The Development of Economic Doctrine: An Introductory Survey

EPILOGUE

THOUGH the leaders of the Austrian school lived well into the twentieth century, their work was in fact accomplished in the 1870’s and the 1880’s. Since then it is almost certainly true that more books on economics have been written than in the whole of the previous preparatory existence of the planet, and some of these by writers who are worthy of being placed among the greatest writers of all time. To allow the curtain to fall on the Austrians may therefore appear to be an act savouring of excessive cowardice. Yet even for such a prudent act as cowardice, excuses and pleas may be entered. In the first place, it is wise that what purports to be a history, designed to be used along with a text-book, should stop with the day before yesterday, and should leave the economic doctrine of to-day, and probably of yesterday, to be expounded in the ordinary text-book, or in- the class-room. The current account of economic principles, whether embodied in a vendible commodity of the usual type, or delivered in the form of a course of lectures which perish in the instant of their performance, should reflect and expound the wrang-lings of the last twenty or thirty years. Consequently, so far as this book is concerned, those writers who have not yet become a matter of history may be left for treatment in the adjacent arena. It is for those who train the young in economic ways to interpret Marshall and Nicholson in the immediate past, and Pigou, Keynes, Hawtrey, Robertson and an endless chain of others in the present, not forgetting Schumpeter and Pareto, Cassel and J. B. Clark, Wicksell and Knapp, and as many more as there may be room for. And may they be guided in satisfying all intelligent inquirers!

Secondly, though it is perhaps merely expressing the same point from a different angle, we are still too near post-Austrian developments to be able properly to assess their value. It is a wise ant that knows the highest tree of the forest in which he pursues his economic activity. Time has a strange trick of putting down the mighty from their seats and exalting those of low degree; and it may later be found that some who have made most noise have been merely loud-speakers in a cul-de-sac. We may make reasonably accurate guesses as to the most influential personalities of the last generation, but till they and their works have been scrutinized by the relatively indifferent eyes of our children, they are merely candidates for immortality.

Yet perhaps in conclusion something ought to be said with regard to the state of economic doctrine in the intervening generation since the Austrians and the position to-day, without, however, being so rash as to condescend to particulars. It may be said that in these last fifty years much thought has been dominated, and all thought has been influenced, by the “margin” and the other ingredients of the Austrian point of view. In this country the leading figure has undoubtedly been that of Alfred Marshall (1842-1924), who, as a first approach, is perhaps best viewed as representing an endeavour to give Austrian ideas their due place, without becoming swamped in Austrian super-refinements, and thus to effect a synthesis of the Austrian ideas and the older Political Economy.

Yet, though marginalism provides the stimulus to much of the best thought in the last generation—J. B, Clark is another striking example, to take but one—there are indications that the master-key of the Austrians is no longer regarded as,the Open Sesame which it appeared to be on its first announcement. The margin has certainly come to stay; it is ineluctable, and cannot be avoided even by changing its name, though this is a device to which resort has not infrequently been made in the history of human thought. So long as there are limited supplies, and purposes or satisfactions of varying degrees of importance, it is of the essence of economics that the more urgent need be satisfied first. Somewhere a satisfaction or a purpose will be included while its neighbour is excluded; and where the guillotine falls, there will the margin be, by whatever nomenclature it be disguised. But the cloud-capped towers of the Austrian edifice are scarcely any longer regarded as providing the desirable flats for economists which we imagined them to be when we were very young. The vertigo which accompanies residence in these altitudes is insufficiently compensated by the gymnastic training involved in getting there. It is doubtful whether we consume according to the principles of the differential calculus; consumption may indeed be a discontinuous process. It is doubtful also whether we may not have accepted too unquestioningly the universal applicability of the Law of Diminishing Utility; putting aside the baser satisfactions, when the lean and hungry belly barks for food, it may be that the things with regard to which appetite comes with eating are as numerous as those which end with satiety and repleteness.

