Movements Opposed to Analytical Economics.
Many aspersions have been cast on “political economy”
since Carlyle referred to it as “that dismal science.”
This attitude may be found in the New Testament
condemnation of the desire for riches and money. But
to idealists all science is dismal, since it describes the
real, in contrast with the ideal or perfect. And eco-
nomics is an extreme case, because it deals with cost,
the need to give up one good to get another; and the
same prejudice doubtless underlies the popular con-
demnation of trade, and the market organization of
production and distribution.
There is a special ground for disliking historical
economic thought in its advocacy (overt, implied or
imputed) of the policy of laissez-faire. The earliest
public opposition to Adam Smith's teaching rested on
humanitarian grounds. It is pointed up by the reversal
of position by the Italian scholar, Jean Charles Léonard
de Sismondi, who first supported Adam Smith, in a
book, De la richesse commerciale (1803), but in 1819
revolted against the position in his Nouveaux principes
d'économie politique. His second position was sound
and well taken, for, as noted earlier, Smith's great work
was one-sided propaganda for “natural liberty,” with
little argument either way from economic analysis. He
never spelled out the meaning of the “invisible hand”
said to harmonize the individual interest with that of
society. Nor did he recognize the real logic of his
position, the view that there is no real social interest,
that society is merely an organization of individuals
for mutual economic advantage. The state is viewed
as a means, never an end with values of its own—
except perhaps as implied by the recognition of
“defence,” rated as “much more important than
opulence” (op. cit., p. 431). The “hand” should not
be interpreted as “Providence,” or a mystical force,
as is often done.
However, laissez-faire (an expression not used by
Smith or Ricardo) is not an economic doctrine, but a
political one. As already explained, the validity of
economic freedom as a policy depends on that of the
social ethics of utilitarian (instrumentalist) individ-
ualism, which has serious limitations. This policy issue
has nothing to do with economics as a science, which
assumes only the partial (analytical) descriptive
truth of its principles, not their ethical rightness—
any more than the assumption of “frictionless condi-
tions” in mechanics implies that friction (and other
qualifications) should be ignored by engineers in ap-
plying the principles. The common accusation of “un-
reality” of economic theory is as valid for theoretical
mechanics.
On the other hand, the critics (on the ground in
question) are open to the criticism that merely abstract
repudiation of laissez-faire means anarchism and ig-
nores stated qualifications. Smith listed and developed
three general exceptions to the system of natural lib-
erty, as tasks of the sovereign (op. cit., p. 351). Any
constructive criticism of laissez-faire must point out
concrete evils of freedom and at least indicate in gen-
eral terms feasible measures for the control and sup-
plementation of free-market relations that can reason-
ably be expected to remedy or mitigate them. Taking
measures implies a political order; and modern West-
ern nations are committed to “democratic” govern-
ment—law making and enforcement by representatives
of the citizen body, chosen by majority vote, the citi-
zens including all normal adults. (Smith and his early
followers said nothing about the form of government,
the nature of the “sovereign.”) In the modern West,
the primary task of government is to define and main-
tain the maximum permissible freedoms, notably mar-
ket freedom, freedom presupposing a fair degree of
legal order. (The second of Smith's exceptions, after
defence, was to maintain “an exact administration of
justice” in Book IV, Ch. IX.) This would now include
much more than he intended, though much might be
read into his treatment of this and the other two ex-
ceptions, or that of taxation. The democratic political
order and the economic order of markets and enter
prise are now each a part of the other—all based on
“cultural” freedom, religion included.
