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SIR WILLIAM PETTY (1623–1687)

The man who invented economics

Science advanced at breakneck speed in 17th-century England. People felt freer than ever to challenge received wisdoms and orthodoxies, and more and more people were following the dictums of Francis Bacon (1561–1626), whose approach to science valued the rigorous collection of data and the testing of hypotheses. Bacon also insisted that all knowledge had to be useful. In contrast to l’art pour l’art, or what the historian Joel Mokyr calls the “mindless piling up of empirical facts”, which had characterised scientific inquiry of centuries past, increasingly people came to believe that knowledge was there to be used. Governments and private individuals were supposed to exploit scientific findings in order to improve the health and wealth of the average Joe. Bacon is the figure most intimately associated with the “scientific revolution” of the mid-16th to late 17th centuries.

Normally we think of the Baconian revolution in terms of its impact on the physical sciences, such as chemistry and physics. It is less well known that it shaped the human sciences as well. That is where Sir William Petty and his “political arithmetic” come in. Petty, influenced by Bacon, was one of the first people to think that a country’s population, income and wealth could and should be measured rigorously. That, in turn, would inform economic and social reform. Petty was undoubtedly a “beginner” in this field, as one of his biographers kindly puts it. Yet his approach to economics was little short of revolutionary.

Long before Adam Smith

Petty was not from a particularly respectable family. He was born in 1623 in a poor part of Hampshire; his father was a clothier. Yet he was a smart child. John Aubrey, a writer in the 17th century who was Petty’s first biographer, explains that the young Petty’s greatest delight “was to be looking on the artificers,–e.g. smyths, the watchmaker, carpenters, joyners, etc.–and at twelve years old could have worked at any of these trades”. Before long, Petty’s insatiable appetite for knowledge sent him all across the world. As well as spending time in Utrecht, Leiden and Amsterdam, he studied in Paris, where he met Thomas Hobbes.1 Soon, Petty became Hobbes’s research assistant, and from him imbibed empiricist philosophy, which argued in favour of deriving theories about the world from sensory experiences.

Before long Petty was a fellow of Oxford University. Soon after that he was also appointed a professor of music at Gresham College, where he lectured on mathematics. Petty was a difficult man to work with, demanding that his co-workers be precise with their language at all times. During one presentation someone used the phrase “considerably bigger”. Petty scolded the careless colleague, noting that “no word might be used but what marks either number, weight or measure”. He moved in social circles just as exacting, and these eventually came together to form the Royal Society (motto: “nullius in verba”, or, “take nobody’s word for it”). Petty was a founding member.

In observing the world around him, Petty had a number of economic insights which, among a small, nerdy crowd, have made him famous. He expressed interesting views on the division of labour, for instance, which pre-dated Adam Smith’s celebrated example of the pin factory by a century. Petty used the example of “the making of a watch”, pointing out in 1682 that “if one man shall make the wheels, another the spring… and another shall make the cases, then the watch will be better and cheaper, than if the whole work be put upon any one man”.

Sailed across the Irish Sea

Petty’s biggest contribution to economics, however, was to do with measurement and statistics. By the 1650s he was tiring of academic life. He also decided that he wanted to make a lot of money. According to Aubrey, his biographer, Petty’s father had on his death “left him little or no estate”. Much of Petty’s time with Hobbes in Paris had been spent in grinding poverty; once he had to survive for a week on three pennies’ worth of walnuts.

The obvious place to go to make money was Ireland. Oliver Cromwell’s forces had conquered the country. His army was supported by money lent by private businesspeople, which was secured against some 3 million acres of Irish land that was to be seized and handed out. Anyone crossing the Irish Sea could hope to acquire a large plot of land.

In 1652 Petty travelled to Ireland as an army doctor. Shortly after arriving he spotted an opportunity. In order to allow Cromwell to dole out the land that had been conquered, a survey was required. A man called Benjamin Worsley was in charge of the survey. Petty did not think much of Worsley, who always carried magnifying glasses on his person in a vain attempt to convince people that he was really clever. According to Lord Edmond Fitzmaurice, a 19th-century biographer of Petty, “Dr. Petty described him [Worsley] as one who ‘having been frustrated as to his many severall great designs in England hoped to improve and repaire himselfe upon a less knowing and more credulous people’”.

