General introduction

The past is never dead. It’s not even past. (William Faulkner)

The aim of this Handbook on the History of Economic Analysis is to provide a succinct overview of the development of economics since its systematic inception up until today.

The Handbook has three volumes. Volume I deals with Great Economists since Petty and Boisguilbert. It provides short essays in biography of some of the most important economists in what is known as the “Western World”. Volume II deals with Schools of Thought in Economics. A school is defined in terms of the analytical method(s) used, the approach chosen in tackling the problem(s) at hand, the results derived and the policy conclusions inferred. Volume III contains summary accounts of Developments in Major Fields of Economics reflecting the division of labour within the discipline.

There are different ways of approaching the history of economic thought. The focus of these volumes is on economic theories: their formation, including their philosophical and historical underpinnings, their conclusiveness and place within the field, and their possible use in formulating economic policies. We draw attention to those economists and their doctrines that we regard as especially significant. It hardly needs to be said that our choice unavoidably reflects a subjective element. We would have liked to include the portraits of several more important thinkers, but space constraints prevented us from doing so. The same applies cum grano salis to the schools of thought and developments in major fields covered.

Let us however acknowledge, at the outset, some of the important gaps in coverage. The focus is on European intellectual traditions and their continuation in the so-called Western World, but of course it is a fact that all advanced civilizations can point to notable achievements in the exploration of economic life - think of countries such as China or Japan, for example, or civilizations following philosophical or religious traditions such as Buddhism or Islam.

In addition to geographic gaps, there are also some gaps in subjects covered, such as the omission of business administration and management theories.

Arthur Cecil Pigou once remarked that the history of economic thought is a history of the “wrong ideas of dead men”. Certainly, it is partly also that, but not only, and moreover there is always much to learn from the alleged “errors”. While there is progress in economics, there is also occasional regress. This should not come as a surprise: in a discipline dealing with as complex a subject matter as economics, it would be naive not to expect some intellectual “bubbles” that sooner or later burst, necessitating a fundamental re-orientation in the area of investigation under consideration. In the parlance of economists: the market for economic ideas is not a perfectly functioning selection mechanism that preserves all that is correct and valuable and discards whatever is wrong and useless.

This may also contribute to explaining the remarkable fact that certain ideas and concepts in economics, cherished at one time, get submerged and are forgotten afterwards, only to re-emerge in a new garb and liberated of their teething troubles at a later time. As Dennis Robertson once remarked with regard to the history of economics: “If you stand in the same place long enough, the hunted hare comes round again.” Or, as Alfred Marshall put it: “We continually meet with old friends in new dresses.” One of the most knowledgeable historians of economic thought ever, Joseph Alois Schumpeter, expressed the same view as follows: “Old friends come disguised to the party.”

Modern economists frequently seem to believe that it not only suffices to know just the most recent economic doctrines and theories; they even seem to think, echoing Pigou’s statement above, that it is detrimental to their intellectual development to expose themselves to the ideas and thoughts of earlier generations of economists. Since by assumption these must be partly or wholly wrong, or at least imperfect, it is not only a waste of time to study the “old masters”, it may even be harmful to do so, because it may confuse readers and prompt them to deviate from the correct path to truth and wisdom.

This position is a version of what the literary critic Norman Foerster called “provincialism of time”, that is, “the measure of past literature by the ideas and moods of a narrow present”. It is, among other things, based on the false presumption that it is the privilege of living economists to articulate only correct views.

Even a casual look at the history of economics, its various schools of thought and doctrines, shows that economics always lacked and still lacks a unite de doctrine, and that there is no reason to presume that this state of affairs will end any time soon. If economics were characterized by a relentless march towards ever-higher levels of knowledge and truthfulness, this fact would be difficult to explain.

There can be little doubt that the ideas of economists are important. John Maynard Keynes even insisted: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.” If this happens to be so, it is important to know the ideas of economists, especially when they are wrong. The history of economic analysis is not only a treasure trove of such ideas, it also informs about when and why certain ideas were challenged and some of them eventually rejected, at least in the form in which they were available at the time. Knowing the history of the discipline should help you to resist superstition, hysteria and exuberance in economic and social questions. And it should immunize you against falling victim to the ideas of some “defunct economist” (Keynes) all too easily.

The gestation period of the Handbook on the History of Economic Analysis was long - a great deal longer than originally planned. There are many factors that contribute to explaining the delays to the project. With some 140 authors, the probability was high that some of them could not deliver, for various respectable reasons, and had to be replaced. In some cases we had to act as writers of last resort.

We also insisted that the three volumes should come out together, which necessitated the completion of them at roughly the same time. Bad health at different periods of time for each of the editors did not exactly help in propelling the project forward. Confronted with these and other difficulties, we are all the more pleased to be able to present the Handbook on the History of Economic Analysis to the scientific community. We take this opportunity to thank all of the contributors for their fine work. We are particularly grateful to those who delivered their entries in good time and for their patience thereafter. We also thank the referees we involved in assessing the different versions of the entries and for their useful comments, which helped to improve them.

