The History of Economic Thought: A Reader From the ancients to the moderns, questions of economic theory and policy have been an important part of intellectual and public debate, engaging the attention of some of history’s greatest minds. This collection of readings covers the major themes that have preoccupied economic thinkers throughout the ages, including price determination and the underpinnings of the market system, monetary theory and policy, international trade and finance, income distribution, and the appropriate role for government within the economic system. These ideas unfold, develop, and change course over time at the hands of scholars such as Aristotle, François Quesnay, David Hume, Adam Smith, David Ricardo, Karl Marx, Alfred Marshall, and John Maynard Keynes. Each reading has been selected with a view to both enlightening the reader as to the major contributions of the author in question and to giving the reader a broad view of the development of economic thought and analysis over time. The History of Economic Thought: A Reader can be used as a core textbook or as a supplementary text on courses in economic thought and philosophy. It will provide readers with a good foundation in the different schools of thought that run through economics. Steven G. Medema is Professor of Economics at the University of Colorado at Denver, USA. He also serves as editor of the Journal of the History of Economic Thought. Warren J. Samuels is Professor Emeritus of Economics at Michigan State University. He is co-editor of the annual Research in the History of Economic Thought and Methodology. The History of Economic Thought: A Reader Edited by Steven G. Medema and Warren J. Samuels First published 2003 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2004. © 2003 Selection and editorial matter, Steven G. Medema and Warren J. Samuels; individual chapters, the authors All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-203-38029-0 Master e-book ISBN ISBN 0-203-38646-9 (Adobe eReader Format) ISBN 0–415–20551–4 (hbk) ISBN 0–415–20550–6 (pbk) For Alex and Christopher, and for Michelle, in the hope that they, too, will come to love the world of ideas Contents Preface x Acknowledgments xii PART 1 Pre-Classical Thought 1 Aristotle (384–322 BC) 3 Politics 5 Nichomachean Ethics (350 BC) 14 St Thomas Aquinas (1225–1274) 16 Summa Theologica (1267–1273) 18 Thomas Mun (1571–1641) 30 England’s Treasure by Forraign Trade or the Ballance of our Forraign Trade is the Rule of our Treasure (1664) 32 William Petty (1623–1687) 45 A Treatise of Taxes and Contributions (1662) 47 John Locke (1632–1704) 57 Of Civil Government (1690) 59 Some Considerations of the Consequences of the Lowering of Interest, and Raising the Value of Money (1691) 63 Richard Cantillon (1680?–1734) 78 Essay on the Nature of Commerce in General (1755) 79 François Quesnay (1694–1774) 95 Tableau Économique 97 Anne Robert Jacques Turgot (1727–1781) 103 Reflections on the Formation and Distribution of Wealth (1770) 104 Bernard Mandeville (1670–1733) 119 The Grumbling Hive: or, Knaves Turn’d Honest 120 viii Contents PART 2 The Classical School 131 David Hume (1711–1776) 133 Political Discources (1752) 135 Adam Smith (1723–1790) 153 An Inquiry into the Nature and Causes of the Wealth of Nations (1776) 156 Jeremy Bentham (1748–1832) 180 An Introduction to the Principles of Morals and Legislation (1789) 183 A Manual of Political Economy (1795) 186 Anarchical Fallacies (1795) 188 Principles of the Civil Code (1802) 192 Thomas Robert Malthus (1766–1834) 193 An Essay on the Principle of Population (1798) 196 William Godwin (1756–1836) 208 Of Population (1820) 210 Henry Thornton (1760–1815) 220 An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802) 222 David Ricardo (1772–1823) 235 The High Price of Bullion (1810) 237 Jean-Baptiste Say (1767–1832) 245 A Treatise on Political Economy 248 David Ricardo (1772–1823) 256 On the Principles of Political Economy and Taxation (1817) 259 Thomas Robert Malthus (1766–1834) 291 Principles of Political Economy (1820) 293 James Mill (1773–1836) 312 Elements of Political Economy (1821) 313 Nassau W. Senior (1790–1864) 317 An Outline of the Science of Political Economy (1836) 319 John Stuart Mill (1806–1873) 333 Principles of Political Economy (1848) 335 PART 3 The Marxian Challenge 369 Karl Marx 375 A Contribution to the Critique of Political Economy (1859) 375 Das Kapital (1867) 378 Contents ix PART 4 The Marginal Revolution 409 William Stanley Jevons (1835–1882) 413 The Theory