innonimatu
the resident Cassandra
- Joined
- Dec 4, 2006
- Messages
- 15,365
As promised, I’m starting here an attempt to put together a quick history of how economic thought evolved and how it changed society. I’ll focus on economic thought and the political and philosophical ideas it drew upon or supported, not on technical issues. This first part is just an introduction before moving on to what is now understood as economics (classical economics and later schools). The topics covered may not seem interesting at first sight, but I believe readers will be surprised with how old some economic ideas (often misattributed) are.
From the antiquity to the Renaissance, the notion of “economy” did not exist. What might be called economy was no more that the management of one’s property (household and lands, essentially) and what discussion might happen about the economy was based on moral and philosophical consideration – the distribution of wealth was recognized as a consequence of power relations, and those were the province of morals and philosophy.
The first concerns with economic issues on a larger scale, on a political scale, and more centered on efficiency than on moral considerations, happened as the modern state started forming in Europe after the Renaissance, and sovereigns in the process of centralizing state power sought to increase tax income. The increase of trade and the weakening of church power were also requirements for this change in attitudes. The empires of antiquity had been hampered by bad communications, or moral ideologies, or weak central administrations, and never saw the development of a discipline of economics, never disconnected the distribution of wealth from power structures and moral considerations. Commerce, and especially commercial profit, were usually looked down upon, considered negative. In the west, starting with Aristotle (at least) and going through all major western religions, usury was considered bad, money was supposed to be sterile. That didn’t prevent it from happening, but it did not drove society.
The governments of the modern states rising in 17th century Europe would put an end to that stigma. The mercantilists (who never saw themselves as members of a single school of thought, not called themselves by that name started the change in attitude: commerce might be bad (international commerce was regarded as a zero-sum game), unless the profit was ours, and profit was understood essentially as the accumulation of money/precious metals. The only other thing they had in common was that their efforts were directed at strengthening state power, in competition with rival states. Methods varied, from royal monopolies to promote the exports of finished and luxury products, to colonial acquisitions, protectionism and controls on trade and navigation, to the promotion of lending at low interest rates (yes, it goes back to the 17h century England, at least) to increase funding for traders and manufacturers. State power was seen as resulting from manpower and available money, so policies should encourage both population growth (Malthus was still far away) and especially the accumulation of wealth. Private commercial endeavors, far from being condemnable, were regarded as positive, so long as they contributed towards these goals (and the accumulation of private profit by citizens generally did). The increase of wealth (coin in circulation) was desired precisely because it allowed a greater mobilization of the nation’s natural resources. Protectionism and state-sponsored credit, opened the way for industrialization, specialization, and increased productivity. Contrary to what is often believed, mercantilists were, for their own time, radically “liberal” and progressive. The cut with the medieval period was, in some regions, radical. To give an idea, even begging, extremely common throughout medieval Europe (the monasteries traditionally supported the poor), was “forbidden”. The poor were to be fed by the state but only after internment into workhouses. The death penalty was decreed against recidivist beggars in England (that goes back to Elizabeth I, I believe) and on areas of northern France in the 17th century.
But their time unchallenged would only last about one century (however, many of their policies, we can easily notice, are still in use today). What was liberal a few generations ago eventually loses its novelty and falls under the attacks of “new liberals”. These were the physiocrats. The physiocrats showed up in France, but the essence of their main idea had already been presented in England by the “natural law” philosophers (even if they did not pursue it into economic issues): that society was subject to natural laws which governments could not change. Any interference (government or other) in commerce might go against these laws, and was therefore at best misguided, or even harmful, they argued. It wasn’t just commence they saw as naturally regulated, but the whole of society: natural law, divinely provided, ensured that we lived in the best of possible worlds, so long as we obeyed it (late followers of Leibniz?). And what were the rules which made up the “natural law”?
