The growth of economic science

Appendix B

§1. In the eighteenth century, political-economy (“economics” for short) emerged to study new ideas such as economic freedom and a prioritization of ends (happiness) over means (wealth).

It is true that modern economics had its origin in common with other sciences at the time when the study of classic writers was reviving. But an industrial system which was based on slavery, and a philosophy which regarded manufacture and commerce with contempt, had little that was congenial to the hardy burghers who were as proud of their handicrafts and their trade as they were of their share in governing the State (page 624).

§2. The (French) Physiocrats established the foundation of modern economics not so much for their interest in agriculture and physical goods but in their advocacy of “laisser faire, laisser passer”, i.e., allowing people to do what they want (free trade) and go where they want (free movement).

§3. Adam Smith is rightly credited as the founder of “modern” economics for his defence and advocacy of free trade, his discussion of the balance between individual freedom of action and government regulation, his exposition of the interaction between supply (cost) and demand (value), and his expositions — not always correct but “working his way towards the truth” — that others built on.

§4. Of those who followed Smith, Jeremy Bentham played an important role by advocating, with relentless logic, individual freedom and innovation over collective conservation, a perspective that fit Britain’s dominant economic and political role in the early eighteenth century.

§5. Economists improved and corrected on Smith’s ideas using inductive (from life) and deductive (from logic) methods for explaining choices and behaviors. They paid attention (and collected data) on the plight of the working classes. Marshall admires Ricardo’s work and perspective but finds his “Semitic genius for abstraction” difficult to follow at some times.

§6. But these economists tended to ignore or misunderstand the differences among countries and individuals. They assumed “economic man” to be like themselves: well-to-do,  intellectual “city men”, which blinded them to the perspectives and values of the working classes. (Indeed, they blamed the poor for their poverty when it resulted from lack of education and other constraints that were loosened by unionisation, education, public health, and so on.) Marx [not mentioned by Marshall] was not so blind.

§7. During the nineteenth century, economic thought became less rigid, uniform and logical as it integrated more human complexity into understanding choices. (Economics influenced Darwin as his Origin of Species influenced economists.)

§8. Marshall then gives “shout outs” to the French, Americans and especially the Germans, who had less faith in individual freedom and trade and a greater respect for national differences and competition. He ends the chapter by cautioning that the biological view of human interactions requires ever-greater analytical effort rather than a lazy appeal to imponderable differences.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Interesting stuff

  1. This article on environmental scientists suffering emotionally as the natural world shrinks under the onslaught of Mankind (and mostly men within our species) rings true with me. It’s so sad to see dying corals, burning forests, etc. 
  2. Listen: I teach liberal arts and sciences (LAS). I’m not sure if our students know how lucky they are, but these prisoners earning their LAS degrees sure do.
  3. Read: Divorce in an Indian couple is no longer unimaginable
  4. Listen: Sal Khan, the founder of Khan academy, on better education
  5. Read: Amsterdam tries to rebalance away from mass tourism
  6. Read: “Extreme weather is wreaking havoc on olive oil production” — this is the beginning of the end of food security, which will affect people in poorer countries much more than most of us.
  7. Read: Tap water in the US is more polluted than it should be (as I said a few years ago when Flint was in the news).
  8. Read: ADHD in women manifests via self-doubt and confusion
  9. Read: American drivers — unlike those in other countries — are killing more pedestrians and bikers despite driving less. Why? US road rules are designed for speed not safety. Watch this for a humorous (but exacerbating) explanation.
  10. Read: Dutch recycling: ‘we don’t know what is going on’

The growth of free industry and enterprise

Appendix A

In this Appendix, Marshall sets out a brief history of the world that is “coloured” by his English, colonial (and sometimes racist) perspective.

§1. Civilization began in warmer places where easy food and transport enabled abstract thinking and organizational complexity, but warmth also leads to laziness (the scourge of colonial administrators in Imperial India), which is why savages in warm places were conquered by invaders from cooler places.

§2. People in smaller settlements needed to cooperate within their interdependency, which led to customs of sharing and non-exploitation but also a reluctance to innovate in ways that give advantages to individuals.

§3. The Greeks added freedom and innovation to the Semitic foundations of knowledge and commerce while [waving hands around] their slaves kept them fed and clothed. But even cooling sea winds could not keep the Greeks from settling into comfort and indifference.

§4. The Romans were more disciplined than the Greeks in war, conquest and organisation, even if they were indifferent to business (except with respect to money). They brought Stoic ideas of law and rights into circulation.

§5. The Teutons (Germans) were strong but limited by their customs and ignorance. The Saracens (Arabs) learned from those they conquered but their “sensual religion” (Islam) led to moral decay.

§6. Representative democracy worked better in towns and cities than in countries, due to the difficulty of communicating with all citizens. Easier transport and communication combined with literacy to facilitate self-governance.

§7. Cities in the Middle Ages were full of progress, innovation, self-rule and enlightenment, but they were conquered by larger, stronger neighbours, so their progress was sometimes diverted or lost.

