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An Austrian perspective on the history of economic thought. Volume 1, Economic thought before Adam Smith; Volume 2 PDF

574 Pages·2006·10.106 MB·English
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Preview An Austrian perspective on the history of economic thought. Volume 1, Economic thought before Adam Smith; Volume 2

Economic Thought Before Adam Smith Murray N. Rothbard To mymentors, LudwigvonMises andJosephDorfman Economic Thought Before Adam Smith An Austrian Perspective on the History of Economic Thought Volume I Murray N. Rothbard Lu~wig von Mises Institute AUBURN, ALABAMA TheLudwigvonMisesInstitutededicatesthisvolumetoallofits generousdonorsandwishestothankthesePatrons,inparticular: Anonymous ~ ReedW.Mower ~ RamalloPallastWakefield&Partner; DouglasFrenchandDeannaForbush;HughE. Ledbetter; Mr. andMrs.R. NelsonNash;JuleR.Herbert,Jr.;RichardMoss ~ 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 This2006editionofEconomicThought BeforeAdamSmith:AnAustrian PerspectiveontheHistoryofEconomicThought, VolumeI,ispublishedby arrangementwithEdwardElgarPublishing,Ltd. Allrightsreserved. Nopartofthisbookmaybereproducedinanyman nerwhatsoeverwithoutwrittenpermissionexceptinthecaseofreprints inthecontextofreviews. ForinformationwritetheLudwigvonMises Institute,518WestMagnoliaAvenue,Auburn,Alabama36832. ISBN:0-945466-48-X Contents Introduction vii Acknowledgements xv 1. The firstphilosopher-economists: theGreeks 1 2. TheChristianMiddleAges 29 3. FromMiddleAgestoRenaissance 65 4. ThelateSpanishscholastics 97 5. ProtestantsandCatholics 135 6. Absolutistthoughtin Italy andFrance 177 7. Mercantilism: servingtheabsolutestate 211 8. Frenchmercantilistthoughtin the seventeenthcentury 233 9. Theliberal reaction againstmercantilismin seventeenthcentury France 253 10. Mercantilism and freedom inEnglandfrom theTudors tothe CivilWar 275 11. Mercantilismandfreedom inEnglandfrom theCivilWarto 1750 307 12. Thefounding father ofmoderneconomics: RichardCantillon 343 13. Physiocracy in mid-eighteenthcenturyFrance 363 14. The brillianceofTurgot 383 15. The ScottishEnlightenment 415 16. ThecelebratedAdam Smith 433 17. The spreadoftheSmithian movement 475 Bibliographical essay 505 Index 535 v 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 by amodernAustrian; indeed,onlyafew monographs inspecializedareasof the history ofthought have been published byAustrians in recent decades.! Not only that: this perspective is grounded in what is currently the least fashionable though nottheleastnumerous variantoftheAustrianSchool: the 'Misesian' or 'praxeologic'.2 ButtheAustrian nature ofthis work is scarcely its only singularity. When the presentauthorfirst began studying economics 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 GreatMenas theessenceofthe 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: lookingdown upon thepioneeringfounderfrom the pointofview ofthe superiorknowledge oftoday, puny descendants unfairly bashingthegiants on whoseshoulders westand. IfAdam Smithcreatedeconomics, much asAthenasprangfull-grown and fully armed from the browofZeus, then his predecessors mustbefoils, little men ofno account. And so short shrift was given, in these classic portrayals ofeconomic thought, to anyoneunlucky enoughtoprecedeSmith. Generally they weregrouped intotwocategoriesandbrusquelydismissed. Immediately preceding Smith were the mercantilists, whom he strongly criticized. Mer cantilistswereapparentlyboobswhokepturgingpeopletoaccumulatemoney but not to spend it, or insisting 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's costofproductionplus areasonableprofit. 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', levons, Menger and Walras, marginally corrected Smith- vii viii Economic thoughtbeforeAdamSmith Ricardo 'classical economics' by stressing theimportanceofthemarginal unit ascomparedtowholeclassesofgoods.ThenitwasontoAlfredMarshall, who sagely integrated Ricardian cost theory with the supposedly one-sided Aus trian-Jevonian emphasis on demand and utility, to createmodern neoclassical economics. Karl Marx could scarcely be ignored, and so he was treated in a chapterasanaberrantRicardian.Andsothehistoriancouldpolishoffhisstory bydealingwithfourorfiveGreatFigures,eachofwhom,withtheexceptionof Marx, contributedmore building blocks toward the unbroken progress ofeco nomicscience,essentiallyastoryofeveronwardandupwardintothelight.3 In the post-World War II years, Keynes ofcourse was added to the Pan theon, providing anew culminatingchapterin theprogress and development of the science. Keynes, beloved student of the great Marshall, realized that the old man had leftout what would laterbe called 'macroeconomics' in his exclusiveemphasison themicro.Andso Keynes addedmacro, concentrating on the study and explanation ofunemployment, aphenomenon which every onebeforeKeynes hadunaccountablyleftoutoftheeconomicpicture,orhad conveniently sweptundertherug by blithely 'assumingfull employment'. Since then, the dominant paradigm has been largely sustained, although matters haverecentlybecomerathercloudy. Foronething, this kindofGreat 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 before the General Theory. The years since the 1950s have been murky; and it is difficult to force a return to the once-forgottenWalrasinto theProcrustean bedofcontinualprogress. My own view ofthe grave deficiency oftheFew 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, andhistoryisthereforefalsified byselectingand worryingover 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 is madepaltry 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 aspect ofthe historian's work was particularly broughthome to me byQuentinSkinner's notable two-volume FoundationsofModern Politi calThought, thesignificanceofwhichcouldbeappreciatedwithoutadopting Skinner'sown behaviouristmethodology.4 Thecontinual progress, onward-and-upward approach was demolished for me, and should have been for everyone, by Thomas Kuhn's famed Structure ofScientific Revolutions.5Kuhn paid no attention to economics, butinstead, in the standard mannerofphilosophers and historians ofscience, focused on suchineluctably 'hard' sciencesas physics,chemistry, andastronomy. Bring ing the word 'paradigm' into intellectual discourse, Kuhn demolished whatI like to call the 'Whig theory of the history of science'. The Whig theory, subscribedto by almostallhistoriansofscience,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-nineteenth century 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, was right', oratleastbetterthan 'whateverwas earlier'. 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 such thing as gross systemicerrorthatdeeply flawed, oreveninvalidated, an entire school ofeconomic thought, muchlesssentthe worldofeconomics permanently astray. Kuhn, however, shocked the philosophic world by demonstrating thatthis is simply notthe way that science has developed. Once acentral paradigmis selected, there is no testing or sifting, and tests of basic assumptions only take place afteraseries offailures and anomalies in theruling paradigm has plunged the science into a 'crisis situation'. One need not adopt Kuhn's nihilistic philosophic outlook, his implication that no one paradigmis orcan be better than any other, to realize that his less than starry-eyed view of sciencerings true bothas history andas sociology. ButifthestandardromanticorPanglossian viewdoes notworkeveninthe hardsciences,afortioriitmustbetotallyoffthemarkinsucha 'softscience' as economics, in a discipline where there can be no laboratory testing, and

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