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Collection: IHS Studies in Economic Theory
Subject Area: Economics

The Emergence of Political Economy as the Science of Wealth - Israel M. Kirzner, The Economic Point of View [1960]

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The Economic Point of View: An Essay in the History of Economic Thought, ed. with an Introduction by Laurence S. Moss (Kansas City: Sheed Andrews McMeel, 1976).

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The Emergence of Political Economy as the Science of Wealth

The writers on economics at the time of the emergence of the subject as a serious discipline in its own right, where they made any attempt at all to outline the scope of their inquiries, did so quite as a matter of course by reference to “wealth” as its subject matter. By the latter half of the eighteenth century, thinkers in England, France, and Italy were coming to recognize that the subject of the mass of writings and speculations dealing with commerce, industry, foreign trade, money, interest, taxation, and the like constitutes a distinct theme of inquiry. Hitherto these speculations (such as those of the mercantilist writers and of those whom Schumpeter has called the consultant administrators and pamphleteers) had been isolated inquiries seeking to explain specific phenomena of the real world. Where inquiries on these and kindred subjects had been incorporated into more general systems, they appeared as unmistakably subsidiary material introduced to round out treatises whose subjects were juristic, political, or moral.

With the recognition of the fundamental unity of the principles underlying these scattered inquiries and of their analytical independence of juristic, political, and moral systems, economics, or political economy, emerged as a distinct discipline. Works appeared attempting to deal with economic phenomena in general, and these works typically identified their subject matter as being “wealth.”

It is worthy of notice that the existence in “wealth” of a subject matter ripe for independent investigation seems to have been assumed with little discussion. The conception of wealth as being a distinct phenomenon with its own peculiar scholarly interest was not a creation of the classical economists.2 Adam Smith, who defines political economy as treating of the “nature and causes of the wealth of nations,”3 freely applies the term to denote the area of concern of mercantile policy–makers of a century earlier.4 What converted scattered scraps of knowledge on the subject of “wealth” into an integrated system of ideas was simply the discovery of the regularity of the phenomena of wealth as determined in the market. Newly discovered, seemingly inexorable “laws” governing the wealth of nations turned this “wealth,” already the center of many isolated investigations, into the subject matter of a new science.

That this new science was considered, not as explaining the operation of a specific type of social organization or the results of a certain kind of human behavior or any of the various other matters that economists have at times believed it to be their principal concern to explain, but as primarily explaining the phenomena of wealth, is a circumstance that deserves some closer attention. It seems appropriate to glance briefly at the background against which economic thought developed, in order to throw some light on this interesting circumstance before we trace the later history of this idea on economic affairs.

In later chapters there will come under discussion a number of possibly more sophisticated conceptions of that economic point of view from which the economist scrutinizes the world. In the course of these discussions, the failure of the classical economists to perceive the unity of their subject to be implied in such conceptions will be more fully understood as stemming at least in part from their freedom from those influences that were operative in the emergence of the later views. At this point four positive elements in the background of early economic thought and its surrounding Zeitgeist may be distinguished as possible catalysts in the precipitation of wealth as the recognized subject matter of a distinct discipline.

1) Later methodologists were to devote considerable effort to the problem whether to treat political economy as a positive science or as an art, whether to cast its teachings in the indicative or the imperative moods. There can be little doubt that the founders of economics felt themselves to be expounding an art. According to Adam Smith, political economy “proposes to enrich both the people and the sovereign.”5 A recent writer has characterized the classical economists as a school of economic and social reform.6 The roots of this attitude toward their teachings are not hard to find. Economics, as we have seen, developed, in part at least, from the work of mercantilist writers, the “consultant administrators and pamphleteers.” This class of writers was quite simply interested in practical results. Any scientific work that came from their hands must quite naturally be considered the by–product, rather than the attained goal, of their endeavors. The growing application, in the eighteenth century, of sober and sound analysis to the questions that these earlier writers had discussed did not involve any change in this attitude. Hence, the conception that Smith, the economist, had of his subject was not much removed from that of Steuart, the mercantilist, to whom “oeconomy...is the art of providing for all the wants...” and to whom the “principal object” of his inquiry was “to secure a certain fund of subsistence for all the inhabitants.”7

It is not difficult to see that this attitude toward the utility of economic inquiries necessarily carried with it the elevation of wealth into an object of scientific study. An investigation that sets out to find the means of enriching the people and the sovereign, if it discovers laws governing the attainment of this objective, may not unnaturally presume to have discovered the laws of wealth. If we grant the assumption that the goal of economics is to make the nation wealthy, a goal to which a fairly well–understood meaning was attached, then it follows that economists must be considered, both by themselves and by the public, as expounding the principles of wealth—understood in the same sense—and its acquisition by the nation. How a nation wrests wealth from niggardly nature, how this wealth is distributed and exchanged within the nation—all these inquiries focus the attention on that which now becomes an object of scientific scrutiny. The general objectivism of the classical school in its substantive economic doc- trines here finds its counterpart in that school’s very conception of its task: an economist investigates the phenomena of a special class of objects that together comprise wealth.