The most extreme opponents of the market eco-
nomic order, and of the science which analyzes it, are
the Marxists, who repudiate democracy also, in favor
of nothing, i.e., anarchism, as far as the documents
state. The original and still sacred “scripture,” the
Communist Manifesto, demands the “violent overthrow
of all existing [bisherige] social order,” by and for the
workers of the world, who “have nothing to lose but
their chains [and] have a world to gain.” Marx defined
government as the agency by which a ruling class, of
owners, exploits the workers. The revolution should
establish a “dictatorship of the proletariat,” giving no
indication of its organization for unitary action. This
has worked out in fact as the dictatorship of a self-
perpetuating clique, led by a “chairman”; it is mis-
called a “party” and the system is miscalled “commu-
nism.” In Russia, where its advocates came to
power—against Marxist predictions—the regime is
much farther from communism than is the (also mis-
named) “capitalism” of the free nations. But the doc-
trine (in essence an application of Ricardian economics)
has been embraced by innumerable bright minds and
has conquered over half of the world.
More reasonable, being more moderate, is the oppo-
sition movement called “socialism.” Its advocates have
stood for a democratic government, making the prob-
lem again one of politics. They have generally accepted
the main body of economic science, but have advo-
cated governmental ownership and management of the
bulk of income-yielding wealth (by some political
body), with “just” distribution of burdens and benefits.
Political control of income distribution would separate
this from payment for productive services, and destroy
the free economic system. In the case of labor, as an
incentive, pay might correspond to some extent with
productive contribution, hence with the scarcity of
particular abilities. Socialists have also been vague
about the productive organization, as well as on justice,
and disagree widely on details; they agree chiefly in
denouncing capitalism. The word “socialism” replaced
“Owenism,” stigmatized by Marx as “utopian”—along
with other early schemes, in contrast with his own
so-called “scientific” socialism. Claim to this descrip-
tion rested on the “materialistic interpretation of his-
tory,” which is neither materialistic nor scientific—nor
even “economic,” as it is often called—but dialectical,
in an inverse-Hegelian sense; but it did logically imply
inevitability.
The first socialists to be called such, as a school, were
the “Ricardian” group. They are so named because
they based their teaching on the labor theory of pro-
duction, drawing the common inference, the right of
laborers to the whole product. A book with this title,
The Right to the Whole Produce of Labor (1899) by
an Austrian, Anton Menger, has in the English transla-
tion an Introduction by H. S. Foxwell, which gives
perhaps the best account of the group. They were
theorists not, like Owen, reformers. Some Owenites
tried to put the labor theory into practice by setting
up labor-exchanges, stores where workmen brought
products to receive “scrip” stating their labor-time
value, to be sold to others on the same terms; they
were short-lived. Owen, Charles Fourier, Étienne
Cabet, and other utopians established communistic
colonies in America, attracted by cheap land; some
became famous, but all failed.
The first Ricardian Socialist, in time, was William
Thompson (1785?-1833) whose Principles of the Dis-
tribution of Wealth appeared in 1824. He was perhaps
also the most influential, since Marx is thought to have
taken from his book the idea of surplus-value. (He
might have gotten it from J. S. Mill by merely renam-
ing what Mill defined as profit.) John Gray and J. S.
Bray argued on similar lines, holding that property is
stored-up labor, and an owner should receive only
postponed wages for its labor cost. (Marx's labor-cost
theory would take account of the labor-cost of produc-
ing laborers.)
To the criticism that socialists have offered no plan
for the organization of an economy without private
ownership, a few exceptions should be noted, notably
“The Webbs” (Sidney and Beatrice), Outline for a
Socialist Constitution for Great Britain, and G. D. H.
Cole, Guild Socialism Restated (both London, 1920).
Also a book by Carl Landauer, Theory of National
Economic Planning (1944, p. 47), and others, might be
named. Of late there has been a tendency to use
“planned economy” in place of “socialism,” as more
appealing. Whatever the name, the general issue of so-
cialism versus free enterprise is a matter of degree and
of details; as the Prince of Wales, later King Edward
VII, said in 1895, “We are all socialists now.” It is
pointless to argue for either system in general; but for
the modern Western mind there is a presumption in
favor of the market order, unless there is a good reason
to the contrary, since it affords more freedom.
