The development of economic thought an overview

The Development of Economic Thought The Development of Economic Thought An Overview Joseph R Cammarosano LEXINGTON BOOKS Lanham • Boulder • New York • London Published by Lexington Books An imprint of The Rowman & Littlefield Publishing Group, Inc 4501 Forbes Boulevard, Suite 200, Lanham, Maryland 20706 www.rowman.com Unit A, Whitacre Mews, 26-34 Stannary Street, London SE11 4AB Copyright © 2018 by The Rowman & Littlefield Publishing Group, Inc All rights reserved No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review British Library Cataloguing in Publication Information Available Library of Congress Cataloging-in-Publication Data Available ISBN 978-1-4985-7160-9 (cloth : alk paper) ISBN 978-1-4985-7161-6 (electronic) The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences— Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992 Printed in the United States of America To the Grandchildren Contents Introduction 10 11 The Early Contributors to the Development of Economic Thought The Mercantilists and the Physiocrats Adam Smith (1723–1790) and the Wealth of Nations The Classicists The Early Critics of Classical Economics The Later Classicists The Socialists and Karl Marx The Marginalist School The Outliers The American Economists Marshall and Keynes Conclusion Bibliography Index About the Author Introduction For one reviewing this volume an obvious question is, “Why the need for this book?” Are there not enough volumes available which recount the development of economic thought? The answer, of course, is yes there are many fine books available If that is the case, why, then this effort? One reason is that it is intended for students and others who are interested in an introduction or overview of the development of economic thought and the writers who contributed to it It is also deigned to be a refresher for those who may have had a course in the development of economic thought during their undergraduate or graduate studies In today’s pursuit of an undergraduate or even graduate degree with a concentration in economics, it is unlikely that the student will get much exposure to the study of those writers who were responsible for the very concepts and theories they are now studying It also bears noting that in the post–World War II era, economics has become much more mathematical, concentrating on quantitative economics, statistics, and econometrics to the exclusion of the social and philosophical aspects of the discipline There is no questioning the intentions of this approach to move economics from the social to the hard sciences But whether this effort succeeds or not, there is still much to be gained from a review of the older and more humanistic treatment of the discipline Moreover, even if one wishes to pivot and move from the traditional to another direction, it is important for one to know where one has been to determine where one is going The purpose of this book, therefore, is to provide the interested reader and students who are taking courses in the social sciences and philosophy an understanding of the principal theoretical developments in the history of economics Unlike many of the encyclopedic compendia available for the study of economics, this book avoids a great deal of nonessential detail and focuses on the highlights of the principal contributors to the discipline Its purpose is not to overwhelm the reader, but to introduce him or her to the members of the major schools of thought, beginning with the early ancient writers and ending with the work of John Maynard Keynes Substantively, this work aims to serve as a bridgehead, the starting point from which the reader can proceed to the original works of the writers on economic subjects and the more exhaustive commentaries on them Economics as a formal subject of learning is of comparatively recent origin, but man has always had to deal with economic matters Economic issues have impacted all aspects of life and so it is not surprising that many of the writings in philosophy, religion, politics, and history had an economic dimension associated with them It was, therefore, from these writings and even the scriptures that many of our economic concepts evolved For example, the Old Testament makes reference to private property, labor, and money, while the New Testament, in addition to money, makes reference to the payment of taxes The schoolmen of the medieval period, although primarily concerned with the moral aspects of taking interest, implicitly justified some aspects of it on the basis of opportunity cost Significantly, many of the issues they raised continue to confront us to the present day They have not disappeared with the passage of time From the very outset writers on economic issues may have been concerned with money, property, trade, and other mundane matters, but their primary interest was the improvement of the human condition While the classicists, utopians, neoclassicists, Austrians, welfare, institutional, and the members of other schools of thought may have differed in their approaches, their objective was the same As Professor Heilbroner noted in his iconic book, The Worldly Philosophers , “the ultimate objective of their economic thinking was social understanding.”1 This theme runs throughout the writings of those who contributed to the development of economic thought, beginning with the Greeks and Romans and proceeding to the middle ages, the period of mercantilism, the era of the French Physiocrats, Adam Smith, Ricardo, the classical economists and their dissenters, John Stuart Mill and the later classicists, Karl Marx, the Austrians, the institutionalists, and John Maynard Keynes—all works to be reviewed in the pages that follow Regrettably, that era which ran for more than two thousand years has come to a close That period is gone The work of present-day economists is not in the tradition of the past Although economics has always had a good number of mathematically trained economists, starting with Cournot followed by Cassel, Walras, Jevons, Wicksell, Edgeworth, Marshall, Fisher, Keynes, and others, for them mathematics was a tool to help them develop their thoughts which they then presented in terms understandable to the reader A good example