The development of economic ideas over the long term

With the exception of Petty (English) and Cantillon (Hiberno-Norman), most of the important contributors to economic thought in Ireland in the seventeenth, eighteenth and early nineteenth centuries came from members of Protestant elite.

Prior to independence, Irish writers on political economy often resided and worked in England during part or all of their careers and could be regarded as forming part of a wider British economics community. Lurking in the background, however, were challenges to the official view and cautions that general maxims might not be applicable in the specific circumstances of Ireland. For some this pointed to the need for reforms that would make Irish institutions conform more closely to the English model. For others it pointed to the need for a different form of analysis and for institutions more in keeping with the culture of the people.

William Petty (1623—87) was the most important political economist of the seventeenth century, in Ireland or anywhere else. His contribution is foundational for a number of reasons. First, he sought to place political economy on a sound empirical footing by expressing himself ‘in terms of number weight or measure’ by using only ‘arguments of sense', and by considering ‘only such causes as have visible foundations in nature' (Petty, 1899: 244). Second, he con­ceived of the economy as an interrelated whole and, when he considered specific aspects such as foreign trade or monetary policy, he did so in the context of the wider system.

It is commonplace nowadays to point out that, for all its appearance of objectivity, Petty's use of political arithmetic was a creative enterprise designed to sell ambitious economic, social and political projects whose objective in the Irish case was to secure British rule, and with it the security of Petty's own possessions (McCormick, 2009). In Petty's defence, it should be noted that there was little or no reliable data available at the time and if his estimates were sometimes rough and ready, they often provided a good starting point for analysis. The Political Anatomy of Ireland written in 1671—2 is a good example of the approach.

It starts by accounting for the lands of Ireland measured in Irish acres and classified according to quality and ownership. Petty then estimated the number of people classified by religion, national origin and occupation. This, in turn, allowed him to identify the extent of under- and unproductive employment which he regarded as a measure of development potential because, once employed productively, these ‘spare hands' could add to local or universal (tradeable) wealth. Petty denied that Irish underdevelopment was due to disposition of the people and identified its main causes as constraints on Ireland's trade, an insufficiency of coin to drive the nation's trade, underdeveloped consumption patterns amongst the poor, perceived illegitimacy of rulers, rent-seeking and low population density (Petty, 1899).

The remedies proposed included restoration of trade with the plantations and England, regularisation of money, a bank based on landed property as security in order to reduce interest rates, reformation of the housing of the poor, application of some of the spare hands to the building of roads, bridges and harbours, union with England and later the transportation of large numbers from Ireland to England.

Petty's Political Anatomy was published posthumously in 1690 at a time of moderate prosperity which continued into the early decades of the eighteenth century. However, a quarter century punctuated by severe crisis and famine began around 1720. Initially the crisis was precipitated by the South Sea Bubble in England but it was exacerbated by problems of currency misalignment, the protection of the English market and poor weather conditions (Kelly, 1991). This evoked a response in the form of a steady stream of pamphlets from Molesworth, Prior, Browne, Hutcheson, Swift, Madden and Berkeley.

In many cases, the problems identified (lack of investment, trade restrictions, currency misalignment and lack of coin) and the remedies proposed did not differ substantially from Petty's. However, whereas Petty focused on problems associated with contested property rights in land, the later authors saw short leases as the main problem because tenants would not invest if they knew that rent would be raised in proportion to the improvements that they had made. Moreover, while Petty complained that Ireland being ‘thinly peopled' was an impediment to its development, by the 1720s, unemployment and poverty had emerged as major problems, causing Jonathan Swift (1667—1745) to argue that (Petty's) maxim ‘that people are the riches of a nation' did not apply in Ireland (Swift, 1925: 70).

Faced with the constraints placed by the British parliament on Irish trade, some, including Swift and George Berkeley (1685—1753), advocated the substitution of domestic products for imports as a means of developing domestic industry. Others, including Arthur Dobbs (1689—1765), who became governor of North Carolina in 1854, and John Browne, made the case that Britain's own interest would be best served by the promotion rather than restriction of Irish trade.

During the early part of his career, spent in England, Swift showed himself to be more alive than most to the implications of the financial revolution for the transfer of political power from the landed gentry to the finance capitalists. In Ireland, he continued in this view and opposed the setting up of a National Bank (Swift, 1925: 27—30). By contrast, Berkeley saw the poten­tial of the new financial instruments, arguing in his Querist that real wealth consisted in the plenty of the necessaries and comforts of life and the power to command the industry of others while money was simply a ticket or a counter for conveying or recording such power. As such, paper money and bank deposits were perfectly adequate and had some advantages over coin. This was a radical position at the time. Before Berkeley, John Law had argued for a purely fiduciary monetary system but with Law discredited following the collapse of the Mississippi Scheme, Berkeley’s position was a minority one and was to remain so for three hundred years (Murphy, 2000).