Partly, then, because of a vague dissatisfaction with its psychological basis, and partly for other reasons, there has perhaps been a growing disposition to be critical of marginalism, at least in its subtler applications. Yet, so far as the ordinary eye can see, there has been no definite movement in any direction to replace it. Economics to-day is, indeed, in some respects in a curious position; its professors suffer from economic agnosticism, if indeed the agnosticism .does not amount to an active lack of faith in all dogma. Take, for instance, a statement which embodies the faith, or lack of faith, of the Cambridge school, on whom the mantle of Marshall rests—echoing, as it happens, a saying of Marshall himself: “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions.”1 To say that economics is a method rather than a doctrine, that it is not a body of concrete truth but an engine for the discovery of concrete truth, is to express with great felicity the view that economic truth, as such, is unattainable. So likewise Schumpeter, looking back on a period of ten or twenty years ago, speaks of the prevailing “ tendency among many of the most competent economists ... to discourage further investigation into its time-honoured problems, and to consider further refinements as superfluous or worse,” and of the belief, then existing, that “the great work had been done.” So also Mr. Homan, in a chapter on “The Present Impasse”:

“Apparently wearied by controversy, and perhaps impressed by the futility of further refinements of abstract theory in the face of the complex facts of modern life, economists for the most part made an end of controversy some fifteen or twenty years ago, and turned their attention more largely to a realistic study of the life about them.”2

Such is the explanation of the “anti-theoretic schools of thought,” the self-styled “institutionalism” which has attained prominence in America, and which Schumpeter regards as the Nemesis of the petrification of theory. Whether indeed it be possible to leave theory in bond, and thereafter throw oneself on the facts and the problems, without later and surreptitiously being compelled to apply for the release of certain instalments of theory ad hoc, need not be discussed. In any case, the institutionalists are a curious illustration of the economic agnosticism of recent years, even if, as some hope, that agnosticism may be passing.3

Another reason for the indecision and agnosticism of recent economic speculation is to be found in the fact that socially and politically we are living in an age of transition. In the grandiloquent old phrase, “humanity is on the march.” The Political Economy of the nineteenth century reflected the conditions in which it was born, and assumed fullness of competition, rooted in the uncontrolled action of individual self-interest. But competition and laissez-faire, if they are still something more than dim memories, are, at least, like other surviving Victorians, “not what they once were.” Men are no longer units; they are being compulsorily coagulated into groups, and the forces of combination and regulation are producing a society very different from that which the nineteenth century Political Economy set out to interpret. That we are in a transitional stage between individualism and collectivism, by no means sure how far we shall travel nor at what speed we shall move towards our unknown destination, is a contributory factor to the recent dissatisfaction with economic theory, since inevitably the assumptions on which theory has been based have appeared to lag behind the facts. What once was an explanation tends to become a first approach to an explanation, and the ardent and impatient spirit consequently protests against the unreality of all theory:

Grau, theurer Freund, ist alle Theorie,

Und grün des Lebens goldner Baum.

But if the economists of to-day are commendably modest regarding the validity of any general body of dogma—if in this country at least they have learned to shun the treatise—this consideration has in no wise restrained their ardour in the pursuit of truth, even if truth be recognized as an elusive goddess. In particular in the upheaval of war and the maladjustments of peace, nearly all the subjects of most urgent controversy have been primarily economic in character. In these circumstances the monograph becomes a necessity: the stately statement of principles, the emblem of concrete truth, becomes but a beacon shining from an unattainable land.4 There has thus been opened up an extensive series of problems which have recently been subjected to a subtlety of analysis which Ricardo, in his most Ricardian moments, might have envied. Among such may be mentioned the whole theory of money, the problem of the rate of exchange between different countries, the theory and practice of banking, especially in the consequences of changes in the rate of discount, and the bearing of all this on the trade cycle. Mr. Keynes has very properly commented on the paucity of attention which the theory of money has received in the past. It may be that in the voluminous discussions on these matters consequent on post-war phenomena, in which in this country the writings of Mr. Keynes, Mr. Hawtrey and Mr. Robertson play an important part, we have the beginnings of a new and significant chapter in economic speculation. But there is one point on which it is difficult to suppress a sentimental sigh. In the past, economics has been, in the main and with certain notable exceptions, a study within the reach of the intelligent and leisured layman. Anyone can read Smith and Malthus; everyone (heaven help him!) was meant to read Marx. If intelligent people get lost in Carey, it is equally true that quite intelligent people never reach the end of Sir Charles Grandison—and doubtless for similar reasons. But Professor Robbins is probably right in saying that the economics of the future “will not be a body of knowledge accessible to everyone.” To profit by Mr. Keynes’s Treatise on Money or Professor Pigou’s Industrial Fluctuations, to take the first two examples that come, calls for a greater equipment than a combination of intelligence and curiosity.