2) Another force in the eighteenth–century environment that must have helped to set up wealth as the subject matter of a separate discipline seems to have been the intellectual interest in private property. Despite the variety of meanings that we shall find to have been attached to the term “wealth” by classical economists, almost all these meanings find some common ground with a definition of wealth as consisting in the objects of ownership. Throughout the seventeenth and eighteenth centuries a peculiar attraction seems to have resided in inquiries into the legal and moral bases of the institution of private property. Grotius had discussed the matter from a juristic standpoint. With Hobbes the inquiry into the nature and origins of private property became merged with his theories on the origins of the organization of society under the sovereignty of the state. Locke saw the origin of and justification for private property in natural law. These speculations and theories affected much of the thought of the leading writers throughout the eighteenth century. Discussions of civil justice must turn on the acceptance and justification of property rights; discussions of the legitimacy of slavery must involve the question of the admissible extent of property rights; the movements in France and America towards democracy were generally accompanied by specific attention to private property. For many years democracy was to mean democracy for the property owners. Godwin’s call for the abolition of private property once again drew attention to the foundation of the entire institution.8

Myrdal has attempted to show that it was the heritage of the ideas of the natural–law philosophers regarding property rights that accounts for the classical, and especially the Ricardian, theories of value.9 For the purposes of the present study the relevance of this observation seems sufficiently obvious. The isolation from the other ends of human action of that end represented by property on the one hand reflected, and on the other hand itself strengthened, the artificial line drawn between the study of the phenomena connected with property and the study of human action in general. The focusing of the attention of jurists, philosophers, and moralists on the institution of property cannot but have helped in keeping wealth in a compartment all its own. Moreover, the fundamental defect of classical economics, its lack of appreciation of the subjective nature of its phenomena, may perhaps be partly due to the fact that serious thought had for a long time been devoted to property and wealth in inquiries to which, indeed, this subjective element bore little direct relevance.

3) Yet another element in the environment of early scientific economics must be briefly alluded to in connection with the emergence of wealth as an object of intellectual interest. This is the approach of the moral philosophers of the period to the problems of the relation of the individual to society, and especially of the egoistic and altruistic motives. The birth of political economy may be regarded as a reflection of the confluence at this time of two streams of thought, ethics and politics. Ethics discussed the meaning of good and bad, the source of the sense of moral obligation. Politics explored the origins of society, the most desirable form of its organization, and the rights of the individual in relation to the state. In a society whose economy was becoming more and more dependent on the division of labor, it was natural for the ethics of the individual to become increasingly involved with his relation to society as a whole. The discovery of market regularities, predicated on individual avarice, in the phenomena of the wealth of nations meant in itself a unified application of ethical and political doctrines.10

The controversy stirred up during the eighteenth century by Mandeville’s Fable of the Bees was typical of the problem to which the thinkers of the time sought the solution. Mandeville’s provocative conclusion was “that what we call evil in this world,...is the grand principle that makes us sociable creatures, the solid basis, the life and support of all trades and employments...”11 His critics, including both Hume and Smith, used all manners of approach to dispute his conclusions. Closely allied to this problem was that recognized by Mandeville’s paradox, the venerable feud in human nature between the forces of self–interest and the forces of altruism. Whether or not the urge in a human being to benefit others than himself is a real one or merely the illusory reflection of a selfish desire to relieve one’s own pain incurred by another’s misery was a question well to the fore during this period. Hobbes had been the first of modern philosophers to expound his theory of egoism. Eighteenth–century philosophers, including Butler, Hume, and Smith generally rejected Hobbes’ egoism and postulated a real distinction between selfishness and altruism.

This reaction against extreme egoism and especially against the effect on the nation’s welfare ascribed to egoism seems to be at least partly responsible for the division of the field of human action into two independent classes, the one class of acts being induced by purely egoistic motives, the other class being constituted of acts in which the motivating forces are the altruistic and “higher” impulses. And it is not difficult to see how the acts induced by selfishness could be easily confused with acts aimed at fulfilling material desires. Careful thinking had demonstrated the existence of regularities in the phenomena of wealth. The identification of the study of these regularities with the study of material or other wealth thus obviously provided the new science with an appropriate and distinct niche within the structure of knowledge as conceived by the eighteenth–century thinkers.

4) One final strand in the web of eighteenth–century thought onto which a science of wealth was to be woven must be noticed. This is the position occupied by the natural sciences, and their relation to and influence upon the social sciences. In general the eighteenth–century view has been characterized as “anthropological and subjectivist,” in contrast to the “cosmological and objectivist view which the nineteenth century had of the world.”12 Nevertheless, the position of the nineteenth century had its roots in ideas that go back well into the eighteenth century and earlier.

The tremendous advances in the natural sciences, especially mathematics and astronomy, associated with such names as New- ton, Clairault, Euler, and d’Alembert, were radically transforming the intellectual atmosphere in which the eighteenth–century philosophers thought and taught. The reaction against airy metaphysical speculation set in motion by Hume and the other British empiricists, and the quasi–positivist philosophy of the French Encyclopedists, with its anathematization of all forms of anthropomorphism and animism, were all part of the environment in which economic science emerged.

