The Origin of Economic Ideas Also by Guy Routh

*: AN ALTERNATIVE TEXT *OCCUPATION AND PAY IN GREAT BRITAIN, 1906-79 *UNEMPLOYMENT: ECONOMIC PERSPECTIVES *OCCUPATIONS OF THE PEOPLE OF GREAT BRITAIN, 1801-1981 THE TEACHING OF ECONOMICS IN AFRICA (co-editor) *DEVELOPMENT PATHS IN AFRICA AND CHINA (co-editor) ECONOMICS IN DISARRAY (co-editor)

*Also published by Macmillan The Origin of Economic Ideas

Guy Routh

Second Edition

M MACMILLAN © Guy Routh 1975, 1989

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First edition 1975 Second edition 1989

Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world

British Library Cataloguing in Publication Data Routh, Guy, 1916- The origin of economic ideas.-2nd ed. 1. Economics. Theories - to 1984 I. Title 330.1 ISBN 978-0-333-44325-5 ISBN 978-1-349-20169-3 (eBook) DOI 10.1007/978-1-349-20169-3 For Stephen Contents

Preface to the Second Edition lX Acknowledgements X

Chapter 1: Diagnosis 1 1. Simonde de Sismondi 2 2. William Thompson 4 3. RichardJones 6 4. Four critical Victorians 8 5. American critics 12 6. Britian between the wars 15 7. Modern times 19 8. The adamant paradigm 24

Chapter 2: The Preposterous Origins 29 1. The Just Price 29 2. The mercantile revolution 30 3. Sir 35 4. and Dudley North 46 5. Vauban and Boisguillebert 55 6. Richard Cantillon 62 7. The Physiocrats 68 8. Adam Smith 80

Chapter 3: From propaganda to dogma 105 1. Malthus on population 107 2. Ricardo 114 3. Malthus on economics 121 4. Jean-Baptiste Say 125 5. Say's Law 134 6. Nassau W. Senior 148 7. John Stuart Mill 162 8. The Popu1arisers 181

Vll Vlll Contents Chapter 4: The Marxist transformation 198 1. New visions 198 2. The Manifesto of the Communist Party 199 3. The 204 4. The Marxian revocation 211 5. Marxism assessed 213

Chapter 5: Tiny increments of economic change 218 1. The historical setting 220 2. Constituents of the marginal doctrine 231 3. unveiled 239 4. Marginalism developed 261 5. The uses of marginalism 277 6. Marginalism assessed 281

Chapter 6: The Keynesian restoration 283 1. The world of the thirties 283 2. The ' answer 286 3. The General Theory 291

Chapter 7: The world of the textbooks 314 1. Perfect competition 317 2. Consumers 321 3. Business behaviour; the theory of the firm 325 4. Macroeconomics 329 5. The hard core 335 6. Signs ofhope 337 7. The role of the textbooks 339

Chapter 8: Re-formation 340 1. A new start 342 2. Theoretic blight 343

Bibliography 345 1. Chronology of the principal works of the major authors mentioned in the text, 1572-1936 345 2. Critical studies ofeconomic method 347

Index 351 Preface to the Second Edition

Since the first edition of this book appeared in 1975 we may note, on the credit side, a burgeoning of criticism in books, journals and conferences and the introduction, here and there, of new courses confronting the problems of the real world; and, on the debit side, the further growth of the defects noted by Sismondi in 1819 when he observed the subject 'enveloped in calculations increasingly difficult to follow, losing itself in abstractions and becoming, in every way, an occult science'. In recent years, those wedded to orthodoxy have reacted perversely to criticism, choosing to change their assumptions instead of amending their conclusions. The unrealism of assumptions, they argue, adds power to a model; people act 'rationally', and therefore need not be studied, if their be• haviour conforms in some vague way with what they would do if they obeyed the theory, however different their real motiva• tions may be; to those who demand a study of the facts they reply, in the spirit of Descartes, that facts do not exist outside the mind of the beholder. It is disappointing to discover how little the contents of the first edition of this book have had to be changed for the second. I have, however, extended the range by including a chapter on Marx and, in a survey of some of the textbooks, brought up to date the theories to which students are sub• jected. I have, too, rewritten the final chapter in a sadder and, I hope, wiser vein, added a bibliography of major texts of the years 1572 to 1936, and another of the critical books and papers with which the citadel continues to be assailed.

Guy Routh

lX Acknowledgements

I first presented the ideas contained in this book in 1962 and 1963 in lecture courses at Columbia University in the City of New York, and later continued the series at the University of Sussex. I hope that those who attended the early courses and may now read what follows will find the presentation im• proved, and will accept my thanks for what they have contributed, first, by letting me practise on them, and second, for the help I have gained from their essays and comments. I think with gratitude, too, of my interlude at the University of Dar es Salaam, with its exhilarating intellectual climate, and of my association with Ian Livingstone in organising the Conference on the Teaching of Economics in Africa, held there in 1969. It may appear surprising that I make so little reference, in what follows, to the various histories of economic thought. This is because my task requires that I take the reader back to the original texts; it should not be interpreted as a sign of ingratitude to Robert Heilbroner, T. W. Hutchison, Robert Lekachman, Eric Roll and others from whom I have learnt so much. I am very conscious, too, of the debt I owe to Gunnar Myrdal, Henry Phelps Brown, Dudley Seers and Paul Streeten, from the clarity and force of whose thought I have drawn inspiration, and to Kenneth Walker, who is the master of three disciplines. The publishers and I wish to thank the following for permission to use copyright material: Geo. Allen & Unwin for extracts from Elements of Pure Economics by Leon W alras and from an article by Piero Sraffa in Readings in Price Theory edited by Kenneth E. Boulding and George J. Stigler; and Yale University Press for an extract from The Folklore of Capitalism by Thurman W. Arnold. And, finally: those who are listed so inadequately in man• power classification as 'unpaid family workers' - my wife and

X Acknowledgements XI children whose forbearance and candid criticism have enabled me to pursue my task, reasonably free from the delusions of grandeur to which academics are prone. Economic theory became a fascinating subject - the orthodox types particularly - when one began to take the mental operations of the theorists as the problem. W. C. Mitchell, 1928

We have not read these authors; we should consider their arguments preposterous if they were to fall into our hands. Nevertheless we should not, I fancy, think as we do, if Hobbes, Locke, Hume, Rousseau, Paley, Adam Smith, Bentham and Miss Martineau had not thought and written as they did. J. M. Keynes, 1926

Our subject in popular versions of it, sometimes even in the hands of distinguished writers, has furnished forth for the ungodly blunt instruments with which to bludgeon at birth useful projects of social betterment. A. C. Pigou, 1949