May this Handbook on the History of Economic Analysis contribute to a better understanding of the path economics took over time up until today and substantiate William Faulkner’s claim that “History is not was, it is”.

Gilbert Faccarello and Heinz D. Kurz

A note on the cross-references sections: the volume in which the cross-references appear is listed as follows:

(I) Handbook on the History of Economic Analysis Volume I: Great Economists since Petty and Boisguilbert;

(II) Handbook on the History of Economic Analysis Volume II: Schools of Thought in Economics;

(III) Handbook on the History of Economic Analysis Volume III: Developments in Major Fields of Economics.

William Petty was born 26 May 1623 into modest family circumstances in Romsey, Hampshire. A precocious child, with a colourful personality which remained firmly with him in adulthood, Petty made his way in the world with both great ambition and great success. As a result of various happy accidents, he gained a progressive education in France and the Netherlands between 1638 and 1645, and acquired influential patrons, including Thomas Hobbes. After returning to England he studied medicine at Oxford University, acquiring the degree of Doctor of Physic in 1650.

Benefiting from the Cromwellian purge of loyalist dons from the university, he was appointed Professor of Anatomy there in 1651.

Petty’s ambitions led him to accept the position of physician-general to the English army in Ireland from 1652. More than two decades of his remaining 35 years were spent in that country. He went on to undertake the massive “Down” survey of Ireland which formed the basis for the transfer of Irish lands to the English “adventurers” who had undertaken the military subjugation of Ireland in the 1640s (Larcom 1851; Petty’s own long account of the survey). Putting aside any moral judgements about this episode or Petty’s involvement in it, the survey provided him with the opportunity to examine in great empirical detail the social and economic condition of an entire people - important material for his later “political arithmetic”. His Irish involvements also made Petty a very rich landowner in Ireland.

Petty was an enthusiastic and committed devotee of the English scientific revolution of the seventeenth century, which took much of its inspiration from the reform programme of Francis Bacon. Related to these scientific involvements, he was a founding member of the Royal Society (and its Council) in 1662 and a friend or acquaintance of many leading intellectual figures of the era. Hence as a seminal figure in the formation of a scientific economics in the generic sense, and of classical economics in terms of substantive ideas, Petty comes to economic analysis from a deep and rich philosophical and scientific intellectual background. (This is to be contrasted with the mercantile or commercial background of most of those who contributed to the English economic literature of the seventeenth century.) Marx (1967: 272-3) regards him as the founder of political economy. In significant part following the lead of his early mentor, Hobbes, Petty took mathematics as the model of rational inquiry, at least so long as the mathematical method was combined with well-defined objective, empirical concepts upon which the mathematics could operate (Aspromourgos 1996: 54-72).

Petty was an original and creative thinker who pursued innovation across a range of activities, though not always successfully. The Irish survey itself was a highly innovative exercise. He also tried his hand at various inventions. He had strong ambitions for the advancement of science, technology and policy, and his own material interests. This aspect of Petty’s temper is captured, albeit in a rather negative way, in a comment of Charles II: “the man will not be contented to be excellent, but is still Ayming at Impossible Things” (Lansdowne 1928: 281).

The intellectual innovation for which Petty is most remembered is the invention of “political arithmetic”, first explicitly formulated by him in the early 1670s (Aspromourgos 1996: 41-9, 2001: 79-83; the term originates with him also). It has been retrospectively characterized as the beginnings of “econometrics” (Schumpeter 1954: 209-10); but

Hicks (1983: 17) is closer to the truth in perceiving it as “social accounting”. More recently, it has been argued that economists, in claiming Petty as a founding figure in their latter-day discipline, have distorted the character of his political arithmetic project, dislocating it from its context (especially its Irish colonization context) and appropriating it to a Whig history of political economy (McCormick 2009). There is no doubt some truth in this; but while political arithmetic is not political economy, they are not incommensurable projects. As much as Petty’s political arithmetic, Adam Smith’s political economy is a science designed for State policy.

While Petty’s pioneering efforts at the application of quantification to human phenomena has naturally been a source of considerable retrospective interest, not to say fascination, it is important also to recognize that his political arithmetic programme was not merely a large-scale, grand exercise in accumulating quantitative data or “facts” concerning economy, society and polity (as well as other phenomena). In contemplating this question, interpretive debate has often been taken up with rather sterile arguments in terms of inductivism versus deductivism. Putting aside that dichotomy - Petty was, in any case, emphatically an empiricist - it is clear that the quantitative empirical political arithmetic projects from the early 1670s forward, were informed by conceptual and theoretical ideas developed earlier. In particular, latter-day fascination with the essays in political arithmetic (and one large essay in “political anatomy”) has drawn attention away from his earlier, and by the standards of the time, large essay, A Treatise of Taxes & Contributions (1662, in Hull 1899: 1-97), which contains most of his important conceptual and theoretical ideas, and prefigures the project of a quantitative and objectively grounded form of “social science” (our term), which Petty sought to advance.

