I’m taking a little side trip this week, to take a look at a contemporary article reviewing Marshall’s Principles of Economics (1890 first edition).
Wagner’s review is relentlessly polite, as was the tradition of the time, but it also highlights the differences and novelties in Marshall’s work.
First, Wagner is at pains to admire Marshall’s contribution from the Ricardian/abstract perspective, which varies from that of Wagner and other German political economists who are so committed, as members of the German Historical School,…
…that we point to the need of induction side by side with deduction; that we warn against hasty generalization, against exclusive reasoning on the basis of economic self-interest; that in practical problems we have no faith in any absolute solutions, and insist upon the principle of relativity. But, like myself, many German scholars, old and young, even those whose own researches are directed mainly to economic history, believe it to be false and narrow to go to the other extreme, and to fling aside deduction from assumed motives, and especially from the motive of self-interest. We would not limit political economy to the mere presentation of the various historic stages in the application of labor, nor do away with all abstract thought or abstract statement. [p 320]
From this beginning, Wagner explains how Marshall is using algebra and abstract theory to build reasonable models of what really happens. Thus, Marshall’s work is complementary to the historicists (who would today be named institutionalists).
Second, Wagner makes serious suggestions (in terms of necessary word counts) for additional work, viz.:
No doubt the future volume or volumes will bring the needed additional matter on money, credit, foreign trade… a systematic discussion of economic policy in regard to agriculture, trade, and industry. Further, the discussion of questions of policy in regard to money, coinage, credit, banks, insurance, transportation, should find a place, with some detailed consideration of historical development, of statistics, and of legislation, and with a comparison of the conditions of different countries. [p 326]
What a laundry list! As it turns out, Marshall never officially got around to a second volume.
Third, Wagner praises Marshall for his restraint in the use of mathematics, even as he complains that Marshall might be “cherry picking” (English) history in assembling his “universal” theories of price, cost, value, and so on. Wagner appeals to cultural factors with a jarring example:
Marshall, like many other English writers, seems to me not to lay sufficient stress upon the favorable natural conditions in which its insular position has placed his country.
Indeed, he finds occasion to give praise in several places to the German merchant, who, though supported by the political resources of his country much less than the British merchant, yet has been able to attain a dominant position in foreign countries.
On the other hand, I am unable, judging from our own experience, to concur in the praise bestowed on the German Jew, whether in economic theory or in industry. In the intellectual field, as in others, the Jew is much more apt to be a middleman than an original producer; and in German industrial life his activity is generally harmful. [pp 328-9]
This statement doesn’t just give one pause (or worse) in terms of Wagner’s “own experience” — it highlights a weakness of the German School: a dependency on path-dependent, “just so” stories that lack (or bury) interactions, causal forces, and the aggregation of highly varied actions. Marshall aggregates many supply and demand actions to smooth idiosyncrasies and identify trends. Such analytical (and data-driven) methods strengthened the use of “science” in economics in a way that complemented and challenged the irregular, humanities-dependent perspective of the historicists.
Finally, Wagner comes back to the need to consider the organization of industry, the relation between industry and the State (far friendlier in Germany than in England), the difficulty in assuming that it would always be possible to trade one widget for another (e.g., labor for food, or cash for ventilators), and the role of social values in distributing the gains and losses of capitalism among various classes. On this last point, Wagner highlights how Germany and England have very different conceptions of an acceptable social balance. It also highlights “Wagner’s Law (1890)” i.e., that the size of the (welfare) state increases as the nation grows richer — a concept compatible with the Simon Kuznet’s (1955) claim that inequality falls as countries move from middle to upper income.
Wagner’s review highlights the gaps among different schools of economic thought and the importance of learning from a variety of those schools. It also highlights the danger of carelessly extrapolating from an opinion to a generalization.
NB: I have another 7-8 review articles published between 1920-1993, but I will wait to read and comment on those (spoilers!)