The History of Economics

Werner Stark

• Publisher: Routledge
• Year: 2013
• Topic: Social Sciences
• eBook ISBN:
  9781136228414
• Subtopic: Sociology
• Index: Social Sciences

First Published in 1998. This is Volume V of an eleven volume library of Sociology on Economics and Society and includes the history of economic thought in its relation to social development and includes appendices on the problems found and the main literature used.

THE HISTORY OF ECONOMICS IN ITS RELATION TO SOCIAL DEVELOPMENT

There are, in the last analysis, two ways of looking upon the history of economic thought : the one is to regard it as a steady progression from error to truth, or at least from dim and partial vision to clear and comprehensive perception ; the other is to interpret every single theory put forward in the past as a faithful expression and reflection of contemporary conditions, and thus to understand it in its historical causation and meaning.

It is obvious that between these two antagonistic conceptions, no compromise is possible. If the one is right, the other must be wrong. Which, then, is it that affords the true key to the understanding of the development of economics ?

The great majority of modern economists are inclined unhesitatingly to accept the first alternative. They are convinced that their theory of economic life—the theory which arose soon after 1870 and has since been admirably perfected—constitutes a body of timeless truths, directly applicable to every stage of historical evolution, past, present, and to come. In the light of this opinion, all earlier attempts to explain the system of production and distribution must needs appear erroneous, and valuable only in so far as they resemble the fundamental tenets of present-day economic thought.

This clear-cut distinction of past and present as error and truth can only be accepted as correct if it is possible to prove that the discovery of the principle of marginal utility, on which modern economics rests, represents a momentous break-through of reason, a final victory of science over prejudice. Indeed, the disciples of Jevons and Menger, Pareto and Edgeworth, have endeavoured to show that the intellectual work of their masters was in essence a revolutionary abandonment of all traditional ideas, and a new beginning—a new beginning which, for the first time, revealed things as they really were, while before they had always been represented as they were not.

A closer examination, however, dispels the illusion that the discovery of the principle of marginal utility was an isolated revolutionary event, and tends to demonstrate that it was in truth an evolutionary process, subject to the same laws which dominate all intellectual developments. The transition from the classical to the neo-classical doctrine was gradual, and it corresponded to a much wider movement of thought, which is traceable in all the sciences and arts. It was gradual ; for ever since 1830 there is noticeable a steady endeavour to put subjective, i.e. individualistic, interpretations upon the objective, i.e. social, categories of the classical economists. This tendency is clearly visible in Nassau Senior and, still more, in men like Lloyd and Longfield ; it became dominant in the ’sixties and ’seventies when classicism reached its ultimate phase. The Italian, Francesco Ferrara, and the Englishman, John Elliot Cairnes, working independently, brought it to logical perfection. Thus the ground was prepared for a more consistent and thoroughgoing application of individualistic principles to economic analysis, though Hermann Gossen and Richard Jennings, writing about 1855, still failed to interest their contemporaries in the subjectivistic theories which they developed. Half a generation later the situation had radically changed : Carl Menger and Stanley Jevons, whose works were published in 1871, easily carried the day. It is curious that all four founded their teachings on the same principle, although there was no interchange of ideas between them. This is in itself a very interesting and important fact, tending to disprove the contention that modern economics is an incarnation of eternal truth. For either we assume that it was due to chance that four independent thinkers chose at the same time the individual psyche as the starting point of economic analysis ; or we must believe that there was an all-comprehensive historical trend, which led these thinkers, separated as they were from each other in space, to the same results. The first assumption is at once seen to be unsatisfactory ; yet if we prefer the second alternative, modern economics immediately appears as a simple product of historical development, as a mirroring of the socio-economic reality within which it took its origin, not unlike the various theories which have preceded it.

This latter impression is likely to derive strong support from the observation that the transition from the classical to the neo-classical doctrine was not only a gradual process, in which many individuals co-operated, but at the same time corresponded to a much wider, and, indeed, universal movement of thought. By 1870, there was a general turn from the intellectual type of Mill and Schmoller to that of Menger and Jevons, a tendency away from the social and realistic aspects of life, towards the individualist and idealistic aspects. It was an age of transition, and the striking transformation of economic science only reflected the deep and decisive changes which all spheres of culture were experiencing at the time. Philosophy, religion, and art—all three passed through a violent crisis from which they emerged with a totally changed character.

