If you read a quality newspaper, watch historical documentaries or attend public lectures you will often hear passing references to the founders of economics. Appealing to the authority of one of these people remains a useful rhetorical device. What better way to support an argument than to claim that Adam Smith, John Stuart Mill or David Ricardo took the same position?
The Financial Times tells us that “the core ideas behind Adam Smith’s vision of capitalism are being ignored”, and that we need to relearn what Smith wrote “if we are going to replace the opaque and exclusive system modern finance has created”. An essay in the Wall Street Journal invokes John Stuart Mill in the debate on free speech on campus. The implication of the article is that Mill would have supported an environment in which students are exposed to opinions that they do not like. After all, Mill wrote: “He who knows only his own side of the case, knows little of that.” Liam Fox, Britain’s international-trade secretary in 2016–19, organised an event where he “celebrated 200 years of Ricardo’s comparative-advantage theory”. That was intellectual ballast for his view that Britain would be better off outside the European Union, where it can strike its own free-trade deals.
Of course Smith had no idea about the derivatives, futures and options that make up modern finance. Ricardo’s theory of comparative advantage described a very different international economy from the one that we have today. But none of that matters a jot. If someone can make it seem as though their argument, no matter how arcane, was or would have been supported by one of these thinkers, it carries that bit more weight.
Which makes it essential to get a better sense of what these economists really meant. What did Adam Smith mean by the term “invisible hand”? Did Karl Marx predict the end of capitalism? Was John Stuart Mill a utilitarian? Did Thomas Malthus believe that famines were desirable?
This book will talk about what the founders of economics actually thought. That involves debunking some popular myths. I will also explain the significance of their ideas in simple language. The book has no equations and hopefully no jargon. After reading this book, you will know a few interesting things about the very famous (Smith, Malthus, Mill) and the much less famous (Harriet Martineau, Bernard Mandeville, Dadabhai Naoroji).
But the book offers more than that. Often people treat Adam Smith’s theories as things that just dropped from the sky. On closer inspection, however, it is clear that the political economists were influenced by prevailing economic, social and political conditions. You cannot understand the work of the famous “physiocrat” school of economics of 18th-century France without a basic understanding of the state of French agriculture at the time. David Hume and Adam Smith were best friends–and possibly lovers–yet Smith practically ignored Hume’s writing: why? Ricardo’s theories mean nothing, meanwhile, without knowing a bit about the Corn Laws. And your understanding of what Thomas Malthus argued will be far better once you know a bit about William Godwin and Mary Wollstonecraft’s sex life. Placing the political economists in their proper context has recently become a whole lot easier, as more and more high-quality historical data on the economy are published.1 My aim is to offer an inevitably partial assessment of what these thinkers wrote, the impact it had, and the worthiness of their contributions. This book is far from the final word on any of these people, but a useful way of understanding what they were all about.
Why these 20 thinkers? There is a certain amount of arbitrariness in choosing such a select list. Many significant names–Boisguillebert, Walras, Lenin, to name a few–do not feature. I have limited the time period under consideration to roughly three centuries. The oldest thinker in the book is Jean-Baptiste Colbert, an economic adviser to Louis XIV, who was born in 1619. The last of our thinkers to die was Alfred Marshall, in 1924. (The chapters, which deal with one person each, are ordered by year of the person’s death.)
Throughout the book I will try to answer basic questions about our 20 people that historians rarely bother to ask. The first one is this: why did economics come into being during the period 1600–1900? Before that period people did think about economic questions, of course. But not in the way that economics is understood today. Hannah Sewall argued in 1901 that “[t]he Greeks, in common with most ancient peoples, had no conception of rational laws governing the phenomena of the distribution of wealth.”2 They were more interested in questions of duty and nobility, questions of right and wrong, “rather than to know the ultimate relations of all actions”. Very broadly speaking, people thought this up until around 1600. Sewall explains that “economic activities were subordinate to political and aesthetic interests, and the study of economic problems therefore was subordinate to the solution of the more important problems of ethics and jurisprudence.”
On the question of economic value, medieval thinkers were more interested with what value “should be” rather than what value “is” (the latter question preoccupied the early economists such as Adam Smith and David Ricardo). Thomas Aquinas wrote about the concept of a “just price”–which gets at the ethical issues behind a question such as “is it legitimate for a shop to raise the price of umbrellas when it is raining?”
Why did people view economics differently back then? One reason is that markets were not a big part of everyday life for most people.3 Feudalism, after all, relied more strongly on loyalty and coercion than it did on price signals. Hannah Sewall argues that “a large portion of the people, especially in the lower ranks of life, even so late as the middle of the 15th century, still depended upon the direct personal services of their neighbours for the satisfaction of most of their everyday wants”. There were few opportunities for the investment of capital for profit. And, speaking very broadly, medieval societies were more concerned about the welfare of the sovereign and the church than they were about the welfare of the average person. It followed that people did not much think about how to allocate scarce resources fairly and efficiently.
Also, from the earliest recorded history, up until around the 17th century, all places across the world were roughly as rich as each other. The most authoritative historical GDP data is from Angus Maddison. These show that in the year 1000 the country with the highest per-person GDP (Iran and Iraq, tied first) was only about 50% richer than the world’s poorest country for which there are data (Denmark, Finland, Norway, Sweden and Britain, all joint last).
