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CHAPTER VI: THE HISTORICAL SCHOOL - John Kells Ingram, A History of Political Economy 
A History of Political Economy. New and Enlarged Edition with a Supplementary Chapter by William A. Scott and an Introduction by Richard T. Ely (London: A. and C. Black, 1915).
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THE HISTORICAL SCHOOL
The negative movement which filled the eighteenth century had for its watchword on the economic side the liberation of industrial effort from both feudal survivals and Governmental fetters. But in all the aspects of that movement, the economic as well as the rest, the process of demolition was historically only the necessary preliminary condition of a total renovation towards which Western Europe was energetically tending, though with but an indistinct conception of its precise nature. The disorganization of the body of opinion which underlay the old system outran the progress towards the establishment of new principles adequate to form a guidance in the future. The critical philosophy which had wrought the disorganization could only repeat its formulas of absolute liberty, but was powerless for reconstruction. And hence there was seen throughout the West, after the French explosion, the remarkable spectacle of a continuous oscillation between the tendency to recur to outworn ideas and a vague impulse towards a new order in social thought and life, this impulse often taking an anarchical character.
From this state of oscillation, which has given to the 19th century its equivocal and transitional aspect, the only possible issue was in the foundation of a scientific social doctrine which should supply a basis for the gradual convergence of opinion on human questions. The foundation of such a doctrine is the immortal service for which the world is indebted to Auguste Comte (1798–1857).
The leading features of Sociology, as he conceived it, are the following:—(i) it is essentially one science, in which all the elements of a social state are studied in their relations and mutual actions; (2) it includes a dynamical as well as a statical theory of society; (3) it thus eliminates the absolute, substituting for an imagined fixity the conception of ordered change; (4) its principal method, though others are not excluded, is that of historical comparison; (5) it is pervaded by moral ideas, by notions of social duty, as opposed to the individual rights which were derived as corollaries from the jus naturæ; and (6) in its spirit and practical consequences it tends to the realisation of all the great ends which compose “the popular cause”; yet (7) it aims at this through peaceful means, replacing revolution by evolution.1 The several characteristics we have enumerated are not independent; they may be shown to be vitally connected with each other. Several of these features must now be more fully described; the others will meet us before the close of the present survey.
In the masterly exposition of sociological method which is contained in the fourth volume of the Philosophic Positive (1839),2 Comte marks out the broad division between social statics and social dynamics—the former studying the laws of social coexistence, the latter those of social development. The fundamental principle of the former is the general consensus between the several social organs and functions, which, without unduly pressing a useful analogy, we may regard as resembling that which exists between the several organs and functions of an animal body. The study of dynamical is different from, and necessarily subordinated to, that of statical sociology, progress being in fact the development of order, just as the study of evolution in biology is different from, and subordinated to, that of the structures and functions which are exhibited by evolution as they exist at the several points of an ascending scale. The laws of social coexistence and movement are as much subjects for observation as the corresponding phenomena in the life of an individual organism. For the study of development in particular, a modification of the comparative method familiar to biologists will be the appropriate mode of research. The several successive stages of society will have to be systematically compared, in order to discover their laws of sequence, and to determine the filiation of their characteristic features.
Though we must take care that both in our statical and dynamical studies we do not ignore or contradict the fundamental properties of human nature, the project of deducing either species of laws from those properties independently of direct observation is one which cannot be realised. Neither the general structure of human society nor the march of its development could be so predicted. This is especially evident with respect to dynamical laws, because, in the passage of society from one phase to another, the preponderating agency is the accumulated influence of past generations, which is much too complex to be investigated deductively—a conclusion which it is important to keep steadily before us now that some of the (so-called) anthropologists are seeking to make the science of society a mere annex and derivative of biology. The principles of biology unquestionably lie at the foundation of the social science, but the latter has, and must always have, a field of research and a method of inquiry peculiar to itself. The field is history in the largest sense, including contemporary fact; and the principal, though not exclusive, method is, as we have said, that process of sociological comparison which is most conveniently called “the historical method.”
These general principles affect the economic no less than other branches of social speculation; and with respect to that department of inquiry they lead to important results. They show that the idea of forming a true theory of the economic frame and working of society apart from its other sides is illusory. Such study is indeed provisionally indispensable, but no rational theory of the economic organs and functions of society can be constructed if they are considered as isolated from the rest. In other words, a separate economic science is, strictly speaking, an impossibility, as representing only one portion of a complex organism, all whose parts and their actions are in a constant relation of correspondence and reciprocal modification. Hence, too, it will follow that, whatever useful indications may be derived from our general knowledge of individual human nature, the economic structure of society and its mode of development cannot be deductively foreseen, but must be ascertained by direct historical investigation. We have said “its mode of development”; for it is obvious that, as of every social element, so of the economic factor in human affairs, there must be a dynamical doctrine, a theory of the successive phases of the economic condition of society; yet in the accepted systems this was a desideratum, nothing but some partial and fragmentary notions on this whole side of the subject being yet extant.1 And, further, the economic structure and working of one historic stage being different from those of another, we must abandon the idea of an absolute system possessing universal validity, and substitute that of a series of such systems, in which, however, the succession is not at all arbitrary, but is itself regulated by law.
Though Comte's enterprise was a constructive one, his aim being the foundation of a scientific theory of society, he could not avoid criticising the labours of those who before him had treated several branches of social inquiry. Amongst them the economists were necessarily considered; and he urged or implied, in various places of his above-named work, as well as of his Politique Positive, objections to their general ideas and methods of procedure essentially the same with those which we stated in speaking of Ricardo and his followers. J. S. Mill shows himself much irritated by these comments, and remarks on them as showing “how extremely superficial M. Comte” (whom he yet regards as a thinker quite comparable with Descartes and Leibnitz) “could sometimes be,”—an unfortunate observation, which he would scarcely have made if he could have foreseen the subsequent march of European thought, and the large degree in which the main points of Comte's criticism have been accepted or independently reproduced.
The second manifestation of this new movement in economic science was the appearance of the German historical school. The views of this school do not appear to have arisen, like Comte's theory of sociological method, out of general philosophic ideas; they seem rather to have been suggested by an extension to the economic field of the conceptions of the historical school of jurisprudence of which Savigny was the most eminent representative. The juristic system is not a fixed social phenomenon, but is variable from one stage in the progress of society to another; it is in vital relation with the other coexistent social factors; and what is, in the jural sphere, adapted to one period of development, is often unfit for another. These ideas were seen to be applicable to the economic system also; the relative point of view was thus reached, and the absolute attitude was found to be untenable. Cosmopolitanism in theory, or the assumption of a system equally true of every country, and what has been called perpetualism, or the assumption of a system applicable to every social stage, were alike discredited. And so the German historical school appears to have taken its rise.
Omitting preparatory indications and undeveloped germs of doctrine, we must trace the origin of the school to Wilhelm Roscher (1817–1894). Its fundamental principles are stated, though with some hesitation, and with an unfortunate contrast of the historical with the “philosophical” method,1 in his Grundriss zu Vorlesungen ¨ber die Staatswirthschaft nach geschichtlicher Methode (1843). The following are the leading heads insisted on in the preface to that work.
“The historical method exhibits itself not merely in the external form of a treatment of phenomena according to their chronological succession, but in the following fundamental ideas, (i.) The aim is to represent what nations have thought, willed, and discovered in the economic field, what they have striven after and attained, and why they have attained it. (2.) A people is not merely the mass of individuals now living; it will not suffice to observe contemporary facts. (3.) All the peoples of whom we can learn anything must be studied and compared from the economic point of view, especially the ancient peoples, whose development lies before us in its totality. (4.) We must not simply praise or blame economic institutions; few of them have been salutary or detrimental to all peoples and at all stages of culture; rather it is a principal task of science to show how and why, out of what was once reasonable and beneficent, the unwise and inexpedient has often gradually arisen.” Of the principles enunciated in this paraphrase of Roscher's words a portion of the third alone seems open to objection; the economy of ancient peoples is not a more important subject of study than that of the moderns; indeed, the question of the relative importance of the two is one that ought not to be raised. For the essential condition of all sound sociological inquiry is the comparative consideration of the entire series of the most complete evolution known to history—that, namely, of the group of nations forming what is known as the Occidental Commonwealth, or, more briefly, “the West.” The reasons for choosing this social series, and for provisionally restricting our studies almost altogether to it, have been stated with unanswerable force by Comte in the Philosophic Positive. Greece and Rome are, indeed, elements in the series; but it is the development as a whole, not any special portions of it, that Sociology must keep in view in order to determine the laws of the movement,—just as, in the study of biological evolution, no one stage of an organism can be considered as of preponderating importance, the entire succession of changes being the object of research. Of Roscher's further eminent services we shall speak hereafter; he is now mentioned only in relation to the origin of the new school.