First and foremost among the natural laws of society were property rights. Because, they claimed, all wealth came from the land and its crops, and farming required ownership of both the seed and the fruit (“without a guarantee of ownership over the crop, no one would plant…”
, property was fundamental to social order. And because the social order they knew was regarded as natural, divinely-inspired, and the best possible, property was a natural law its enforcement the most important task of the state. All these justifications were mere claims, of course, but the physiocrats (and many after that group) considered it perfectly good proof of their ideas. Also connected with the idea of property was the idea of freedom: freedom was the right to use something, which could only be granted by owning that thing. “The common interest is nobody’s interest”, while “private interest is everyone’s interest”. (Marquis of Mirabeau).
The insistence of the physiocrats on land as the single source of wealth should be clarified here: wealth, for them, was what could be used without being consumed/transformed/destroyed. In their view only the land could provide a surplus, a “produit net”, everything else just moved this around or transformed it. This surplus was provided by nature (or god - “Dieu seul est producteur”, which was also very convenient to justify why that surplus belonged to who owned the land, not who worked it - workers did not create wealth, they just collected the god-provided surplus. This was the one feature of physiocratic thought with which all later economists took issue, and which led that school of thought to be generally dismissed as irrelevant. But even here they had the merit of being the first to worry about where economic surplus originated, and what happened to it.
Another important idea defended by the physiocrats, which would also make its way through subsequent schools of economics, was the understanding of man as a utility-maximizing creature. Far before Bentham and Mill reintroduced the concept with this kind of wording, Guillaume Le Trosne had described man’s goals as “the search of pleasure and the avoidance of pain”, something which could only be achieved in society (man was also a “social creature”. The satisfaction of these goals depended on material conditions, which made the increase of production desirable. The behaviour of man in search of material goals, dependant on natural laws, obviously could be understood, predicted and described in a scientific manner. This was exactly what the lead figure (the founder, actually) among the physiocrats, Francois Quesnay (Le Trosne was his main disciple), sought to achieve with his main work, the “Tableau Economique”. Quesnay was among the first to claim to authorship of a “general theory” of society. Natural laws were either physical or moral, but the moral laws resulted from the physical laws, they corresponded to those social rules more advantageous for mankind (in a utilitarian view of mankind) - Chez nouz, pour nous, tout est physique et le moral en derive. An économiste searched for those derived laws – here starts the idea of economic laws. Pierre-Samuel du Pont de Nemours (another member of Quesnay’s circle, who would later move to the new USA and whose son would found DuPont) made this clear when he wrote that an economist was whoever thought that physical laws were the basis for moral laws.
To Quesnay all social rules were economic laws, and that surely makes him deserve the title of true founder of economics. He was the first, that I know of, to attempt a “scientific” (this was the “century of reason” theory of society based on economic relationships. The Tableau Economique was about what happened to the surplus originating in the land; it sought to present the web of exchanges between the different classes in society (a renewable economic circuit). Quesnay split society into three classes: proprietor class (which appropriated the surplus as land rents), the productive class (the people who rented and/or worked the land - farmers, miners, shepherds, … and the sterile class (traders and artisans – this was still a pre-industrial world). The productive class, having extracted the surplus from the land (odd that he had a “productive class” and yet failed to make the jump to the labour theory of value later made by the classical economists – or perhaps they were smarter that the classicals and anticipated how such theory a could affect their prized social stability 
), paid a rent to the proprietor class. All classes would then exchange goods, the proprietors spending their rents with food and manufactures, artisans selling their wares and acquiring food, the productive class trading their remaining goods, and eventually all formed the stocks necessary to produce their goods: farmers would farm, artisans transform the goods they acquired into wares for sale, etc. Then the productive class would collect the products of the land, pay rents again, and so on… The model was static, otherwise the possibility of surplus arising from the activity of the “sterile class” would have to be dealt with, but the possibility of an increase of the surplus extracted from the land was regarded as possible (in fact it was a goal), with investment to improve the land moving the cycle to a new equilibrium (and leading to greater rents). Another consequence of the static circuit was that any form of savings, any failure by one class to spend/circulate its products, would reduce the general wealth. All which was produced had to be spend, everyone had to be both a seller and a buyer – Say probably had the Tableau in mind when he formulated the views later to be known as Say’s law – but that’s classical economics.
