History of Economic Analysis part 40 pot

performance. The sole reason that I can see why this name should still be familiar to every student preparing for a course examination in the history of economic thought is a certain reputation he made in his own time by his Universal Dictionary of Trade and Commerce (1751–55), which was largely a compilation from unacknowledged sources. His other writings, mainly on the South African trade, are narrow and pedestrian, though not devoid of a certain crude common sense. His Great Britain’s true System…(1757), which proves that he was intelligent enough to see the importance of Cantillon’s book, contains a passage that interprets interest as a payment to hoarders by those who stand in need of it, i.e. as a payment necessary in order to overcome people’s reluctance to part with cash. This reads like a clumsy version of Lord Keynes’s own-rate theory of interest. To put him in a representative position as has recently been done by Fay…[note unfinished]. of the brightest stars of economic analysis, François Quesnay included, did not produce any results that we should have to notice. 16 Still there was some advance, though advance that led to new error as well as to new truth. [(d) Benefits from Territorial Division of Labor.] The one major accomplishment that I can see consisted in a technically superior formulation of the benefits from territorial division of labor that went some way toward anticipating the most important element in the nineteenth-century theory of international values. It stands to the credit of two English authors to whom we shall confine ourselves, though others could also be cited. An anonymous writer, in 1701, published a tract entitled Considerations on the East-India 16 That discussion has, however, some indirect importance for us owing to the general stimulus it gave to the interest in economic analysis, even though it did not add much to it directly. This is why it will have to be mentioned again. At the moment let us note that all the authors to be mentioned were, in this matter, anticipated by Graswinckel, 1651 (if not in the Discourse of the Common Weal, 1549) and more immediately by Boisguillebert. After Boisguillebert there was a lull. It seems that the discussion was started afresh by Claude Dupin (Oeconomiques, 1745, of which the part entitled Mémoire sur les bleds was republ. separately in 1748), who presented once more the argument for internal free trade in grains. C.J.Herbert followed with his Essai sur la police générale des grains (1753). The fact that he still retained an export duty (of the English sliding- scale type) is immaterial here; it is more relevant that the argument about the adequacy of the normal supply that will be automatically forthcoming is fully developed by him, though without anything amounting to theoretical proof. Quesnay followed in an essay that will be mentioned later, and so did others, especially after the declaration of 1763 and the edict of 1764 which established free exportation. Galiani’s spirited criticism of the dogmatic beliefs that were being developed (Dialogues sur le commerce des blés, 1770) is particularly worthy of notice. These Dialogues grew out of the corresponding discussion among Italian economists, which began later and lasted longer and is really more interesting than the French one—though participants in the latter may claim priority as to such fundamental ideas as were involved—because the particular patterns of the situation in the Italian states, especially in the Neapolitan Kingdom, suggested both factual studies of considerable interest and arguments on particular points that were absent in the literature of the more fortunate nations. Since, however, it is impossible to go into these results, none of which, so far as I know, were of major importance to the development of the economic apparatus, it must suffice to mention some of the more significant of those performances which, as pointed out in the text, soon began to indicate the influence of the Wealth of Nations. For instance, Domenico Cantalupo published in 1783 a tract on free trade in grains (republ. in Custodi’s Scrittori History of economic analysis 352 classici Italiani), in which he analyzed grain policy since 1400 and wielded the modest analytic apparatus at his command effectively and judiciously. Another Neapolitan noble, Domenico Caraccioli, followed him in 1785, interpreting his observations during a famine in Sicily (republ. in the same collection). Biffi Tolomei, in his Confronto della ricchezza dei paesi che godono libertá nel commercio frumentario (1795), attempted a factual proof of the importance of free trade in grains for the wealth of a country that is methodologically not without interest. There is appended to this book a memorandum entitled Riflessioni sopra le sussistenze by Saverio Scrofani, an out- and-out free trader of the physiocrat type whose other works need not concern us here. All these authors were, so far as the principle of free exportation of grains is concerned, anticipated