In 1848 Bruno Hildebrand (1812–1878) published the first volume of a work, which, though he lived for many years after, he never continued, entitled Die National-ökonomie der Gegenwart und Zukunft. Hildebrand was a thinker of a really high order; it may be doubted whether amongst German economists there has been any endowed with a more profound and searching intellect. He is quite free from the wordiness and obscurity which too often characterise German writers, and traces broad outlines with a sure and powerful hand. His book contains a masterly criticism of the economic systems which preceded, or belonged to, his time, including those of Smith, Müller, List, and the socialists. But it is interesting to us at present mainly from the general position he takes up, and his conception of the real nature of political economy. The object of his work, he tells us, is to open a way in the economic domain to a thorough historical direction and method, and to transform the science into a doctrine of the laws of the economic development of nations. It is interesting to observe that the type which he sets before him in his proposed reform of political economy is not that of historical jurisprudence, but of the science of language as it has been reconstructed in the 19th century, a selection which indicates the comparative method as the one which he considered appropriate. In both sciences we have the presence of an ordered variation in time, and the consequent substitution of the relative for the absolute.
In 1853 appeared the work of Karl Knies (1821–1898), entitled Die Politische Oekonomie von Standpunkte der geschichtlichen Methode. This is an elaborate exposition and defence of the historical method in its application to economic science, and is the most systematic and complete manifesto of the new school, at least on the logical side. The fundamental propositions are that the economic constitution of society at any epoch on the one hand, and on the other the contemporary theoretic conception of economic science, are results of a definite historical development; that they are both in vital connection with the whole social organism of the period, having grown up along with it and under the same conditions of time, place, and nationality; that the economic system must therefore be regarded as passing through a series of phases correlative with the successive stages of civilization, and can at no point of this movement be considered to have attained an entirely definitive form; that no more the present than any previous economic organization of society is to be regarded as absolutely good and right, but only as a phase in a continuous historical evolution; and that in like manner the now prevalent economic doctrine is not to be viewed as complete and final, but only as representing a certain stage in the unfolding or progressive manifestation of the truth.
The theme of the book is handled with, perhaps, an undue degree of expansion and detail. The author exhibits much sagacity as well as learning, and criticises effectively the errors, inconsistencies, and exaggerations of his predecessors. But in characterising and vindicating the historical method he has added nothing to Comte. A second edition of his treatise was published in 1883, and in this he makes the singular confession that, when he wrote in 1852, the Philosophic Positive, the six volumes of which had appeared from 1830 to 1842, was entirely unknown to him and, he adds, probably to all German economists. This is not to the credit of their open-mindedness or literary vigilance, if we remember that Mill was already in correspondence with Comte in 1841, and that his eulogistic notice of him in the Logic appeared in 1843. When, however, Knies at a later period examined Comte's work, he was, he tells us, surprised at finding in it so many anticipations of, or “parallelisms” with, his own conclusions. And well he might; for all that is really valuable in his methodology is to be found in Comte, applied on a larger scale, and designed with the broad and commanding power which marks the dii majores of philosophy.
There are two points which seem to be open to criticism in the position taken by some German economists of the historical school.
1. Knies and some other writers, in maintaining the principle of relativity in economic theory, appear not to preserve the due balance in one particular. The two forms of absolutism in doctrine, cosmopolitanism and what Knies calls perpetualism, he seems to place on exactly the same footing; in other words, he considers the error of overlooking varieties of local circumstances and nationality to be quite as serious as that of neglecting differences in the stage of historical development. But this is certainly not so. In every branch of Sociology the latter is much the graver error, vitiating radically, wherever it is found, the whole of our investigations. If we ignore the fact, or mistake the direction, of the social movement, we are wrong in the most fundamental point of all—a point, too, which is involved in every question. But the variations depending on difference of race, as affecting bodily and mental endowment, or on diversity of external situation, are secondary phenomena only; they must be postponed in studying the general theory of social development, and taken into account afterwards when we come to examine the modifications in the character of the development arising out of peculiar conditions. And, though the physical nature of a territory is a condition which is likely to operate with special force on economic phenomena, it is rather on the technical forms and comparative extension of the several branches of industry that it will act than on the social conduct of each branch, or the co-ordination and relative action of all, which latter are the proper subjects of the inquiries of the economist.
2. Some members of the school appear, in their anxiety to assert the relativity of the science, to fall into the error of denying economic laws altogether; they are at least unwilling to speak of “natural laws” in relation to the economic world. From a too exclusive consideration of law in the inorganic sphere, they regard this phraseology as binding them to the notion of fixity and of an invariable system of practical economy. But, if we turn our attention rather to the organic sciences, which are more kindred to the social, we shall see that the term “natural law” carries with it no such implication. As we have more than once indicated, an essential part of the idea of life is that of development, in other words, of “ordered change.” And that such a development takes place in the constitution and working of society in all its elements is a fact which cannot be doubted, and which these writers themselves emphatically assert. That there exist between the several social elements such relations as make the change of one element involve or determine the change of another is equally plain; and why the name of natural laws should be denied to such constant relations of coexistence and succession it is not easy to see. These laws, being universal, admit of the construction of an abstract theory of economic development; whilst a part of the German historical school tends to substitute for such a theory a mere description of different national economies, introducing prematurely—as we have pointed out—the action of special territorial or ethnological conditions, instead of reserving this as the ground of later modifications, in concrete cases, of the primary general laws deduced from a study of the common human evolution.
To the three writers above named, Roscher, Hildebrand, and Knies, the foundation of the German historical school of political economy belongs. It does not appear that Roscher in his own subsequent labours has been much under the influence of the method which he has in so many places admirably characterised. In his System der Volkswirthschaft (vol. i., Grundlagen der Nationalökonomie, 1854; 23rd ed., 1900; Eng. transl. by J. J. Lalor, 1878; vol. ii., N. 0. des Ackerbaues, 1860; 13th ed., 1903; vol. iii., N. 0. des Handels und Gewerbfleisses, 7th ed., 1887) the dogmatic and the historical matter are rather juxtaposed than vitally combined. It is true that he has most usefully applied his vast learning to special historical studies, in relation especially to the progress of the science itself. His treatise Ueber das Verhaltniss der Nationalokönomie zum classischen Alterthume (1849), his Zur Geschichte der Englischen Volkswirthschaftslehre (1851–2), and, above all, that marvellous monument of erudition and industry, his Geschichte der National-Oekonomik in Deutschland (1874), to which he is said to have devoted fifteen years of study, are among the most valuable extant works of this kind, though the last by its accumulation of detail is unfitted for general study outside of Germany itself. Several interesting and useful monographs are collected in his Ansichten der Volkswirthschaft vom geschichtlichen Standpunkte (1861, 3d ed., 1878). His systematic treatise, too, above referred to, abounds in historical notices of the rise and development of the several doctrines of the science. But it cannot be alleged that he has done much towards the transformation of political economy which his earliest labours seemed to announce; and Cossa appears to be right in saying that his dogmatic work has not effected any substantial modification of the principles of Hermann and Rau.
