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History of Economic Thought

546 Pages · 2009 · 9.37 MB · English

  • History of Economic Thought

    Classical Economics


    Murray N. Rothbard To mymentors,


    LudwigvonMises andJosephDorfman Classical Economics


    An Austrian Perspective on the


    History of Economic Thought


    Volume II


    Murray N. Rothbard


    LU~lVig


    von Mises


    Institute


    AUBURN, ALABAMA TheLudwigvonMisesInstitutededicatesthisvolumetoallofits


    generousdonorsandwishestothankthesePatrons,inparticular:


    Anonymous


    '§>o


    ReedW.Mower


    '§>o


    RamalloPallastWakefield& Partner;


    DouglasFrenchandDeannaForbush;HughE. Ledbetter;


    Mr. andMrs. R. NelsonNash;JuleR. Herbert,Jr.;RichardMoss


    '§>o


    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


    This2006editionofClassicalEconomics:AnAustrianPerspectiveon the


    HistoryofEconomicThought, VolumeII,ispublishedbyarrangementwith


    EdwardElgarPublishing,Ltd.


    Allrightsreserved. Nopartofthisbookmaybereproducedinanyman


    nerwhatsoeverwithoutwrittenpermissionexceptinthecaseofreprints


    inthecontextofreviews. ForinformationwritetheLudwigvonMises


    Institute,518WestMagnoliaAvenue,Auburn,Alabama36832.


    ISBN:0-945466-48-X Contents


    Introduction vii


    Acknowledgements xv


    1. J.B. Say: theFrenchtraditioninSmithianclothing 1


    2. JeremyBentham: theutilitarianasbigbrother 47


    3. JamesMill, Ricardo, andtheRicardiansystem 69


    4. ThedeclineoftheRicardian system, 1820-48 101


    5. Monetary andbankingthought,I: theearly bullionist


    controversy 157


    6. Monetary andbankingthought,II: thebullionReportandthe


    return togold 191


    7. Monetary andbankingthought,III: thestruggleoverthe


    currency school 225


    8. JohnStuartMill andthereimpositionofRicardianeconomics 275


    9. RootsofMarxism: messianiccommunism 297


    10. Marx's vision ofcommunism 315


    11. Alienation, unity, andthedialectic 347


    12. TheMarxian system,I: historicalmaterialismandtheclass


    struggle 369


    13. TheMarxian system,II: theeconomicsofcapitalismandits


    inevitabledemise 407


    14. AfterMill: BastiatandtheFrenchlaissez-faire tradition 439


    Bibliographicalessay 477


    Index 507


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    j 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


    byamodernAustrian; indeed,onlyafew monographsinspecializedareasof


    the history ofthought have been published by Austrians in recent decades.1


    [


    Not only that: this perspective is grounded in what is currently the least


    fashionablethoughnottheleastnumerous variantoftheAustrian School: the


    'Misesian' or 'praxeologic'.2


    ButtheAustrian nature ofthis workis scarcelyits only singularity. When


    the presentauthorfirst began studyingeconomics 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 GreatMenastheessenceofthe


    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: lookingdownuponthepioneeringfounderfrom the


    pointofview ofthe superiorknowledge oftoday, punydescendants unfairly


    bashingthegiantson whoseshoulders westand.


    IfAdam Smithcreatedeconomics, much asAthenasprangfull-grown and


    fully armed from the browofZeus, thenhis predecessors mustbefoils, little


    men ofno account. And so short shrift was given, in these classic portrayals


    ofeconomicthought, to anyoneunlucky enoughtoprecedeSmith. Generally


    theyweregroupedintotwocategoriesandbrusquelydismissed. Immediately


    preceding Smith were the mercantilists, whom he strongly criticized. Mer


    cantilistswereapparentlyboobswhokepturgingpeopletoaccumulatemoney


    but notto spend it, orinsisting 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'scostofproductionplusareasonableprofit.


