Great Economic Thinkers from the Classicals to the Moderns

Translations from the series Klassiker der Nationalökonomie

Bertram Schefold

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9780367875534
• eBook ISBN: 9781317312963
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This is the opus magnum of one of the world's most renowned experts on the history of economic thought, Bertram Schefold. It contains commentaries from the series Klassiker der Nationalökonomie (Classics of Economics), which have been translated into English for the first time. Schefold's choices of authors for this series, which he has edited since 1991, and his comments on the various re-edited works, are proof of his highly original and thought-provoking interpretation of the history of economic thought.

Together with a companion volume, Great Economic Thinkers from Antiquity to the Historical School: Translations from the series Klassiker der Nationalökonomie, this book is a collection of English translations with introductions by Bertram Schefold. The emphasis of this volume is on the theoretical debates, from the theory of value to imperfect completion; from money to the institutional framework of society; and from the history of economic thought to pioneering works in mathematical economics. This volume is an important contribution to the history of economic thought, not only because it delivers original and fresh insights about well-known figures, such as Marx, Stackelberg, Sraffa, Samuelson, Tooke, Hilferding, Schmoller and Chayanov, but also because it deals with ideas and authors who have been forgotten or neglected in previous literature.

This volume is of great interest to those who study the history of economic thought, economic theory and philosophy, as well as those who enjoyed the author's previous volume, Great Economic Thinkers from Antiquity to the Historical School.

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CHAPTER 1

Classicals

John Locke: a philosopher dedicated to economic thought

I.

German idealism only tangentially touched upon economic questions and therefore did not leave any deep traces in the economic sciences. Marx’s turn from interpreting the world to changing it only constitutes the exception that confirms the rule. English philosophy, by contrast, was far from limiting itself to an interpretation of the world and thus contributed more than many other disciplines to the emergence of political economy. Apart from Locke, we may think of Berkeley, Hume, Bentham, and John Stuart Mill. And Smith and Jevons held chairs in philosophy. The creation of the liberal order required establishing not only the tasks and the limits of state activities regarding the economy, but also a theory of property that, though with its roots in ancient Roman law, was re-established in the course of the development of natural law.

Among the preeminent authors of the economic literature of the seventeenth century, Locke was the only one with a comprehensive classical, and in particular philosophical, education.¹ His father was a lawyer, and with the help of one of his clients the young Locke, at the age of fifteen, entered Westminster School, a prototype of the English public school system. There, he was taught to study the classical authors in Greek and Latin, for six days a week over a period of six years. When, at the age of twenty, he enrolled in Christ Church College in Oxford in 1652 with the help of a grant, this programme of study was continued: the ancient languages, rhetoric, grammar and logic, and philosophy, especially Aristotle, but also history, Hebrew, and theology. After his examination and his election as a tutor of Greek, he gave lectures on Aristotle, Cicero, and other ancient authors. He would later defend the study of Greek as the basis of the Western sciences, despite the fact that a turn towards the applied sciences was a hallmark of his times. Nor did Locke ignore the study of the more recent sciences. He engaged with medicine, made contact with the famous chemist Robert Boyle, and conducted experiments. He also tried his hand at medical treatments. One of his patients was Lord Ashley, the later Earl of Shaftesbury, whose protection Locke enjoyed. It was for Ashley, then Chancellor of the Exchequer, that Locke wrote the text on the consequences of the lowering of interest, which we shall consider here. First written in 1668, it appeared in revised form in 1692.

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During the first half of his life, little seems to have prepared Locke for the role of a great economist, if we leave aside that a strict discipline of thought helped him achieve a degree of stringency in argument that had rarely been reached before, and that his philosophy of natural law helped him in analysing the interests and rights of groups within society that were affected in very different ways by the state’s fixing of a maximum interest rate.