The striking feature of the Treatise is that it grounds consideration of taxation, tax policy and tax reform in an analysis of production and distribution. The real source of tax revenues (which are partly to fund one of Petty’s key reform objectives, the full utilization of the nation’s available labour) is society’s economic surplus: the gross outputs net of the necessary inputs used up in their production (Hull 1899: 30-31, 42-5, 89-90). In the first instance, Petty is able to conceptualize this idea with clarity by making the simplifying assumption that in agriculture, the output and necessary input are one and the same commodity, so that the surplus may be defined independently of intersectoral relations. But elsewhere he gives expression to the same kind of social surplus concept in more sophisticated forms (Aspromourgos 2005). This conceptualization becomes in the Treatise the kernel of a theory of distribution in which the surplus is realized primarily as land-rents and tax revenues - symptomatic of the fact that Petty is theorizing a precapitalist economy (Aspromourgos 1996: 22-30). He also outlines a location theory of differential rent (Hull 1899: 48-52).

The surplus analysis is articulated primarily in terms of a division between a society’s necessary and total available labour. This framework, in both the Treatise and later writings, then informs descriptive and normative analyses of the level and composition of employment in England and Ireland. Petty consistently and persistently argued for grand schemes of socio-economic reform, with a view to maximizing surplus labour and allocating it towards more useful activities. The pursuit of material progress is an underlying motif of his writings, a theme which can also be seen as derivative from Bacon. Petty enunciates as well a kind of labour theory of relative prices, though it might be better interpreted as a cost-of-production theory. This is combined with a market/natural price distinction of similar character to that in later classical writers, and typically of Petty, expressed by way of a preference for objective explanation. Having explained the causes of natural price in terms of labour-time or cost, he adds that as well as these “permanent Causes”, there are “contingent Causes”, due to commodities having “Substitutes”, and the fact that “novelty, surprize... and opinion of unexaminable effects do adde or take away from the price of things” (Hull 1899: 90). With regard to monetary analysis, he was also the originator of the concept of the velocity of circulation of money. Although in favour of accumulation of a kind of national precautionary reserve of money, Petty does not fit comfortably into the “mercantilist” mould. A fuller account of all these matters is provided in Aspromourgos (1996: 30-51).

The objectivist temper of Petty’s approach to social theory is expressed in many places and in many ways in his corpus of writings (Aspromourgos 1996: 57-64). It is also engagingly captured in a contemporaneous anecdote concerning Petty, recounted by John Aubrey:

I remember one St Andrewe’s day (which is the day of the Generall Meeting of the Royall Society for Annuall Elections) I sayd, Methought ’twas not so well that we should pitch upon the Patron of Scotland’s day, we should rather have taken St George or St Isadore (a Philosopher canonized). No, said Sir William, I would rather have had it on St Thomas day, for he would not beleeve till he had seen and putt his fingers into the Holes, according to the Motto Nullius in verba [not bound to swear obedience to any man’s dogma]. (Dick 1972: 402)

Petty is here referring to the New Testament story of the disciple of Jesus, Thomas - “doubting Thomas” as he has been subsequently known - who, when told that Jesus had risen from the dead, is supposed to have said: “Unless I see in his hands the mark of the nails, and place my finger into the mark... I will never believe” (Gospel of St John, 20:25). Evidently, Thomas was the empiricist disciple! This anecdote also incidentally captures something of Petty’s personality and sense of humour, which sometimes got him into trouble (see, for example, Bray 1907: 100-101).

Most of Petty’s published “economic” works, from the Treatise of 1662 forward, including all his published essays in political arithmetic, are in Hull (1899). The most notable published work omitted is Petty (1647), partly inspired by his observations of Holland, a short essay which captures the element of Baconian inspiration for Petty’s mature economic thought, prefiguring many of the concerns of his later writings, notably, division of labour, technical progress and labour productivity. Petty (1674), also omitted from Hull (1899) apart from two slight extracts (at pp. 622-4), is significant as well, for its reflections on quantification. Petty left a large archive of manuscripts, which remained in the possession of his descendants for three centuries, but is now in the British Library. Lansdowne (1927) is a collection of selections from this material (also Lansdowne 1928). Matsukawa (1977) is a further and important document from the archive. Interestingly, in another unpublished manuscript from the archive Petty provides a thoughtful argument concerning the limits of rational quantification, confounding the image of him in some secondary literature as rather excessive in his pursuit of quantification (Aspromourgos 2000: 66-7). The very large archive of Samuel Hartlib at Sheffield University contains considerable material by and concerning the young Petty, which is also revealing of his formative intellectual development (HROnline 2002). There are two biographies of Petty (Fitzmaurice 1895; Strauss 1954), though McCormick (2009) is itself primarily an intellectual biography. The latter work is the first comprehensive study more or less singularly devoted to Petty since Roncaglia (1985). The historian of Ireland, T.C. Barnard, has written extensively about Petty’s Irish involvements in particular. Aspromourgos (2001) provides a quite comprehensive bibliography of secondary literature on Petty, to the end of the twentieth century.

Tony Aspromourgos

General introduction

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