A History of Scottish Economic Thought

Alexander Dow, Sheila Dow

• Publisher: Routledge
• Year: 2006
• eBook ISBN: 9781134287109
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Modern economics has, at its foundation, scholarly contributions from many prominent Scottish thinkers. This revealing work examines the roots of this great tradition, places in perspective a selection of authors, and assesses their contribution over three centuries in the light of a distinctive Scottish approach to economics.

Scottish Enlightenment is an established area of research interest, and this volume offers new scholarship on key Enlightenment figures whilst placing emphasis on their approach to economic thought. Smith and Hume are key, but other less familiar, yet important authors are also investigated here, including a murderer, a revolutionary, a medical practitioner and a novelist (John Law, Sir James Stuart, John Rae and Shield Nicholson, respectively).

The latest in a prestigious series charting national traditions in the history of economic thought, this important book, an essential read for scholars of economic thought, features contributions from such major historians of economic thought as Andrew Skinner and Antoin Murphy.

1 Introduction

Alexander Dow and Sheila Dow

The prospect of putting together an edited volume on the history of Scottish economic thought was both exciting and daunting: exciting because there is such a wealth of scholarship on many of the key Scottish figures in the early development of what was to become modern economics; but daunting for the same reason. It was decided early on, therefore, that it was an impossible task to provide a comprehensive coverage of thinking, past and present, on the full range of figures in the history of Scottish economic thought, appealing though that might be. Rather the approach we have taken is highly selective. But in the process we hope to have provided a flavour of a range of thinking on some of the central figures, their contexts and the implications of their work.

This selection in turn inevitably reflects a particular view of Scottish economic thought, although we should emphasise at the start that contributing authors do not necessarily share this view. (While asked to bear it in mind as a point of reference, authors were explicitly invited to present their own views.) Our view of Scottish economic thought is one which fits naturally in a book series aimed at representing economic thought in terms of national identity. Rather than seeing national identity as simply providing a convenient way of segmenting the full corpus of economic thought, we see it as material to the content of national economic thought. Our own view, therefore, is that there has been a tradition in Scottish political economy which stems from the sixteenth and seventeenth centuries, reached its fullest flower in the Enlightenment period of the late eighteenth and early nineteenth centuries, and whose echoes continue to this day (see also Mair 1990).

The selection of individual subjects reflects this approach in that we have attempted to give a flavour of Scottish economic thought – and more particularly of the Scottish approach to economics – from the early Enlightenment up to the twentieth century. Thus we have focused on only five key eighteenth-century figures: in chronological order, Law, Hutche-son, Hume, Steuart and Smith. Nineteenth-century thought is then addressed by chapters on (James) Mill, McCulloch, Chalmers and Rae. The perpetuation of the tradition through the institutional arrangements for economics education and policy making in Scotland from the late nineteenth century on are then set out, with a focus on the work of key figures, including Smart, Nicholson, Scott and Cairncross. Indeed, it was Scott who first coined the term ‘Scottish Enlightenment’ in his 1900 biography of Frances Hutcheson. A similar need to trace the history of Scottish philosophy beyond the Enlightenment period has been expressed by Broadie, who suggests that nineteenth-century Scottish philosophy ‘has hardly been documented’ (Broadie 2003: 6). In philosophy too the Enlightenment period has been the primary focus of attention.

The Scottish political economy tradition

The identification of such a tradition stems from understanding Scottish economic thought in terms of the wider context in which it was developed and expressed. In particular, the tradition is rooted in the Scottish philosophical tradition, as well as in the institutional arrangements of education and government. This factor was one of the influences in our choice of topics and authors, since it was judged to be important to flesh out the historical, institutional and philosophical background to the development of economic thought. Further, the selection reflects the view that the Scottish tradition not only had origins in pre-Enlightenment thinking, but also extended well beyond the Enlightenment period, into the twentieth century.