The historical method has exhibited its essential features more fully in the hands of the younger generation of scientific economists in Germany, amongst whom may be reckoned Lujo Brentano, Adolf Held, Erwin Nasse, Gustav Schmoller, H. Rosier, Albert Schäffle, Hans von Scheel, Gustav Schönberg, and Adolf Wagner. Besides the general principle of an historical treatment of the science, the leading ideas which have been most strongly insisted on by this school are the following. I. The necessity of accentuating the moral element in economic study. This consideration has been urged with special emphasis by Schmoller in his Grundfragen der Rechtes und der Moral (1875) and by Schäffle in his Das gesellschaflliche System der menschlichen Wirthschaft (1861, 3d ed., 1873). G. Kries (d. 1858) appears also to have handled the subject well in a review of J. S. Mill. According to the most advanced organs of the school, three principles of organization are at work in practical economy; and, corresponding with these, there are three different systems or spheres of activity. The latter are (i) private economy; (2) the compulsory public economy; (3) the “caritative” sphere. In the first alone personal interest predominates; in the second the general interest of the society; in the third the benevolent impulses. Even in the first, however, the action of private interests cannot be unlimited; not to speak here of the intervention of the public power, the excesses and abuses of the fundamental principle in this department must be checked and controlled by an economic morality, which can never be left out of account in theory any more than in practical applications. In the third region above named, moral influences are of course supreme. II. The close relation which necessarily exists between economics and jurisprudence. This has been brought out by L. von Stein and H. Rösier, but is most systematically established by Wagner—who is, without doubt, one of the most eminent of living German economists—especially in his Grundlegung, now forming part of the comprehensive Lehrbuch der politischen Oekonomie published by him and Professor Nasse jointly. The doctrine of the jus naturæ, on which the physiocrats, as we have seen, reared their economic structure, has lost its hold on belief, and the old a priori and absolute conceptions of personal freedom and property have given way along with it. It is seen that the economic position of the individual, instead of depending merely on so-called natural rights or even on his natural powers, is conditioned by the contemporary juristic system, which is itself an historical product. The above-named conceptions, therefore, half economic half juristic, of freedom and property require a fresh examination. It is principally from this point of view that Wagner approaches economic studies. The point, as he says, on which all turns is the old question of the relation of the individual to the community. Whoever with the older juristic and political philosophy and national economy places the individual in the centre comes necessarily to the untenable results which, in the economic field, the physiocratic and Smithian school of free competition has set up. Wagner on the contrary investigates, before anything else, the conditions of the economic life of the community, and, in subordination to this, determines the sphere of the economic freedom of the individual. III. A different conception of the functions of the State from that entertained by the school of Smith. The latter school has in general followed the view of Rousseau and Kant that the sole office of the state is the protection of the members of the community from violence and fraud. This doctrine, which was in harmony with those of the jus natura and the social contract, was temporarily useful for the demolition of the old economic system with its complicated apparatus of fetters and restrictions. But it could not stand against a rational historical criticism, and still less against the growing practical demands of modern civilization. In fact, the abolition of the impolitic and discredited system of European Governments, by bringing to the surface the evils arising from unlimited competition, irresistibly demonstrated the necessity of public action according to new and more enlightened methods. The German historical school recognizes the State as not merely an institution for the maintenance of order, but as the organ of the nation for all ends which cannot be adequately effected by voluntary individual effort. Whenever social aims can be attained only or most advantageously through its action, that action is justified.1 The cases in which it can properly interfere must be determined separately on their own merits and in relation to the stage of national development. It ought certainly to promote intellectual and æsthetic culture. It ought to enforce provisions for public health and regulations for the proper conduct of production and transport. It ought to protect the weaker members of society, especially women, children, the aged, and the destitute, at least in the absence of family maintenance and guardianship. It ought to secure the labourer against the worst consequences of personal injury not due to bis own negligence, to assist through legal recognition and supervision the efforts of the working classes for joint no less than individual self-help, and to guarantee the safety of their earnings, when intrusted to its care.
A special influence which has worked on this more recent group is that of theoretic socialism; we shall see hereafter that socialism as a party organization has also affected their practical politics. With such writers as St. Simon, Fourier, and Proudhon, Lassalle, Marx, Engels, Marlo, and Rodbertus, we do not deal in the present treatise; but we must recognize them as having powerfully stimulated the younger German economists (in the more limited sense of this last word). They have even modified the scientific conclusions of the latter, principally through criticism of the so-called orthodox system. Schäffle and Wagner may be especially named as having given a large space and a respectful attention to their arguments. In particular, the important consideration, to which we have already referred, that the economic position of the individual depends on the existing legal system, and notably on the existing organization of property, was first insisted on by the socialists. They had also pointed out that the present institutions of society in relation to property, inheritance, contract, and the like, are (to use Lassalle's phrase) “historical categories which have changed, and are subject to further change,” whilst in the orthodox economy they are generally assumed as a fixed order of things on the basis of which the individual creates his own position. J. S. Mill, as we have seen, called attention to the fact of the distribution of wealth depending, unlike its production, not on natural laws alone, but on the ordinances of society, but it is some of the German economists of the younger historical school who have most strongly emphasised this view. To rectify and complete the conception, however, we must bear in mind that those ordinances themselves are not arbitrarily changeable, but are conditioned by the stage of general social development.
In economic politics these writers have taken up a position between the German free-trade (or, as it is sometimes with questionable propriety called, the Manchester) party and the democratic socialists. The latter invoke the omnipotence of the State to transform radically and immediately the present economic constitution of society in the interest of the proletariate. The free-traders seek to minimise state action for any end except that of maintaining public order, and securing the safety and freedom of the individual. The members of the school of which we are now speaking, when intervening in the discussion of practical questions, have occupied an intermediate standpoint. They are opposed alike to social revolution and to rigid laisser faire. Whilst rejecting the socialistic programme, they call for the intervention of the State in accordance with the theoretic principles already mentioned, for the purpose of mitigating the pressure of the modern industrial system on its weaker members, and extending in greater measure to the working classes the benefits of advancing civilization. Schäffle in his Capitalismus und Socialismus (1870; now absorbed into a larger work), Wagner in his Rede über die sociale Frage (1871), and Schönberg in his Arbeitsämter: eine Aufgabe des deutschen Reichs (1871) advocated this policy in relation to the question of the labourer. These expressions of opinion, with which most of the German professors of political economy sympathised, were violently assailed by the organs of the free-trade party, who found in them “a new form of socialism.” Out of this arose a lively controversy; and the necessity of a closer union and a practical political organization being felt amongst the partisans of the new direction, a congress was held at Eisenach in October 1872, for the consideration of “the social question.” It was attended by almost all the professors of economic science in the German universities, by representatives of the several political parties, by leaders of the working men, and by some of the large capitalists. At this meeting the principles above explained were formulated. Those who adopted them obtained from their opponents the appellation of “Katheder-Socialisten,” or “socialists of the (professorial) chair,” a nickname invented by H. B. Oppenheim, and which those to whom it was applied were not unwilling to accept. Since 1873 this group has been united in the “Verein fur Socialpolitik,” in which, as the controversy became mitigated, free-traders also have taken part. Within the Verein a division has shown itself. The left wing has favoured a systematic gradual modification of the law of property in such a direction as would tend to the fulfilment of the socialistic aspirations, so far as these are legitimate, whilst the majority advocate reform through state action on the basis of existing jural institutions. Schäffle goes so far as to maintain that the present “capitalistic” régime will be replaced by a socialistic organization; but, like J. S. Mill, he adjourns this change to a more or less remote future, and expects it as the result of a natural development, or process of “social selection;”1 he repudiates any immediate or violent revolution, and rejects any system of life which would set up “abstract equality” against the claims of individual service and merit.
The further the investigations of the German historical school have been carried, in the several lines of inquiry it has opened, the more clearly it has come to light that the one thing needful is not merely a reform of political economy, but its fusion in a complete science of society. This is the view long since insisted on by Auguste Comte; and its justness is daily becoming more apparent. The best economists of Germany now tend strongly in this direction. Schäffle (1831–1903), who was largely under the influence of Comte and Herbert Spencer, actually attempted the enterprise of widening economic into social studies. In his most important work, which had been prepared by previous publications, Bau und Leben des socialen Körpers (1875–78; new ed., 1896), he proposes to give a comprehensive plan of an anatomy, physiology, and psychology of human society. He considers social processes as analogous to those of organic bodies; and, sound and suggestive as the idea of this analogy, already used by Comte, undoubtedly is, he carries it, perhaps, to an undue degree of detail and elaboration. The same conception is adopted, and presented in a very exaggerated form, by P. von Lilienfeld in his Gedanken uber die Socialwissenschaft der Zukunft (1873–81). A tendency to the fusion of economic science in Sociology is also found in Adolph Samter's Sozial-lehre (1875)—though the economic aspect of society is there specially studied—and in Schmoller's already mentioned treatise Ueber einige Grundfragen; and the necessity of such a transformation is energetically asserted by H. von Scheel in the preface to his German version (1879) of an English tract1On the present Position and Prospects of Political Economy.
The name “Realistic,” which has sometimes been given to the historical school, especially in its more recent form, appears to be injudiciously chosen. It is intended to mark the contrast with the “abstract” complexion of the orthodox economics. But the error of these economics lies, not in the use, but in the abuse of abstraction. All science implies abstraction, seeking, as it does, for unity in variety; the question in every branch is as to the right constitution of the abstract theory in relation to the concrete facts. Nor is the new school quite correctly distinguished as “inductive.” Deduction doubtless unduly preponderates in the investigations of the older economists; but it must be remembered that it is a legitimate process, when it sets out, not from a priori assumptions, but from proved generalisations. And the appropriate method of economics, as of all sociology, is not so much induction as the specialised form of induction known as comparison, especially the comparative study of “social series” (to use Mill's phrase), which is properly designated as the “historical” method. If the denominations here criticised were allowed to prevail, there would be a danger of the school assuming an unscientific character. It might occupy itself too exclusively with statistical inquiry, and forget in the detailed examination of particular provinces of economic life the necessity of large philosophic ideas and of a systematic co-ordination of principles. So long as economics remain a separate branch of study, and until they are absorbed into Sociology, the thinkers who follow the new direction will do wisely in retaining their original designation of the historical school.
The members of this and the other German schools have produced many valuable works besides those which there has been occasion to mention above. Ample notices of their contributions to the several branches of the science (including its applications) will be found dispersed through Wagner and Nasse's Lehrbuch and the comprehensive Handbuch edited by Schönberg. The following list, which does not pretend to approach to completeness, is given for the purpose of directing the student to a certain number of books which ought not to be overlooked in the study of the subjects to which they respectively refer:—
Knies, Die Eisenbahnen und ihre Wirkungen (1853), Der Telegraph (1857), Geld und Credit (1873–76–79); Rösier, Zur Kritik der Lehre vom Arbeitslohn (1861); Schmoller, Zur Geschichte tier deutschen Kleingewerbe im 19 Jahrh. (1870); Schäffle, Theorie der ausschliessenden Absatzverhaltnisse (1867), Quintessenz des socialismus (6th ed., 1878), Grundsatze der Steuerpolitik (1880); Nasse, Mittelalterliche Feldgemeinschaft in England (1869); Brentano, On the History and Development of Gilds, prefixed to Toulmin Smith's English Gilds (1870), Die Arbeitergilden der Gegenwart (1871–72), Das Arbeitsverhaltniss gemass dem heutigen Recht (1877), Die Arbeitsversicherung gem¯ss der heutigen Wirtschaftsordnung (1879), Der Arbeitsversicherungszwang (1881), Die klassische Nationalokonomie (1888); Held (born 1844, accidentally drowned in the Lake of Thun, 1880), Die Einkommensteuer (1872), Die deutsche Arbeiterpresse der Gegenwart (1873), Sozialismus,Sozialdemokratie und Sozialpolitik (1878), Grundriss fur Vorlesungen uber Nationalokonomie (2d ed., 1878); Zwei Bucher zur socialen Geschichte Englands (posthumously published, 1881); Von Scheel (born 1839), Die Theorie der socialen Frage (1871), Unsere social politischen Parteien (1878); Von Böhm Bawerk, Kapital und Kapitalzinstheorien (1884–89). To these may be added L. von Stein, Die Verwaltungslehre (1876–79), Lehrbuch der Finanzwissenschaft (4th ed., 1878). E. Dühring is the ablest of the few German followers of Carey; we have already mentioned (Bibl. Note) his History of the Science. To the Russian German school belongs the work of T. von Bernhardi, which is written from the historical point of view, Versuch einer Kritik der Grunde welche fur grosses und kleines Grundeigenthum angefuhrt werden (1848). The free trade school of Germany is recognized as having rendered great practical services in that country, especially by its systematic warfare against antiquated privileges and restrictions. Cobden has furnished the model of its political action, whilst, on the side of theory, it is founded chiefly on Say and Bastiat. The members of this school whose names have been most frequently heard by the English public are those of J. Prince Smith (d. 1874), who may be regarded as having been its head; H. von Treitschke, author of Der Socialismus und seine Conner, 1875 (directed against the Katheder Socialisten); V. Böhmert, who has advocated the participation of workmen in profits (Die Gewinnbetheiligung, 1878); A. Emminghaus, author of Das Armenwesen in Europaischen Staaten, 1870, part of which has been translated in E. B. Eastwick's Poor Relief in Different Parts of Europe, 1873; and J. H. Schultze Delitzsch, well known as the founder of the German popular banks, and a strenuous supporter of the system of “co-operation.” The socialist writers, as has been already mentioned, are not included in the present historical survey, nor do we in general notice writings of the economists (properly so called) having relation to the history of socialism or the controversy with it.
The movement which created the new school in Germany, with the developments which have grown out of it, have without doubt given to that country at the present time the primacy in economic studies. German influence has been felt in the modification of opinion in other countries—most strongly, perhaps, in Italy, and least so in France. In England it has been steadily making way, though retarded by the insular indifference to the currents of foreign thought which has eminently marked our dominant school. Alongside of the influence thus exerted, a general distaste for the “orthodox” system has been spontaneously growing, partly from a suspicion that its method was unsound, partly from a profound dissatisfaction with the practice it inspired, and the detected hollowness of the policy of mere laisser faire. Hence everywhere a mode of thinking and a species of research have shown themselves, and come into favour, which are in harmony with the systematic conceptions of the historical economists. Thus a dualism has established itself in the economic world, a younger school advancing towards predominance, whilst the old school still defends its position, though its adherents tend more and more to modify their attitude and to admit the value of the new lights.
It is to be regretted that but little is known in England and America of the writings of the recent Italian economists. Luigi Cossa's Guida, which was translated at the suggestion of Jevons,1 has given us some notion of the character and importance of their labours. The urgency of questions of finance in Italy since its political renascence has turned their researches for the most part into practical channels, and they have produced numerous monographs on statistical and administrative questions. But they have also dealt ably with the general doctrines of the science. Cossa pronounces Angelo Messedaglia (b. 1820), professor at Padua, to be the foremost of the Italian economists of his time; he has written on public loans (1850) and on population (1858), and is regarded as a master of the subjects of money and credit. His pupil Fedele Lampertico (b. 1833) is author of many writings, among which the most systematic and complete is his Economia dei popoli e degli stati (1874–1884). Marco Minghetti (1818–1886), distinguished as a minister, was author, besides other writings, of Economia pubblica e le sue attinenze colla morale e col diritto (1859). Luigi Luzzatti, also known as an able administrator, has by several publications sought to prepare the way for reforms. The Sicilians Vito Cusumano and Giuseppe Ricca Salerno have produced excellent works:—the former on the history of political economy in the Middle Ages (1876), and on the economic schools of Germany in their relation to the social question (1875); the latter on the theories of capital, wages, and public loans (1877–8–9). G. Toniolo, E. Nazzani,1 and A. Loria have also ably discussed the theories of rent and profit, as well as some of the most important practical questions of the day. Cossa, to whom we are indebted for most of these particulars, is himself author of several works which have established for him a high reputation, as his Scienza delle Finanze (1875; 4th ed., 1887), and his Primi Elementi di Economia Politica. (1875; 8th ed., 1888), which latter has been translated into several European languages.
Of greater interest than such an imperfect catalogue of writers is the fact of the appearance in Italy of the economic dualism to which we have referred as characterising our time. There also the two schools—the old or so-called orthodox and the new or historical—with their respective modified forms, are found face to face. Cossa tells us that the instructors of the younger economists in northern Italy were publicly denounced in 1874 as Germanists, socialists, and corrupters of the Italian youth. In reply to this charge Luzzatti, Lampertico, and Scialoja convoked in Milan the first congress of economists (1875) with the object of proclaiming their resistance to the idea which was sought to be imposed on them “that the science was born and died with Adam Smith and his commentators.” M. Emile de Laveleye's interesting Lettres d'Italic (1878–79) throw light on the state of economic studies in that country in still more recent years. Minghetti, presiding at the banquet at which M. de Laveleye was entertained by his Italian brethren, spoke of the “two tendencies” which had manifested themselves, and implied his own inclination to the new views. Carlo Ferraris, a pupil of Wagner, follows the same direction. Formal expositions and defences of the historical method have been produced by R. Schiattarella (Del metodo in Economia Sociale, 1875) and S. Cognetti de Martiis (Delle attinenze tra I'Economia Sociale e la Storia, 1865). A large measure of acceptance has also been given to the historical method in learned and judicious monographs by Ricca Salerno (see especially his essay Del metodo in Econ. Pol., 1878). Luzzatti and Forti for some time edited a periodical, the Giornale degli Economist, which was the organ of the new school, but which, when Cossa wrote, had ceased to appear. Cossa himself, whilst refusing his adhesion to this school on the ground that it reduces political economy to a mere narrative of facts,—an observation which, we must be permitted to say, betrays an entire misconception of its true principles,—admits that it has been most useful in several ways, and especially as having given the signal for a salutary, though, as he thinks, an excessive, reaction against the doctrinaire exaggerations of the older theorists.
