of this is that the frontiers of the individual sciences or of most of them are incessantly shifting and that there is no point in trying to define them either by subject or by method. This applies particularly to economics, which is not a science in the sense in which acoustics is one, but is rather an agglomeration of ill-co-ordinated and overlapping fields of research in the same sense as is ‘medicine.’ Accordingly, we shall indeed discuss other people’s definitions—primarily for the purpose of wondering at their inadequacies—but we shall not adopt one for ourselves. Our closest approach to doing so will consist in the enumeration presented below of the main ‘fields’ now recognized in teaching practice. But even this epideiktic definition 7 must be understood to carry no claim to completeness. In addition we must always leave open the possibility that, in the future, topics may be added to or dropped from any complete list that might be drawn up as of today. Third, our definition implies nothing about the motives that impel men to exert themselves in order to improve upon the existing knowledge in any field. In another connection we shall presently return to this subject. For the moment we only note that the scientific character of a given piece of analysis is independent of the motive for the sake of which it is undertaken. For instance, bacteriological research is scientific research and it does not make any difference to its procedures whether the investigator embarks upon it in order to serve a medical purpose or any other. Similarly, if an economist investigates the practices of speculation by methods that meet the scientific standards of his time and environment, the results will form part of the scientific fund of economic knowledge, irrespective of whether he wishes to use them for recommending regulatory legislation or to defend speculation against such legislation or merely to satisfy his intellectual curiosity. Unless he allows his purpose to distort his facts or his reasoning, there is no point in our refusing to accept his results or to deny their scientific character on the ground that we disapprove of his purpose. This implies that any arguments of a scientific character produced by ‘special pleaders’—whether they are paid or not for producing them—are for us just as good or bad as those of ‘detached philosophers,’ if the latter species does indeed exist. Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false. We take no stock in the cheap device of political warfare—unfortunately too common also among economists—of arguing about a proposition by attacking or extolling the motives of the man who sponsors it or the interest for or against which the proposition seems to tell. 7 An epideiktic definition is the definition of a concept, say the concept ‘elephant,’ by pointing to a specimen of the class denoted by the concept. Introduction and plan 9 CHAPTER 2 Interlude I: [The Techniques of Economic Analysis] THE LAST PARAGRAPH of the preceding chapter points toward momentous problems, which will, under the heading of Sociology of Science, be touched upon in Chapter 4. Now we break off our argument and turn aside in order to hunt two hares whose paths diverge sometimes in a disconcerting manner: on the one hand, it is necessary to define the relations of economics to some of the fields of tooled knowledge that have or have had influence upon it or have border zones in common with it 1 (ch. 3); on the other hand, it is convenient to use this opportunity to explain right now some of the concepts and principles that will govern our exposition of the history of economic analysis. This will be done in the current chapter. Let us begin in a thoroughly common-sense manner. What distinguishes the ‘scientific’ economist from all the other people who think, talk, and write about economic topics is a command of techniques 2 that we class under three heads: history, statistics, and ‘theory.’ The three together make up what we shall call Economic Analysis. [Later in this chapter, J.A.S. added to these three a fourth fundamental field, Economic Sociology.] [1. ECONOMIC HISTORY] Of these fundamental fields, economic history—which issues into and includes present- day facts—is by far the most important. I wish to state right now that if, starting my work in economics afresh, I were told that I could study only one of the three but could have my choice, it would be economic history that I should choose. And this on three grounds. First, the subject matter of economics is essentially a unique process in historic time. Nobody can hope to understand the economic phenomena of any, including the present, 1 This clumsy phrasing has been chosen in order to avoid the unrealistic suggestion of sharp and permanent border lines. 2 The word ‘technique’ should be understood in a very wide sense: mere command of the facts of some field, systematically acquired and such as to be beyond the range of knowledge than can be gained by practicing in that field, is sufficient to constitute scientific level, even though cultivation of the field does not require any elaborate methods that the layman could not understand. epoch who has not an adequate command of historical facts and an adequate amount of historical sense or of what may be described as historical experience. 3 Second, the historical report cannot be purely economic but must inevitably reflect also ‘institutional’ facts that are not purely economic: therefore it affords the best method for understanding how economic and non-economic facts are related to one another and how the various social sciences should be related to one another. 4 Third, it is, I believe, the fact that most of the fundamental errors currently committed in economic analysis are due to lack of historical experience more often than to any other shortcoming of the economist’s equipment. History must of course be understood to include fields that have acquired different names as a consequence of specialization, such as prehistoric reports and ethnology (anthropology). 5 Two ominous consequences of the argument above should be noticed at once. First, since history is an important source—though not the only one—of the economist’s material and since, moreover, the economist himself is a product of his own and all preceding time, economic analysis and its results are certainly affected by historical relativity 6 and the only question is how much. No worth-while answer to this question can be got by philosophizing about it, but it will be one of our major concerns to work one out by detailed investigation. This is why sketches of ‘the spirit of the times’ and, in particular, of the politics of each period will preface our exposition of the economic analysis in the subsequent Parts. Second, we have to face the fact that, economic history being part of economics, the historian’s techniques are passengers in the big bus that we call economic analysis. Derivative knowledge is always unsatisfactory. Hence, even economists who are not economic historians themselves and who merely read the historical reports written by others must understand how these reports came into being or else they will not be able to appraise the real meaning. We shall not be able to live up to the program that follows from this. In principle however let us remember: Latin palaeography, for instance, is one of the techniques of economic analysis. 3 This does not render ‘theory,’ in the sense to be explained below, either impossible or useless— economic history itself needs its help. 4 Owing to the unreliability of ‘theories’ on this subject, I personally believe the study of history to be not only the best but the only method for this purpose. 5 In this book, unless warning to the contrary is given, anthropology means physical anthropology only. Above it has the usual meaning which makes it synonymous with the study of primitive tribes, their behavior patterns, language, and social institutions. We call this ethnology. 6 This is one of several meanings of that much misused word, relativity. Here we mean by it no more than (a) that we cannot use more material than we have and that in consequence some or all of our results may not stand up in the light of further experience (a fact that must of course be duly allowed for in the interpretation of the economists of the past); and (b) that economists’ interests in the problems of their epoch and also their attitudes to these problems condition their general views on economic phenomena. See ch. 4. This has nothing to do with philosophic relativism. Interlude I 11 . period will preface our exposition of the economic analysis in the subsequent Parts. Second, we have to face the fact that, economic history being part of economics, the historian’s techniques. or, which comes to the same thing, the history of the analytic or scientific aspects of economic thought. Part II of this book will describe the history of those efforts from the earliest discernible. [Introduction and Plan] 1. PLAN OF THE BOOK BY HISTORY of Economic Analysis I mean the history of the intellectual efforts that men have made in order to understand economic phenomena or, which