Before introducing the individual chapters, we set out very briefly the argument that it is reasonable to think in terms of a Scottish political economy tradition (see further Dow 1987; Dow et al. 1997, 1998a, 1998b, 2000, 2003). Let us start with the historiographical background. In common with the bulk of scholarship in this area, we see the purpose of the history of economic thought as being to uncover as far as possible the meaning of authors. While the outcome may well inform modern economic debate, the aim is to impose modern concepts and understandings on the texts as little as possible. This requires attention to the context in which these authors wrote, where that context is understood to encompass the full range of political, cultural, social, religious and philosophical factors. Further, in line with Quentin Skinner’s (1969, 1988) approach, it requires attention to divining the intentions of the author in writing the text within that context. The environment of a national group of writers has some continuities over time, particularly when considering the philosophical context and institutional structure of the nation. (Even discontinuities take some of their meaning from the past.) So we would in fact expect to find some commonalities in the economic thought of writers within any one nation.

By ‘tradition’ we mean something of longer standing than, say, a school of thought, and something broader than, say, a set of theories and policy prescriptions. Not only have economic theory and policy changed, in Scot-land, as elsewhere, over the years, but also there have been fierce debates among contemporaries within different periods, including in Scotland in the Enlightenment period. Further, widely divergent sets of ideas have been traced back to Scottish thought, with both Marx and Hayek, for example, identifying intellectual roots in Smith.

The continuity captured in the tradition refers rather to the approach taken by Scottish economists to their subject. This was profoundly influenced by Scottish philosophy, and the fact that philosophy was core to the university curriculum; indeed, some form of philosophical training was compulsory in the Scottish universities up to the 1960s. The distinctive evolution of Scottish philosophy, and its application to current affairs, was most evident in the Enlightenment period, when it was in turn influenced by the particular political and economic circumstances of the time. These circumstances included the shift of political power to London, the social upheaval caused by population movements following the Jacobite rebellions of 1715 and 1745, and more generally with migration from the country into the towns, the practical problems posed by the development and application of new inventions, and the building up of international trade, investment and migration.

Scottish philosophy drew heavily on ideas developed elsewhere; this is particularly true of Hume and Smith, whose Continental travels exposed them to current thinking elsewhere. Nevertheless it is with the French Enlightenment that we see the greatest contrast to the Scottish Enlightenment. In Scotland (most explicitly in the case of Hume) there was a turning away from rationalism towards modesty as to the scope for establishing certain knowledge. By embracing the understanding of rationalism as a dead end, the Scots philosophers turned instead to building a science of human nature as the foundation for all other scientific knowledge. Reason would come only after belief, sentiment and experience. This was a philosophy which suited the needs of a small nation eager to grapple with its practical problems and to find a place in the world.

We characterise the Scottish approach as having the following features:

1. An acceptance of the limitations of theory.
2. Recognition of the sociological and psychological aspects of theory appraisal.
3. Concern with practical issues.
4. A consequent preference for breadth of understanding of the background to these issues, over depth of isolated aspects, based on direct observation.
5. A preference for drawing on several disciplines in an integrated manner to provide that depth.
6. The derivation of (provisional, contestable) principles from experience.
7. The specification of first principles in terms of a non-individualistic representation of human nature, with a consequent emphasis on conventional behaviour.
8. A preference for approaching a subject’s first principles by discussing its contextual development.
9. A preference for theoretical argument expressed in terms of first principles.

As with all such categorisations, this tradition which we have identified took on different characteristics for different key figures. Further it cannot be universally applied. We have in this volume the example of James Mill, who was educated in Scotland but who nevertheless turned his back on the tradition. Similarly we have the example of Nicholson, who came only later in life to the Scottish tradition yet embraced it wholeheartedly. As time has passed, further, the tradition can be seen to have weakened. But, for those of us brought up in the Scottish tradition, it is clearly recognisable still. There would seem to have been enough continuity in the Scottish philosophical, social, political and educational environment to allow the tradition to persist.