by Verri, Memorie storiche sull’ economia pubblica dello stato di Milano (written, 1768; publ. posthumously 1797) and Riflessioni sulle leggi vincolanti, principalmente nel commercio de’ grani (written 1769, printed 1796). As an example of the success—for it was success and not eclectic weakness—with which conflicting, yet ineluctable, considerations were combined to fit Italian situations, I will mention Ferdinando Paoletti who, though also one of the group of Italian physiocrats, inserted into his scheme of things agrarian protection (Pensieri sopra l’agricoltura, 1769; I only know the part included in the Custodi collection) and export bounties on goods not of prime necessity (Veri mezzi di render felici le società, 1772)—a sort of rudimentary Agricultural Adjustment Program that is not without interest to the theorist. It would be quite wrong to think that general principles of thought or action separate us from an author like Paoletti. What does separate us from him is exclusively our statistical and theoretical technique. Trade, 17 in which he treated international trade as a method of acquiring goods with an amount of labor smaller than would be necessary to produce them at home. He does not seem to have been aware of the relation of this to the principle of comparative cost, but even so we have here a predecessor of Ricardo, though possibly a quite uninfluential one. Now producing instead of a commodity A for domestic consumption, another commodity B, the export of which will fetch in commodity A at more advantageous terms, is obviously a matter of allocation of productive resources. From this angle the problem was considered by Gervaise, who inferred like Marshall 18 that tariffs, spelling as they do interference with the most advantageous allocation, must net a disadvantage to the nation as a whole, however great the immediately visible advantage to the protected industries might be. It has been mentioned that Gervaise’s tract has but 34 pages and if, on the strength of this, we give him credit for what he might have had to say in ten times as many, then this proposition must indeed be looked upon as a considerable contribution to the apparatus of economic theory. It may, in fact, be said to give, in the guise of an application, one of the earliest glimpses of the theory of general equilibrium. But there was hardly anything else. Hume, in spite of the many wise things he had to say in his essays on commerce, on the jealousy of trade, and on the balance of trade, 19 hardly carried this part of our subject any further. Neither did Adam Smith, who seems to have believed that under free trade all goods would be produced where their absolute costs in terms of labor are lowest, though he no doubt co-ordinated, rounded off, emphasized, and illustrated. In fact there is nothing of importance to report for the rest of the century in spite of the mounting flood of popular literature, most of which was of free-trade or freer-trade complexion and strongly influenced the Wealth of 17 [In J.R.McCulloch, ed., A Select Collection of Early English Tracts on Commerce, 1856.] 18 Official Papers, published for the Royal Economic Society (1926), p. 391. 19 Compare, however, the chapter on Hume in E.A.J.Johnson, Predecessors of Adam Smith (1937). The ‘mercantilist’ literature 353 Nations. 20 And even that advance in the analysis of territorial specialization was not an unmixed gain. Both the anonymous author and Gervaise were much too ready to arrive at conclusions agreeable to their free-trade 20 The opinions on foreign trade of some important writers, such as the physiocrats or certain authors of comprehensive systems, may be of interest without involving ‘contributions.’ So far as necessary these will be mentioned or have been mentioned in connection with the works in which they occur. It is, however, convenient to supplement the exposition in the text in two ways. First, it is worth while to point out that in the twenty-five years or so preceding the publication of the Wealth of Nations, the majority of competent economists had reached what amounted to substantial agree-ment, the physiocrats and the writers directly influenced by them being the most important group in the minority. Representative of this communis opinio at its best were Josiah Tucker and Sir James Steuart in England, Justi and Sonnenfels in Germany, Beccaria, Genovesi, Verri, and Palmieri in Italy, and Forbonnais in France. Briefly, since they agreed in accepting public regulation as a normal, in fact inevitable, feature of the economic process, protectionism followed simply as a special case. But the mercantilist emphasis upon the balance of trade was reduced to small proportions, partly in consequence of valuable critical work (e.g. Verri in his Meditazioni, 1771, and Carli in his Breve ragionamento sopra i bilanci economici delle nazioni, 1770, which made short work of the idea that national wealth can be measured by exports). Moreover, protectionism in their hands became a much more delicate instrument than it had been, one