Economic Thought Before Adam Smith - Swiss Mises Institute

572 Pages·2009·9.71 MB·English

by  Murray N. Rothbard

Economic Thought
Before Adam Smith
Murray N. Rothbard
To mymentors,
LudwigvonMises andJosephDorfman
Economic Thought
Before Adam Smith
An Austrian Perspective on the
History of Economic Thought
Volume I
Murray N. Rothbard
Lu~wig
von Mises
Institute
AUBURN, ALABAMA
TheLudwigvonMisesInstitutededicatesthisvolumetoallofits
generousdonorsandwishestothankthesePatrons,inparticular:
Anonymous
~
ReedW.Mower
~
RamalloPallastWakefield&Partner;
DouglasFrenchandDeannaForbush;HughE. Ledbetter;
Mr. andMrs.R. NelsonNash;JuleR.Herbert,Jr.;RichardMoss
~
AndreasAcavalos;WilliamH.Anderson;
Mr. andMrs. WilliamM. Benton;RichardB. Bleiberg;
JohnHamiltonBolstad;RomanJ. Bowser;
Mr. andMrs. RogerH. Box;MaryE. Braum;CarlCreager;
D.AllenandSandraDalton;Mr. andMrs.JeremyS.Davis;
Mr. andMrs. LewFetterman;Mr. andMrs.WillardFischer;
FranciscoGarciaParames;KevinGriffin;
Dr. andMrs. RobertHarner;AdamHogan;
RichardJ. Kossmann,M.D.;S.GiovanniLewis;JonathanLiem;
BjornLundahl;Mr. andMrs.WilliamW. Massey,Jr.;
WilliamandZintaMcDonnell;JosephEdwardPaulMelville;
Dr. DorothyDonnelleyMoller;topdog™ ;MichaelRobb;
DagnyRoss;LeeSchneider;ConradSchneiker;
Mr. andMrs. EdwardSchoppe,Jr.;Mr. andMrs. CharlesR. Sebrell;
NormanK. Singleton;JohnSkar;GloriaandRobertStewart;
JoanThompson;WilliUrbach;JamesS. VanPelt;WilliamP. Weidner;
Mr. andMrs.WalterWoodulIII;Dr. StevenLeeYamshon
Copyright©EdwardElgarPublishingLtd.,1995
This2006editionofEconomicThought BeforeAdamSmith:AnAustrian
PerspectiveontheHistoryofEconomicThought, VolumeI,ispublishedby
arrangementwithEdwardElgarPublishing,Ltd.
Allrightsreserved. Nopartofthisbookmaybereproducedinanyman
nerwhatsoeverwithoutwrittenpermissionexceptinthecaseofreprints
inthecontextofreviews. ForinformationwritetheLudwigvonMises
Institute,518WestMagnoliaAvenue,Auburn,Alabama36832.
ISBN:0-945466-48-X
Contents
Introduction vii
Acknowledgements xv
1. The firstphilosopher-economists: theGreeks 1
2. TheChristianMiddleAges 29
3. FromMiddleAgestoRenaissance 65
4. ThelateSpanishscholastics 97
5. ProtestantsandCatholics 135
6. Absolutistthoughtin Italy andFrance 177
7. Mercantilism: servingtheabsolutestate 211
8. Frenchmercantilistthoughtin the seventeenthcentury 233
9. Theliberal reaction againstmercantilismin seventeenthcentury
France 253
10. Mercantilism and freedom inEnglandfrom theTudors tothe
CivilWar 275
11. Mercantilismandfreedom inEnglandfrom theCivilWarto
1750 307
12. Thefounding father ofmoderneconomics: RichardCantillon 343
13. Physiocracy in mid-eighteenthcenturyFrance 363
14. The brillianceofTurgot 383
15. The ScottishEnlightenment 415
16. ThecelebratedAdam Smith 433
17. The spreadoftheSmithian movement 475
Bibliographical essay 505
Index 535
v

Introduction
As the subtitle declares, this work is an overall history ofeconomic thought
from a frankly 'Austrian' standpoint: that is, from the point of view of an
adherent ofthe 'Austrian School' ofeconomics. This is the only such work
by amodernAustrian; indeed,onlyafew monographs inspecializedareasof
the history ofthought have been published byAustrians in recent decades.!
Not only that: this perspective is grounded in what is currently the least
fashionable though nottheleastnumerous variantoftheAustrianSchool: the
'Misesian' or 'praxeologic'.2
ButtheAustrian nature ofthis work is scarcely its only singularity. When
the presentauthorfirst began studying economics in the 1940s, there was an
overwhelmingly dominant paradigm in the approach to the history of eco
nomic thought - one that is still paramount, though not as baldly as in that
era. Essentially, thisparadigmfeatures afew GreatMenas theessenceofthe
history of economic thought, with Adam Smith as the almost superhuman
founder. But ifSmith was the creator ofboth economic analysis and ofthe
free trade, free market tradition in political economy, it would be petty and
niggling to question seriously any aspect of his alleged achievement. Any
sharp criticism ofSmith as either economist or free market advocate would
seemonlyanachronistic: lookingdown upon thepioneeringfounderfrom the
pointofview ofthe superiorknowledge oftoday, puny descendants unfairly
bashingthegiants on whoseshoulders westand.