An introduction to the chapters

The chapters are arranged roughly in chronological order, in terms of the timing of the main contributions of the individuals concerned, or the sets of ideas under consideration where a chapter is not confined to one individual. The first set of six chapters is concerned with the eighteenth century. The figure of Adam Smith looms large, either as the primary subject (as in Chapters 6 and 7), or as a point of reference (in Chapters 2 to 5).

The first figure, presented in Chapter 2 by Antoin Murphy, is one who has tended to be neglected in accounts of eighteenth-century Scottish thought: John Law. Right at the start therefore we have an important example of disputes among Scottish figures over economic theory and policy, since one of the reasons for the neglect of Law must surely be Hume and Smith’s dismissal of him as being unworthy of attention, although they were at times equivocal on his ideas on money. In response to the need to address unemployment, Law had developed a non-neutrality theory of money, and saw the expansion of money through bank credit as the solution. Law exemplifies the practical orientation of Scottish Enlightenment thought in that he proceeded to set up a bank on these principles in France, as well as a company designed to manage the national debt and to promote trade. Both enterprises failed. We will see the evolution of Scottish thought with respect to the meaning and role of money continuing as a thread through the next four chapters. It is not surprising that this should be important for Scottish thinkers at a time when Scottish banking was evolving so rapidly, and in many ways taking a lead in banking practice.

While Smith distanced himself from Law, he acknowledged a great debt to his teacher, Francis Hutcheson, who is the subject of the third chapter. Andrew Skinner demonstrates the origins of much of Smith’s thought in Hutcheson’s writing, and in turn demonstrates Hutcheson’s debt to Pufendorf. Hutcheson’s moral philosophy provided the foundations for a theory of human nature such that the capacity for moral judgement was a precondition for economic activity. In this, he addressed the question of how a self-regarding individual could be fitted for the social state, another theme which will be evident as we continue our consideration of eighteenth-century Scottish thought. The faculty of sentiment, and thus of sympathy, linked the individual and social levels of economic activity, a link which was central to Hutcheson’s early statements of the theories of the division of labour and of value, on which Smith was to build. In the meantime, Hutcheson’s focus both on individual liberty and the need for a social contract were to extend his influence to the early political development of the American colonies.

This political focus, and concern with how self-regarding individual behaviour might translate into social, political and cultural improvement, were shared by David Hume, for whom Hutcheson was both mentor and friend. In Chapter 4, Carl Wennerlind explains the focus of Hume’s work on the capacity for commercialisation, not only to bring about prosperity, but also to civilise and refine individuals and their society, promoting the conventions which would support government, just as it is government’s task to support conventions. Hume understood the real money supply and the interest rate as being endogenous to economic activity and was suspicious of a paper money system (and indeed government debt), which could be abused by government. He built his arguments about causal connection on a broad range of moral, political and economic considerations, drawing on examples from the ancient world.

While Hume arguably had in fact been implicitly referring to the need to ‘civilise’ the Highlands, against the backdrop of the two Jacobite rebellions of 1715 and 1745, Sir James Steuart was a supporter of the Jacobite cause. As Wennerlind has done with Hume, Andrew Skinner shows in the fifth chapter the cohesion within the corpus of Steuart’s work which comes from the derivation of principles from detailed observation. Yet these principles were to be indicative, rather than seen as having any universal validity. Following Hume, he employed a typically Scottish stages theory of development, applying it most notably to his study of population and his theory of demand-led economic growth. His attention to detailed argument about the role of the state, based on his extensive experience on the Continent, may have deterred those who preferred the greater elegance of Smith’s work, but enhanced Steuart’s influence on the Continent and in the American colonies.