§8. Feudal lords practiced chivalry with each other while dominating the lower classes. The Church was more meritocratic about advancing the best without regard to caste but facilitated feudal oppression. Revolution overturned this stable but stifling regime:

Within a very short period came the invention of printing, the Revival of Learning, the Reformation, and the discovery of the ocean routes to the New World and to India. Any one of these events alone would have been sufficient to make an epoch in history; but coming together as they did, and working all in the same direction, they effected a complete revolution.

Thought became comparatively free, and knowledge ceased to be altogether inaccessible to the people. The free temper of the Greeks revived; the strong self-determining spirits gained new strength, and were able to extend their influence over others. And a new continent suggested new problems to the thoughtful, at the same time that it offered a new scope to the enterprise of bold adventurers. pp612-3

§9. Spain and Portugal took, then lost, an early lead to the Dutch, whose industry and innovation allowed them to escape Spanish domination before they were conquered by the English and French. France fell apart with Revolution, leaving the English as the most powerful nation.

§10. The English were not as good at trading as the Armenians, Greeks, Italians and  Jews. Nor were they as sophisticated as the Latin nations. But a good location and internal communcations enabled many farmers and artisans to work and prosper.

§11. England benefitted from the cultures of “strong Northern” settlers, just as it benefitted from the assertive and varied beliefs of many religious believers.

§12. England’s openness to migrants and challenging climate encouraged hard work, diversification and innovation in the lower classes (even as the upper classes played frivolous games).

§13. England’s economy grew as workers specialised in trades, regions in products and “undertakers” (entrepreneurs) in management. Good ideas were copied, transformed and implemented widely.

§14. As labor was freed of parish borders, workers were able to find better jobs, but ruthless competition also brought social ills. The 19th century was good and bad for workers and society, in a two-steps forward, one-back sense of progress.

§15. Workers were caught between the old system of limits and comforts and a new system of freedom and exploitation. A new class of undertakers were as ruthless as they were successful. Children worked “in Satan’s mills” and labor went hungry as the rich and powerful protected their interests. Life was hard but it would have been worse under French rule (Napoleon as a modern Roman emperor).

§16. It has been left for our own generation to perceive all the evils which arose from the suddenness of this increase of economic freedom. Now first are we getting to understand the extent to which the capitalist employer, untrained to his new duties, was tempted to subordinate the wellbeing of his workpeople to his own desire for gain; now first are we learning the importance of insisting that the rich have duties as well as rights in their individual and in their collective capacity; now first is the economic problem of the new age showing itself to us as it really is. This is partly due to a wider knowledge and a growing earnestness. But however wise and virtuous our grandfathers had been, they could not have seen things as we do; for they were hurried along by urgent necessities and terrible disasters.

[snip] …increased prosperity has made us rich and strong enough to impose new restraints on free enterprise; some temporary material loss being submitted to for the sake of a higher and ultimate greater gain. But these new restraints are different from the old. They are imposed not as a means of class domination; but with the purpose of defending the weak, and especially children and the mothers of children, in matters in which they are not able to use the forces of competition in their own defence.

[snip] Thus gradually we may attain to an order of social life, in which the common good overrules individual caprice, even more than it did in the early ages before the sway of individualism had begun. But unselfishness then will be the offspring of deliberate will; and, though aided by instinct, individual freedom will then develop itself in collective freedom:—a happy contrast to the old order of life, in which individual slavery to custom caused collective slavery and stagnation, broken only by the caprice of despotism or the caprice of revolution.

§17. England is not alone. America has advantages of scale and will probably lead the world. Australia and Canada have the advantage of racial homogeneity. Germany is learning from England’s mistakes as it industrialises…

And Germany contains a larger number than any other country of the most cultivated members of that wonderful race who have been leaders of the world in intensity of religious feeling and in keenness of business speculation. In every country, but especially in Germany, much of what is most brilliant and suggestive in economic practice and in economic thought is of Jewish origin. And in particular to German Jews we owe many daring speculations as to the conflict of interests between the individual and society, and as to their ultimate economic causes and their possible socialistic remedies. (page 623).

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

Interesting stuff

  1. Read: Stronger storms and waves have doubled the number of shipping containers “lost” at sea from cargo vessels. Another cut into our quality of life.
  2. Read: Inside Israel’s lucrative (and occasionally evil) cyber security industry
  3. Read: A look at the business model of influencers
  4. Read: Some German festival organisers (think Burning Man) have decided to take (health) matters into their own hands, in defense of culture. Bravo.
  5. Listen: Archaeology from space
  6. Try? “We build desirable, open source, privacy-enabled smartphone operating systems” — basically “de-googled” android systems
  7. Listen: Climate change is entering business models and (very interesting!) negative real interest rates are raising the cost of inaction
  8. Watch: The best NFT description I’ve seen (via SNL 😉
  9. Watch: How to (properly) compare COVID vaccines
  10. Read: Don’t say media has no impact. “Birth of a Nation” (1915), formerly called “The Klansmen” spurred racist violence: