This page will present a summary of the overall blog, initially just by depositing here a list of the summaries of the individual pages as they are signed off; later by condensing down to the essentials.
Older Thought
The page presents a brief account of early western economic thought following Lionel Robbins lectures originally presented at the London School of Economics during 1979 – 81. Positioned within the ‘marginalist’ school of economics, Robbins has apparently followed the path the editors of the book of his lectures warned about; that is, he has presented his choice of economic ideas as a journey from error to truth, and highlighted those ideas he saw as relevant to and leading to his own position. That being said, Robbins includes many warnings as to his possible bias, and to value judgements made by himself and others. In giving his opinion of matters he reveals himself to be a sincere seeker of the ‘true’ nature of economic matters, keenly enthusiastic about learning.
The page started with an account of ancient Greek society, based on slavery, which gave its privileged class the leisure to pursue the arts and enquire into the nature of the world.
In Greek economics, the legacies of Plato – division of labour – and Aristotle – the origin of money, use value and exchange value, commensurability, private property natural and unnatural uses of trade and commerce – were outlined.
The Christian Scholastic Philosophers were then discussed, with regard to their developing views on usury (a legacy of Aristotle’s dim view of interest on loans), and on their concern with how to determine the ‘Just price’ in a Christian society. A gradual relaxation in their views on usury occurred over many, many years.
Robbins described a debate amongst later academics regarding early middle age views about the way in which prices were arrived at. Robbins supported the view that prices were seen to be determined during an essentially market process, rejecting the alternate view – that prices were based on production costs, especially the cost of labour.
The vast literature of Pamphleteering was described next, bringing the time broadly up to the late 16th /early 17th centuries. Here interest groups, civil servants and individuals circulated their views on taxation, subsidies, protective tariffs and so on. Against the background of those times, which included the rise of nation states, voyages of discovery and the Reformation of the Christian church, two main issues were discussed – the debasement of the currency and early discussion of the quantity theory of money.
Turning to the Mercantilist thinking of those times, the concept of bullionism, alongside the perceived imperative of a positive balance of trade, was described. On one side was the view that wealth was limited, most importantly represented by gold and silver bullion; and that trade was a zero sum process involving a gain by one party and a loss by the other. On the other side were views that wealth was limitless and depended ultimately on the product of human labour.
The contributions of William Petty, born in 1623, then followed. Petty started as a cabin boy at 14, but eventually became the widely qualified secretary to Thomas Hobbes and Physician General with Cromwell’s Army.
In economics he pioneered quantitative measurement, and an essentially modern investigatory method using empirical evidence and deductive thinking. In economic theory he expounded an early version of the labour theory of value, eventually arguing that economic value derives from a combination of land and labour – and that a natural par could be found between them in order to express value by either alone.
Petty contributed a wide breadth of other economic insights including the rate of rent of land, relative to its capital value; the circulation velocity and multiplier effect of money; the importance of national accounting and proportionate taxation; and public works to counter unemployment.
The page concludes with Robbins discussion of the views of John Locke, philosopher and Enlightenment thinker, often called the ‘Father of Liberalism’.
Locke’s contributions to economic included the ideas of a natural rate of interest, a refined quantity theory of money, velocity of circulation of money, devaluation and inflation. He also discusses the influence of supply and demand on value, and explores market price. In a consideration of taxation he argued that most tax, in those and previous times, fell on landowners.
Locke was praised by William Letwin for perceiving ‘broad underlying forces’ at work in his explorations of natural influences on interest, price and value – edging, says Robbins, towards the idea of systematic processes at work.
Pre Political Economy
This page has looked at economic contributions made in the run up to what has come to be known as ‘Political Economy’, which will be considered on following pages.
Robbins made a distinction between ‘anticipations’ in economic thought and modern economics proper, based on the treatment of the economy as a system.
Systems thinking is described as seeing the economy as a system of relationships, connected through time, where hypotheses can be tried out to explain variations in functioning.
It is traced through the contributions of French writers Richard Cantillon and the later Physiocrats, followed by the Scottish writer David Hume.
Richard Cantillon 1680s – 1734
Robbins begins with a discussion of Richard Cantillon an Irish/French banker and writer on economics. His work was written in the 1730s but not published (posthumously) until 1755.
Robbins compares Cantillon in importance to Adam Smith and other pivotal contributors. His work covered the workings of the economy, monetary and interest theory, and commerce and banking.
Cantillon’s contribution included:-
- Precepts defining land and labour as the sources of wealth
- Descriptions of the components of the economic system and an analysis of the causes of wage differentials, and the hint of a theory on equilibrium processes
- The argument that market prices oscillate around what he calls the ‘intrinsic value’ of items, which he sees as the measure of the quantity of Land and Labour entering into their production
- The delineation of 3 economic classes in society; Landed Aristocracy, Entrepreneurs and Wage earning workers
- The introduction, for the first time, of the term ‘entrepreneur’ into economics
- The development of William Petty’s ‘par’ of Land and Labour, and the calculation of the land equivalents required to support the lifestyles of those in differing social positions
- The mechanism of the processes determining market prices
- The elaboration of the quantity theory of money to stress the importance of the varied circulation paths of money in the influence on price levels
- Contributions on Interest rates, foreign exchange and banking.