In France the historical school has not made so strong an impression,—partly, no doubt, because the extreme doctrines of the Ricardian system never obtained much hold there. It was by his recognition of its freedom from those exaggerations that Jevons was led to declare that “the truth is with the French school,” whilst he pronounced our English economists to have been “living in a fool's paradise.” National prejudice may also have contributed to the result referred to, the ordinary Frenchman being at present disposed to ask whether any good thing can come out of Germany. But, as we have shown, the philosophic doctrines on which the whole proceeding of the historical school is founded were first enunciated by a great French thinker, whose splendid services most of his fellow-countrymen seem, as yet, very inadequately to appreciate. Perhaps another determining cause is to be looked for in official influences, which in France, by their action on the higher education, impede the free movement of independent conviction, as was seen notably in the temporary eclat they gave on the wider philosophic stage to the shallow eclecticism of Cousin. The tendency to the historical point of view has appeared in France, as elsewhere; but it has shown itself not so much in modifying general doctrine as in leading to a more careful study of the economic opinions and institutions of the past.
Much useful work has been done by Frenchmen (with whom Belgians may here be associated) in the history of political economy, regarded either as a body of theory or as a system—or series of systems—of policy. Blanqui's history (1837–38) is not, indeed, entitled to a very high rank, but it was serviceable as a first general draft. That of Villeneuve-Bargemont (1839) was also interesting and useful, as presenting the Catholic view of the development and tendencies of the science. C. Perin's Les doctrines économiques depuis un sèicle (1880) is written from the same point of view. A number of valuable monographs on particular statesmen or thinkers has also been produced by Frenchmen,—as, for example, that of A. Batbie on Turgot (Turgot Philosophe, Économiste, et Administrateur, 1861); of A. Neymarck on the same statesman (Turgot et ses doctrines, 1885); of Pierre Clément on Colbert (His-toire de Colbert et de son Administration, 2d ed., 1875); of H. Baudrillart on Bodin (J. Bodin et son Temps; Tableau des Theories politiques et des Idées économiques au 16’siècle, 1853), of Léonce de Lavergne on the physiocrats (Les Économistes Français du 18 siècle, 1870). The treatise of M. de Laveleye, De la Propriété et de ses formes primitives (1874; Eng. trans, by G. R. Marriott, 1878), is specially worthy of action, not merely for its array of facts respecting the early forms of property, but because it co-operates strongly with the tendency of the new school to regard each stage of economic life from the relative point of view, as resulting from an historic past, harmonising with the entire body of contemporary social conditions, and bearing in its bosom the germs of a future, predetermined in its essential character, though modifiable in its secondary dispositions.
M. de Laveleye has done much to call attention to the general principles of the historical school, acting in this way most usefully as an interpreter between Germany and France. But he appears in his latest manifesto (Les Lois naturelles et I'objet de l'Économie Politique, 1883) to separate himself from the best members of that school, and to fall into positive error, when he refuses to economics the character of a true science (or department of a science) as distinguished from an art, and denies the existence of economic laws or tendencies independent of individual wills. Such a denial seems to involve that of social laws generally, which is a singularly retrograde attitude for a thinker of our time to take up, and one which cannot be excused since the appearance of the Philosophie Positive. The use of the metaphysical phrase “necessary laws” obscures the question; it suffices to speak of laws which do in fact prevail. M. de Laveleye relies on morals as supplying a parallel case, where we deal, not with natural laws, but with “imperative prescriptions,” as if these prescriptions did not imply, as their basis, observed co-existences and sequences, and as if there were no such thing as moral evolution. He seems to be as far from the right point of view in one direction as his opponents of the old school in another. All that his arguments have really any tendency to prove is the proposition, undoubtedly a true one, that economic facts cannot be explained by a theory which leaves out of account the other social aspects, and therefore that our studies and expositions of economic phenomena must be kept in close relation with the conclusions of the larger science of society.
We cannot do more than notice in a general way some of the expository treatises of which there has been an almost continuous series from the time of. Say downwards, or indeed from the date of Germain Gamier's Abrégé des Principes de I'Économic Politique (1796). That of Destutt de Tracy forms a portion of his Éléments d'Idéologic (1823). Droz brought out especially the relations of economics to morals and of wealth to human happiness (Économic Politique, 1829). Pellegrino Rossi,—an Italian, formed, however, as an economist by studies in Switzerland, professing the science in Paris, and writing in French (Cours d'Économic Politique, 1838–54),—gave in classic form an exposition of the doctrines of Say, Malthus, and Ricardo. Michel Chevalier (1806–1879), specially known in England by his tract, translated by Cobden, on the fall in the value of gold (La Baisse d'Or, 1858), gives in his Cours d'Économie Politique (1845–50) particularly valuable matter on the most recent industrial phenomena, and on money and the production of the precious metals. Henri Baudrillart, author of Les Rapports de la Morale et de l'Economic Politique (1860; 2d ed., 1883), and of Histoire du Luxe (1878), published in 1857 a Manuel d'Économic Politique (3d ed., 1872), which Cossa calls an “admirable compendium.” Joseph Garnier (Traite de l'Economie Politique, 1860; 8th ed., 1880) in some respects follows Dunoyer. J. G. Courcelle-Seneuil, the translator of J. S. Mill, whom Prof. F. A. Walker regards as “perhaps the ablest economist writing in the French language since J. B. Say,” besides a Traité théorique et pratique des opérations de Banque and Théorie des Enterprises Industrielles (1856), wrote a Traité d'Économic Politique (1858–59; 2d ed., 1867), which is held in much esteem. Finally, the Genevese, Antoine Élise Cherbuliez (d. 1869), was author of what Cossa pronounces to be the best treatise on the science in the French language (Précis de la Science Économique, 1862). L. Walras, in Éléments d'Économic Politique pure (1874–77), and Théorie Mathématique de la Richesse Sociale (1883), has followed the example of Cournot in attempting a mathematical treatment of the subject.
Sacrificing the strict chronological order of the history oi economics to deeper considerations, we have already spoken of Cairnes, describing him as the last original English writer who was an adherent of the old school pure and simple. Both in method and doctrine he was essentially Ricardian; though professing and really feeling profound respect for Mill, he was disposed to go behind him and attach himself rather to their common master. Mr. Sidgwick is doubtless right in believing that his Leading Principles did much to shake “the unique prestige which Mill's exposition had enjoyed for nearly half a generation,” and in this, as in some other ways, Cairnes may have been a dissolving force, and tended towards radical change; but, if he exercised this influence, he did so unconsciously and involuntarily. Many influences had, however, for some time been silently sapping the foundations of the old system. The students of Comte had seen that its method was an erroneous one. The elevated moral teaching of Carlyle had disgusted the best minds with the low maxims of the Manchester school. Ruskin had not merely protested against the egoistic spirit of the prevalent doctrine, but had pointed to some of its real weaknesses as a scientific theory.1 It began to be felt, and even its warmest partisans sometimes admitted, that it had done all the work, mainly a destructive one, of which it was capable. Cairnes himself declared that, whilst most educated people believed it doomed to sterility for the future, some energetic minds thought it likely to be a positive obstruction in the way of useful reform. Miss Martineau, who had in earlier life been a thorough Ricardian, came to think that political economy, as it had been elaborated by her contemporaries, was, strictly speaking, no science at all, and must undergo such essential change that future generations would owe little to it beyond the establishment of the existence of general laws in one department of human affairs.1 The instinctive repugnance of the working classes had continued, in spite of the efforts of their superiors to recommend its lessons to them—efforts which were perhaps not unfrequently dictated rather by class interest than by public spirit. All the symptoms boded impending change, but they were visible rather in general literature and in the atmosphere of social opinion than within the economic circle.2 But when it became known that a great movement had taken place, especially in Germany, on new and more hopeful lines, the English economists themselves began to recognize the necessity of a reform and even to further its advent. The principal agencies of this kind, in marshalling the way to a renovation of the science, have been those of Bagehot, Leslie, and Jevons,—the first limiting the sphere of the dominant system, while seeking to conserve it within narrower bounds; the second directly assailing it and setting up the new method as the rival and destined successor of the old; and the third acknowledging the collapse of the hitherto reigning dynasty, proclaiming the necessity of an altered régime, and admitting the younger claimant as joint possessor in the future. Thus, in England too, the dualism which exists on the Continent has been established; and there is reason to expect that here more speedily and decisively than in France or Italy the historical school will displace its antagonist. It is certainly in England next after Germany that the preaching of the new views has been most vigorously and effectively begun.