It may be suggested that a time of comparative scepticism and agnosticism with regard to economic dogma is an inappropriate juncture for the study of the history of economic doctrine in the past. If in our more restrained days economics is a method rather than a doctrine, if it is only an apparatus of the mind, a technique of thinking, why should we trouble about the shots at truth which our over-confident forefathers may have made? But indeed it is primarily in such an age that a study of the history of economic doctrine is most profitable. When there is no dominant school, when theory is in solution and truth may be anywhere, ideas of all kind, mutually contradictory, jostle against each other in the pot in which public opinion is cooked. Dr. Hans Honegger has recently, with great daring, written an excellent little book expounding the present position of economic thought, especially as represented in Germany.5 But when he comes to classify his Gedankenstrümungen, there are so many streams of thought that the result is an obvious whirlpool. Apart from the pure economic schools, brooding on the margin, there are, in his nomenclature, Neoliberalismus, Neomer-kantilismus, Neosozialismus and Neoromantik, each represented by very distinguished names. A similar result would emerge from any attempt to classify the streams of thought in this country during the last quarter of a century; and from this angle, for a comprehension of the present, a knowledge of the past is essential. We also have our neo-mercantilists; so also we have our neo- as well as our palæo-liberals. Alongside our economic cubists panting for the twenty-first century, we have our mediaevalists hankering after the fourteenth. We have individualist luncheons and we have all degrees of etatisme. At cattle shows and at farmers’ banquets the voice of the Physiocrat is heard in the land. No point of view, once expressed, ever seems wholly to die; and in periods of transition like the present, our ears are full of the whisperings of dead men.

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6 General Introduction to the Cambridge Economic Hand-books.

7 Homan, Contemporary Economic Thought, pp. 442-443

8 For an expression of the recent and current American point of view, reference may be made to the collection of essays by various writers edited by R. G. Tugwell under the title The Trend of Economics.

9 For a suggestive discussion of the different functions of the treatise and the monograph, see Mr. Keynes’s short biography of Marshall in Memorials of Alfred Marshall, pp. 35-36.