is presented in Marshall’s Principles of Economics in which the text is devoid of mathematics, but can be found in the appendix of his book Notwithstanding the fairly wide use of mathematics over the course of its history economics continued to be the handmaiden of logic and philosophy for the longest time.2 Quite intelligent people can still read Adam Smith and Karl Marx, but doubtless will experience much more difficulty in comprehending many of the articles in today’s learned journals Since the end of World War II, the pendulum has swung to the greater use of quantitative methods The discipline has tried to become more of a pure science with a heavy emphasis on statistics, mathematical economics, econometrics, game theory, and other quantitative measures As noted by Professor Heilbroner, “[i]n the main economics has become a technical, often arcane calling, and ambitious projections of imagination into the future are no longer listed among its aims.”3 Professor Lionel Robbins, the noted British economist, stated that the economics of the future “will not be a body of knowledge accessible to everyone.” “An understanding of this new economics,” he added, “[will require] a greater equipment than a combination of intelligence and curiosity.” But one may well ask, “How would that concentration of knowledge in the hands of the few affect the functioning of the economy, public policy and the other diverse interests of humankind?” At present, less mathematically gifted graduate students spend more time in mastering mathematics than “becoming wise and imaginative observers of history, politics and social problems.” The danger lies in divorcing economic analysis from the human aspects of life and removing the discipline from the social sciences.5 Regrettably, rigor has become more important than relevance and form counts for more than matter Notwithstanding the efforts of economists to elevate economics to the status of a pure science, mathematicians and natural scientists contend that the discipline is scientifically immature.6 In truth the problem is not that economics has not had sufficient time to mature, but that it is difficult, if not impossible, to quantify human behavior Therefore, at some point, economists may have to reassess their role and strike a better balance between what they are doing and their traditional role of dealing with the issues that really matter to mankind Hopefully that aggiornamento will not be too far off into the future NOTES Heilbroner, R L., The Worldly Philosophers, 6th ed., New York: Simon & Schuster, 1986, 325 Newman, P C., The Development of Economic Thought, New York: ​P rentice Hall, 1952, Heilbroner, op cit., 323 Gray, A., The Development of Economic Doctrine (1931), London and New York: Longmans, Green, 1970, 353 Bell, J F., A History of Economic Thought, New York: Ronald Press, 1953, 659 Niehans, J., A History of Economic Theory: Classic Contributions, 1720–1980, Baltimore, MD: Johns Hopkins University Press, 1990, 533 Chapter The Early Contributors to the Development of Economic Thought THE GREEKS Attention to purely economic matters appears late in the development of ideas The earliest systematic development of such notions as value, price, capital, labor, the law of supply and demand, and the distributive shares appears toward the end of the seventeenth century and the beginning of the eighteenth Why though did it take so long for economics to develop as a formal subject of inquiry and learning? Don’t all societies have to produce, exchange, distribute the yield of production and then consume the fruits of their production? In view of their advanced state of development, one could reasonably expect the Greeks to have offered some thought on these basic relationships Similarly, the fact that the state played such an important role in Greek life should have produced some explanation of how it was able to sustain itself through the imposition of taxes and the administration of its revenues In fairness, the Greeks did consider such economic issues as the ownership of land, profits, and the taking of interest The problem, though, is that these subjects were not treated in an exhaustive manner and were quickly dismissed For example, Aristotle effectively dismissed the notion of profits, arguing that money, unlike production, is barren and money does not beget money The exchange of one good for another, because of necessity was natural, but the exchange of goods for money for the sake of gain was unnatural He also rejected the payment of interest on the grounds of morality The trouble with Aristotle’s position, of course, is that he was viewing money from a purely consumer and not from an entrepreneurial perspective where gains may be mutually beneficial; where money begets money and the payment of interest to the lender can be justified in terms of fairness But what, if anything, did the Greeks have to say about the return to labor? Actually the make-up of the ancient Greek economy did not require an extensive consideration of labor For wages, as we consider them today, were nonexistent During these early times, the relationship between proprietor and worker was that of master and servant In effect, the economy was predicated on slave labor The slave remained a thing, not a person, and could not assert a legal claim to whatever he earned; hence, there is no reason to have expected the Greeks to develop a theory of labor The same argument can be advanced to explain why the Greeks did not develop a theory of rent Land was not owned by individuals, but rather it was owned in common, in accordance with Plato’s preference To understand this lack of attention to ... of government finance anymore than with labor, profits, the payment of interest, and other economic issues, because of the makeup of Greek society THE ROMANS Notwithstanding the eminently practical,... realistic, and utilitarian character of the Romans, they failed to use those talents for the development of economic thought There was a conspicuous lack of speculative originality among the Romans and... mercantilism was anything but a system; it was primarily the product of the minds of statesmen, civil servants, and of the financial and business leaders of the day There is no unified body of