The Tableau Economique, through new for its time and a recognized influence on later forms of economic analysis, was not the most important idea of the physiocrats, and only displayed a small part of their political and economic ideas – ironically, the part which would be subject to radical revisions at least two more times during the history of economics – the issues of where and how value was created.
Among the many other recurrent concerns of later economists that the physiocrats wrote upon was the issue of equality. The physiocrats argued that the law (natural law that it was) was equal to everyone, and therefore just. But property was necessarily unequal, and inequality would necessarily increase as a society got wealthier. But where many later economists saw a problem, the physiocrats saw just a reality to accept. Because men differed, physically and spiritually, so too their fortunes varied, justice resided not in attempting to make them equal but in protecting what each owned. Any attempt to lessen inequality would go counter the natural order and conduct to “pillaging, the dissolution of society, the cessation of human labour, and the extinction of the human species” (Mirabeau). From Mirabeau also: “inequality of fortune is not monstrous, for the monstrous is outside Nature […] inequality is inscribed in Nature” (some modern conservatives are just repeating 18th century French nobleman, who would have guessed…
)
Also regarding equality, the fact that natural law was equal for everyone did not imply that political rights would be equal. Political rights should match the inequality of property: the state was made up of the sovereign and the owners of the wealth (actually, the land owners, the owners of the only productive source of wealth) – they should be the ones to pay a single tax and support the state, the protector of social order.
Seen by many as defenders of the old feudal order, the physiocrats were actually disliked by the old nobility: their concept of property and economic relations was a “bourgeois” one: absolute property rights were more in line with the new landed capitalist class of northern France which had started using paid labourers than with the old feudal relations of servitude in exchange for land to cultivate.
In order to increase the wealth of the nation (the surplus in circulation), the proprietors should invest in improving their lands. The freedom of commerce, which improved the circulation of the surplus, was also at odds with traditions which still saw commence as somewhat “dirty” and banned many of its occupations by nobleman (not that these bans were much respected…. Yes, they emphasized landed property as the only source of wealth, but this was a wealth to be managed on capitalist terms, no longer on feudal terms. They helped pave the way for the overhaul of the old social order. Building on their ideas of “economy” later thinkers could easily extend their arguments from a defence of land as rent-producing capital to a defence of capital in general as an economic input to be protected and rewarded, be it with rents, interest, trade profit or industrial profit.
One last comment, on the physiocrats’ influence on later schools: it is common to find people saying that Adam Smith dismissed the physiocrats as “inconsistent” and their system, a “system which represents the produce of land as the sole source of the revenue and wealth of every country [and] has, so far as I know, never been adopted by any nation, and it at present exists only in the speculations of a few men of great learning and ingenuity in France. It would not, surely, be worth while to examine at great length the errors of a system which never has done, and probably never will do, any harm in any part of the world”. This would make it seem that the physiocrats had no lasting influence. But those who quote the paragraph above usually leaver the end of the corresponding chapter unquoted:
Smith’s well know “invisible hand” suggestion was in fact just a repetition of an idea cherished by the physiocrats: unlike Hobbes, they were essentially optimistic about mankind: so long as the “natural laws” were not challenged, those laws would lead each man to fulfil his desires in the best possible way: each man, questing for his own direct interest, would also be improving the general interest of society by improving the total wealth:
By the way, the physiocrats were also big supporters of the notion of competition between industries: free competition was supposed to balance all interests, and was one of those “natural laws”. I should also point out that at the time Quesnay and his followers were writing, free trade and free competition (laissez passer, laissez-faire) favoured French agricultural exports. But would they let such crass considerations influence their writings?
This “introduction” is already getting too long, I’ll close it here. If it seems like there will be interest, I’ll post a second part, about classical economics: starting with Smith, I expect that most of the text will be about Ricardo and his notion of value and industrial profit, which will lead us also through the conflicts, in England, between the landowners and the industrialists. This will probably take some time.
