Types of Economic Theory

Othmar Spann

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136658839
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

First published inEnglish1929, this is a reissue of the nineteenth edition of Othmar Spann's classic history of economic thought, which is strongly influenced by the German Romantic tradition.

Spann intended the work to serve as both history of economic thought and a critique of the main theories and systems of political economy, analysing the basic problems of economics in the light of the evolution of economic theory. His study encapsulates everything from pre-mercantile economics through to the political economy of the early twentieth century, encompassing such diverse subjects asthe physiocratic system, thedevelopment of German political economy and the evolution of socialism.

CHAPTER ONE

ECONOMICS IN THE DAYS BEFORE THE MERCANTILE SYSTEM

NEITHER in classical antiquity nor yet in the Middle Ages did there arise any finished systems of politico-economic thought. In those epochs, when the mind was directed towards the heroic and the suprasensual, the economic sphere of activity was regarded with little esteem—as always in periods with an organised economy. Only when, as to-day, the individual is left so exclusively to his own devices, and only when the forces of free competition are stimulated to an extreme, is civilised life crudely dominated by economic considerations to an extent which seems self-evident to us to-day.

Even in those earlier ages, economic thought might well have been grounded on economic evolution. At all times economic life was multiform, and stood in need of assistance. It would be erroneous to picture the course of economic development as though mankind had passed on simply from a self-sufficient natural economy (the self-contained domestic economy) to the feudal economy and the medieval urban economy, and had at length “advanced” to a nation-wide capitalist economy. At all times there have been lesser economic corporations, such as peasant economies, that formed integral parts of larger, nation-wide or world-wide complexes. Thus in the primal days of man, during what is known as the Stone Age, intercourse for trading purposes went on throughout Europe; and there are proofs of the existence of foreign commerce during the Bronze Age, inasmuch as the constituents of bronze are not found naturally together. At the outset of recorded history, in Babylon first of all, and subsequently in Persia, Carthage, Egypt, Greece, and Rome, there was highly developed capitalist trade, and there were branches of industry carried on for export, with complicated systems of money, credit, and bill-broking. Nor were there lacking in ancient Greece and Rome what we should now call socialist movements. Strikes occurred; socialist theories were promulgated; revolutions with a bolshevist complexion took place. Speaking generally, the economy of ancient times was more purposively organised than our own. Its nature is more easily comprehensible; and, because it is predominantly agricultural, it is simpler.

Rodbertus and Karl Bücher (see the latter's Entstehung der Volkswirtschaft, fourteenth edition, 1919) contend that the ancient world did not, in the main, get beyond the system of domestic economy. This view is erroneous; and it is unsound even as regards the imperial epoch, when the spread of the latifundia (huge landed estates) undoubtedly resulted in a reversion from a capitalist trading economy towards a “natural ” domestic economy. Bücher's doctrine of gradations—domestic economy, urban economy, national economy—is false alike historically and theoretically. It is the crudest Darwinism. “National economy ” has existed at all times.

But there were other reasons that militated against the rise of economic science before the beginning of the modern epoch, quite apart from the internal tranquillity of a more purposively organised economy. In classical days, the scant respect for labour was operative; and in the Middle Ages, when labour was more highly esteemed, an ascetic trend was dominant, for men's thoughts had turned away from earthly things. Nevertheless, the beginnings of our science go back to Plato and Aristotle.

Plato († 347 B.C.) and Aristotle († 322 B.C.) made notable contributions to political science; but as far as economics is concerned, mention need only be made of Aristotle's remarks on money, interest, and taxation.¹

Aristotle sees the essential nature of money in this, that it intermediates in the exchange of utilities, thus functioning as medium of exchange. He regards it, however, as sterile; it brings forth no children (though τόκος means “interest ” or “usury”, as well as “the young of animals”); it cannot of itself produce any goods. Consequently, interest is reprehensible. This dictum exercised a powerful influence throughout the Middle Ages.—Regarding socialism in classical days, see below, p. 212; also pp. 63–4.

The economic thought of the Middle Ages was dominated by the teachings of Thomas Aquinas († 1274), who derived from Aristotle; and by the canon law (the Roman law of the Corpus juris canonici). Discussion chiefly centred round the notion of the “just price”.