It is not to be wondered at, then, that the enthusiasm engendered by the signal successes of the objective and impersonal methods of the physical sciences should have left its mark on the earliest researches of the classical economists. It has been well remarked that some of the founders of abstract economic theory in the eighteenth century were at the same time the founders of the positivism that was later to be deployed against that abstract economics.13

Differences of opinion may legitimately exist concerning the weight to be assigned to utterances by the moral philosophers that seem to illustrate the all–pervasive Newtonian influence.14 But these references are persistent. Hutcheson and Hume, Helvetius and Beccaria expressed the desire to treat the data of ethics analogously to the data of experimental physics, or they made analogies between the force of self–interest and the force of gravity.15 The simplification in the conception of the cosmos to which the physical sciences owed their characteristic fascination—i.e., the reduction of seemingly heterogeneous phenomena to a system governed by a few fundamental laws—seems to have perceptibly colored the thinking of the founders of economics. The extent of the gap between the conception of a science embracing the totality of action, on the one hand, and the conception of a science of wealth, on the other, owes something, it would appear, to the ease with which the latter could be incorporated into a structure of universal knowledge in which the physical sciences occupied so conspicuous a position. According to the English individualists, social phenomena spring, not from the interaction of individual subjective preference systems, but from the inter- action of individuals under an impersonal pervasive force of self–interest in relation to objective, material wealth.

[[2]]Contrast, however, Cunningham's appraisal of Adam Smith's achievement as consisting “in isolating the conception of national wealth, while previous writers had treated it in conscious subordination to national power” (quoted in A. Marshall, Principles of Economics, [8th ed.; Macmillan & Co.], p. 758 n.).

[[3]]Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Cannan (Modern Library, 1937), p. 643.

[[4]]See, e.g., op. cit., p. 403.

[[5]]Op. cit., p. 397. John Neville Keynes has remarked (The Scope and Method of Political Economy [4th ed.; London, 1930], p. 39 n.) that although Smith's work has the form of a science, he himself conceived his subject primarily as an art. In this connection, however, a note of Jeremy Bentham is of considerable interest. He wrote (Economic Writings, ed. Stark, Vol. III [George Allen and Unwin, 1954], p. 318 n.): “To Adam Smith, the science alone has been the direct and constant object in view: the art the collateral and occasional one.”

[[6]]L. Robbins, The Theory of Economic Policy in English Classical Political Economy (London, 1952), pp. 170–171.

[[7]]James Steuart, An Inquiry into the Principles of Political Economy (1767), cited in L. Haney, History of Economic Thought (4th ed.), p. 138.

[[8]]On the attitudes of some of the earliest economic writers towards the right of private property, see, e.g., E. Halévy, The Growth of Philosophic Radicalism (Boston, 1955), p. 45; L. Robbins, The Theory of Economic Policy, pp. 50 f.; J. Bonar, Philosophy and Political Economy (3rd ed.; London, 1922), pp. 142 f. Perhaps the most clear example of an economist who was stimulated by concern with private property rights was Samuel Read. Read, one of the economists “rediscovered” by Seligman (“Some Neglected British Economists,” Economic Journal, 1903), called his book Political Economy. An Inquiry into the Natural Grounds of Right to Vendible Property or Wealth (Edinburgh, 1829). He treated economics, not as concerning wealth, but as concerning the “right to wealth.” It is of interest to note that the alternative name which Read suggested (p. xvii) for political economy, “Political Justice,” is the title of Godwin's book of 1793 fiercely attacking the institution of private property.

[[9]]Gunnar Myrdal, The Political Element in the Development of Economic Theory (English ed.; Harvard, 1954), pp. 69 f. Contrast Schumpeter's remark in this regard (History of Economic Analysis, New York, 1954), p. 120.

[[10]]The intellectual ancestry of classical political economy has been traced variously to the moral tradition represented by the Mandeville–Shaftesbury–Hutcheson realm of thought and to the political tradition of the Grotius–Pufendorf–Hobbes–Locke filiation. See, e.g., J. T. Merz, History of European Thought in the Nineteenth Century (Edinburgh, 1914), IV, 127–128; J. Bonar, Philosophy and Political Economy, pp. 6, 85, 151; W. Hasbach, Untersuchungen über Adam Smith (Leipzig, 1891), pp. 23 f., 140 f. See also F. A. Hayek, “Individualism: True and False” (reprinted in Individualism and Economic Order, Chicago, 1948).

[[11]]B. Mandeville, Fable of the Bees (ed. of 1723), pp. 427–428.

[[12]]W. Röpke, The Social Crisis of Our Time (English edition; Chicago, 1950), p. 68.

[[13]]F. A. Hayek, The Counter–Revolution of Science (Glencoe, 1952), p. 107.

[[14]]See, e.g., W. H. Hutt, Economists and the Public (Jonathan Cape: London, 1936), pp. 301–302.

[[15]]See E. Halévy, The Growth of Philosophic Radicalism (Beacon Press: Boston, 1955), pp. 13, 19, 57.