Walter Bagehot (1826–1877) was author of an excellent work on the English money market and the circumstances which have determined its peculiar character (Lombard Street, 1873; 8th ed., 1882), and of several monographs on particular monetary questions, which his practical experience, combined with his scientific habits of thought, eminently fitted him to handle. On the general principles of economics he wrote some highly important essays collected in Economic Studies (edited by R. H. Hutton, 1880), the object of which was to show that the traditional system of political economy—the system of Ricardo and J. S. Mill— rested on certain fundamental assumptions, which, instead of being universally true in fact, were only realised within very narrow limits of time and space. Instead of being applicable to all states of society, it holds only in relation to those “in which commerce has largely developed, and where it has taken the form of development, or something like the form, which it has taken in England.” It is “the science of business such as business is in large and trading communities—an analysis of the great commerce by which England has become rich.” But more than this it is not; it will not explain the economic life of earlier times, nor even of other communities in our own time; and for the latter reason it has remained insular; it has never been fully accepted in other countries as it has been at home. It is, in fact, a sort of ready reckoner, enabling us to calculate roughly what will happen under given conditions in Lombard Street, on the Stock Exchange, and in the great markets of the world. It is a “convenient series of deductions from assumed axioms which are never quite true, which in many times and countries would be utterly untrue, but which are sufficiently near to the principal conditions of the modern” English “world to make it useful to consider them by themselves.”
Mill and Cairnes had already shown that the science they taught was a hypothetic one, in the sense that it dealt not with real but with imaginary men—“economic men” who were conceived as simply “money-making animals.” But Bagehot went further: he showed what those writers may have indicated, but had not clearly brought out,1 that the world in which these men were supposed to act is also “a very limited and peculiar world.” What marks off this special world, he tells us, is the promptness of transfer of capital and labour from one employment to another, as determined by differences in the remuneration of those several employments—a promptness about the actual existence of which in the contemporary English world he fluctuates a good deal, but which on the whole he recognizes as substantially realised.
Bagehot described himself as “the last man of the ante-Mill period,” having learned his economics from Ricardo; and the latter writer he appears to have to the end greatly over-estimated. But he lived long enough to gain some knowledge of the historical method, and with it he had “no quarrel but rather much sympathy.” “Rightly conceived,” he said, “it is no rival to the abstract method rightly conceived.” We will not stop to criticise a second time the term “abstract method” here applied to that of the old school, or to insist on the truth that all science is necessarily abstract, the only question that can arise being as to the just degree of abstraction, or, in general, as to the right constitution of the relation between the abstract and the concrete. It is more apposite to remark that Bagehot's view of the reconciliation of the two methods is quite different from that of most “orthodox” economists. They commonly treat the historical method with a sort of patronising toleration as affording useful exemplifications or illustrations of their theorems. But, according to him, the two methods are applicable in quite different fields. For what he calls the “abstract” method he reserves the narrow, but most immediately interesting, province of modern advanced industrial life, and hands over to the historical the economic phenomena of all the human past and all the rest of the human present. He himself exhibits much capacity for such historical research, and in particular has thrown real light on the less-noticed economic and social effects of the institution of money, and on the creation of capital in the earlier stages of society. But his principal efficacy has been in reducing, by the considerations we have mentioned, still further than his predecessors had done, our conceptions of the work which the a priori method can do. He in fact dispelled the idea that it can ever supply the branch of general Sociology which deals with wealth. As to the relations of economics to the other sides of Sociology, he holds that the “abstract” science rightly ignores them. It does not consider the differences of human wants, or the social results of their several gratifications, except so far as these affect the production of wealth. In its view “a pot of beer and a picture—a book of religion and a pack of cards—are equally worthy of regard.” It therefore leaves the ground open for a science which will, on the one hand, study wealth as a social fact in all its successive forms and phases, and, on the other, will regard it in its true light as an instrument for the conservation and evolution—moral as well as material—of human societies.
Though it will involve a slight digression, it is desirable here to notice a further attenuation of the functions of the deductive method, which is well pointed out in Mr. Sidg-wick's remarkable work on political economy. He observes that, whilst J. S. Mill declares that the method a priori is the true method of the science, and that “it has been so understood and taught by all its most distinguished teachers,” he yet himself in the treatment of production followed an inductive method (or at least one essentially different from the deductive), obtaining his results by “merely analysing and systematising our common empirical knowledge of the facts of industry.” To explain this characteristic inconsistency, Mr. Sidgwick suggests that Mill, in making his general statement as to method, had in contemplation only the statics of distribution and exchange. And in this latter field Mr. Sidgwick holds that the a priori method, if it be pursued with caution, if the simplified premises be well devised and the conclusions “modified by a rough conjectural allowance” for the elements omitted in the premises, is not, for the case of a developed industrial society, “essentially false or misleading.” Its conclusions are hypothetically valid, though “its utility as a means of interpreting and explaining concrete facts depends on its being used with as full a knowledge as possible of the results of observation and induction.” We do not think this statement need be objected to, though we should prefer to regard deduction from hypothesis as a useful occasional logical artifice, and, as such, perfectly legitimate in this as in other fields of inquiry, rather than as the main form of method in any department of economics. Mr. Sidgwick, by his limitation of deduction in distributional questions to “a state of things taken as the type to which civilized society generally approximates,” seems to agree with Bagehot that for times and places which do not correspond to this type the historical method must be used— a method which, be it observed, does not exclude, but positively implies, “reflective analysis” of the facts, and their interpretation from “the motives of human agents” as well as from other determining conditions. In the dynamical study of wealth—of the changes in its distribution no less than its production—Mr. Sidgwick admits that the method a priori “can occupy but a very subordinate place.” We should say that here also, though to a less extent, as a logical artifice it may sometimes be useful, though the hypotheses assumed ought not to be the same that are adapted to a mature industrial stage. But the essential organ must be the historical method, studying comparatively the different phases of social evolution.
Connected with the theory of modern industry is one subject which Bagehot treated, though only in an incidental way, much more satisfactorily than his predecessors,— namely, the function of the entrepreneur, who in Mill and Cairnes is scarcely recognized except as the owner of capital. It is quite singular how little, in the Leading Principles of the latter, his active co-operation is taken into account. Bagehot objects to the phrase “wages of superintendence,” commonly used to express his “reward,” as suggesting altogether erroneous ideas of the nature of his work, and well describes the large and varied range of his activity and usefulness, and the rare combination of gifts and acquirements which go to make up the perfection of his equipment. It can scarcely be doubted that a foregone conclusion in favour of the system of (so-called) co-operation has sometimes led economists to keep these important considerations in the background. They have been brought into due prominence of late in the treatises of Profs. Marshall and F. A. Walker, who, however, have scarcely made clear, and certainly have not justified, the principle on which the amount of the remuneration of the entrepreneur is determined.
We have seen that Jones had in his dogmatic teaching anticipated in some degree the attitude of the new school; important works had also been produced, notably by Thomas Tooke and William Newmarch (History of Prices, 1838–1857), and by James E. Thorold Rogers (History of Agriculture and Prices in England, 1866–82),1 on the course of English economic history. But the first systematic statement by an English writer of the philosophic foundation of the historical method, as the appropriate organ of economic research, is to be found in an essay by T. E. Cliffe Leslie (printed in the Dublin University periodical, Hermathena, 1876; since included in his Essays Moral and Political, 1879). This essay was the most important publication on the logical aspect of economic science which had appeared since Mill's essay in his Unsettled Questions; though Cairnes had expanded and illustrated the views of Mill, he had really added little to their substance. Leslie takes up a position directly opposed to theirs. He criticises with much force and verve the principles and practice of the “orthodox” school. Those who are acquainted with what has been written on this subject by Knies and other Germans will appreciate the freshness and originality of Leslie's treatment. He points out the loose and vague character of the principle to which the classical economists profess to trace back all the phenomena with which they deal—namely, the “desire of wealth.” This phrase really stands for a variety of wants, desires, and sentiments, widely different in their nature and economic effects, and undergoing important changes (as, indeed, the component elements of wealth itself also do) in the several successive stages of the social movement. The truth is that there are many-different economic motors, altruistic as well as egoistic; and they cannot all be lumped together by such a coarse generalisation. The a priori and purely deductive method cannot yield an explanation of the causes which regulate either the nature or the amount of wealth, nor of the varieties of distribution in different social systems, as, for example, in those of France and England. “The whole economy of every nation is the result of a long evolution in which there has been both continuity and change, and of which the economical side is only a particular aspect. And the laws of which it is the result must be sought in history and the general laws of society and social evolution.” The intellectual, moral, legal, political, and economic sides of social progress are indissolubly connected. Thus, juridical facts relating to property, occupation, and trade, thrown up by the social movement, are also economic facts. And, more generally, “the economic condition of English” or any other “society at this day is the outcome of the entire movement which has evolved the political constitution, the structure of the family, the forms of religion, the learned professions, the arts and sciences, the state of agriculture, manufactures, and commerce.” To understand existing economic relations we must trace their historical evolution; and “the philosophical method of political economy must be one which expounds that evolution.” This essay was a distinct challenge addressed to the ideas of the old school on method, and, though its conclusions have been protested against, the arguments on which they are founded have never been answered.