However, Locke had not remained unperturbed by the turmoil of civil war, and he would soon take sides. Born in 1632, during the reign of Charles I, Locke attended Westminster School at the time the monarch was executed in 1649. Locke’s father actually fought in the civil war. Cromwell’s protectorate roughly coincided with Locke’s time in Oxford. As a member of the diplomatic mission to Brandenburg in 1665, of the colonial administration, and of the Board of Trade, Locke would later play a role in the civil service and in politics.²

Locke’s role in English politics as a radical, even as a conspirator, has been examined in minute detail. A book on the topic begins with the following dramatic passage:

The Secretary of State listened with intense interest as the man across from him confessed his involvement in a plot to assassinate the King and spoke of the activities of many others who planned to raise a general insurrection in England. Within hours of this confession, John Locke hastily departed from London, taking with him the unfinished manuscript of the Two Treatises of Government. Ahead lay six years of hiding and life as a political exile in Holland for the author of one of the classic works of Western political literature.

(Ashcraft 1986, p. 3)

The major themes of Locke’s political philosophy are, indeed, immediately related to his experiences in life. The problems associated with an absolutism based on the French model pursued by Charles II and the question of religious tolerance, which was not at all a taken-for-granted ideal for a religious person like Locke, take centre stage. The combinations of political radicalism and the battle against absolutism, of democratisation and Protestantism, of bourgeois and capitalist entrepreneurial spirit, of respect for the faith of others and openness for the new science, were not as obvious from the very beginning as they appear in hindsight after the victory of the revolution of 1688. Locke was caught in the whirlpool of his times, and it was some time before he found firm ground on which to stand.

After his return to England, Locke’s theoretical magnum opus, the Essay Concerning Human Understanding (1690), the Two Treatises of Government (the conception of which dates back to the time before his exile and was drafted under threat to his life), the text to be discussed here, and Some Thoughts Concerning Education (1693), all appeared within the space of a few years. And even after the revolution, he still thought his theses risky enough to confess his authorship of the Treatises only in his will of 1704.

While the Essay earned Locke a reputation as one of Europe’s great philosophers within a surprisingly short span of time, the Second Treatise on Government was seen as a manifesto of one of the radicals, containing arguments which defended the Parliament as the legislative body, ‘the essence and union of the society’ (Ashcraft 1986, p. 546), against the attacks from James II. Its publication after the victorious revolution made it possible to interpret it as a justification of dynastic change:

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. . . to establish the Throne of our Great Restorer, Our present King William; to make good his Title, in the Consent of the People, which being the only one of all lawful Governments, he has more fully and clearly than any Prince in the Christendom: And to justifie to the World, the People of England, whose love of their Just and Natural Rights, with their Resolution to preserve them, saved the Nation when it was on the very brink of Slavery and Ruin.

(Locke 1964, p. 155)

Next to Locke the epistemologist and the political philosopher, Locke the economist appears almost invisible – so much so that major monographs on his work and life hardly consider our text worth mentioning. True, its external form is that of an economic pamphlet, written in a language, as Locke himself tells us, less carefully designed than that of his other works. There are repetitions and unresolved contradictions (or, at least, obscurities) which betray that the author served the purpose dictated by the moment of composition, not knowing that he was actually writing a classic text.

II.

Locke had a comprehensive historical influence. He undermined absolutism by introducing the separation of powers, thus preparing the way for the American declaration of independence. It was said of Jefferson that he plagiarised Locke, of Rousseau that he moved ‘within the space demarcated by the Treatises’ (Specht 1989, p. 185). The combination of Locke’s political philosophy, based on natural law, with the labour theory of value moved the latter beyond the confines of a political arithmetic where Petty had already established a place for it.

Petty, in his applied economic theory, had thought it useful to employ a thought experiment in which one man produces grain for a year, and another produces silver for a year. If these two men are at the same time capable of producing what is required for their subsistence, the product of their labour must have the same value. If the labour required for providing their subsistence takes up the same amount of time, it follows that the amount of grain and silver produced must have the same value because they also required the same amount of labour.³ (The example was chosen – if accidentally so, we don’t know – in a way that made the calculation of interest irrelevant. Generally, such calculation forces you to leave a pure labour theory of value.) Thus, in Petty, recourse to labour value serves the purpose of calculating value and is an aspect of positive economics. By contrast, Locke’s political philosophy modernises the Medieval and Roman legal tradition of using the work exerted on an object as a justification for the ownership of the changes thus effected. An object is the property of the producer to the extent that he independently produced it. If he only modified it, as in the case of a Roman sculptor who made a statue out of bronze, he is entitled to a remuneration corresponding to the difference in price between the statue and the cost of the raw material, i.e. the bronze. It seems to be this normative idea which is given a new meaning by Locke when he takes an imagined state of nature as his point of departure. From there on, classical economics will combine the two perspectives of Petty and Locke.