In the same year as Carl Menger’s Grundsaetze der Volkswirthschaftslehre there appeared a book by Hermann Cohen entitled Kant’s Theorie der Erfahrung which inaugurated the great renaissance of philosophic idealism that is for ever connected with the name of the Marburg school. As the economists of historism had exclaimed : “ No more theory ! ”, so the philosophers of positivism had demanded : “ No more metaphysics !” As economists like Schmoller had maintained that only a descriptive collection of material could advance science and learning, so philosophers like Duehring had taught that the expansion of our knowledge of the external world was the sole end of our endeavour : the parallelism of views is obvious. And Cohen, like Menger, preached : Back to introspection ! Back to the intellectual analysis of social phenomena ! Back to the use of reason ! Back to theory !

A similar development took place in the field of religious experience and religious thought. Even the sacred science had its spell of positivism which was just then coming to a close. Up to the middle of the century, the social and institutional, i.e. the external, elements of Christianity had been the centre of discussion and interest : Montalembert may serve as an example of the spirit which had prevailed. Now a new inspiration, a new urge, permeated Europe which emphasized the personal and spiritual nature of religious experience, and thus laid the stress on the individualistic side of religion rather than on its institutional embodiment, the Church. In 1879, Tolstoi wrote his Confession, and the wave of enthusiasm which greeted this moving document of personal faith is a telling proof of the fact that the tide of thought had turned. It is not difficult to see that Tolstoi’s philosophy of life, which found so striking expression in his conversion, came from the same historical source as Cohen’s idealism and Menger’s individualism.

Yet the great change in the spirit of the age is perhaps most clearly reflected in the history of art. What is called naturalism was just as much an embodiment of the positivist spirit as Schmoller’s economics or Montalembert’s religious and ecclesiastical doctrine. Zola’s Roman expérimental contained its theory. To describe or portray the external world as it presents itself to our senses was regarded as the supreme ideal of artistic achievement, and painters like Manet strove hard to represent things “ as they really were ”—at one in this endeavour with Schmoller and his school. But, almost overnight, impressionism was ousted by expressionism. Rimbaud’s poems and Van Gogh’s pictures evince a new spirit. They reflect, not the outward environment of the artist, but his inward life, and thus they correspond to Cohen’s idealism and Tolstoi’s spiritualism, no less than to Mengers attempt to explain the social laws of market economy from the psychic experience of individual man.

Thus a wider consideration of intellectual development clearly shows that the discovery of the principle of marginal utility was in no sense an isolated event but must, on the contrary, be conceived as an integral part of a broad evolutionary process. As such, it cannot but be an historical phenomenon like any other—a phenomenon which bears the marks, and must share the fate, of the period which brought it forth. Nothing could be more natural than that the votaries of the modern doctrine should be firmly convinced of its truth and value. But so were the mercantilists and the physiocrats with regard to theories which are now abandoned and despised. Nothing human endures for ever ; economics is a science of society and must change with the changes thereof. All generations have indulged in the illusion that their views and wishes were the perfection of reason, and all have been confounded by time. The historian whose task it is to know the past better than the present and to comprehend all centuries in one glance, should not share this persistent error which is due to the primitive self-love and presumption of man. “ Before God ”, Ranke said, “ all generations of humanity appear with equal rights, and this is the way in which the student of history must look upon his subject.” It is his mission, not to dispense praise and blame, but to understand the past in its achievements, and to make it understood. It is in this spirit that the evolution of economics is here approached, and interpreted in its relation to social development.

The literature on the history of economic thought is the stage on which the two antagonistic conceptions above characterized, the critical and the historical, are seen in their unrelenting struggle for supremacy. The issue is still undecided, but it may fairly be said that there is a growing understanding of the essential relativity of all social and economic doctrines. Among the historians of political economy who are aware of the necessity to interpret the ideas of the past in the light of contemporary conditions, the view prevails that the connection between reality and thought, economic life and economic theory, must be comprehended as a process of action and reaction. It was, above all, John Kells Ingram and Lewis Haney who developed this thesis which, on account of its breadth, proved very attractive.

It is, however, highly desirable to make this conception somewhat more concrete and precise. Perhaps it would not be unfair to describe and develop its underlying idea as follows : the economic reality of a period forms the views of the contemporary economists ; but these views in their turn transform the economic reality which they interpret, so that, in the end, things and thoughts appear in the same way as determining and determined elements. But the process, as it is generally envisaged, demands time. To borrow Haney’s example : “ The individualism of the laisser-faire economists and statesmen was to a great extent the result of industrial revolution ; but in its turn it became a condition reacting upon industry” (4). In other words : the social and economic situation of Britain, the requirements of commerce and industry as he continually observed them since the end of his Oxford studies in 1746, induced Adam Smith in his book which was published in 1776, to advocate free trade ; and this teaching, in its turn, prompted Pitt in 1800 to introduce free intercourse between England and Ireland, and Peel in 1846 to repeal the corn laws (Haney, 236 sq.). Action and reaction are spread over a whole century.