With respect to the dogmatic generalisations of the “orthodox” economists, Leslie thought some of them were false, and all of them required careful limitation. Early in his career he had shown the hollowness of the wage-fund theory, though he was not the first to repudiate it.1 The doctrine of an average rate of wages and an average rate of profits he rejected except under the restrictions stated by Adam Smith, which imply a “simple and almost stationary condition” of the industrial world. He thought the glib assumption of an average rate of wages, as well as of a wage-fund, had done much harm “by hiding the real rates of wages, the real causes which govern them, and the real sources from which wages proceed.” The facts, which he laboriously collected, he found to be everywhere against the theory. In every country there is really “a great number of rates; and the real problem is, What are the causes which produce these different rates?” As to profits, he denies that there are any means of knowing the gains and prospects of all the investments of capital, and declares it to be a mere fiction that any capitalist surveys the whole field. Bagehot, as we saw, gave up the doctrine of a national level of wages and profits except in the peculiar case of an industrial society of the contemporary English type; Leslie denies it even for such a society. With this doctrine, that of cost of production as determining price collapses, and the principle emerges that it is not cost of production, but demand and supply, on which domestic, no less than international, values depend,—though this formula will require much interpretation before it can be used safely and with advantage. Thus Leslie extends to the whole of the national industry the partial negation of the older dogma introduced by Cairnes through the idea of non-competing groups. He does not, of course, dispute the real operation of cost of production on price in the limited area within which rates of profit and wages are determinate and known; but he maintains that its action on the large scale is too remote and uncertain to justify our treating it as regulator of price. Now, if this be so, the entire edifice which Ricardo reared on the basis of the identity of cost oi production and price, with its apparent but unreal simplicity, symmetry, and completeness, disappears; and the ground is cleared for the new structure which must take its place. Leslie predicts that, if political economy, under that name, does not bend itself to the task of rearing such a structure, the office will speedily be taken out of its hands by Sociology.
Leslie was a successful student of several special economic subjects—of agricultural economy, of taxation, of the distribution of the precious metals and the history of prices, and, as has been indicated, of the movements of wages. But it is in relation to the method and fundamental doctrines of the science that he did the most important, because the most opportune and needful work. And, though his course was closed too early for the interests of knowledge, and much of what he produced was merely occasional and fragmentary, his services will be found to have been greater than those of many who have left behind them more systematic, elaborate, and pretentious writings.
One of the most original of recent English writers on Political Economy was W. Stanley Jevons (1835–1882). The combination which he presented of a predilection and aptitude for exact statistical inquiry with sagacity and ingenuity in the interpretation of the results was such as might remind us of Petty. He tended strongly to bring economics into close relation with physical science. He made a marked impression on the public mind by his attempt to take stock of our resources in the article of coal. His idea of a relation between the recurrences of commercial crises and the period of the sun-spots gave evidence of a fertile and bold scientific imagination, though he cannot be said to have succeeded in establishing such a relation. He was author of an excellent treatise on Money and the Mechanism of Exchange (1875), and of various essays on currency and finance, which have been collected since his death, and contain vigorous discussions on subjects of this nature, as on bimetallism (with a decided tendency in favour of the single gold standard), and several valuable suggestions, as with respect to the most perfect system of currency, domestic and international, and in particular the extension of the paper currency in England to smaller denominations. He proposed in other writings (collected in Methods of Social Reform, 1883) a variety of measures, only partly economic in their character, directed especially to the elevation of the working classes, one of the most important being in relation to the conditions of the labour of married women in factories. This was one of several instances in which he repudiated the laisser faire principle, which, indeed, in his book on The State in Relation to Labour (1882), he refuted in the clearest and most convincing way, without changing the position he had always maintained as an advocate of free trade. Towards the end of his career, which was prematurely terminated, he was more and more throwing off “the incubus of metaphysical ideas and expressions” which still impeded the recognition or confused the appreciation of social facts. He was, in his own words, ever more distinctly coming to the conclusion “that the only hope of attaining a true system of economics is to fling aside, once and for ever, the mazy and preposterous assumptions of the Ricardian school.” With respect to method, though he declares it to be his aim to “investigate inductively the intricate phenomena of trade and industry,” his views had not perhaps assumed a definitive shape. The editor of some of his remains declines to undertake the determination of his exact position with respect to the historical school. The fullest indications we possess on that subject are to be found in a lecture of 1876, On the Future of Political Economy. He saw the importance and necessity in economics of historical investigation, a line of study which he himself was led by native bent to prosecute in some directions. But he scarcely apprehended the full meaning of the historical method, which he erroneously contrasted with the “theoretical,” and apparently supposed to be concerned only with verifying and illustrating certain abstract doctrines resting on independent bases. Hence, whilst he declared himself in favour of “thorough reform and reconstruction,” he sought to preserve the a priori mode of proceeding alongside of, and concurrently with, the historical. Political economy, in fact, he thought was breaking up and falling into several, probably into many, different branches of inquiry, prominent amongst which would be the “theory” as it had descended from his best predecessors, especially those of the French school, whilst another would be the “historical study,” as it was followed in England by Jones, Rogers, and others, and as it had been proclaimed in general principle by his contemporary Cliffe Leslie. This was one of those eclectic views which have no permanent validity, but are useful in facilitating a transition. The two methods will doubtless for a time coexist, but the historical will inevitably supplant its rival. What Jevons meant as the “theory” he wished to treat by mathematical methods (see his Theory of Political Economy, 1871; 2d ed., 1879). This project had, as we have seen, been entertained and partially carried into effect by others before him, though he unduly multiplies the number of such earlier essays when, for example, he mentions Ricardo and J. S. Mill as writing mathematically because they sometimes illustrated the meaning of their propositions by dealing with definite arithmetical quantities. Such illustrations, of which a specimen is supplied by Mill's treatment of the subject of international trade, have really nothing to do with the use of mathematics as an instrument for economic research, or even for the co-ordination of economic truths. We have already, in speaking of Cournot, explained why, as it seems to us, the application of mathematics in the higher sense to economics must necessarily fail, and we do not think that it succeeded in Jevons's hands. His conception of “final utility” is ingenious. But it is no more than a mode of presenting the notion of price in the case of commodities homogeneous in quality and admitting of increase by infinitestimal additions; and the expectation of being able by means of it to subject economic doctrine to a mathematical method will be found illusory. He offers1 as the result of a hundred pages of mathematical reasoning what he calls a “curious conclusion,”2 in which “the keystone of the whole theory of exchange and of the principal problems of economics lies.” This is the proposition that “the ratio of exchange of any two commodities will be the reciprocal of the ratio of the final degrees of utility of the quantities of commodity available for consumption after the exchange is completed.” Now as long as we remain in the region of the metaphysical entities termed utilities, this theorem is unverifiable and indeed unintelligible, because we have no means of estimating quantitatively the mental impression of final, or any other, utility. But when we translate it into the language of real life, measuring the “utility” of anything to a man by what he will give for it, the proposition is at once seen to be a truism. What Jevons calls “final utility” being simply the price per unit of quantity, the theorem states that, in an act of exchange, the product of the quantity of the commodity given by its price per unit of quantity (estimated in a third article) is the same as the corresponding product for the commodity received—a truth so obvious as to require no application of the higher mathematics to discover it. If we cannot look for results more substantial than this, there is not much encouragement to pursue such researches, which will in fact never be anything more than academic playthings, and which involve the very real evil of restoring the “metaphysical ideas and expressions” previously discarded. The reputation of Jevons as an acute and vigorous thinker, inspired with noble popular sympathies, is sufficiently established. But the attempt to represent him, in spite of himself, as a follower and continuator of Ricardo, and as one of the principal authors of the development of economic theory (meaning by “theory” the old a priori doctrine) can only lower him in estimation by placing his services on grounds which will not bear criticism. His name will survive in connection, not with new theoretical constructions, but with his treatment of practical problems, his fresh and lively expositions, and, as we have shown, his energetic tendency to a renovation of economic method.
