Development of economic ideas over the long term
Before Adam Smith
The pre-Smithian roots of English economics can be traced to medieval churchmen, moralists and merchants. Indeed, antiquarian excursions into the ‘history' of economic thought were a significant concern of Smith's followers, the founding fathers of classical economics.
Letwin (1963, vii—viii) perhaps overstates the case that, for James Mill (1773—1836) and J.R. McCulloch (1789—1864), ‘Being inclined to view economic theory as a particularly elegant way of demonstrating the merits of laissez-faire, they concluded that whoever advocated free trade must be something of an economist, and they located several writers during the seventeenth and early eighteenth centuries who had advocated it so forcefully as to qualify them, in their eyes, as considerable economists’. Nonetheless, he made a wholly correct observation that ‘economics has always been known. It is so vital to the life of merchants, moralists and statesmen that they could never have done their work without understanding its basic principles’.The potential ahistoricism of seeking antecedents for then current wisdom need not detain us, for what is important from the pre-Smithian era is the fluidity and openness of the market for economic knowledge in all of Peden’s five categories. McCulloch, generally considered the first historian of economic thought, but also perhaps the first Englishman to make his living as a teacher, journalist and professor of political economy, provided a broad listing of pre-Smithian figures (McCulloch, 1845). Of the proto-canonical figures, foremost was Petty. One-time personal secretary to Thomas Hobbes (1588—1679), in turn, a canonical figure (with Bacon) in developing some of the fundamentals of European liberal thought, notably that theory should set out the rational, pre-requisites for civil peace and material prosperity, Petty was a businessman, briefly an MP, founding member of Royal Society (established 1662) and, with his Political Arithmetic (written 1676, published 1690) a pioneer English empiricist (Stone, 1997, ch.
1).Together with Gregory King (1648—1712), Petty laid the foundations for what will become a research programme in which English economists will be highly distinguished: notably Arthur Bowley (1869—1957) and Colin Clark (1905—89) during what was a transformation in national accounts between the world wars, culminating, of course, with Richard Stone’s (1913—91) Nobel prize. Petty was a pivotal figure, if not inventor then at least progenitor of political arithmetic (‘the art of reasoning by figures, upon things relating to government’: Hoppit, 1996, 517 n.5), in which the central concept — the ‘surplus’ — became both the foundation of the classical theory of distribution (Aspromourgos, 1996) but, in effect, also an instrument of governance designed to meet the challenge the English then faced of a political entity comprising two monarchies, at least two religions and two significant colonial economies (Ireland and America) (McCormick, 2009).
Petty stood ‘squarely in the progressive intellectual moment of his time’ (Aspromourgos, 1996, 9), but it is important to emphasize that while there was a ‘remarkable outpouring of thinking about economic issues’ in the century before 1760, it was also the case that, in the round, this literature was thoroughly fluid, essentially inchoate, and that we should resist any simple framework of mapping individual contributions to either mercantilist or nascent political economy in furtherance of an essential Whiggish story that from these origins a late eighteenthcentury Smithian synthesis would emerge (Hoppit, 2006, 79). Current work is very sensitive to the ‘Whiggishness’ that might be levelled at Letwin (1963) through Hutchison (1988), though the charge is perhaps unfair to the latter as Hoppit (2006, 80 n.5) acknowledges. Moreover, Petty combined, as did other contemporaries upon whom study has focused, other attributes of relevance for understanding pre-Smithian and later English economics.
For example, Letwin (1963, 48, 147, 183) focuses on a number of key figures across a range from Josiah Child (1630—99), the ‘merchant economist’, the ‘epitome of the Restoration mercantile magnate’, through John Locke (1632—1704), the ‘philosopher as economist’, but greater attention is undoubtedly given to those engaged in, or whose fortunes depended upon, commerce and international trade, though, and particularly in his account of Dudley North (1641—91), he is very careful to make clear that too often the writings of the mercantile class were as irrelevant to the development of scientific ‘economic theory as an engineer’s manual is to theoretical mechanics’.
Nonetheless, with such a pivotal figure as Child, his ‘economic doctrines were aimed at solving the economic problems that faced England during the decade after the Restoration’ (Letwin, 1963, 3), with English contributions — pace the later Scottish Enlightenment — overwhelmingly ‘oriented to immediate policy issues and [less] concerned to locate economic issues in a wider ethical and historical framework’ (Brewer, 2003, 78).The classical economists
Smith’s reception in England and his influence over what came to be called the classical economists (with David Ricardo (1772-1823) and J.S. Mill (1806-73) the leading exponents) has been very well documented, with O’Brien (2004) the locus classicus but also, methodologically, a major step forward towards rational reconstruction and a comprehensive history of thought which ranged far beyond the canonical figures. Classical economics was the ruling body of economic thought from the onset of Britain’s industrialisation and rapid population expansion in the second half of the eighteenth century through to the final quarter of the nineteenth century, at which point the marginalist challenge initiated by W.S. Jevons (1835-82) prevailed. Whist the classical economists’ achievements are many and durable (so durable that they are still with us today in our understanding of the generalised operational superiority of markets over second-best alternatives), we begin our account of this era with a reminder from Schabas (2003, 174) that Smith defined ‘political economy as the “science of the legislator”, and thus subordinated his analysis of economic exchange and distribution to the broader questions of political stability and national well-being’. She continues: ‘His greatness lay less in his specific insights into the theory of prices and distribution than in his overall comprehension of the subject’; indeed, ‘Within the Wealth of Nations [1776] one can find discussions of virtually every branch of political economy as it has evolved up to the present’.
