Table Of ContentStudies in the History of
Economic Theory before 870
I
By the same author
NAssAu SENIOR AND CLASSICAL EcoNOMICS
HousiNG AND THE STATE, I 9 I 9-I 944
INNOVATIONS IN BUILDING MATERIALs - AN EcoNOMIC STUDY
THE BRITISH BUILDING INDUSTRY-FouR STUDIES OF RESPONSE
AND RESISTANCE TO CHANGE
of
Studies in the History
Economic Theory before
I8JO
MARIAN BOWLEY
Professor of Political Economy
in the University of London
Palgrave Macmillan
© Marian Bowley 1973
Softcover reprint of the hardcover 1st edition 19473
All rights reserved. No part of this publication may be
reproduced or transmitted, in any form or by any means,
without permission.
First published r973 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Associated companies in New York Dublin
Melbourne Johannesburg and Madras
SEN 333 14785 5
ISBN 978-1-349-01876-5 ISBN 978-1-349-01874-1 (eBook)
DOI 10.1007/978-1-349-01874-1
Contents
Preface vii
I English Theories of Interest in the Seventeenth
Century reconsidered I
Part I Probleins of Control of the Supply of Money I
Introduction
1
11 The 'necessary stock of money' and the balance
of trade before I 6oo 2
iii The 'necessary stock of money' and the
balance of trade in the seventeenth century 10
iv The balance of trade policy questioned
27
Part 2 Analysis of Interest as an Economic Pheno-
menon in the Seventeenth Century 34
i Introduction
34
ii What interest is paid for
35
iii The level of the rate of interest-a cause or
consequence of wealth 38
iv The supply of loans and money 44
v Supply and demand - the natural rate of
interest and government control
53
Vl Bank credit, paper money and the rate of
interest
55
Vll Conclusions 58
II The development of Value Theory in the Seventeenth
Century - a by-product of the Theories of Money,
Trade and Interest 64
1 The seventeenth-century heritage 64
11 The theory of value - a by-product 6g
lll The measure of value 83
vi Contents
lV Factor prices 86
v Conclusions 88
III Alternative Approaches to the Price Mechanism in the
Eighteenth Century: Cantillon to Adam Smith 91
Introduction 91
ii Cantillon's Analysis of the Price Mechanism 94
lll Adam Smith's Analysis- The Lectures 106
lV Adam Smith's Analysis - The Wealth of
Nations 110
Addendum on the Just Price and Adam Smith's
Natural Price 127
IV Utility, the Paradox of Value and 'all that' and
Classical Economics 133
Adam Smith and utility and 'all that' 133
11 Ricardo, Say and Dupuit on the measure of
utility 142
lll Malthus and Longfield and the intensity of
demand 148
lV Conclusion I 56
v
Market Structures and the Theory of Value in
Classical Economics 58
I
Adam Smith and Ricardo on monopoly 158
Bailey and Senior on barriers to entry and
11
J. S. Mill 161
lll Coumot and the theory of the firm 169
lV Some general conclusions 174
VI Aspects of Wages and Profit Theory from Cantillon to
John Stuart Mill 177
Wage theory before Cant ill on 177
11 Cantillon 181
111 Adam Smith 183
lV Ricardo 206
v Senior and Longfield 208
Vl Growth and wage theory 217
Addendum on Adam Smith's Explanation of the
Falling Rate of Profit 220
Index 225
Preface
Histories of economic theory offer a fascinating subject for study
and a history of histories would throw a good deal of light on the
history of economic theory itself. No such study is included in this
book and this preface is only intended to indicate the nature of
the studies included.