The Newtonian methodology which Skinner had identified in Steuart is given full treatment by Leonidas Montes, in relation to Adam Smith, in Chapter 6. Rather than implying that the Scottish approach was not distinctive because it derived from Newton, Montes argues that it was in Scotland, with its distinctive philosophical tradition, that Newton was properly understood (hence the reference to Smith as a ‘real’ Newtonian in the chapter’s title). Smith is shown to follow Newton’s approach, which contrasted with the deductive axiomatic approach of the French Enlightenment. An open-ended (fallible) system is built on principles which have been drawn from detailed observation, and then subjected to successive refinement.

The distinctive Scottish philosophical tradition which spawned this interpretation of Newton is explored further by Flavio Comim in Chapter 7, where the focus again is on Smith. Comim emphasises the particular importance of the Scottish philosophy of common sense. Common sense played an important part in the origin and derivation of principles, and the understanding of system, in contrast to Descartes’s a priori axioms, and a priori understanding of system. Detailed examples were to be used more for illustration than the experimentation of the physical sciences. Hume and Smith thus adapted Newton’s notion of experiment for the social sciences. Further, they drew attention to the role of aesthetic judgement, based on experience, as being prior to reason; this contrasted with the conflation of simplicity and elegance with truth in the Cartesian system.

Moving into the nineteenth century, however, we see in James Mill how, under the influence of Ricardo’s deductivism and Bentham’s utilitarianism, principles grounded in common sense elided into laws of human behaviour, which could then provide the axioms for a deductive system. In Chapter 8 Thomas Torrance shows how James Mill turned his back on the common sense philosophy of his education in Scotland in order to pursue an axiomatic approach. Torrance contrasts this with the historical aspect of the Scottish approach, and subjects both to methodological scrutiny. He illustrates the explanatory weakness of Mill’s methodology in terms of his critique of Hume’s theory of money, and Malthus’s theory of overproduction.

In contrast, while also greatly influenced by Ricardo, John Ramsay McCulloch took the derivation of principles in quite the opposite direction from James Mill, being a great compiler of data. In Chapter 9 D. P. O’Brien shows how McCulloch continued in the Smithian tradition, weaving together a complex picture of a growing economy, paying careful attention to a wide range of institutional and quantitative considerations. A careful account is given of McCulloch’s evolving thought on capital and growth; value and distribution; money and trade; and public finance and policy. His economic thought on these matters is shown to be in the Smithian tradition, while reflecting changes to the economy since Smith’s time, and also incorporating elements of Ricardo’s thought (but never his notion of an invariant measure of value, or his theory of comparative cost).

Thomas Chalmers similarly needs to be considered in the context of the developing subject of political economy in Britain, dominated by Ricardo. He too developed the subject, drawing on the Scottish tradition (more influenced, apparently, than James Mill by Dugald Stewart’s moral philosophy lectures at Edinburgh), with a focus on social reform and the importance of moral education. In this he displays a characteristically Scottish emphasis on the liberty of the individual in society. In Chapter 10 A. M. C. Waterman emphasises, further, Chalmers’s credentials as a classical economist (indeed, as the ‘David Ricardo of Scotland’), drawing attention to his contributions to the theory of value and distribution. He was well known, particularly for his experience as a parish minister in implementing his theories of social reform, and his contributions to wider policy debates, but his theoretical contributions received public appreciation only from J. S. Mill. He is best known in fa...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Routledge History of Economic Thought
• Contributors
• Acknowledgements
• 1: Introduction
• 2: John Law and the Scottish Enlightenment
• 3: Francis Hutcheson, 1694–17461
• 4: David Hume as a Political Economist
• 5: Sir James Steuart, Principles of Political Oeconomy
• 6: Adam Smith Real Newtonian
• 7: Adam Smith: Common Sense and Aesthetics in the Age of Experiments
• 8: James Mill as Economist: Theory Dominated by Deductive Method
• 9: John Ramsay McCulloch
• 10: The Place of Thomas Chalmers in Scottish Political Economy
• 11: John Rae
• 12: Economics in the Scottish Universities from the Late Nineteenth Century
• 13: A Scottish Tradition of Applied Economics in the Twentieth Century
• 14: Postscript