Economic growth is at the core of the Wealth of Nations, with subsequent classical theory focused on growth and development, and with the cardinal choice of government and/or the market a central preoccupation. The classical economists made advances both in, what we would now call, micro- and macroeconomics. This was a transformative phase for Britain’s economy, one which was highly open and operating (save 1797-1821) within a gold standard monetary regime which, following Hume, had been shown to have self-adjusting properties. Thus classical theory developed in the areas of the balance of payments, banking, money and the price level. Additionally, whilst this was mostly a period of peace and uninterrupted international trade growth, the period of Napoleonic Wars (1793-1815) and its aftermath led to a high demand for, and supply of, economic knowledge on such traditional English preoccupations as the public finances (especially the national debt) and currency matters.
The achievements of the classical economists and the durability of their legacy might perhaps be thought the more remarkable for this era still being very much the pre-professionalisation stage of English economics. Thus, the two canonical figures, Ricardo and J.S. Mill were sometime MPs, writers, controversialists and, in the former’s case, a spectacularly successful financial speculator. They did not hold university posts, though Ricardo’s great exponent, McCulloch, was the founding professor of political economy at UCL in 1828 (the first professor of political economy in England was Nassau Senior (1790-1864) who was elected to the Drummond chair in political economy in Oxford in 1825). In this pre-professionalisation stage, the market for economic knowledge was highly contestable, with ample scope for non-university economists to have the highest influence, and for popular economics to produce original economic theories in advance of formal economics (as Kadish, 1996 has demonstrated with the wealth of writings associated with the free trade movement of the 1830s and 1840s).
Thus, whilst Senior has often been seen as the architect of the Poor Law Amendment Act, 1834, a key piece of legislation in which many classical economists made contributions (O'Brien, 2004, 4), the policy influence of Samuel Jones Loyd (1796—1883), Lord Overstone, is of at least equal interest. Overstone, a banker, MP, an early but not founding member of the Political Economy Club, the nearest to a scientific community that London economists had in this prelearned society age, was one of the first economists to describe the trade cycle in detail but above all he was decisive in the then battle between rival schools (banking vs. currency) of monetary theorists that preceded the Bank Charter Act, 1844, which established an English monopoly of currency issue with the central bank. For the Economist magazine, founded in 1846, Overstone was ‘one of the greatest figures in the world of banking and public finance in the early and middle nineteenth century'; indeed:
In an era rich in deep political economists, acute monetary and financial specialists, frenziedly polemical, theoretical disputes, Overstone as an all-rounder was a match for them all and more than a match for most. No one had a greater influence than he on shaping the major lines of monetary and fiscal policy between the 1830s and the 1860s.
[Anon, 1972, 45]
It is arguable that in the century or so from Smith to 1870 that English economists had more practical impact on public policy than they did during the so-called Keynesian era after the Second World War. Certainly, the range of policy areas was extensive and thoroughly modern: factory regulation; the machinery question; pauperism and poverty relief; education; trade unions; Ireland; and the colonies and emigration.
The last of these requires brief elaboration as the classical economists have been seen as playing a key role in the formative stage of the British Empire. O'Brien (2004, 345—9) presents a two- stage analysis, punctuated in the mid-1820s.
This starts with Smith's attack on the “‘savage injustice” of the mercantilist principle underlying the policies of European nations towards their colonies' (Winch, 1965, 6). This was not a critique of colonies per se, and when economic and political conditions changed it appeared to Smith's successors that there were mutual benefits in developing the colonies as an outlet for surplus population. It should be stressed that on this issue there was no one voice of the classical economists, though in terms of policy the influence of Edward G. Wakefield's (1796-1862) ‘scientific colonisation' is well established (Winch, 1965, chs 6-7).Wakefield's vision, of self-governing, settler societies with deep and enduring economic and cultural ties to the metropolis, did come to pass, but there were a plurality of motives behind the advocacy of colonial development. Had there not been so, in such a moral minefield, it would not have been possible for Jeremy Bentham (1748-1832) and later J.S. Mill to be such prominent supporters of colonial development, the former as the godfather of the ‘colonial reform movement' with its emancipation aspirations, and the latter who matured from this being a solution to British social problems to his advocacy of the universal benefits: of civilization, peace, and prosperity. Modern scholarship denies that utilitarianism was an imperialist theory, and certainly Mill appears better to appreciate than most of his contemporaries the potential of what has come to be called the first era of globalisation.