Some histories are essays, often brief, appended to a new work
in order to show its relation to the work of predecessors. Naturally
such essays are apt to illuminate the views of the author rather
than those of his predecessors, for the object is usually either to
show the originality or superiority of the new work or to find
support for it by appeal to past authorities. Such history is liable
to be highly selective, if not obviously biased, nevertheless it can
be stimulating and important to contemporaries as a guide to
the understanding of the new work. It provides incidentally
material for later historians. Other types of histories which are
intended to be more general surveys of the development of
economic theory also involuntarily provide material for later
historians. It is not only that the actual choice of periods and
theories for study inevitably reflects the influence of interests
prevailing at the time when the historian is writing, but the
judgements passed on the theories included provide information
also as to the current state of economic theory and the outlook
of the historian himself. These influences cannot I think be elimi
nated and it does mean that the history of theory has to be con
tinually rewritten, since the usual purpose of histories is to consider
the extent to which earlier economists have contributed to the
solution of problems with which later economists happen to be
concerned at any particular moment. In some ways this is the
type of history which is of most interest to economists and may
be of most value to them by suggesting the need for new develop
ments, either to complete or to generalise earlier theories or to
Vlll Preface
modify them to make them relevant to current problems. Unfor
tunately this approach can obscure the reasons why earlier writers
tackled particular problems, and even the nature of the actual
questions they were trying to answer and the meaning which
they attached to particular words. Not unnaturally this quite
often results in misunderstanding of the answers as well as the
neglect of some of the relevant discussions. This must detract
from any value the study of history of theory may have.
The studies in this book deal with a few of the problems which
seem to me to need reconsideration for these reasons. I have
attempted therefore to adopt an approach which I think is not
used as often as it profitably could be. This involves trying to
discover some of the actual questions that some of the economists
of the pre-classical and the classical periods were asking, why
they formulated them in the way they did and how this influenced
their answers and, also, what assumptions they made implicitly as
well as explicitly. In brief I have attempted to look at the treat
ment of various problems by a number of writers in their own
analytical setting rather than from the point of view of modem
economic theory. I hope that in consequence I have avoided
writing of them as though I were correcting students' essays point
ing out with regret that they had not read an important article
in a recent issue of some modem journal. The results of adopting
this approach has surprised me and I am convinced that its
neglect led me to misinterpret certain aspects of the theory of
value and wages in my Nassau Senior and Classical Economics.1
The first study in this new book is a re-examination of the
theories of interest developed by seventeenth-century English
writers. This demonstrates that at least two theories of interest
were developed, a monetary and a non-monetary one; the dif
fering relations of these theories to the theories of money, the
balance of trade and economic activity of the period are also
discussed. The later studies in the book deal with various prob
lems in the developement of the theories of value, wages and
profit. A study of the theory of value in the seventeenth century is
included: this is a revision and extension of my 1963 Economica
1 This was recently reprinted. Unfortunately I was not consulted about
the reprint so I was unable to indicate in any way that I had revised some
of the views that I had held when I first wrote the book more than thirty
years ago.
Preface ix
article on this subject in the light of the realisation that the devel
opment of the theory of value in the seventeenth century was to
a large extent a by-product of the work on money, trade and
interest. This is followed by a comparative study of the develop
ment of the analysis of the price mechanism in the eighteenth
century with particular reference to Cantillon and Adam Smith.
It is much influenced by my investigation of seventeenth-century
developments and their effect on later writers, since this con
vinced me that, in common with many others, I had hitherto
failed to appreciate fully the nature of some of the questions
Adam Smith tried to deal with and the interest of his discussion
of them. This leads to what I believe is a new explanation of why
the labour theory of value appears in the Wealth of Nations and
why it occupies only a few short paragraphs.
The fourth study, 'Utility, the Paradox of Value and "all that"
and Classical Economics', is the natural outcome of my modified
interpretation of Adam Smith. It seems to me that the signifi
cance of the work of Adam Smith and the classical economists on
the relation of utility to value has been misunderstood in some
respects by other people, as well as by me, as a result of the en
thusiasm for the marginal school. A revised view is put forward.
The fifth study, 'Market Structures and the Theory of Value in
Classical Economics', deals with problems of the analysis of mar
ket structures in relation to the break-up of the classical theory
of value; this was touched upon only in my old book on Senior.
While the second, third, fourth and fifth studies are all directly
concerned with problems of the history of value theory and the
price mechanism, the sixth study deals with some of the aspects of
wages and profit theory which of necessity emerged with the
development of the theory of the price mechanism. Recognition
of the need for theories of wages and profits at all is a specific
contribution of eighteenth-century economists, for whereas they
inherited a substantial contribution to value theory from their
predecessors, they inherited little but opinions, policies and pre
judices about the determination of wages and profits. The
sixth study examines the influence of this situation, combined with
particular approaches to wages and profits arising from the price
mechanism analyses of Cantillon and Adam Smith, on the
development of wages and profit theory; it includes consideration
of attempts at emancipation from these influences. The study