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Locke derives the right to private property from the right to self-preservation.⁴ In the state of nature, man acquires the fruit he collects, as well as the produce of the soil he cultivates through labour. Where he cultivates the soil, the soil itself becomes his property. However, there is a limit set to property rights, insofar as the labourer must not violate the ‘common Law of Nature’ and let the products of his labour go to waste. In particular, no one has a right to land which he only encloses without cultivating it (Locke 1964, §§ 37–8, pp. 312–14). Locke’s illustrations are not just taken from the Old Testament, but predominantly make reference to America, making his argument another example of the justification of the seizure of land by colonialists on the basis that they make better use of the land than the native inhabitants.

It is labour, and not only directly exerted labour but also indirect labour, which justifies property rights. The labour theory of value, however, is only considered under its qualitative aspect, so to speak. Labour establishes property, but there is no claim to the effect that relative prices should correspond to relative labour time. The latter corresponds to the quantitative aspect of the labour theory of value, which is introduced by Petty.

Locke’s position is expressed in the following passage:

An Acre of Land that bears here Twenty Bushels of Wheat, and another in America, which, with the same Husbandry, would do the like are . . . of the same natural, intrinsick Value. But yet the Benefit Mankind receives from the one, in a Year, is worth 5 l. and from the other possibly not worth a Penny, if all the Profit an Indian received from it were to be valued, and sold here . . . ‘Tis labour then which puts the greatest part of Value upon Land . . . : ‘tis to that we owe the greatest part of all its useful Products . . . For ‘tis not barely the Plough-man’s Pains, the Reaper’s and the Thresher’s Toil, and the Bakers Sweat, (that) is to be counted into the Bread we eat; the labour of those who broke the Oxen, who digged and wrought the Iron and Stones, who felled and framed the Timber imployed about the Plough, Mill, Oven, or any other Utensils, which are a vast Number, requisite to this Corn, from its being seed to be sown to its being made Bread, must all be charged on the account of Labour . . . : Nature and the Earth furnished only the almost worthless Materials, as in themselves.

(Ibid., § 43, p. 316)

Locke hardly touches upon the typical problems of such a qualitative labour theory of value. How is the transfer of property, especially inheritance, to be regulated? And how does the property right to the products of an employee come about? Which limits to property rights result, if contractual work is permitted? Because Locke departs from a fictional state of nature but nevertheless illustrates it with historically specific examples, especially from America, he would also have to accept questions regarding other historical cases of dependent labour, such as slavery.

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The introduction of money transcends the original limits of appropriation because money can be accumulated. The justification of the emerging inequality is given by pointing to the observably higher productivity of labour. The native inhabitants of America possess land in abundance:

. . . yet for want of improving it by labour, have not one hundreth part of the Conveniencies we enjoy: And a King of a large and fruitful Territory there feeds, lodges, and is clad worse, than a day Labourer in England.

(Ibid., § 41, p. 315)

If Locke had looked...

Table of contents

• Cover Page
• Great Economic Thinkers from the Classicals to the Moderns
• Routledge Studies in the History of Economics
• Title
• Copyright
• Contents
• List of Tables
• Preface and Acknowledgments
• Detailed Contents for Great Economic Thinkers from Antiquity to the Historical School
• Introduction
• 1 Classicals
• 2 Monetary Theory
• 3 Neoclassicals
• 4 Institutionalism
• 5 Moderns
• Appendix: The Series Klassiker der Nationalökonomie
• References
• Index