Arnold Toynbee (1852–1883), who left behind him a beautiful memory, filled as he was with the love of truth and an ardent and active zeal for the public good, was author of some fragmentary or unfinished pieces, which yet well deserve attention both for their intrinsic merit and as indicating the present drift of all the highest natures, especially amongst our younger men, in the treatment of economic questions.1 He had a belief in the organizing power of democracy which it is not easy to share, and some strange ideas due to youthful enthusiasm, such as, for example, that Mazzini is “the true teacher of our age;” and he fluctuates considerably in his opinion of the Ricardian political economy, in one place declaring it to be a detected “intellectual imposture,” whilst elsewhere, apparently under the influence of Bagehot, he speaks of it as having been in recent times “only corrected, re-stated, and put into the proper relation to the science of life,” meaning apparently, by this last, general sociology. He saw, however, that our great help in the future must come, as much had already come, from the historical method, to which in his own researches he gave preponderant weight. Its true character, too, he understood better than many even of those who have commended it; for he perceived that it not merely explains the action of special local or temporary conditions or economic phenomena, but seeks, by comparing the stages of social development in different countries and times, to “discover laws of universal application.” If, as we are told, there exists at Oxford a rising group of men who occupy a position in regard to economic thought substantially identical with that of Toynbee, the fact is one of good omen for the future of the science.
For a long time, as we have already observed, little was done by America in the field of Economics. The most obvious explanation of this fact, which holds with respect to philosophical studies generally, is the absorption of the energies of the nation in practical pursuits. Further reasons are suggested in two instructive Essays—one by Professor Charles F. Dunbar in the North American Review, 1876, the other by Cliffe Leslie in the Fortnightly Review for October 1880.
We have already referred to the Report on Manufactures by Alexander Hamilton; and the memorial drawn up by Albert Gallatin (1832), and presented to Congress from the Philadelphia Convention in favour of Tariff reform, deserves to be mentioned as an able statement of the arguments against protection. Three editions of the Wealth of Nations appeared in America, in 1789, 1811, and 1818, and Ricardo's principal work was reprinted there in 1819. The treatises of Daniel Raymond (1820), Thomas Cooper (1826), Willard Phillips (1828), Francis Wayland (1837), and Henry Vethake (1838) made known the principles arrived at by Adam Smith and some of his successors. Rae, a Scotchman settled in Canada, published (1834) a book entitled New Principles of Political Economy, which has been highly praised by J. S. Mill (bk. i. chap, II), especially for its treatment of the causes which determine the accumulation of capital. The principal works which afterwards appeared down to the time of the Civil War were Francis Bowen's Principles of Political Economy, 1856, afterwards entitled American Political Economy, 1870; John Bascom's Political Economy, 1859; and Stephen Colwell's Ways and Means of Payment, 1859. In the period including and following the war appeared Amasa Walker's Science of Wealth, 1866; 18th ed., 1883, and A. L. Perry's Elements of Political Economy, 1866. A. Walker and Perry are free-traders; Perry is a disciple of Bastiat. Of Carey we have already spoken at some length; his American followers are E. Peshine Smith (A Manual of Political Economy, 1853), William Elder (Questions of the Day, 1871), and Robert E. Thompson (Social Science, 1875). The name of no American economist stands higher than that of General Francis A Walker (son of Amasa Walker), author of special works on the Wages Question (1876) and on Money (1878), as well as of an excellent general treatise on Political Economy (1883; 2d ed. 1887). Early works on American economic history are those of A. S. Bolles, entitled Industrial History of the United States (1878), and Financial History of the United States, 1774–1885, published in 1879 and later years.
The deeper and more comprehensive study of the subject which has of late years prevailed in America, added to influences from abroad, has given rise, there also, to a division of economists into two schools—an old and a new— similar to those which we have found confronting each other elsewhere. A meeting was held at Saratoga in September 1885, at which a society was founded, called the American Economic Association. The object of this movement was to oppose the idea that the field of economic research was closed, and to promote a larger and more fruitful study of economic questions. The same spirit led to the establishment of the Quarterly Journal of Economics, published at Boston for Harvard University. The first article in this Journal was by C. F. Dunbar, whose review of a Century of American Political Economy we have already noticed; and in this article he set out, in the interest of conciliation, the tendencies of the two schools.
This division of opinion was manifested in a striking way by a discussion on the method and fundamental principles of Economics, which was conducted in the pages of the periodical entitled Science, and has since been reproduced in a separate form (Science Economic Discussion, New York, 1886). In this controversy the views of the new school were expounded and advocated with great ability. The true nature of economic method, the relativity both of economic institutions and of economic thought, arising from their dependence on varying social conditions, the close connection of economic doctrine with contemporary jurisprudence, the necessity of keeping economics in harmony with social ethics, and the importance of a study of consumption (denied by J. S. Mill and others) were all exhibited with remarkable clearness and force.1 There is every reason to believe with Leslie that America will take an active part both in bringing to light the economic problems of the future and in working out their solution.
It would be a grave error to suppose that the subjection of social phenomena to natural laws affords any encouragement to a spirit of fatal istic quietism. On the contrary, it is the existence of such laws that is the necessary basis of all systematic action for the improvement either of our condition or of our nature, as may be seen by considering the parallel case of hygienic and thereapeutic agencies. And, since the different orders of phenomena are more modifiable in proportion to their greater complexity, the social field admits of more extensive and efficacious human intervention than the inorganic or vital domain. In relation to the dynamical side of Sociology, whilst the direction and essential character of the evolution are predetermined, its rate and secondary features are capable of modification.
He had already in 1822 stated his fundamental principles in an opuscule which is reproduced in the Appendix to his Politiqiue Positive.
Under the influence of these views of Comte, J. S. Mill attempted in Book IV. of his Political Economy a treatment of Economic Dynamics; but that appears to us one of the least satisfactory portions of his work.
This phraseology was probably borrowed from the controversy on the method of jurisprudence between Thibaut on the one hand and Savigny and the school of Hugo on the other.
It will in each case be necessary to examine whether the action can best be taken by the central, or by the local, government.
This should be remembered by readers of M. Leroy-Beaulieu's work on Collectivism (i 884), in which he treats Schäffle as the principal theoretic representative of that form of socialism.
By the present writer; being an Address to the Section of Economic Science and Statistics of the British Association at its meeting in Dublin in 1878.
Guide to the Study of Political Economy, 1880. See also the Bibliographical matter in his Primi Elementi di E. P., vol. i, 8th ed., 1888.
See his Saggi di Economia Politica. 1881
The remarkable book Money and Morals, by John Lalor, 1852, was written partly under the influence of Carlyle. There is a good monograph entitled John Ruskin, Economist, by P. Geddes, 1884.
See her Autobiography, 2d ed., vol. ii, p. 244.
A vigorous attack on the received system was made by David Syme in his Outlines of an Industrial Science, 1876.
Jones, whose writings were apparently unknown to Bagehot, had, as we have seen, in some degree anticipated him in his exposition.
Mr Rogers has since continued this work, and has also published The First Nine Years of the Bank of England, 1887.
That service was due to F. D. Longe (Refutation of the Wage-Fund Theory of Modern Political Economy, 1866). Leslie's treatment of the subject was contained in an article of Fraser's Magazine for July 1868, reprinted as an appendix to his Land-Systems and Industrial Economy of Ireland, England, and Continental Countries, 1870.
Theory of Political Economy, 2d ed., p. 103.
Fortnightly Review for November 1876, p. 617.
See his Lectures on the Industrial Revolution in England, with Memoir by the Master of Balliol, 1884; 2d ed., 1887.
The contributors on the side of the new school were Dr. Edwin R. A. Seligman, Professor E. J. James, Professor Richard T. Ely, Henry C. Adams, Richmond Mayo Smith, and Simon N. Patten. The representatives of the old school were Professor Simon Newcomb, F. W. Taussig, and Arthur T. Hadley.