IfAdam Smithcreatedeconomics, much asAthenasprangfull-grown and
fully armed from the browofZeus, then his predecessors mustbefoils, little
men ofno account. And so short shrift was given, in these classic portrayals
ofeconomic thought, to anyoneunlucky enoughtoprecedeSmith. Generally
they weregrouped intotwocategoriesandbrusquelydismissed. Immediately
preceding Smith were the mercantilists, whom he strongly criticized. Mer
cantilistswereapparentlyboobswhokepturgingpeopletoaccumulatemoney
but not to spend it, or insisting thatthe balance oftrade must 'balance' with
each country. Scholastics were dismissed even more rudely, as moralistic
medieval ignoramuses who kept warning that the 'just' price must cover a
merchant's costofproductionplus areasonableprofit.
The classic works in the history of thought of the 1930s and 1940s then
proceeded to expound and largely to celebrate afew peakfigures afterSmith.
Ricardo systematized Smith, and dominated economics until the 1870s; then
the 'marginalists', levons, Menger and Walras, marginally corrected Smith-
vii
viii Economic thoughtbeforeAdamSmith
Ricardo 'classical economics' by stressing theimportanceofthemarginal unit
ascomparedtowholeclassesofgoods.ThenitwasontoAlfredMarshall, who
sagely integrated Ricardian cost theory with the supposedly one-sided Aus
trian-Jevonian emphasis on demand and utility, to createmodern neoclassical
economics. Karl Marx could scarcely be ignored, and so he was treated in a
chapterasanaberrantRicardian.Andsothehistoriancouldpolishoffhisstory
bydealingwithfourorfiveGreatFigures,eachofwhom,withtheexceptionof
Marx, contributedmore building blocks toward the unbroken progress ofeco
nomicscience,essentiallyastoryofeveronwardandupwardintothelight.3
In the post-World War II years, Keynes ofcourse was added to the Pan
theon, providing anew culminatingchapterin theprogress and development
of the science. Keynes, beloved student of the great Marshall, realized that
the old man had leftout what would laterbe called 'macroeconomics' in his
exclusiveemphasison themicro.Andso Keynes addedmacro, concentrating
on the study and explanation ofunemployment, aphenomenon which every
onebeforeKeynes hadunaccountablyleftoutoftheeconomicpicture,orhad
conveniently sweptundertherug by blithely 'assumingfull employment'.
Since then, the dominant paradigm has been largely sustained, although
matters haverecentlybecomerathercloudy. Foronething, this kindofGreat
Man ever-upward history requires occasional new final chapters. Keynes's
General Theory, published in 1936, is now almost sixty years old; surely
there must be a Great Man for a final chapter? But who? For a while,
Schumpeter, with his modern and seemingly realistic stress on 'innovation',
had a run, but this trend came a cropper, perhaps on the realization that
Schumpeter's fundamental work (or 'vision', as he himselfperceptively put
it) was written more than two decades before the General Theory. The years
since the 1950s have been murky; and it is difficult to force a return to the
once-forgottenWalrasinto theProcrustean bedofcontinualprogress.
My own view ofthe grave deficiency oftheFew GreatMen approach has
been greatly influenced by the work of two splendid historians of thought.
One is my own dissertation mentor Joseph Dorfman, whose unparalleled
multi-volume work on the history of American economic thought demon
stratedconclusivelyhowimportantallegedly 'lesser'figures areinanymove
ment ofideas. In the first place, the stuff of history is left out by omitting
thesefigures, andhistoryisthereforefalsified byselectingand worryingover
a few scattered texts to constitute The History ofThought. Second, a large
number of the supposedly secondary figures contributed a great deal to the
development of thought, in some ways more than the few peak thinkers.
Hence, important features of economic thought get omitted, and the devel
opedtheory is madepaltry and barrenas well as lifeless.