of the consequences of which was the emphasis upon moderate rates, which modern eyes can hardly distinguish from no duties at all: Forbonnais suggested 15 per cent ad valorem and Justi 10 per cent. There was a tendency, however, widespread and inspired by very old practice, to believe in differentiating duties upon imports in inverse proportion to their distance from finished consumers’ goods (Tucker, Verri)—a principle that proved a hardy growth and is often met with in the nineteenth century. Finally, though (as the uncritical acceptance of this rule by many writers is in itself sufficient to show) they frequently committed the kind of error that results from inadequate technique and places too much reliance on prima facie common sense, they rarely went wrong in matters of fundamental analytic principle. Again, we shall readily understand why those critics who accepted the free-trade creed should have been unable to see anything in this except inconsistency or, at best, an uninteresting eclecticism characteristic of a transitional stage between old error and new truth. But from any other standpoint, there was no inconsistency (in the sense of logical incompatibility) in that quasi- common opinion, which not only reflected progress of analysis but also, as will be more generally re-emphasized in the text, might have been a better starting point for further research than was the narrow dogmatism of the free-trade doctrine that replaced it. Second, by way of illustrating the preceding sentence, let us consider a single instance from a very large class of propositions. In his Ways and Means…(1757), Massie argues (as others had before him) that Port should be less heavily taxed than French wines, on grounds that suggest the following proposition. If a country, A, trades with countries B and C, and B’s purchases of A’s products are more elastic with respect to the revenue that B draws from its sales to A than are C’s purchases of A’s products with respect to C’s revenue from C’s sales to A, then it will benefit country A to treat B’s products better than C’s. Never mind how far this is true. True or false, this proposition is at least interesting, and its discussion is much more likely to enrich our understanding of international trade and our analytic apparatus in general than are any number of free-trade platitudes, however meritorious an attitude the latter may reveal and however conducive to wise, humane, peaceful, and so on policy they may be. Several additional instances could be adduced from Massie alone, who excelled in this eminently useful kind of analysis, also in fields other than that of international trade (see e.g. his Observations on the New Cyder-Tax, so far as the same may affect our Woollen Manufacturies, Newfoundland Fisheries…1764). History of economic analysis 354 opinions 21 and in so doing associated their achievement with errors of reasoning that were to become typical in the free-trade literature of the nineteenth century. Gervaise did not realize that his theorem about the allocation of resources cannot tell against any of those protectionist arguments, such as the infant-industry or the underemployment argument, which visualize conditions to which that theorem does not apply. By neglecting this Gervaise moved away from many valuable truths that had been unearthed by the mercantilist writers and, like North, adopted an attitude that, though permissible in pure theory, was bound to produce error when uncritically adhered to. The case of the anonymous author is still worse. He leans heavily on the argument that, because international trade consists of voluntary transactions, which therefore must necessarily be to the advantage of both contracting parties, nothing but advantage to the nation as a whole can result from it. North had also reasoned like this. And Adam Smith, after pointing more suo to an obvious fact, namely, that every individual will turn to that occupation for which he feels himself best adapted, goes on to declare that ‘what is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.’ From the standpoint of analytic technique, this was quite as bad as anything that can be charged to the debit of the ‘mercantilist’ account. However, the error involved will have to be discussed fully later on. We have seen that, as far at least as economic analysis is concerned, there need not have been any spectacular break between ‘mercantilists’ and ‘liberals.’ Without any prejudice to their political ideals or interests, economists of the latter persuasion might have succeeded the economists of the former persuasion at the analytic task, much as one team of workmen succeeds another in order to carry on the job. To some extent this is what happened. But to the extent to which it did not happen, there was not only scrapping of outmoded error but also needless waste—comparable to the waste that would result if successive teams of workmen smashed the products of their predecessors, whenever they disliked the latter’s politics. If Smith and his followers had refined and developed the ‘mercantilist’ propositions instead of throwing them away, a much truer and much richer theory of international economic relations could have been developed by 1848—one that could not have been compromised by one set of people and treated with contempt by another. 