of Political Economy (1871) 415 Carl Menger (1840–1921) 443 Principles of Economics (1871) 445 Leon Walras (1834–1910) 462 Elements of Pure Economics (1874) 464 Francis Ysidro Edgeworth (1845–1926) 477 Mathematical Psychics (1881) 479 Alfred Marshall (1842–1924) 501 Principles of Economics (1890) 504 Eugen von Böhm-Bawerk (1851–1914) 522 The Positive Theory of Capital (1888) 524 PART 5 The Development of Macroeconomics 553 Knut Wicksell (1851–1926) 555 “The Influence of the Rate of Interest on Prices” (1907) 557 Irving Fisher (1867–1947) 562 The Purchasing Power of Money and Its Determination and Relation to Credit Interest and Crises (1911) 564 John Maynard Keynes (1883–1946) 588 “The End of Laissez-Faire” (1926) 592 “The General Theory of Employment” (1937) 596 The General Theory of Employment, Interest and Money (1936) 603 PART 6 Institutional Economics 609 Thorstein B. Veblen (1857–1929) 611 The Theory of the Leisure Class (1899) 613 John R. Commons (1862–1945) 646 “Institutional Economics” (1931) 648 Index 655 Preface The following pages contain some of the great literature in the history of economic ideas. The task of putting together a reader such as this is like confronting an endless smorgasbord of delights when on a highly restrictive diet – so many good things to sample and so little room to actually indulge. It should be obvious that reading the selections contained herein is no substitute for reading the original works in their entirety. However, we hope that the reader will find our selections sufficient to provide a useful overview of some of the major themes in the history of economic thought as they were developed in the hands of the giants in the field. No “reader” can pretend to be comprehensive in its coverage. The scholars chosen for inclu- sion, and the passages excerpted from their works, will no doubt please some greatly and disappoint others. For the latter, we apologize. In putting together this reader, we have relied on a broad survey of course reading lists in the field, conversations with various colleagues, and our own instincts and intuition regarding topics usually covered in courses on history of economic thought. We have tried both to present the central ideas of each epoch within economic thought and to avoid overlap across writers. In doing so, we have also paid attention to the fact that cer- tain of these classic works (e.g. Adam Smith’s The Wealth of Nations) are readily available in inex- pensive paperback editions should the reader wish to examine them further. Thus, the length of the excerpts from, for example, Smith and Keynes reprinted here are perhaps rather more brief than what their stature in the history of economic ideas would suggest. We have also endeavored to provide sufficient introductory material1 for each section and each entry to provide a bit of background and plenty of suggestions for additional reading. There are many ways of doing his- tory, and many ways of teaching the history of economic thought. We have tried to be sensitive to this in the preparation of this volume, and we are hopeful that all readers/students/scholars with interest in the history of economic ideas will find useful things to take from this volume. While we anticipate that the primary market for this book will be students in history of economic thought courses, some of you may be reading this book simply because you have an interest in the history of ideas – economic or otherwise. For those who are new to the history of economic thought and wish to supplement their reading with secondary analysis, we refer you to Roger Backhouse’s The Ordinary Business of Life (The Penguin History of Economics in the UK), Robert Heilbroner’s The Worldly Philosophers, or the excellent textbooks in the field by Mark Blaug, Robert Ekelund and Robert Hébert, Harry Landreth and David Colander, Henry Spiegel, and Ingrid Rima. If you would like to “sit a course of lectures” in the field from your easy chair, you may consult Lionel Robbins’ A History of Economic Thought: The LSE Lectures. 1 We would like to acknowledge the fact that we have drawn heavily on Mark Blaug’s Great Economists Before Keynes for the biographical information contained in these introductory materials. Preface xi For various reasons, this project has had a rather long gestation process. We are most grateful to Alan Jarvis, Allison Kirk, and, especially, Robert Langham of Routledge for their strong inter- est in this project and their patience in seeing it through to completion.