According to Thomas Aquinas, there are two kinds of justice: distributive justice, and compensatory justice or the justice of exchange. (Aristotle had already made this distinction in the fifth book of the Nichomachean Ethics.) In the matter of price, justice is to be found in the equality of reciprocal compensation in an exchange. What determines income is not the supply and demand of labour (as the subsequent mechanist economics teaches), but a normative outlook, the customary and average mutual adjustments between all the individuals that exercise economic functions, objective purposiveness. “Wherever a good is to be found, its essence consists in its due measure.” Thus we get the idea of the income that is “suitable ” or “proper ” to a man's station. Interest on money is placed on the same footing as usury. “Pecunia pecuniam non parit ” (money does not breed money). Money is a medium of exchange. Its use is its consumption. Consequently, for the use of lent money it is improper to demand any compensation in money, to expect anything beyond simple reimbursement. But Aquinas makes exceptions in the matter of tenancy, hire, and even credit for goods supplied.—In the later Middle Ages, it became usual to regard the following as justifiable grounds for demanding interest: lucrum cessans (missed opportunities of gain); damnum emergens (loss incurred by or injury accruing to the lender), this concession implying the recognition that, indirectly, money may e a productive good; risk; and delay in repayment.—The prohibition of interest or usury is fundamentally a measure falling within the domain of applied economics, being designed to hinder the development of capitalist forms of economy.

A century later, Nicole Oresme († 1382), a Frenchman whose name was Latinised as Oresmius, was an influential writer. Roscher terms him the leading ecobomist among the schoolmen. His views, like those of Aquinas, were based on Aristotle's, but he developed original outlooks upon matters of coinage and upon the debasement of the currency which was so common a practice in his day.

With the formulation of the teachings I have summarised, the Middle Ages had already made remarkable advances, but its ideas were grounded upon the purposively organised economy of the period and upon the ethico-religious conception of life then dominant. Hence the ensuing developments of economic science aimed either, as in the case of the mercantile system, at the supersession of the old urban-economic ties, or else, as in the case of liberalism from the time of Quesnay onwards, at the inauguration of a perfectly unhampered individualist trading economy. In doctrinal matters, earlier writers were ignored; innovation was the order of the day.

1 See Plato's Republic (various translations); Aristotle's Politics and Nichomachean Ethics (various translations of each). [Jowett's introduction to his translation of the Republic may be read with interest in this connexion.]

CHAPTER TWO

THE MERCANTILE SYSTEM

1. LEADING IDEAS OF THE MERCANTILE SYSTEM

AT the opening of the modern era, a new kind of economic practice and a number of novel and interdependent economic theories make their appearance in the form of what is known as mercantilism or the mercantile system. As List was the first to point out, the use of this name (introduced by Adam Smith) is not wholly warranted. The advocates of the new economic policy were quite as much concerned to further industrial developments as to promote the exchange of merchandise. Nor have we to do with anything that is strictly entitled to be called a “system”, or with a circumscribed body of doctrines; the term “mercantile system ” is loosely used to denote the aggregate of the principles actually applied by governments and men of business in the economic life of those days—though it is indisputable that these principles have an underlying general conformity. Mercantilism, therefore, was not deliberately thought out and artificially created by any individual; it was a creation of the time spirit, or a spontaneous growth of the time. Oncken aptly termed it “a system of sovereign welfare policy”; it was a system of political absolutism and centralisation in favour of the burgherdom and mobile capital, to the detriment of the nobility and the lords of the soil.—To throw light on the matter, let us first glance at the economic processes of this period of “early capitalism”.

The economic organisation of the Middle Ages was disrupted mainly by those political changes which led in western Europe to the formation of large absolutist national States (France, Spain, Portugal, and England); and in Germany, later on, to the establishment of the territorial princedoms. As a result, the medieval economy, with its urban units, was replaced by larger units of a different kind, the unified national economic areas. Political concentration in these areas resulted in money and wealth becoming elements of political power in a way very different from of old. Bodin's dictum “Pecunia nervus rei publicae” (money is the nerve of the commonwealth) was in many respects new. Inasmuch as the State, which had been constitutional (in the feudalist sense), became absolute, a mercenary army replaced the feudal militia; and the centralisation of the administration established a salaried officialdom where feudal methods of self-government had prevailed. The result was that military and civil concerns, taxation, and the processes of State credit, tended more and more to be carried on upon a monetary basis instead of by the payments in kind of a natural economy, so that the monetary powers of a country acquired a political significance that was altogether novel.

These multiform changes were accompanied by the economic revolutions that followed the discovery of America (1492) and the opening of a sea route to the East Indies (1498). New possibilities of world trade came into being, giving fresh power to the peoples situated on western sea-fronts (the Spanish, the Portuguese, the Dutch, and the English), but weakening those cut off from the new commerce (decline of Germany). Trade, and the money standing behind trade, were thrust into the limelight as sources of wealth and political power.