In proffering advice and acting as policy entrepreneurs the classical economists, the ‘earliest fully to appreciate the allocative mechanism of the market and the power, subtlety, and efficiency of this mechanism' (O'Brien, 2004, 328), now had a powerful analytical toolkit. Following Ricardo's modelling, policy problems could now be approached through abstraction; empiricism was applied routinely to a range of problems (Thompson, 2013 provides a recent demonstration of Petty's legacy for Peel's first income tax, 1799); and above all there was a ferment of ideas. The classical economists were not extreme advocates of laissez-faire. That was mainly confined to their popularisers, of whom there were many (Tribe, 2005). Nonetheless the ‘caricature of the Classical economists as the die-hard defenders of extreme laissez-faire is one which has proved extremely persistent... Examination of the Classical writings on the role of government quickly reveals the misleading nature of the caricature' (O'Brien, 2004, 327-8).
With laissez-faire ideas occupying a central position well into the twentieth century, it is important to establish the precise inheritance for the agenda of government of the classical economists' policy prescriptions. As Robbins (1952, 12) had warned, ‘you get an entirely distorted view of the significance of this [laissez-faire] doctrine unless you see it in combination with the theory of law and the functions of government which its authors also propounded; the idea of freedom in vacuo was entirely alien to their conception'. Thus, for the classical economists, the economic and political case for the market was not an ideal type; the agenda for government was much broader than a literal translation of laissez-faire would imply; and much energy was expended on the need for government to ensure that markets were able to function so as to maximise their potential benefits. Classical political economy was, above all, pragmatic in matters of policy.
The morginolist revolution and early professionalisation
Jevons, the first professor of political economy at what would become Manchester University, an appointment often taken as the beginning of university economics in England, is best known for his Theory of Political Economy (1871) and, somewhat less so, for The Coal Question (1865), though the latter was a milestone in applied economics research as well as raising the question of sustainability in a new way. Less well known is his ‘Notice of a General Mathematical Theory of Political Economy' (1862), a pioneering work in the mathematisation of economics. Taken together, this trinity was both a challenge to English classical political economy and a foretaste of how modern economics would develop. For Jevons (1871, 3), if economics ‘is to be a science at all, [it] must be a mathematical science', with much of the impetus here being contemporaneous developments ‘in logic and physics rather than from problems internal to the discipline or from specific economic events' (Schabas, 2003, 181). That said, for Jevons, as for Marshall and most other contemporary economists, ‘political economy was first and last a fruit-bearing subject concerned, above all, with the alleviation of real-world problems of poverty, insecurity and efficiency' (Hutchison, 1982, 366).
Typically, Jevons is taken as the first substantive English contribution to what has been called the ‘marginalist revolution', in which classical value theory was questioned severely and a new generation developed both theory and policy prescriptions. We here stress English contributions for, as Hutchison (1978, ch. 3) has shown, contemporaneous continental European developments associated with Menger and Walras were largely unknown and there was at this time a certain intellectual insularity. This did not extend to the heterodox ‘English historical economics': this was more cosmopolitan, using history to challenge classical political economy, and thereby developing an historical and inductive methodology for economics and which would greatly influence the development of the discipline of economic history (Kadish, 1989).
As it was, in practice the marginalist turn in England owed as much to Marshall, whose Principles of Economics (1890) brought together into a coherent whole the central concepts of demand and supply, marginal utility and costs of production, in the process establishing the first modern economics textbook and its author as the doyen of British economics (Groenewegen, 1995). Marshall’s establishment of the economics tripos at Cambridge in 1903, the first three- year single honours economics degree programme, then set the seal on the development of English economics through to J.M. Keynes and beyond, making Cambridge a major centre for English economics until at least the 1970s (Middleton, 1998).
Marginalism coincided with the delayed professionalisation of English economics in an accelerated process of catch-up, and especially with the United States, between the 1880s and the First World War (Coats, [1980] 1993, 138-42). This was a period of national introspection as anxieties about economic decline (relative, not absolute) took hold (Middleton, 1996, chs 4-6), thereby increasing the demand for economic (and statistical) expertise to resolve the cardinal choice of government or market (Middleton, 1998, ch. 4). Concurrently, on the supply side the new universities were establishing degree and other economics teaching in a process of ‘political economy to economics via commerce’, as epitomised by developments in Birmingham and Manchester (Kadish and Tribe, 1993).
Marshall’s influence, and that of his immediate successor to the Cambridge chair (Arthur Pigou, 1877-1959), affected profoundly the direction and content of English economics, both domestically and - through their training of the new generation as well as their own writings — abroad. This extended to the curriculum (economic history and the history of thought still integral to the discipline of economics) and to the public policy role of economists (most famously with Marshall and Pigou’s protege, J.M. Keynes). Both were greatly assisted by the final infrastructural development of this professionalisation stage: the establishment in 1890 of the British Economics Association (renamed the Royal Economic Society (RES) in 1902) as the learned society representing economists and the launch the following year of its journal, the Economic Journal (EJ). With F.Y. Edgeworth (1845—1926), in effect Marshall’s counterpart at Oxford, as the first editor, and in post for thirty-four years ( joined by Keynes, 1911-45), the EJ was by the First World War a significant international journal, as indeed it remains today a front-rank, general field journal (Hey and Winch, 1990).