    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', Jevons, Menger and Walras, marginally corrected Smith-


    vii viii Classicaleconomics


    Ricardo 'classicaleconomics' by stressingtheimportanceofthemarginalunit


    ascomparedtowholeclassesofgoods.ThenitwasontoAlfredMarshall,who


    sagely integrated Ricardian cost theory with the supposedly one-sided Aus


    trian-Jevonian emphasison demand and utility, to createmodem neoclassical


    economics. Karl Marx could scarcely be ignored, and so he was treated in a


    chapterasanaberrantRicardian.Andsothehistoriancouldpolishoffhisstory


    bydealingwithfourorfiveGreatFigures,eachofwhom,withtheexceptionof


    Marx, contributedmore building blockstowardthe unbroken progress ofeco


    nomicscience,essentiallyastoryofeveronwardandupwardintothelight.3


    In the post-World War II years, Keynes ofcourse was added to the Pan


    theon, providing anew culminatingchapterintheprogress anddevelopment


    of the science. Keynes, beloved student ofthe great Marshall, realized that


    the old man had leftoutwhat would laterbecalled 'macroeconomics' inhis


    exclusiveemphasisonthemicro.AndsoKeynes addedmacro, concentrating


    on the study andexplanationofunemployment, aphenomenon whichevery


    onebeforeKeyneshadunaccountablyleftoutoftheeconomicpicture,orhad


    conveniently sweptundertherugbyblithely 'assumingfull employment'.


    Since then, the dominant paradigm has been largely sustained, although


    matters haverecently becomerathercloudy.Foronething, thiskindofGreat


    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 beforethe General Theory. The years


    since the 1950s have been murky; and it is difficult to force a return to the


    once-forgottenWalras intotheProcrusteanbedofcontinualprogress.


    My own view ofthe gravedeficiency ofthe Few 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, andhistoryisthereforefalsifiedbyselectingandworryingover


    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 ismadepaltry 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 aspectofthe historian's work wasparticularly broughthome to


    mebyQuentinSkinner'snotabletwo-volumeFoundationsofModem Politi


    calThought, thesignificanceofwhichcouldbeappreciatedwithoutadopting


    Skinner'sownbehaviouristmethodology.4


    Thecontinualprogress, onward-and-upwardapproach was demolishedfor


    me, and should havebeen for everyone, byThomas Kuhn's famed Structure


    ofScientific Revolutions.5Kuhn paid no attention to economics, butinstead,


    in the standard mannerofphilosophers andhistorians ofscience, focused on


    suchineluctably 'hard'sciencesasphysics,chemistry,andastronomy. Bring


    ing the word 'paradigm' intointellectualdiscourse, Kuhn demolished whatI


    like to call the 'Whig theory of the history of science'. The Whig theory,


    subscribedtobyalmostallhistoriansofscience,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-nineteenthcentury 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,


    wasright',oratleastbetterthan 'whateverwasearlier'.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 suchthing as grosssystemicerrorthatdeeply flawed, oreveninvalidated,


    an entireschoolofeconomic thought, muchlesssenttheworldofeconomics


    permanentlyastray.


    Kuhn, however, shocked the philosophic world by demonstrating thatthis


    is simply notthe waythatsciencehas developed. Onceacentralparadigmis


    selected, there is no testing or sifting, and tests of basic assumptions only


    take place after aseries offailures and anomalies in theruling paradigm has


    plunged the science into a 'crisis situation'. One need not adopt Kuhn's


    nihilisticphilosophic outlook, his implicationthatno oneparadigmisorcan


    be better than any other, to realize that his less than starry-eyed view of


    sciencerings true bothashistory andas sociology.


    ButifthestandardromanticorPanglossianviewdoesnotworkeveninthe


    hardsciences,afortioriitmustbetotallyoffthemarkinsucha 'softscience'


    as economics, in a discipline where there can be no laboratory testing, and


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