The effects of these displacements of wealth were reinforced by a special process. Soon after the discovery of the New World, rivers of gold and silver began to pour from Spain across Europe, and the purchasing power of these metals fell enormously, with a consequent tremendous rise in prices (the “revolution in prices”). It is true, however, that the rise in prices began somewhere about 1510, whereas the great increase in the precious metals only began to make itself felt towards 1520, so there must have been a deeper cause at work in the economic evolution of those days. None the less, the superabundance of gold was an independent cause of a sudden rise in prices. The influx of gold played a great part in undermining the foundations of the old natural economy, for it favoured the diffusion of the means of credit and promoted the development of a capitalist economy.

All these circumstances tended to emphasise the importance of money, to stress the significance of commercial wealth as compared with the wealth that changed hands in kind during the processes of a natural economy. Thus whereas in the Middle Ages there had been a marked endeavour to check the growth of a monetary economy, the opinion now gathered headway that money, if not the only source of wealth, was certainly of decisive importance to the welfare of the nations. Two notable thoughts, therefore, began to dominate the minds of those who were turning their attention to political economy, two ideas which are still extremely influential to-day: a great esteem for money, and a great esteem for foreign trade (as the chief means for bringing money into the country). Implicit is a third notion: the fostering of industry, in so far as industry must be the precursor of commerce.—The “system ” of practical measures which was deducible from these considerations may, when considered in constructive outline, be pictured as follows (making due allowance for extensive local variations, and for the fact that mercantilism cannot properly speaking be said to have originated as a purposively conceived and coherent doctrine).

The primary aim of the mercantilists, especially in the case of Italian and British writers, was to achieve a favourable balance of trade. By the term “balance of trade ” is meant the counterpoise between imports and exports. When exports exceed imports, when the value of the goods sold to foreigners exceeds the value of the goods purchased from foreigners, the amount of money entering a country will exceed the amount of money issuing from it. Then the balance of trade is said to be favourable to the country in which money thus accumulates.—To achieve this favourable balance (which, as aforesaid, was the leading desire of the mercantilists), it is necessary to stimulate export trade, since only thereby is money brought into the country.

With that end in view, it is essential, on the one hand, to stimulate industries that create commodities for export (in those days spoken of collectively as “manufacture”), and, on the other hand, to check as far as possible the import of commodities. Both endeavours presuppose the fostering of home industry.

But if home industry is to be fostered, special attention must be paid to internal communications. It is necessary to abolish or to mitigate tolls, octrois, and the like, and to break down the barriers erected by the urban economy of the guilds. Furthermore, good roads must be built, canals must be dug, internal communication must be facilitated, home markets must be established.—Customs policy is, therefore, of supreme importance in the mercantile system. The champions of that system want to abolish export duties, and in case of need to stimulate exports by premiums; while they aim at reducing imports by a high import tariff or by actual prohibitions. Instances are Colbert's unified import tariff of 1664; the development towards such a tariff in England, especially after 1692; and, in Germany and Austria, sumptuary laws which were intended to restrict the use of articles of foreign origin. (A unified tariff on imports was rendered impossible in the case of Germany by the fragmented condition of that country, and in the case of Austria by the crownlands constitution). As corollaries to restriction of import, there had to be freedom for the import of raw materials needed by home industries, and prohibition of the export of such materials. Frederick the Great, for example, decreed corporal punishment for any one who should export wool.

The preexistent natural economy had to be further discouraged by the encouragement of manufactures through privileges and monopolies (whereby they were freed from the tyranny of the guilds), through exemption from taxation, and through other forms of support. In some cases, State factories were inaugurated, the State porcelain industry of Saxony being a vestige of one of these. Skilled foreign craftsmen were imported; industrial secrets were purchased; and so on.—On the other hand, by official supervision and thorough regulation of the whole process of production (supervision and regulation which extended into every detail concerning tools and methods alike), industry was to be kept up to the mark; and at the same time the consumer was to be protected by subjecting the process of sale to inspection. We see that in these matters the mercantilists clung to the traditions of the urban economy.—Another expedient of mercantilist policy was the foundation of colonies and trading companies.

Especially important was the (English) East India Company founded in the year 1600, and equipped in 1661 with the right to carry on war and make peace in non-Christian countries. Under Joseph II, Austria occupied the Nicobar Islands; and the Danubian Trading Company and the Austrian East India Company were founded.

Further, attempts were made to provide cheap labour power in order to strengthen large-scale industry. One means to this end was to promote the increase of population (a special desideratum in the depopulated Germany of those days); prohibitions on marriage were removed, premiums were paid to the fathers of large families (in France, for instance, a nobleman who had ten children was granted a pension of one thousand livres). Another means was to cheapen the ne...