There is a question “how” socialistic a nation could
become and still preserve democratic forms, i.e., not
lead to a dictatorship. To repeat, the problem is one
of politics, having little to do with economics as a
science. Of this, the most general principles are valid
for any social order; while (somewhat) intelligent
beings engage in production, distribution, and con-
sumption and form a society, “economic” decisions will
be made, by some units and for some units—wisely
or otherwise—and details do not affect the abstract
theory. The concept covers all more or less effective
means-ends relations, including “function” in sub-
human life.
The intellectually more serious opposition to
“orthodox” economics has been “historicism.” Its con-
tention is methodological—that the proper subject
matter of economics is not inferences from familiar
principles of economy, but description and induction
from current facts and history. This doctrine originated
in Germany and is characteristically German, as the
more prevalent one is British. The alternative view has
had advocates in English works; of these writers, T. E.
Cliffe-Leslie is perhaps most important, though Sir
William Ashley and many other economic historians
might be named; also perhaps, R. H. Tawney, who was
more socialistic. His book, Equality (London, 1929),
raises a serious problem for advocates of freedom, since
inequality of power limits effective freedom. And
inequality tends to grow, since power can be used to
get more power, and this is conspicuously true of
economic power. Its growth has been largely checked
by differential taxation, public education, and other
measures, and by some natural counter-tendencies.
German historical economics was doubtless sug-
gested by the historical jurisprudence of Friedrich K.
von Savigny and others. Montesquieu was a cultural
forerunner. Two German historical schools are com-
monly recognized—the first led by W. Roscher, B.
Hildebrand, and K. Knies, the second by Gustav
Schmoller. This last was a “tsar” and censor of German
university economics for a generation, under the
Empire of 1871. He was important as a historian as
well as a propagandist. Karl Bücher and others of the
“schools” were more interested in history than in con-
ceptual or mathematical analysis.
The anti-deductivist writers called for a science not
of wealth alone but of life—as Othmar Spann, a ro-
mantic adherent stated it (Tote und lebendige Wissen-
schaft, 2nd ed., 1928)—with only special attention to
the economic aspect; i.e., they opposed the “narrow-
ness” and the unreality of analysis and specialization.
(One might ask, why only “life,” not the world, since
man is a part of it, and high authorities say that life
is nothing but physics and chemistry.)
An offshoot of the German movement was American
“Institutionalism” which flourished around the turn
into the twentieth century. Thorstein Veblen was its
best known champion—writing satire along with
science—and had a devoted follower in Clarence E.
Ayres. John R. Commons wrote on economic institu-
tions chiefly from a legal standpoint, and Wesley C.
Mitchell was sympathetic; he was claimed as an insti-
tutionalist, but his main work, on money, statistics, and
business cycles, belongs to “orthodox” economics.
What should be said about these opposition move-
ments is that there is no conflict at all with orthodoxy.
One can advocate a policy or write historical or socio-
logical economics at will, distinguishing the result from
history or sociology as far as possible. There was little
excuse for a “methods quarrel” (Methodenstreit) such
as raged in Germany and Austria after the publication
of Carl Menger's Untersuchungen (“Inquiries into
Methods”) in 1883—chiefly between him and Gustav
Schmoller. One may contend that inductive treatment
is superior, or even that no other economics should
be written. But it remains true that price theory yields
laws more useful for guiding action than any other
comparably simple view of social phenomena (e.g.,
criminology). There has been much effort to find pre-
dictive historical laws, but success has been sadly lim-
ited. Perhaps the major achievement has been Sir
Henry Sumner Maine's formula, “from status to con-
tract” (Ancient Law [1930], p. 182). Hegel used some-
what similar words, but with a very different meaning.
Doubtless enough has been said about the conflicting
approaches; but a final word may revert to the paral-
lelism of economic theory with the science of me-
chanics, where the abstraction and unrealism are
greater, but their necessity and usefulness are not
questioned.