21 On Professor Viner’s authority (op. cit. p. 92), it may be stated that besides those two and North, there were, before 1776, only two other English free traders (William Paterson, the founder of the Bank of England, Writings edited with biography by Saxe Bannister, 2nd ed. 1859; and George Whatley, Reflections on Coin in General, 1762, reprinted in revised form as an appendix to the 2nd ed. of his Principles of Trade, 1774, the only one I know) and one author who came near to being a free trader (J.Jocelyn, An Essay on Money and Bullion, publ. 1718 but dated 1717). In a history of free-trade doctrine they are all of them entitled to prominent places. But Paterson’s advocacy of free trade moved on a popular level and Whatley and Jocelyn, though not without merit, did not, so far as I can see, add anything to what had been said before them. The ‘mercantilist’ literature 355 PART III FROM 1790 TO 1870 CHAPTER 1 Introduction and Plan 1. COVERAGE THIS PART is to cover the history of economic analysis from the 1790’s to the end of the 1860’s or the beginning of the 1870’s. For a decade or two after the publication of the Wealth of Nations there is little to report as far as analytic work is concerned, and most of what there is has been fitted into Part II. I can see no point in insisting on a particular year, but if we did so insist, we might start a new period of analytic activity with Malthus’ first Essay on Population (1798). Publication of the first volume of Marx’s Das Kapital (1867), of Jevons’ Theory (1871), of Menger’s Grundsätze (1871), and the foundation of the Verein für Sozialpolitik (1872) are some of the events that clearly mark the advent of another period. Periodizing, as we know, is a necessary evil. There is first an objection of principle to it that applies independently of the particular way in which a writer periodizes: historical developments are always continuous and they can never be cut into pieces without arbitrariness and loss. By refusing to date by years, we do not solve the problem but only mitigate the consequences of our inability to solve it. Second, our particular way of periodizing, dictated as it is by our concentrating on the history of economic analysis, will inevitably fail to satisfy those who are interested in something else. And, third, even from the standpoint of fellow students of the history of analysis, there are well-founded objections to a method that puts A.Smith near the end of the preceding period instead of at the beginning of the one that might be said to have been dominated by his influence. Our recognition of all this will show in many ways, for example, in the fact that we do not deal in this Part with all the authors who belong in it chronologically—the most important instance is Cournot—and that we include some who do not belong in it chronologically—an instance is Cairnes. But I hold, nevertheless, that our periodization brings out essential truth. This will be for the reader to judge. But we may mention at once two facts that go some way toward justifying our procedure. First, many historians before us have felt that this period formed a real unit. The feeling has expressed itself in a distinctive name: it was called the ‘classic’ period of economics—in a sense quite different from that in which the term is used in this book. 1 It retained this label until, at a time when the word 1 Let me recall that whenever the term is used in this different sense in this book, it is put into quotes in order to prevent confusion. There are three meanings to be kept distinct: the old meaning in which ‘classic’ denotes the economic literature of the period under discussion plus A.Smith; Lord Keynes’s meaning; and our own. [J.A.S. intended to treat this subject more fully in the unfinished Part I. See also Part IV, ch. 1.] ‘classic’ had lost its eulogistic connotation and was beginning to stand for ‘obsolete,’ Lord Keynes used the word in order to denote the teaching of A.Marshall and his immediate followers (or simply, pre-Keynesian economics). Second and more important, the time between the 1790’s and the end of the 1860’s does answer our criteria of a period: there was, first, fresh activity that struggled hopefully with the deadwood; then things settled down and there emerged a typical classic situation in our sense, summed up in the typically classic achievement—again, in our sense of the term—of J.S.Mill, who underlined the fact by his attitude of speaking from the vantage ground of established truth and by the naïve confidence he placed in the durability of this established truth. Then followed stagnation—a state that was universally felt to be one of maturity of the science, if not one of decay; a state in which ‘those who knew’ were substantially in agreement; a state in which, ‘the great work having being done,’ most people thought that, barring minor points, only elaboration and application remained to be done. 2. PARAPHERNALIA Something that is very like envy comes in to spoil the smile with which we are apt to greet the numerous passages in the writings of this period that breathe immense complacency. Economists, or most of them, were evidently as pleased with the results of their handiwork as some of them were to be again in the 1930’s. We shall make an effort later on to understand that happy state of mind in which economists saw a solid house where they had erected nothing better than a flimsy shack: 1 we still underrate pre- Smithian achievement; we still overrate the achievement of the ‘classics.’ The conditions under which this work was carried on may be briefly characterized as follows. I hesitate to say that professional economics definitively established itself during this period. It certainly cannot be said that economics as a profession established itself, for the study of economic phenomena was not yet a full-time job and few people were economists and nothing else: many were businessmen, or public servants, or journalists, and even the academic teachers of economics, in many if not in most cases, also taught cognate—or even completely different—subjects. Nevertheless, we have a right to speak of a rapid process of professionalization that went on during that period: from the first, economics had established its claim to a definite field of research; it had become a definite specialty; it used definite methods; its results gained in definiteness; and economists, even though fractional personalities, recognized one another, and were recognized by the public, more definitely than before. New political economy societies were founded; new journals, new dic-tionaries, and new bibliographies appeared—all of which, however, meant only 1 See, especially, the often ridiculed passage on value theory in Mill’s Principles, Book III, ch. 1, 2. Introduction and plan 359 continuation of previous practice. 2 The study of the history of economic thought made a vigorous start 3 and there was, of course, a rising tide of textbooks, a few of which we shall mention as occasion arises. Research was largely financed by the research workers themselves: Tooke’s achievement, for example, was possible only because he was a wealthy man; in some cases, of course, the proceeds from commercial publication of results proved adequate. 2 Of the societies, the Political Economy Club of London (1821) was the most important; of the journals, the French Journal des économistes (1842); of the dictionaries, the French Dictionnaire de l’économie politique (Coquelin et Guillaumin, 1853–4). It is interesting to note that no journal exclusively devoted to scientific economics was founded in England until 1890. In part, however, this was owing to the existence of those excellent serious magazines, such as the Edinburgh Review, the Quarterly Review, the Westminster Review, which accepted even strictly professional stuff—a great compliment to the period’s reading public. Beyond using a very limited number of articles that I found quoted in the ‘professional’ literature, I have not examined the contents of these periodicals—a serious lacuna in my work. I have examined the Dictionnaire but only perfunctorily. 3 Historical references on individual points of doctrine date far back, of course. In the eighteenth century appeared also several bibliographies but no histories that I know of, except a few on the physiocrat school by Dupont and others. From the beginning of the nineteenth century, however, an increasing interest in doctrinal history manifested itself. The sketches of McCulloch (1824–5) and J.B.Say (1829; in the 6th vol. of the Cours complet) are the only publications of this kind that need be mentioned here for the time until 1837 when the first edition of J.A.Blanqui’s Histoire de l’économie politique…(with a bibliographie raisonnée) appeared. A number of others, some of them confined to individual countries, followed to 1870. By 1858 this literature had grown sufficiently to induce Robert von Mohl (1799–1875) to insert in the third volume of his Geschichte und Literatur der Staatswissenschaften (1855–8) a chapter on Writings on the History of Political Economy. I shall mention only: (1) McCulloch’s Literature of Political Economy (1845); (2) Ferrara’s prefaces to Biblioteca dell’ Economista (in 1850–68, Francesco Ferrara edited two series of Italian translations of foreign works which he prefaced by elaborate analyses that form the bulk of his theoretical contribution and really sum up to a history of economics; most of them were separately published in 1889–90); (3) Roscher (a great part of W.Roscher’s work was in the field of doctrinal history. Within the period he wrote his Zur Geschichte der englischen Volkswirthschaftslehre im sechzehnten und siebzehnten Jahrhundert, 1851–52; Über die Ein-und Durchführung des Adam Smith’schen Systems in Deutschland, 1867; and he poured