From the antiquity to the Renaissance, the notion of “economy” did not exist. What might be called economy was no more that the management of one’s property (household and lands, essentially) and what discussion might happen about the economy was based on moral and philosophical consideration – the distribution of wealth was recognized as a consequence of power relations, and those were the province of morals and philosophy.
The first concerns with economic issues on a larger scale, on a political scale, and more centered on efficiency than on moral considerations, happened as the modern state started forming in Europe after the Renaissance, and sovereigns in the process of centralizing state power sought to increase tax income. The increase of trade and the weakening of church power were also requirements for this change in attitudes. The empires of antiquity had been hampered by bad communications, or moral ideologies, or weak central administrations, and never saw the development of a discipline of economics, never disconnected the distribution of wealth from power structures and moral considerations. Commerce, and especially commercial profit, were usually looked down upon, considered negative. In the west, starting with Aristotle (at least) and going through all major western religions, usury was considered bad, money was supposed to be sterile. That didn’t prevent it from happening, but it did not drove society.
The governments of the modern states rising in 17th century Europe would put an end to that stigma. The mercantilists (who never saw themselves as members of a single school of thought, not called themselves by that name started the change in attitude: commerce might be bad (international commerce was regarded as a zero-sum game), unless the profit was ours, and profit was understood essentially as the accumulation of money/precious metals. The only other thing they had in common was that their efforts were directed at strengthening state power, in competition with rival states. Methods varied, from royal monopolies to promote the exports of finished and luxury products, to colonial acquisitions, protectionism and controls on trade and navigation, to the promotion of lending at low interest rates (yes, it goes back to the 17h century England, at least) to increase funding for traders and manufacturers. State power was seen as resulting from manpower and available money, so policies should encourage both population growth (Malthus was still far away) and especially the accumulation of wealth. Private commercial endeavors, far from being condemnable, were regarded as positive, so long as they contributed towards these goals (and the accumulation of private profit by citizens generally did). The increase of wealth (coin in circulation) was desired precisely because it allowed a greater mobilization of the nation’s natural resources. Protectionism and state-sponsored credit, opened the way for industrialization, specialization, and increased productivity. Contrary to what is often believed, mercantilists were, for their own time, radically “liberal” and progressive. The cut with the medieval period was, in some regions, radical. To give an idea, even begging, extremely common throughout medieval Europe (the monasteries traditionally supported the poor), was “forbidden”. The poor were to be fed by the state but only after internment into workhouses. The death penalty was decreed against recidivist beggars in England (that goes back to Elizabeth I, I believe) and on areas of northern France in the 17th century.
But their time unchallenged would only last about one century (however, many of their policies, we can easily notice, are still in use today). What was liberal a few generations ago eventually loses its novelty and falls under the attacks of “new liberals”. These were the physiocrats. The physiocrats showed up in France, but the essence of their main idea had already been presented in England by the “natural law” philosophers (even if they did not pursue it into economic issues): that society was subject to natural laws which governments could not change. Any interference (government or other) in commerce might go against these laws, and was therefore at best misguided, or even harmful, they argued. It wasn’t just commence they saw as naturally regulated, but the whole of society: natural law, divinely provided, ensured that we lived in the best of possible worlds, so long as we obeyed it (late followers of Leibniz?). And what were the rules which made up the “natural law”?