Petty, no doubt motivated by personal animosity, found plenty of errors in Worsley’s survey. He promised to do his own in its place–and not in the 13 years that Worsley had proposed, but in under two. Petty got the commission. What he produced, in the mid-1650s, is known as the “Down Survey” (so called because it was set down upon maps). It was, says Frank Prendergast, a historian, “the first systematic mapping of Ireland, with unprecedented levels of organisation and accuracy”.

Once Petty was in charge of doling out land, enriching himself was fairly easy. He is reported to have acquired over 270,000 acres in County Kerry alone (which amounts to roughly a quarter of the total land area of that county). It is possible that Petty acquired some of the lands formerly held by the family of Richard Cantillon, whom we will meet in Chapter 4. People became suspicious. Time and again in the years to come Petty was accused of fraud, including in the House of Commons, where he was in 1759 a member of parliament for a part of Cornwall. (The fact that Petty was knighted in 1661 must have irritated his enemies still further.) More importantly for our purposes, however, in Ireland there began Petty’s forays into the measurement and quantification of the world around him.

The Down Survey was not the world’s first census. Nor was it comprehensive. The 1,000 men employed to carry out the survey did not cover all of Ireland’s 32 counties. Yet from this raw material, and supplemented by data from tax returns in 1660, Petty was able to offer a statistical portrait of a country better than any other available in the world.

His calculations suggested that the population of Ireland in 1652 was 850,000, 1.1 million for 1672 and 1.3 million for 1687.2 Petty noted that Ireland was generally a poor place. Modern analysis suggests that at the time the average Irish person was about half as rich as the average Briton. He also made interesting observations about the distribution of income and wealth. As Adam Fox, a historian, shows, Petty calculated that Irish and old-English Catholics comprised roughly three-quarters of Ireland’s population–yet Protestant settlers owned three-quarters of the land. Catholics also had to make do with far poorer housing: Irish Catholics’ houses, Petty said, often had “neither chimney, door, stairs or window”.

What was Petty’s motivation in producing such detailed statistical information about Ireland? He wanted to convince those in the government to “improve” it. Of course, were the Irish economy to pick up, Petty himself would benefit financially, since he was a major landowner. But it is hard to avoid the impression that his desire to help the country had an altruistic side. He speaks of the “beasts and vermin [and the] damps and musty stenches” of the majority of the population. By providing lots of information about local conditions, Petty would be able to see where the problems lay, and what could be done to fix them.

Eventually he decided on his plan to “improve” Ireland. It was quite odd, including the deportation of 100,000 families from England to promote the Anglicisation of the island. According to Fox, Petty believed that Protestants worked harder than Catholics. He caustically noted the “overplus hollidays” of Irish Catholics, with “unnecessary churchmen and holydayes being a great damage to an underpeopld contry”. Boosting the Protestant population, he reasoned, would boost the economy. Petty’s plan for mass deportation did not materialise, though he did manage to found a town comprising English, Welsh and Cornish Protestants.

Plucking the goose

Petty’s studies of the English economy were even more impressive than those he made of Ireland. In Petty’s time the big question was how to raise taxes. Before around 1600 most governments had little interest in improving the lot of ordinary people, so they did not need to bother raising much tax revenue. Any taxes that were raised were largely used to keep the royal family at the appropriate level of comfort and style. The figures we have for England, a fairly developed country, show that in the years 1300–1600 taxes averaged less than 2% of GDP (they are about 35% today).

In the 17th century, that changed. The emerging capitalist powers started to compete more fiercely for territory, expanding across the world in an effort to secure raw materials and luxury goods, and to open up foreign markets to their wares. The big wars which resulted had increased demands on the treasury. “From the Restoration [1660] onwards,” says Patrick O’Brien, a historian, in relation to Britain, “taxes collected for central government increased steadily in direct response to demands for the funding of military expenditures. A long series of ‘mercantilist wars’, occupying nearly half of all the fiscal years from the reign of Charles II through to that of George IV, imposed ever-increasing tax burdens on the incomes of British citizens and upon their economy.” For the first time, people in positions of political power had to think about the best way to raise extra money.