One of those who made a fortune from Law’s scheme was Richard Cantillon (1680?—1734), who became part of the Irish diaspora in Europe in the early eighteenth century. Alongside his great fortune, he acquired many enemies and was murdered in 1734. His Essay on the Nature of Trade in General was first published in 1755, but it had circulated in manuscript form and was extensively plagiarized both in England and in France. The first edition (issued in French but bearing a London imprint) is a great rarity of economics literature.

In his analysis, Cantillon completed the process, begun by Petty, of looking at the economy as an interconnected system. Starting with a hypothetical self-sufficient estate managed so as to best satisfy the owner’s preferences, Cantillon showed that, rather than manage the estate himself, the owner could rent it to farmers and buy what he wanted from them. The farmers would have an incentive to work harder, and the operation of the price mechanism would force them to adjust their outputs in accordance with the desires of the landowner. Having explained the operation of the price mechanism using the concepts of intrinsic value and market price, Cantillon examined the flows of money between the different sectors and classes in Part II of the Essay.

He also provided a nuanced exposition of the quantity theory of money in which the impact of increased money supply on prices depends on the source of the increase, and of the price­specie flow mechanism which emphasized the long lags involved and the potential for policy intervention. The final part of the Essay extends the discussion of foreign exchange and con­siders issues relating to the role of paper money and the management of national debt. Cantillon’s Essay does not appear to have been known in Ireland but was influential elsewhere. Quesnay’s Tableau Economique builds on part II of the Essay. Cantillon may also have influenced Smith’s theory of the market allocation of resources, though Smith unlike Cantillon has no role for the entrepreneur in the allocation process (Murphy, 2009: 81).

The last quarter of the eighteenth century saw the Irish Parliament secure a measure of legislative independence which enabled limited protection of the Irish market, although proposals for freer trade with Britain continued to be opposed by British manufacturing interests. However, by the union with Britain in 1801 there was a change in outlook as technical progress made English manufacturers confident of their commercial strength.

Despite some differences of emphasis, there was agreement amongst the likes of Ricardo, Malthus, Torrens and Trower that Irish agriculture was grossly inefficient and that improvements to agriculture would require the destruction of small tenancies. A system of agriculture more like the English one would produce the necessary food and raw materials more efficiently and release labour for employment in manufacturing. The problem was how to get from the existing situation to the new one. While some argued that Irish labourers needed to develop a taste for luxuries in order to create demand for local industry and increase their willingness to work, others warned that increases in consumption were more likely to be met by English imports. Yet others were concerned that the sequencing of development required the removal of labour from agriculture ahead of the provision of new sources of employment in manufactures and commerce.

This pointed to the need for a coherent set of measures such as poor relief, organized emigra­tion or some measure of industrial protection. There was also some recognition that the problem arose at the level of institutions. Ricardo, somewhat optimistically, argued that if property was secure and contracts were reliably fulfilled, capital would flow into Ireland resulting in adoption of the most economical processes and abundant demand for labour. Nicholls, however, seems to have had a better appreciation of the self-reinforcing nature of the various problems: ‘Want of capital produces want of employment — want of employment, turbulence and misery, — turbulence and misery, insecurity — insecurity prevents the introduction and accumulation of capital, and so on' (Black, 1960). Senior was even more categorical, identifying the insecurity of person and property arising from the detestation of Ireland's existing institutions by the mass of the people as the evil that creates or perpetuates all her other calamities. This Senior put down to ignorance — the lack of moral and intellectual education.

The provision of moral and intellectual education in the form of political economy was a mission of Senior's friend and former tutor Richard Whately (1787—1863), who following his appointment as Archbishop of Dublin in 1831 established the first Irish chair of political economy at Trinity College Dublin. More ambitiously, he sought to diffuse knowledge of political economy at every level of society and had a vehicle for doing so through his role as a commissioner for the national school system. Whately's Easy Lessons on Money Matters — a successful publication in its own right — was incorporated into the lesson books provided by the commissioners as a basis for the school curriculum and, reached a broad audience in Ireland and elsewhere (Boylan and Foley, 1992). Whately's approach was all about exchange. While labour could function as a measure of value, it was not its source. To be valuable goods had to be exchangeable, desired and scarce. Whereas in Ricardo's view, the interests of different classes could be opposed to one another, Whately's presumed a natural harmony of interests. Providence had so arranged things that, in an advanced state of society, self-interested and indeed selfish behaviour conduced to public prosperity.