First and foremost among the natural laws of society were property rights. Because, they claimed, all wealth came from the land and its crops, and farming required ownership of both the seed and the fruit (“without a guarantee of ownership over the crop, no one would plant…”
, property was fundamental to social order. And because the social order they knew was regarded as natural, divinely-inspired, and the best possible, property was a natural law its enforcement the most important task of the state. All these justifications were mere claims, of course, but the physiocrats (and many after that group) considered it perfectly good proof of their ideas. Also connected with the idea of property was the idea of freedom: freedom was the right to use something, which could only be granted by owning that thing. “The common interest is nobody’s interest”, while “private interest is everyone’s interest”. (Marquis of Mirabeau).The insistence of the physiocrats on land as the single source of wealth should be clarified here: wealth, for them, was what could be used without being consumed/transformed/destroyed. In their view only the land could provide a surplus, a “produit net”, everything else just moved this around or transformed it. This surplus was provided by nature (or god - “Dieu seul est producteur”
, which was also very convenient to justify why that surplus belonged to who owned the land, not who worked it - workers did not create wealth, they just collected the god-provided surplus. This was the one feature of physiocratic thought with which all later economists took issue, and which led that school of thought to be generally dismissed as irrelevant. But even here they had the merit of being the first to worry about where economic surplus originated, and what happened to it.Another important idea defended by the physiocrats, which would also make its way through subsequent schools of economics, was the understanding of man as a utility-maximizing creature. Far before Bentham and Mill reintroduced the concept with this kind of wording, Guillaume Le Trosne had described man’s goals as “the search of pleasure and the avoidance of pain”, something which could only be achieved in society (man was also a “social creature”
. The satisfaction of these goals depended on material conditions, which made the increase of production desirable. The behaviour of man in search of material goals, dependant on natural laws, obviously could be understood, predicted and described in a scientific manner. This was exactly what the lead figure (the founder, actually) among the physiocrats, Francois Quesnay (Le Trosne was his main disciple), sought to achieve with his main work, the “Tableau Economique”. Quesnay was among the first to claim to authorship of a “general theory” of society. Natural laws were either physical or moral, but the moral laws resulted from the physical laws, they corresponded to those social rules more advantageous for mankind (in a utilitarian view of mankind) - Chez nouz, pour nous, tout est physique et le moral en derive. An économiste searched for those derived laws – here starts the idea of economic laws. Pierre-Samuel du Pont de Nemours (another member of Quesnay’s circle, who would later move to the new USA and whose son would found DuPont) made this clear when he wrote that an economist was whoever thought that physical laws were the basis for moral laws.To Quesnay all social rules were economic laws, and that surely makes him deserve the title of true founder of economics. He was the first, that I know of, to attempt a “scientific” (this was the “century of reason”
theory of society based on economic relationships. The Tableau Economique was about what happened to the surplus originating in the land; it sought to present the web of exchanges between the different classes in society (a renewable economic circuit). Quesnay split society into three classes: proprietor class (which appropriated the surplus as land rents), the productive class (the people who rented and/or worked the land - farmers, miners, shepherds, … and the sterile class (traders and artisans – this was still a pre-industrial world). The productive class, having extracted the surplus from the land (odd that he had a “productive class” and yet failed to make the jump to the labour theory of value later made by the classical economists – or perhaps they were smarter that the classicals and anticipated how such theory a could affect their prized social stability ), paid a rent to the proprietor class. All classes would then exchange goods, the proprietors spending their rents with food and manufactures, artisans selling their wares and acquiring food, the productive class trading their remaining goods, and eventually all formed the stocks necessary to produce their goods: farmers would farm, artisans transform the goods they acquired into wares for sale, etc. Then the productive class would collect the products of the land, pay rents again, and so on… The model was static, otherwise the possibility of surplus arising from the activity of the “sterile class” would have to be dealt with, but the possibility of an increase of the surplus extracted from the land was regarded as possible (in fact it was a goal), with investment to improve the land moving the cycle to a new equilibrium (and leading to greater rents). Another consequence of the static circuit was that any form of savings, any failure by one class to spend/circulate its products, would reduce the general wealth. All which was produced had to be spend, everyone had to be both a seller and a buyer – Say probably had the Tableau in mind when he formulated the views later to be known as Say’s law – but that’s classical economics.The Tableau Economique, through new for its time and a recognized influence on later forms of economic analysis, was not the most important idea of the physiocrats, and only displayed a small part of their political and economic ideas – ironically, the part which would be subject to radical revisions at least two more times during the history of economics – the issues of where and how value was created.