This is where Petty comes in. He focused his efforts on what economists today call “national accounting”–measures of a country’s annual level of production or income (otherwise known as GDP) and the value of its assets. In order to know how much tax the government could feasibly raise, it had to have some vague idea of how big the economy was.3 Petty insisted on the need to “compute what the total expence [sic] of the nation is by particular men upon themselves”, such that “an excellent account may be taken of the wealth, growth, trade and strength of the nation”.

So Petty set himself the task of working out the size of the English economy–the first time such a thing had been attempted. Petty reckoned that the “whole income of the nation could be estimated from the number of people and their expenditures”, as Charles Hull put it. This was an approach not dissimilar to one used by the economists of today to calculate GDP, which involves adding up consumption spending, investment spending, government spending and net exports. Petty famously asserted that the GDP of England and Wales in the mid-1660s was £40 million. He suggested that £25 million of this was paid out in wages, and £15 million was paid to the owners of land, housing and other sorts of assets.4

It is undeniable that Petty’s calculations were somewhat slapdash. He made many assumptions that were suspiciously left unexplained, points out Paul Slack, a historian. Petty claims, for instance, to have “particular estimates… too troublesome to particularise” of the values of metals, leather, salts and so on. Did he just pluck some numbers out of thin air? Slack provides a forensic analysis of Petty’s figures, arguing that his assumed value of livestock is too high, the value of currency in circulation too low, and the value of shipping tonnage also too high. Slack continues: “The £40 million was evidently an a priori hypothesis, a round figure tested and then adopted because it seemed to give results of the right order of magnitude.”

Some have gone further in their criticism of Petty. Adam Smith quipped that “I have no great faith in political arithmetic.” Smith argued that practitioners such as Petty relied on little more than guesswork. More recent critics accuse him of the worst kind of academic malpractice: fiddling his numbers in order to produce conclusions that suited his financial interests. Petty’s GDP calculations suggested that labour was more important than land to the English economy. It therefore followed that more tax needed to be extracted from labour–a “self-serving” argument, wrote The Economist in 2013, since it suited the interests of landowners quite nicely.

Still, Petty’s estimates were not far out: the latest estimates of England’s GDP for the year 1665 suggest that it was around £49 million, against Petty’s £40 million. And according to Slack, to focus on the accuracy of Petty’s figures is somewhat to miss the point: “It was Petty’s confidence that exact figures could and must be found which set him on his path-breaking course.”

Theory and practice

Many of the economists in this book were fans of complex, abstract theorising. They did not much worry about whether their theories held up to empirical scrutiny. In tune with the Baconian spirit of the age, however, Petty took a completely different approach. In his view, it was better if empirical evidence–data–came first, with theories then following. From his detailed observations and calculations about population and GDP sprang interesting ideas about how the economy worked.

The question of the “optimum” size of a country’s population was a big theme from the 17th to the 20th centuries. Most notoriously, Thomas Malthus (1766–1834) worried about population outstripping food supply. As we will see in Chapter 11, Malthus reached that possibility from making a series of assumptions, some of which were unfounded. Petty’s empirical work, however, led him to a very different conclusion.

Petty frequently travelled to the Netherlands, which was in his time the most advanced capitalist nation (in 1700 GDP per person in the Netherlands was roughly twice what it was in Britain, and perhaps three times what it was in Ireland).5 He compared the prosperity he witnessed in the Netherlands to the poverty he found in Ireland–and noted that one country was a lot more populated than the other. Though the Netherlands had few natural resources, “in Holland or Zeeland (the thickest peopled countrys I know), the worth of men and of their days labour is greater than in Kerry or Connaught, and there also are fewer beggers”. Dutch people, tightly packed in, were in Petty’s words “set on work, barren grounds made fruitfull”.

Petty, in other words, was arguing precisely the opposite to Malthus. In Petty’s view, a large, dense population was a good thing. Hadn’t God told Adam and Eve to “be fruitful and multiply and replenish the earth”? Having more people about would, among other things, encourage the growth of towns and cities, argues Adam Fox. Petty thought this was good: urban-dwellers engaged in “conspicuous consumption” (though he did not use this term) and so wanted to work hard in order impress their neighbours. The dense population found in cities helped make production more efficient. The division of labour could also be deepened. “[I]n the streets of a great town, where all the inhabitants are almost of one trade,” Petty argues, “the commodity peculiar to those places is made better and cheaper than elsewhere.” Petty contrasted rich England, where he reckoned about a tenth of the population lived in London, with poor Ireland, where he supposed that barely more than 2% lived in Dublin. In Petty’s view, governments should do all they could to encourage population growth–and to cram as many people as possible into urban areas.