This conception is certainly correct ; but it explains the history of economic policy rather than of economic theory. The transformation of economic life is a real and political process, its interpretation, however, an ideal and individual act. There-fore its analysis and explanation must start from a different basis.

This intellectual basis we possess in the mutual concatenation of all social phenomena in any given moment. The life of a time is a great and comprehensive unity, whose parts correspond to, and are, therefore, only comprehensible with, each other. This is particularly true of economic reality and economic doctrine : economic reality is conditioned by the mind, for it is thinking man who creates and moulds it ; economic doctrine is conditioned by facts, for it is objective phenomena which it interprets. This necessary concatenation, however, for the characterization of which one is tempted to borrow from mathematics the idea of functional connection, can only be asserted if we concentrate on a fixed point in time. For everything is in a state of flux, and however short a period may be, the form and essence of life are at its end different from what they were at its beginning. A description and analysis of the progress of economic thought which is to rest on the idea of historical relativity must therefore always try to make a cross-cut through development, and then things and thoughts do not appear connected with, and related to, each other in action and reaction, but as mutually conditioned.

This essential dependence, or rather interdependence, can, however, only be acknowledged as mutual in the full sense of the word, if we take economic reality and economic doctrine as comprehensive categories, economic reality for the whole real aspect, economic doctrine for the whole ideal aspect, of social economy. If we are only concerned with the history of political economy, reality appears as the conditioning and science as the conditioned factor—-simply because economic science, as such, is not interested in the transfprmation of economic life, and content if it succeeds in uncovering and exploring the laws of economic intercourse. With this limitation;—but only with this limitation—Cournot’s comparison is true which represents the relation of the economist to economy as similar to the relation of the grammarian to language : the work of the grammarian is conditioned by the language whose laws he strives to perceive, and any dependence in the opposite direction does not exist : science is here only an anelila vitae. But this attitude implies no materialism : as the poet transforms the language, so the economic politician transforms the economic system : we must only discern poet and grammarian, economic politician and economic theoretician, even if they occasionally appear in one person, if we would write a history of grammatical, or a history of economic, science. In doing so we are soon led to realize that the development of language and economy continually forces the sciences to change their doctrinal contents, that the mind is conditioned in its utterances by real life.

We say conditioned. May we go one step further and assert : determined ? Here we touch the problem of free will, and it is proper to confess : Ignoramus, Ignorabimus. But one thing is certain : so long as philosophy and psychology have not established the principle of determinism, we, as historians, must never postulate it. Our personal experience teaches us that, confronted with a difficult problem of the present, we decide only after a long and painful inner struggle on one solution or the other, and even after having decided we are not free from all doubt. There is no reason to assume that the thinkers of the past were in a different position. The problems, however, which offer themselves to scientific economics, originate in economic life, and its solutions must be confirmed by economic life. Therefore freedom cannot be understood as arbitrariness : only between the possibilities of explanation which reality admits are we capable of choosing. Although we may assume that we are free to decide in the moment of our choice, as experience seems to suggest, and the determinists are unable to prove the opposite, yet this freedom of our choice has perished once we have exercised it. Posterity knows nothing of the inner struggle of the thinker : it sees only the thought which has become history. The individual and free element has disappeared, and only the real and pre-determined element is still visible. Thus Petty’s or Cantillon’s doctrines were in their time conditioned by the circumstances, and appear in our time as determined by them. It is the historical perspective which allows us to advance from the assertion that ideas are conditioned by reality, to the assertion that they are determined by it—provided we do not forget that the formation of ideas has never been subject to absolute necessity in its time.

So much for the historical interpretation of economic theories according to their content. To understand the form in which they have been propounded is the task of the biographer rather than of the historian. Here the element of individuality has its place : the enthusiasm with which Ferrara pronounces the word Freedom becomes comprehensible when we learn that he languished in Bourbon dungeons ; the fervour with which Bastiat preaches the gospel of optimism is explained by the fact that a diseàse raged in his chest which fills its victims with confidence : but the fact that both propagated the ideology of liberalism, and the ideology of liberalism itself, has its ultimate cause in the history of that time when the economic order seemed to be, and was, a great and ingenious system of collaboration according to super-individual laws, the free action of which, under the given circumstances, necessarily invited an optimistic view of the world.

The concept which we have attempted to outline above affords a key to the understanding, and a tool for the analysis, of all economic theories put forward in the past. Exhaustively to prove its fertility, a...

Table of contents

• Cover
• Title Page
• Copyright Page
• Contents
• Preface
• The History of Economics in its Relation to Social Development
• Appendix I. The Formal Problems of the History of Economics
• Appendix II. The Main Literature on the History of Economics
• Index