Physiocracy
Robbins turns to another important French economic contribution, the distinctive school of thought, whose members became known as the Physiocrats and whom became fashionable with the Royalty of Europe. The leading members of the group were Quesnay and Mirabeau, with Turgot a ‘fellow traveller’.
In 1758 Quesnay published the famous ‘Tableau Economique’ dealing with the circulation of money in society, and which was compared by Mirabeau to the invention of writing and of money.
Robbins indentifies 3 currents underlying Physiocracy; they were heavily pro-agriculture and against the economic support given to manufacture; they had a ‘laissez faire’ view of the economy; they thought that policy should be shaped according to ‘natural law’.
They had a distinctive set of economic ideas:-
They identified 3 groups in society; landowners, rightful recipients of the net product of society, and responsible for all taxation; agricultural workers, whose productive work on the land made the net product, or surplus; manufacturing workers, whose unproductive work produced no surplus, but merely re-worked the surplus from the land.
From this they saw an economic distribution in society based on an annual flow of wealth, as the net product was divided across the three groups, paying for work and goods, enabling workers to obtain subsistence.
Using the Tableau they were able to model situations of economic growth or decline, to theorise about economic equilibrium, and to propose optimal economic policy decisions.
The Physiocrats are seen to be amongst the originators of economics as the study of a system of relationships, something that could be modelled, giving the ability to try out explanatory and quantitative hypotheses. Moreover, they saw the system as working through time, as a process in time; changing the focus of study from wealth to the flow of wealth.
While their view that only agricultural work was productive is seen as misleading, their general distinction between productive and unproductive work has had longer relevance.
Their key contribution was seen by Dobb to be the placing of the ‘net product’ or surplus as the pivot of their system.
Turgot, friend and associate of the Physiocrats, developed their outlook. He felt that the non productivity of manufacturing could not be sustained, and saw that profit – surplus – can result from an essentially capitalist process in agriculture or manufacture.
Some of his other insights were,
To argue against Government intervention in the economy
The recognition of the division of labour
The distinction between ‘market price’, of commodities, determined by supply and demand; and ‘natural price’ that would result in free and competitive conditions
The view that interest is determined by the supply and demand for capital; and that in a competitive free market the returns on all investments will tend towards equality
Finally, he recognised a version of the Law of Diminishing Returns, in that each increase in a productive input would be less and less productive
Important contributions from John Locke and David Hume were then discussed.
John Locke developed, in a 1690 essay, a labour theory of property, where all are entitled to own the fruits of their labour – such as game obtained by hunting, or land cleared for cultivation – on the proviso that such property should not be allowed to go to waste.
Even in advanced societies, he says, that 90% of most commodities result from the labour that has been expended on raw materials.
Locke then, however, using an unconvincing argument says;
As gold and silver does not deteriorate, and cannot go to waste,
It can therefore, without objection, be accumulated by people and used to buy land.
This argument, that people can justly accumulate land and other property produced by the labour of others, was used as an apologia for private property in 18th Century discussion.
The ideas of David Hume on property, money, interest and trade were then outlined.
On property, he argues that property laws do not derive from some sort of natural instinct or natural law.
Property laws, he argues, become necessary in all societies due to their public usefulness; their merit and justification derive from this alone.
He adds that property law can evolve as a result of changes in ideas about public usefulness.
On money, he holds that;
An increase in the quantity of money eventually raises prices
But only after a time period during which the extra money disperses around society
During that dispersion process, industry, enterprise and social wellbeing is stimulated
Therefore it is wise to keep the quantity of money in society growing slowly
A decrease in money supply will of course produce the opposite effect.
On interest, he rejects the view that interest rates are simply related to the quantity of money in the economy. He supports instead a supply and demand model of interest.
On trade, he holds that the prohibition of exports, in order to maintain a positive balance of trade, is counterproductive.
He illustrates by considering an imaginary situation where four fifths of the gold and silver in Britain were annihilated overnight.
In that case, he theorises, prices of all goods and services would similarly reduce
As a result, Britain’s cheaper exports would increase; imports would become more expensive and would diminish
An inflow of gold and silver into Britain would result until the country was, broadly speaking, in the same position relative to the rest of the world as before.
Hume is thus describing an equilibrium process such as that now seen to have prevailed between many countries of the world during the nineteenth century.
Mandeville, Steuart and Hutcheson
Finally, before turning to Adam Smith and Political Economy proper, the influences on Smith of 3 further characters were briefly described.
Mandeville’s view that individuals following their enjoyments produced economic wellbeing was a significant influence on Smith.
Steuart’s writing on mercantile ideas provided Smith with a ready target for his own views.
Hutcheson taught Smith ethics and the relevance of Aristotle to economic thought.
Profit, Wealth and Value 