Among the many other recurrent concerns of later economists that the physiocrats wrote upon was the issue of equality. The physiocrats argued that the law (natural law that it was) was equal to everyone, and therefore just. But property was necessarily unequal, and inequality would necessarily increase as a society got wealthier. But where many later economists saw a problem, the physiocrats saw just a reality to accept. Because men differed, physically and spiritually, so too their fortunes varied, justice resided not in attempting to make them equal but in protecting what each owned. Any attempt to lessen inequality would go counter the natural order and conduct to “pillaging, the dissolution of society, the cessation of human labour, and the extinction of the human species” (Mirabeau). From Mirabeau also: “inequality of fortune is not monstrous, for the monstrous is outside Nature […] inequality is inscribed in Nature” (some modern conservatives are just repeating 18th century French nobleman, who would have guessed…
)Also regarding equality, the fact that natural law was equal for everyone did not imply that political rights would be equal. Political rights should match the inequality of property: the state was made up of the sovereign and the owners of the wealth (actually, the land owners, the owners of the only productive source of wealth) – they should be the ones to pay a single tax and support the state, the protector of social order.
Seen by many as defenders of the old feudal order, the physiocrats were actually disliked by the old nobility: their concept of property and economic relations was a “bourgeois” one: absolute property rights were more in line with the new landed capitalist class of northern France which had started using paid labourers than with the old feudal relations of servitude in exchange for land to cultivate.
In order to increase the wealth of the nation (the surplus in circulation), the proprietors should invest in improving their lands. The freedom of commerce, which improved the circulation of the surplus, was also at odds with traditions which still saw commence as somewhat “dirty” and banned many of its occupations by nobleman (not that these bans were much respected…
. Yes, they emphasized landed property as the only source of wealth, but this was a wealth to be managed on capitalist terms, no longer on feudal terms. They helped pave the way for the overhaul of the old social order. Building on their ideas of “economy” later thinkers could easily extend their arguments from a defence of land as rent-producing capital to a defence of capital in general as an economic input to be protected and rewarded, be it with rents, interest, trade profit or industrial profit.One last comment, on the physiocrats’ influence on later schools: it is common to find people saying that Adam Smith dismissed the physiocrats as “inconsistent” and their system, a “system which represents the produce of land as the sole source of the revenue and wealth of every country [and] has, so far as I know, never been adopted by any nation, and it at present exists only in the speculations of a few men of great learning and ingenuity in France. It would not, surely, be worth while to examine at great length the errors of a system which never has done, and probably never will do, any harm in any part of the world”. This would make it seem that the physiocrats had no lasting influence. But those who quote the paragraph above usually leaver the end of the corresponding chapter unquoted:
Smith’s well know “invisible hand” suggestion was in fact just a repetition of an idea cherished by the physiocrats: unlike Hobbes, they were essentially optimistic about mankind: so long as the “natural laws” were not challenged, those laws would lead each man to fulfil his desires in the best possible way: each man, questing for his own direct interest, would also be improving the general interest of society by improving the total wealth:
This is from page 58 of Rivere’s “L'ordre naturel et essentiel des societes politiques”. I believe Smith must not only have read that “little book”, but was also very much influenced by it – and it is indeed a good presentation of the physiocrats’ views.
By the way, the physiocrats were also big supporters of the notion of competition between industries: free competition was supposed to balance all interests, and was one of those “natural laws”. I should also point out that at the time Quesnay and his followers were writing, free trade and free competition (laissez passer, laissez-faire) favoured French agricultural exports. But would they let such crass considerations influence their writings?
This “introduction” is already getting too long, I’ll close it here. If it seems like there will be interest, I’ll post a second part, about classical economics: starting with Smith, I expect that most of the text will be about Ricardo and his notion of value and industrial profit, which will lead us also through the conflicts, in England, between the landowners and the industrialists. This will probably take some time.
, so I look forward to the next chapter. One thing though; do you expect us to be able to read French? 
It would be helpful if you could translate it, to the best of your ability, if you intend to bring in more quotes from French economists, that is.
Worth the read.
