This book is about the history of attempts to understand economic phenomena. It is about what has variously been described as the history of economic thought, the history of economic ideas, the history of economic analysis, and the history of economic doctrines. It is not, except incidentally, concerned with the economic phenomena themselves, but with how people have tried to make sense of them. Like the history of philosophy or the history of science, this is a branch of intellectual history. To illustrate the point, the subject of the book is not the Industrial Revolution, the rise of big business or the Great Depression – it is how people such as Adam Smith, Karl Marx, John Maynard Keynes and many lesser-known figures have perceived and analysed the economic world.
Writing the history of economic ideas involves weaving together many different stories. It is clearly necessary to tell the story of the people who were doing the thinking – the economists themselves. It is also necessary to cover economic history. Natural scientists can assume, for example, that the structure of the atom and the molecular structure of DNA are the same now as in the time of Aristotle. Economists cannot make comparable assumptions. The world confronting economists has changed radically, even over the past century. (Maybe there is a sense in which ‘human nature' has always been the same, but the precise meaning and significance of this are not clear.) Political history matters too, for political and economic events are inextricably linked, and economists have, as often as not, been involved in politics, either directly or indirectly. They have sought to influence policy, and political concerns have influenced them. Finally, it is necessary to consider changes in related disciplines and in the underlying intellectual climate. Economists' preconceptions and ways of thinking are inevitably formed by the culture in which they are writing. The history of economics has therefore to touch on the histories of religion, theology, philosophy, mathematics and science, as well as economics and politics.
What makes the problem difficult is that the relationships between these various histories are not simple. There is no justification for claiming, for example, that connections run solely from economic or political history to economic ideas. Economic ideas feed into politics and influence what happens in the economy (not necessarily in the way that their inventors intended); the three types of history are interdependent. The same is true of the relationship between the history of economics and intellectual history more generally. Economists have sought to apply to their own discipline lessons learned from science whether the science of Aristotle, Newton or Darwin. They are influenced by philosophical movements such as those of the Enlightenment, positivism or postmodernism, as well as by influences of which we are completely unconscious. However, links also run the other way. Darwin's theory of natural selection, for example, was strongly influenced by the economic ideas of Malthus. In short, economic ideas are an integral component of culture.
One factor that contributes to the interdependence of economics and other disciplines and intellectual life in general is that, at least until recently, economics was not an activity carried out by a group of specialists called ‘economists’. Modern disciplinary boundaries simply did not exist; also, the role of universities in society has changed almost beyond recognition. The people responsible for developing economic ideas included theologians, lawyers, philosophers, businessmen and government officials. Some of these held academic positions, but many did not. For example, Adam Smith was a moral philosopher, and his economic ideas formed part of a much broader system of social science, rooted in moral philosophy. Furthermore, the people who wrote the conventional canon of economic literature occupied various positions in the societies in which they lived, which means that comparisons across time have to be made with great care. When the thirteenth-century writer Thomas of Chobham wrote about trade and finance, he was offering guidance for priests taking confession. Perhaps the present-day counterpart to his work should be sought not in modern academic economics, but in papal encyclicals. Gerard Malynes and Thomas Mun, both of whom wrote in seventeenth-century England and are considered to have contributed to our understanding of foreign trade and exchange rates, were respectively a government official and a merchant. Perhaps they should be considered the forerunners of people like Jacques Polak at the International Monetary Fund, or the financier James Goldsmith.
When writing history of economics that covers over any period longer than about the last century, we have no choice but to select from a great variety of literature, written by different people for different purposes under different circumstances. Indeed, one of the most interesting things about the history is to see what has happened to ideas as they have been taken up by different writers and used for different purposes. This means that we have to be careful not to treat past writers as though they were modern academic economists.
The discussion so far has rested on the assumption that we know what economics and economic phenomena are. But economics is notoriously difficult to define. Perhaps the most widely used definition of the subject is the one offered by Lionel Robbins: ‘Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.’1 The phenomena we associate with economics (prices, money, production, markets, bargaining) can be viewed either as consequences of scarcity or as ways in which people try to overcome the problem of scarcity. Robbins's definition goes a long way towards capturing the features common to all economic problems, but it represents a very specific, limited view of the nature of such problems. Why, for example, should the operations of multinational corporations in developing countries, or the design of policy to reduce mass unemployment, be seen as involving choices about how to use scarce resources? It is perhaps ironic that Robbins's definition dates from 1932, during the depths of the Great Depression, when the world's major economic problem was that vast resources of capital and labour were lying idle.