out his enthusiasm about Oresmius [see above, Part II, ch. 2] in Ein grosser Nationalökonom des vierzehnten Jahrhunderts, 1863; we add, immediately, his later Geschichte der Nationalökonomik in Deutschland, 1874, the fruit of enormous labor); (4) Manuel Colmeiro’s Historia de la economia politica en España (1863), which does not strictly belong here but, together with his Biblioteca (1880), still forms the best starting point for a study of Spanish economics. I acknowledge the help derived from Dr. E.Schams’s excellent study, ‘Die Anfänge lehrgeschichtlicher Betrachtungsweise in der Nationalökonomie,’ Zeitschrift für Nationalökonomie (September 1931), and his and Professor O.Morgenstern’s ‘Eine Bibliographie der allgemeinen Lehrgeschichten der Nationalökonomie,’ ibid. (March 1933), which, however, excludes articles and also all work in doctrinal history that was incidental to theoretical investigations of primarily nonhistorical scope. Dr. Schams dates the beginning of a ‘scientific’ epoch of doctrinal historiography from E.K. Dühring’s (see below, ch. 4) Kritische Geschichte der Nationalökonomie und des Socialismus (1871). History of economic analysis 360 Teaching was wholly inadequate, however. Even in those countries where there had been provision for regular lectures before, such as Germany, Italy, Spain, and Scotland, the intention was to provide a complement to other lines of study—law, for instance, or philosophy—rather than an independently organized curriculum of training in economics per se. In the United States a professorship of Moral Philosophy and Political Economy was founded at Columbia in 1818, and a professor of chemistry was commissioned to lecture on economics at South Carolina College in 1824. Teaching of sorts had, however, been done before that at various places by people of the most varied qualifications. In England, very few professorships or lectureships antedate the subsequent period. The one at Oxford was founded in 1825—the first incumbent was Senior—the one at University College, London, in 1828—the first incumbent was McCulloch—the one at Dublin in 1832—the first incumbent was Longfield—and there was a chair of history, commerce, and finance at the East India College in Haileybury to which Malthus was appointed in 1805. 4 But stipends and other conditions of tenure amply prove that founders and administrations did not even wish that people should hold appointments for long, let alone that they should make them their life jobs. In England a National Association for the Promotion of Social Science was founded in 1857 in order to remedy this state of things, but it took decades to achieve perceptible success. This must be taken into account in any appraisal of the period’s performance and still more in any appraisal of an individual’s performance. On another occasion I shall have to emphasize that funds and chairs are not everything, but here I have to emphasize that neither are they nothing. Under those circumstances, men of brilliant ability and wide culture touched upon our field so lightly that all their abilities and acquirements did not prevent them from making insignificant economists—which is why, in our field and for that period, a given appraisal of the performance does not necessarily imply appraisal of the man. 5 Barring a few lonely peaks abroad, England easily comes out first in that period’s performance. In fact, that period was the specifically English period in the history of our science. The unrivaled prestige that English economists then enjoyed was only in part due to the glory that was irrationally reflected upon them from the economic success of their country. Mainly, that prestige was due to the quality of the work done by them, not only by a small number of masters, but also by a large number of able writers, who were not in the front rank but whose combined efforts amounted to a great deal. 4 In France, some provision was made, temporarily, in the 1790’s and then again after the Napoleonic Wars, but only in Paris (see below, ch. 4, sec. 4). 5 If the reader will look up a biography of such a man as Pellegrino Rossi, he will immediately realize the force of this remark. But even in such a case as that of J.S. Mill, it is obvious that much of what strikes us as unsatisfactory in his Principles is easily accounted for by the fact that this work was largely written in an office with Mill’s mind disturbed by the calls of current duties. Introduction and plan 361 . standpoint of fellow students of the history of analysis, there are well-founded objections to a method that puts A.Smith near the end of the preceding period instead of at the beginning of the. mitigate the consequences of our inability to solve it. Second, our particular way of periodizing, dictated as it is by our concentrating on the history of economic analysis, will inevitably. ‘mercantilist’ literature 355 PART III FROM 1790 TO 1870 CHAPTER 1 Introduction and Plan 1. COVERAGE THIS PART is to cover the history of economic analysis from the 1790’s to the end of the 1860’s or