Mountifort Longfield (1802—84), the first incumbent of the Whately chair, is recognised as having developed a proto-marginalist theory of value and distribution in opposition to the Ricardian view. The full extent of his anti-Ricardianism is subject to dispute, as is the extent to which his demand theory can be regarded as a forerunner of marginal utility theory. There is, however, agreement that Longfield developed a supply and demand theory of price, a marginal productivity theory of profit and a productivity theory of wages (Prendergast, 2010). Longfield viewed his analysis as showing that it was impossible to regulate wages by means of combinations or legislation, and that the only means by which the condition of the labourer could be improved was through an increase in productivity.

Although Longfield can be regarded as a harmony theorist who defended the status quo, he was one of the few economists to analyse the impact of absenteeism, and showed that it was prejudicial to the welfare of the community by worsening Irish terms of trade. Longfield also made important contributions in the currency controversies of the mid-nineteenth century and to the field of international trade (Black, 1971). Longfield's work on value and distribution was taken forward by his successors in the Whately chair — Isaac Butt (1813—79), James Anthony Lawson and William Neilson Hancock. However, their contributions were not influential as they were largely ignored by the leading economists of the day.

Afterwards, the intervention of the Great Irish Famine meant that later occupants of the Whately chair such as John Elliott Cairnes (1823—75) had very different pre-occupations. Cairnes' best known contributions are his book The Slave Power and his theory of non-competing groups. He was also a critic of laissez-faire, arguing that it amounted to an assumption that human interests were naturally harmonious — an assumption which neglected the reality of different class and interests. Cairnes' critique of laissez-faire had its origins in his consideration of the political economy of Irish land. According to Cairnes, the economic basis of property was the right of the producer to the fruits of his labour, while the basis for rent was that it consisted of excess returns over and above what was required to replace used capital and to provide normal profits. Cairnes argued that if the rights of the landlord were pushed beyond a certain point, they would come into conflict with the rights of the producer, which were actually more fundamental. In England and Scotland, it could be assumed that the competition between agriculture and other modes of investing capital was sufficient to ensure that actual rents did not exceed economic rents but this was not the case in most countries. Consequently, other means had to be found for ensuring the fairness of rents. Cairnes' conclusions can be summed as defending the right of the landlord to a ‘fair rent' but imposing on the state the duty of determining what this ‘fair rent' should be (Cairnes, 1873).

Arguments for reform of the land tenure system, for longer leases and for tenants' right to compensation for improvements had been put forward in the nineteenth century by Arthur O'Connor, William Conner, Thomas Davis and Gavan Duffy. However, it was only in the aftermath of the Great Famine that these proposals began to be treated seriously by economists of the stature ofJ.S. Mill and Cairnes. Their acceptance that it might be necessary for the state to intervene in the contracts between landlords and their tenants was a significant departure in itself but also had wider implications in that it undermined the notion that political economy was a body of immutable truths and therefore paved the way for the development of historical economics.

T.E. Cliffe Leslie (1826-82) of Queen's College, Belfast, who resided mainly in London and John Kells Ingram (1823-1907) of Trinity College, Dublin are widely regarded as leading members of what is often referred to as the English Historical School. Leslie carried out inter­disciplinary investigations into military systems and land tenure in Europe, including Ireland. Having attended some lectures by Henry Maine on historical jurisprudence, he sought to apply the approach within political economy arguing that ‘political economy is not a body of natural laws... but an assemblage of speculations and doctrines which are the result of a particular history' (Leslie, 1888). Leslie also emphasized that political economy should be inductive rather than deductive. Deductive theories imposed an artificial homogeneity and took no account of the fact that the movement of the economic world was from simplicity to complexity and from the known to the unknown.

Ingram's book, A History of Political Economy was a wide ranging relativist account of the history of the subject in Europe and America. He cited Maine, Spencer and the German Historical School in support of his view that only the historical approach would yield an adequate under­standing of phenomena. Like Leslie, he was critical of the abstract, deductive approach but, as a disciple of Comte, he placed particular emphasis on the fact that the economy is imbedded in the wider social system so that a proper study of economic phenomena has to engage with this broader context. Ingram's book was translated into several European languages as well as Japanese. It was also influential in the United States where Ingram was made an honorary member of the American Economic Association in 1891.