From around 1600, however, economics as a coherent discipline began to emerge. As feudalism withered, markets became stronger. That called for an explanation as to how they worked. And the world entered a period known to historians as “the great divergence”.4 By 1900 Western Europe and America had become far, far richer than anywhere else. In that year the world’s richest country, Britain, was over eight times as rich as the poorest, China. People were driven to explain what was going on. “[T]he wealth and poverty of nations”, wrote Thomas Malthus to David Ricardo in 1817, was “the grand object of all enquiries in Political Economy”.
Most of the intellectual action took place in Britain and the Netherlands, which vied to be the world’s richest country in the 17th and 18th centuries. There were also many French economic thinkers. France at the time was a comparatively wealthy place, but was doing far worse than Britain. France’s smartest people applied themselves to try to understand what was going wrong. You may have noticed, however, that the book contains no contributions from Americans. That may seem surprising: today America dominates both the global economy and academic economics. However, Joseph Schumpeter says that “[a]s regards the United States, there is nothing to record in the way of systematic endeavor before the nineteenth century. This is as we should expect from environmental conditions that were unlikely to produce either a demand for or supply of general treatises.” Even in the 19th century America did not produce many economists, and those that it did, such as Henry George, tended to borrow ideas from the European classical economists. No Americans featured in the “family tree of economics” which was introduced in the 1958 edition of Paul Samuelson’s famous textbook, Economics. It was not until the 20th century that American economists began to dominate the discipline as a whole.5
Why does the title of this book refer to a “classical school”? To be sure, the people profiled here had very different ideas about how the world worked. Nonetheless, in some important ways they make up a coherent body of thought. Members of the classical school, which lasted from roughly 1600 to 1900, asked themselves common questions. How do markets work? What is value? Why are some countries becoming fabulously rich, while others seem destined to remain poor for ever?
To explain these historically unprecedented trends, they also tended to point to similar phenomena. The benefits or otherwise of international trade were one important theme. Others were preoccupied with the question of how much of a role the government should have in the economy. At the same time, many worried about the spiritual and intellectual degradation that might accompany capitalism and economic growth.6
But members of the classical school were a coherent body also in a methodological sense. They rarely employed complex mathematics to express their theories. Even less commonly did they test their theories against empirical data in a rigorous way. They were philosophers more than they were hard scientists. The book ends with Alfred Marshall largely because in his work you start to see a break with the classical way of doing things: Marshall loved his equations, and he fumbled his way towards testing his theories with empirical data. After Marshall came John Maynard Keynes, Paul Samuelson, Milton Friedman–and the emergence of modern economics.
Some histories of economic thought read more like hagiographies than critical examinations. But I will show that most of the people in this book made big intellectual mistakes. Historians generally caution against using the benefit of hindsight to judge the people of the past. What may seem irrational or obvious to us may have been perfectly reasonable or insightful at the time. Nonetheless, in researching and writing this book I have been frequently baffled at the shortsightedness and daftness of some of the ideas that the 20 classical economists in this book put forward.
I’ll also make an effort to talk about people who achieved enormous things but have been forgotten. Harriet Martineau wielded great influence when she was writing. Her books sometimes sold better than Charles Dickens’s, a remarkable achievement in itself, but even more so when you consider that she was writing about economics. Rosa Luxemburg, meanwhile, was in her time the most controversial of controversial thinkers, doing what few Marxists had dared to do: pointing out what Marx had got wrong. Dadabhai Naoroji, as well as being a fascinating character in his own right–he was Britain’s first Asian MP–was also the first person to think systematically about the economic impact of colonialism.
Throughout the book, too, I will try to draw the links between the thinkers together. (For me, that has been the toughest but most interesting bit.) The people in this book were a fairly close-knit bunch. Malthus and Ricardo were best friends. Shortly before Marx’s death, Marx met Dadabhai Naoroji, probably at a dinner party, and the two swapped ideas. Marx would surely have incorporated them into the later volumes of Capital if he had lived long enough. Ricardo had been looking forward to meeting Jean-Baptiste Say, but was ultimately left underwhelmed. Harriet Martineau seemed to know pretty much everybody.
Even if they did not know each other personally, the 20 were constantly criticising and critiquing each other. Adam Smith published the Wealth of Nations in 1776 in opposition to the “mercantile system” of Jean-Baptiste Colbert, France’s finance minister from 1661 to 1683. John Stuart Mill at first slavishly adhered to Ricardo, but would later come to reject much of what he had written. Alfred Marshall, the final economist profiled in this book, constantly referred to Sir William Petty, one of the first. Marx and Engels, meanwhile, were not intellectual outsiders who proposed an entirely new body of economic theory. They very consciously worked within the tradition of Smith, Ricardo and Mill but purported to expose the flaws contained therein.
So it is best to see the book as a coherent whole. Having said all that, it is definitely possible to dip in and out of it, chapter by chapter. At the very least, after finishing it you will be better equipped to deal with the onslaught of references in popular culture to the founders of economics. Having something interesting to say about these people is more useful than ever–and so is being able to see through dubious appeals to their authority. I hope, too, that you will have a new sense of how economics came into the world: the sequence of ideas, developments and events that led us to where we are today, when the founders of an academic discipline are for better or worse treated as sages. This book seeks to put them in their proper perspective, as the time-bound and fallible originators of ideas that still speak to us today.