A more natural definition is that of the great Victorian economist Alfred Marshall, who defined economics as the study of mankind in the ordinary business of life.2 We know what he means by this, and it is hard to disagree, though his definition is very imprecise. It could be made more precise by saying that economics deals with the production, distribution and consumption of wealth or, even more precisely, is about how production is organized in order to satisfy human wants. Other definitions include ones that define economics as the logic of choice or as the study of markets.
Perhaps as important as what these definitions say is what they do not say. The subject matter of economics is not defined as the buying and selling of goods, markets, the organization of firms, the stock exchange or even money. These are all economic phenomena, but there are societies in which they do not occur. It is possible, for example, to have societies in which money does not exist (or performs only a ceremonial function), in which production is not undertaken by firms, or in which transactions are undertaken without markets. Such societies face economic problems – how to produce goods, how to distribute them, and so on – even though the phenomena we normally associate with economic life are missing. Phenomena such as firms, the stock exchange, money and so on are better seen as institutions that have arisen to solve more fundamental economic problems, common to all societies. It is better, therefore, to define economics in relation to these more fundamental problems, rather than in relation to institutions that exist in some societies but not in others.
Anyone writing a systematic ‘principles of economics' has to decide on a specific definition of the subject and work within it. The historian, however, does not have to do this. It is possible, instead, to start with those ideas that make up contemporary economics – ideas that are found in economics teaching and are being developed by people recognized as economists. These, however, do not provide a precise definition, for the boundaries of the discipline are indistinct. Academics, journalists, civil servants, politicians and other writers (even novelists) all develop and work with economic ideas. The boundaries of what constitutes economics are further blurred by the fact that economic issues are analysed not only by ‘economists' but also by historians, geographers, ecologists, management scientists, and engineers. (Such writing may not be what professional economists would consider ‘good' or ‘serious' economics, and it may be ridden with fallacious arguments, but that is a different matter – it is still economics.) Approaching the subject in this very pragmatic way might seem less desirable than defining economics in terms of its subject matter. In practice, however, it is a workable approach and probably corresponds with what most historians actually do, even if they profess to work within a tight analytical definition of the subject.
Having decided on what constitutes contemporary economics, it is possible to work backwards, tracing the roots of the ideas that are found there, as far as it is decided to go. Some of these roots will clearly lead outside the subject (for example, to Newtonian mechanics or the Reformation), and the historian of economics will not pursue these further. Others will lead to ideas that the historian decides still count as economics, even though their presentation and content may be very different from those of modern economics, and these will be included in the history. The result of such a choice is that, the further we go back into history, the more debatable it becomes whether or not certain ideas are ‘economic’. When people argue, as they have, that a particular individual or group is the ‘founder' of economics, they are claiming that earlier writers should not be considered to be economists.
This raises two major questions about writing the history of economics. Where should it begin? And is our perspective on the past distorted through being obtained through the lens provided by present-day economics?
Some historians have argued that proper economics does not begin until we enter the modern world (say the fifteenth or sixteenth century), or even till the eighteenth century, when Adam Smith systematized so much of the work of his predecessors. Economics, the argument runs, is about analysing human behaviour and the way people interact through markets and respond to changes in their economic environment. Early writers, it is claimed, had quite different concerns, such as moral and theological issues about the justice of market exchange or lending at interest, and their work should not be classified as economics.
There is, however, a big problem with this argument: it is simply not possible to draw a clear dividing line between what constitutes economic analysis and what does not, or between what constitutes ‘proper' or ‘real' economics and what does not. For example, the moral and theological arguments of medieval theologians about the justice of commercial activities presuppose an understanding of how the economy operates. The economic content of such writing may be half-hidden or obscure, but it is there. The view underlying this book is that economic ideas were present even in antiquity, and that those ancient ideas are relevant in trying to locate the origins of modern economics. Furthermore, even in the present century, economics deals with normative questions (questions about what ought to be done), some of which parallel those tackled by the ancients. Economists are forever arguing that this policy or that will improve the welfare of society. It may be unfashionable to think of this as involving ethics, or morality; nonetheless, ethical presuppositions underlie modern economics just as much as they underlay Aristotle's thinking about the market. The Old Testament contains many economic ideas, as does the poetry of Homer. In a general history of economics, it may not be necessary to dwell long on these texts, but they are part of the story.
My argument can be summed up by saying that economics does not have a beginning or a ‘founder’; people have always thought about questions that we now consider part of economics. In this book I start with ancient Greece and the world of the Old Testament, for it is necessary to start somewhere, but these do not represent the beginning of economic thought.