Petty’s experience of the real world also influenced his views on economic policy. His instincts were clear: he was a fan of the phrase “vadere sicut vult”, which roughly translates as “the world will jog on” or “let it go as it will”. Today Petty is widely known as one of the earliest laissez-faire economists. Like François Quesnay (Chapter 5) and Bernard Mandeville (Chapter 3), his medical training influenced his view of society. “We must consider in general,” he said, “that as wiser Physicians tamper not excessively with their Patients, rather observing and complying with the motions of nature… so in Politicks and Oconomicks the same must be used.” Petty recognised that the human body was able to fight off disease itself, often without any outside help. He reckoned that, in the same way, economies were self-correcting. Petty must have realised the danger of giving the government too much power–he had himself used his official position in Ireland to enrich himself.

But Petty did not let his laissez-faire theory run away with him. He was too empirical for that. In his travels around the world he noticed plenty of people who had been out of work for a long time, and sympathised with their plight. He worried that if they were idle for too long they would lose their work ethic and their skills would ossify.6 He puts it in slightly different language, of course, to that which modern economists would use: “Perhaps they may get… by begging or stealing more than will suffice them, which will for ever after indispose them to labour.”

Petty, therefore, favours government intervention in limited cases. In his view the unemployed should be put to work–with the money coming from the government. “Who shall pay these men?” he asks. “I answer, every body.” To him it did not particularly matter what the workers were tasked with doing–as long as they were tasked with doing something:

Now as to the work of these supernumeraries…’tis no matter if it be employed to build a useless Pyramid upon Salisbury Plain, bring the Stones at Stonehenge to Tower-Hill, or the like; for at worst this would keep their mindes to discipline and obedience, and their bodies to a patience of more profitable labours when need shall require it.

The revenge of the Petty

Petty died an unfulfilled man. Despite his repeatedly requesting that the government spend more on collecting economic data–he wanted to create an Irish statistical office, for instance–people in positions of political power rarely listened. He did not see his vision for the widespread adoption of “political arithmetic” come to pass.

This may have been because Petty did not endear himself to his superiors. He enjoyed openly mocking the affectations of aristocrats. (“He had a ready tongue, he confessed, and was fond of a jest,” notes one biographer.) His corrupt dealings in Ireland endeared him to few.

But there was a deeper reason why Petty’s recommendations were ignored. The notion of making decisions based on data was radical. Basing decisions on data, rather than on what was the right decision, seemed unethical to many. William Letwin, a historian, calls Jonathan Swift’s Modest Proposal (1729) “the last word on political arithmetic as an instrument of social policy”. The Anglo-Irish satirist Swift lambasted Petty’s theory by demonstrating the economic “advantages” of selling 100,000 children per annum to be eaten by the starving poor.

Political economists also ignored Petty’s insights. Joseph Schumpeter argued that in the 18th century “the vast majority very quickly forgot” political arithmetic. Instead, they became increasingly interested in devising elaborate theories to describe the world. Empirical evidence was hard to get hold of, was unreliable, and, thanks to David Hume, there were lingering doubts as to whether it was possible to draw general statements from the analysis of data. According to Schumpeter, Petty’s guiding principle that “generalisations [be] the joint product of figures and reasoning” fell out of fashion with Adam Smith (who does not once namecheck Petty in the Wealth of Nations). David Ricardo had no time for empirical research. Karl Marx believed that data and statistics were grubby–and did not bother with the question of whether his analysis of capitalism was in any way testable against the real world. If Petty had come back to life in 1900 he would have been disappointed with the progress that his profession had made.

But things have changed. By the Second World War, rich countries across the world realised the benefit of having reliable data easily to hand, and started to produce regular estimates of GDP. Economics has caught up. With the foundation of the Econometric Society in 1930, empirical evidence was given pride of place once again. And in the past couple of decades the Petty approach to economics has become more and more fashionable. As it has become ever easier to amass huge amounts of data, economists are less and less looking from theory to evidence. Instead they are doing things the other way around, as Petty did.

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