10 Volkswirtschaftliche Systeme der Gegenwart.

• 1The Republic, Jowett’s translation, p. 49.
• 2Beer, Social Struggles in Antiquity, p. 97.
• 3Ibid., Book III, p. 106.
• 4The Republic, Jowett’s translation, p. 154.
• 5The Laws, Jowett’s translation, p. 121.
• 6So far as economic theory is concerned, it is in Plato that Greek thought advances beyond the level of such wise saws as may be extracted from Hesiod and others, and arrives at some consecutiveness. Yet Plato is the supreme example of the classical tendency to regard economics as a minor subsection of ethics and politics. It is above all in The Republic, and to a lesser extent in The Laws, where he indulges in “an old man’s game,” that Plato turns to economic questions. The former is primarily a discussion on Justice, and it is because the essential nature of Justice may perhaps be most easily discerned in the State—since for the short-sighted the larger letters may be more easily read—that the disputants turn aside in the second book to discuss the State and its origin, and are thus led to construct from the foundation an ideal polity. It is noticeable that the origin of the State is attributed wholly to economic considerations: “A state arises out of the needs of mankind; no one is self-sufficing, but all of us have many wants,” and moreover, Plato indicates that no other origin of a state can be imagined. This line of argument, after a consideration of the essential needs of mankind, leads to Plato’s discussion of division of labour, which has so often been compared with the famous chapter in Adam Smith. The essential needs of mankind are food, dwelling and clothing, so that the barest notion of a state must include four or five men—a husbandman, a builder, a weaver, and perhaps a shoemaker or a representative of some other similar occupation. Each of these is, moreover, to confine himself to his own calling. The governing considerations in the application of the principle of division of labour, as conceived by Plato, are then, firstly, that there are “diversities of natures among us which are adapted to different occupations,” and secondly, and as a consequence of this, that “all things are produced more plentifully and easily, and of a better quality, when one man does one thing which is natural to him and does it at the right time, and leaves other things.” It is in order that this principle may be satisfied that Plato then extends his State to include a considerable diversity of other crafts—sailors, traders, retailers and others.
• 7Firstly, as to the scope of Plato’s communism, it is clear from the whole argument that it is prescribed only for the limited class of the guardians, who are indeed throughout to live a semi-military life. It is, in fact, the communism of the camp. The contrary view has been argued along lines which need not here be indicated, and one authority has contended that “a superficial reading of The Republic gives the impression . . . that Plato recommends communism solely for these upper sections.” It is almost sufficient to note that Aristotle himself is one of these superficial readers; it is entirely sufficient that Plato expressly describes the regulations as “appointed by us for the guardians,” and even more conclusive is his statement that if the guardians depart from their communistic life, they will become housekeepers and husbandmen.
• 8Thus we arrive at the guardians, who practise an art which is not to be combined with any other occupation, since one man cannot practise many arts with success. The guardians require careful selection; likewise very careful education. They must combine apparently contradictory qualities, inasmuch as they must be dangerous to their enemies and gentle to their friends. We are not here concerned with the lengthy discussion of the education of the guardians, nor with the subsequent distinction between “guardians in the fullest sense” (the real rulers) and the auxiliaries, but the words in which communism is enacted are of importance in specifying both the scope and the purpose of the communism prescribed. The guardians are to look round for a spot where they can best suppress insurrections within and defend the State from enemies without, and they are to encamp there. Further, in order to ward off the danger that they may become enemies instead of friends of the citizens, their whole mode of life is to be such that they will not be tempted to prey upon the other citizens. Consequently they are devoted to an ascetic method of life; they are to have no property beyond what is necessary; they are to receive a fixed rate of pay, sufficient to meet expenses and no more: “Should they ever acquire homes or lands or moneys of their own, they will become housekeepers and husbandmen instead of guardians, enemies and tyrants instead of allies of the other citizens.”
• 9Then secondly, as to the purpose of the guardians’ communism, it is noticeable that Plato in his motives is poles asunder from other communistic dreamers. Elsewhere the cry for communism arises from an aggrieved sense of the injustice and monstrous inequality of the world. It is not so in Plato. For his guardians, communism is an act of ascetic renunciation; it is the condition on which alone they can efficiently discharge their duties. The work they have to do is so important that they may only do it properly on condition that they remain free of the snares and the entanglements of this world. In its motive therefore it is akin to the celibacy of the Roman Catholic priesthood. The object of Plato’s communism is in no way to establish a right to equal enjoyment; rather it is a part of the price that must be paid by a class on whom special responsibilities have been imposed. An interesting, if trivial sidelight, illustrative of the fact that the whole arrangements with regard to the guardians are designed to free them from the ordinary troubles of life, is furnished by the provision that when a woman guardian has a child, the process of suckling shall not be protracted too long: “the mothers will have no getting up at night or other trouble, but will hand over all this sort of thing to the nurses and attendants.”
• 10A slight glance at The Laws, as supplementing the teaching of The Republic, is almost essential. The Laws is the work of an old man whose fire is spent, and some have found in it the marks of the disillusionment of age. Yet here Plato still clings to the old ideal: “The first and highest form of the State and of the Government and of the Law is that in which there prevails most widely the ancient saying that ‘Friends have all things in common.’” But that is rather a State for gods and the sons of gods, and therefore he now outlines the State which “when created, will be nearest to immortality and the only one which takes the second place.”Such a state comprises 5,040 lots, since the city must not be too large and the citizens should be known to each other, and this figure is administratively convenient, as it is divisible by all numbers up to ten. There is no longer any question of communism, since “community of goods goes beyond their proposed origin, and nurture, and education.” The regulations throughout are to aim at a middle and contented condition of life, based on the doctrine that poverty is to be regarded as the increase of a man’s desires and not the diminution of his property. No one is to possess gold or silver except as coin for daily use, and the currency of the country is to be peculiar to it and not acceptable abroad. Inequality of condition cannot be avoided; but undue disparity, arising from extreme poverty or excessive wealth, is to be guarded against. For this purpose the population is to be divided into four classes, the limit of poverty being one lot which is to be guarded unimpaired, while the maximum possession is to be the equivalent of four lots, the surplus to be surrendered to the State. No money is to be lent at interest, and, more startling, there is to be no obligation to repay even the capital, a provision explicable on the ground that this is to be a society of half-brothers, if not of brothers, and that there is a definite restriction imposed on the amount of permissible wealth.