Furthermore, the cut-and-thrust of history itself, the context of the ideas
and movements, how people influenced each other, and how they reacted to
Introduction ix
and against one another, is necessarily left out of the Few Great Men ap
proach. This aspect ofthe historian's work was particularly broughthome to
me byQuentinSkinner's notable two-volume FoundationsofModern Politi
calThought, thesignificanceofwhichcouldbeappreciatedwithoutadopting
Skinner'sown behaviouristmethodology.4
Thecontinual progress, onward-and-upward approach was demolished for
me, and should have been for everyone, by Thomas Kuhn's famed Structure
ofScientific Revolutions.5Kuhn paid no attention to economics, butinstead,
in the standard mannerofphilosophers and historians ofscience, focused on
suchineluctably 'hard' sciencesas physics,chemistry, andastronomy. Bring
ing the word 'paradigm' into intellectual discourse, Kuhn demolished whatI
like to call the 'Whig theory of the history of science'. The Whig theory,
subscribedto by almostallhistoriansofscience,includingeconomics,is that
scientific thought progresses patiently, one year after another developing,
sifting, and testing theories, so that science marches onward and upward,
each year, decade or generation learning more and possessing ever more
correctscientifictheories. OnanalogywiththeWhigtheoryofhistory,coined
in mid-nineteenth century England, which maintained that things are always
getting (and therefore must get) better and better, the Whig historian of
science, seemingly on firmer grounds than the regular Whig historian, im
plicitly or explicitly asserts that 'later is always better' in any particular
scientific discipline. The Whig historian (whether of science or of history
proper) really maintains that, for any pointofhistorical time, 'whateverwas,
was right', oratleastbetterthan 'whateverwas earlier'. Theinevitableresult
is a complacent and infuriating Panglossian optimism. In the historiography
of economic thought, the consequence is the firm if implicit position that
every individual economist, or at least every school ofeconomists, contrib
utedtheirimportantmitetotheinexorableupwardmarch.Therecan, then, be
no such thing as gross systemicerrorthatdeeply flawed, oreveninvalidated,
an entire school ofeconomic thought, muchlesssentthe worldofeconomics
permanently astray.
Kuhn, however, shocked the philosophic world by demonstrating thatthis
is simply notthe way that science has developed. Once acentral paradigmis
selected, there is no testing or sifting, and tests of basic assumptions only
take place afteraseries offailures and anomalies in theruling paradigm has
plunged the science into a 'crisis situation'. One need not adopt Kuhn's
nihilistic philosophic outlook, his implication that no one paradigmis orcan
be better than any other, to realize that his less than starry-eyed view of
sciencerings true bothas history andas sociology.
ButifthestandardromanticorPanglossian viewdoes notworkeveninthe
hardsciences,afortioriitmustbetotallyoffthemarkinsucha 'softscience'
as economics, in a discipline where there can be no laboratory testing, and
x EconomicthoughtbeforeAdamSmith
where numerous even softerdisciplines such as politics, religion, and ethics
necessarilyimpingeonone'seconomicoutlook.
There can therefore be no presumption whatever in economics that later
thought is better than earlier, or even that all well-known economists have
contributed their sturdy mite to the developing discipline. For it becomes
very likely that, rather than everyone contributing to an ever-progressing
edifice, economics can and has proceeded in contentious, even zig-zag fash
ion, withlatersystemicfallacy sometimeselbowingasideearlierbutsounder
paradigms, thereby redirecting economic thought down a total erroneous or
even tragic path. The overall path of economics may be up, or it may be
down, overany givetimeperiod.
In recent years, economics, under the dominant influence of formalism,
positivismandeconometrics, andpreeningitselfon beingahard science, has
displayed little interest in its own past. It has been intent, as in any 'real'
science, on the latest textbook orjournal article rather than on exploring its
own history. After all, do contemporary physicists spend much time poring
overeighteenthcentury optics?
In the last decade or two, however, the reigning Walrasian-Keynesian
neoclassical formalistparadigmhas beencalledevermoreintoquestion, and
a veritable Kuhnian 'crisis situation' has developed in various areas ofeco
nomics, including worry over its methodology. Amidst this situation, the
study ofthe history ofthought has made a significantcomeback, one which
wehopeandexpectwillexpandincomingyears.6Forifknowledgeburiedin
paradigms lostcandisappearand beforgotten overtime, then studyingolder
economists and schools ofthought need not be done merely for antiquarian
purposes or to examine how intellectual life proceeded in the past. Earlier
economists can be studied for their importantcontributions to forgotten and
therefore new knowledge today. Valuable truths can be learned about the
contentofeconomics, notonly from the latestjournals, butfrom the texts of
long-deceasedeconomicthinkers.
Butthesearemerely methodologicalgeneralizations.Theconcreterealiza
tion that importanteconomic knowledge had been lostovertimecame tome
from absorbing the great revision of the scholastics that developed in the
1950sand 1960s.ThepioneeringrevisioncamedramaticallyinSchumpeter's
great History of Economic Analysis, and was developed in the works of
Raymond de Roover, Marjorie Grice-Hutchinson and John T. Noonan. It
turns out that the scholastics were not simply 'medieval', but began in the
thirteenthcenturyandexpandedandflourishedthroughthesixteenthandinto
the seventeenth century. Far from being cost-of-production moralists, the
scholastics believedthatthejustprice was whateverprice was establishedon
the 'common,estimate' ofthefree market. Notonlythat: farfrom beingnaive
labour or cost-of-production value theorists, the scholastics may be consid-