The approach outlined above, focusing on what has been termed ‘the filiation of economic ideas’, is now unfashionable. In a postmodern world, the fashion is to stress the historical relativity of ideas and to decry any attempt to view past ideas from the perspective of the present. However, anyone who writes a history of economic thought necessarily views the past, to some extent, from the perspective of the present. Simply to focus on ‘economic' ideas is to select past ideas according to a modern category. However much we try to do so, we can never completely escape from our preconceptions attached to the questions we are trying to answer. It is better to state these preconceptions as explicitly as possible rather than to pretend that they do not exist. The objective of this book is to explain how economics got where it is today, at the beginning of the twenty-first century.
A common approach is to write a history that covers the accepted canon of ‘important' writings on economics. However, to do this is simply to rely on judgements that others have made in the past. It does not avoid the problem of one's choice of material being influenced by one's interests. What usually happens is that historians start with a conventional canon – a list of the works, figures or movements that are considered to represent the economics of the past. They then modify this, increasing the emphasis in some places, reducing it in others in response to the questions that interest them and the evidence they find. As economics has changed, so too have views about what constitutes the appropriate canon.
To approach the past from the perspective of the present can, however, result in stories that make very unconvincing histories. When the story told is one of progress from crude beginnings to the ‘truth' reached by the historian's friends, contemporaries or other heroes, the result is what has come to be called ‘Whig history’, after the nineteenth-century Whigs who told the story of Britain in this way, and readers are right to be sceptical. Nevertheless, the Whigs' attitude is shared by many economists, some of whom write histories of economics. They find it hard to accept that their own generation's theories and techniques (to which they may themselves have contributed) may not be superior to those of earlier generations. Critics of such work are right when they argue that this approach misses the important historical questions and frequently results in a caricature of what actually happened.
However, to examine the past in order to understand the present need not mean telling the story as one of progress. The reasons why ideas evolved as they did will include historical accidents, vested interests, prejudices, misunderstandings, mistakes and all sorts of things that do not fit into accounts of progress. The story may involve certain lines of inquiry dying out, or moving away from what is currently considered economics. We may discover, when we look back, that earlier generations were asking different questions – perhaps even questions we find it hard to understand – with the result that the notion of progress becomes problematic.
The story told in this book clearly reflects certain conventional views about what constitutes economics – certain topics are included because it is ‘obvious' that they should be there. The publisher (not to mention many readers) would have been unhappy if it said nothing about Adam Smith, David Ricardo, Karl Marx or John Maynard Keynes. It is recognizably a history of economics, as the term is commonly understood. However, it departs from the conventional canon both in the relative importance attached to different figures and in many of the topics that are included. It also tries to place people in an appropriate historical context – one that they might have recognized.
The book is not organized around the ‘great figures' of the past, as was once common. Chapters typically start with a discussion of the historical context, and proceed from there to the economic ideas that emerged. The emphasis on economic, political and intellectual history varies throughout the book, and is generally less prominent as the story unfolds. The most important reason for this is that when we are discussing periods when economics was less clearly distinguished from other disciplines it is more important to discuss ideas outside economics. As economics developed, during the nineteenth century, into an academic subject, the problems economists tackled were increasingly ones that arose within the discipline. Also, throughout the book, there is an emphasis on the communities and circumstances out of which economic ideas emerged, rather than simply on individuals: on what could loosely be called the sociology of the economics profession. The position of economists (or, more accurately, the position of people reflecting on economic matters) in society has changed, and this has influenced the way in which ideas have developed. Chapters dealing with early material therefore contain much general history. However, as the story develops, economic ideas become much more prominent and general history plays a smaller part. By the twentieth century, when economics had become a predominantly academic discipline, economic ideas were changing for reasons that were substantially internal to the discipline.
The book does cover the conventional canon, but this is challenged in many ways. The Islamic world enters the medieval story. Political philosophy and the Hobbesian challenge are an important element in the chapter on seventeenth-century England. Smith is viewed as a moral philosopher and is set in the context of the Scottish Enlightenment. Malthus is portrayed not just as a pure economist, or demographer, but as someone who contributed to contemporary political debates. Theoretical contributions of early-nineteenth-century French and German writers are placed alongside those of their English counterparts. Chamberlin is discussed in the context of US industrial economics, not that of the British cost controversy. The list could be continued. The most significant change, however, is that the twentieth century is a major part of the story (almost half the book). In covering it, I have attempted to give as broad a picture of the subject as possible. Given that my main aim is to explain how the discipline reached its present state, developments within its theoretical ‘core' are clearly prominent. However, they are not the whole story.
In telling this story, I have inevitably drawn on accounts written by specialists in the various periods the book covers. The ‘innovations' mentioned in the previous paragraph are all taken from such works. The number of places where I have been able to depart from the conventional story reflects, at least in part, the range of recent work on the history of economic thought – and this is particularly true of the twentieth century. My main debts are acknowledged in the suggestions for further reading at the end of the book.