1902 Encyclopedia > Political Economy (Economics) > Political Economy - The Historical School (cont.) - England

Political Economy
(Part 16)


England—Sacrificing the strict chronological order of the history of economics to deeper considerations, we have already spoken of Cairnes, describing him as the best original English writer who was an adherent of the old school pure and simple. Both in method and doctrine he was essentially Ricardian; though professing and really feeling profound respect for Mill, he was disposed to go behind him and attach himself rather to their common master. Mr Sidgwick is doubtless right in believing that his Leading Principles did much to shake "the unique prestige which Mill’s exposition had enjoyed for nearly half a generation," and in this, as in some other ways, Cairnes may have been a dissolving force, and tended towards radical change; if he exercised this influence, he did not so unconsciously and involuntarily. Many influences had, however, for some time been silently sapping the foundations of the old system. The students of Comte had seen that its method was an erroneous one. The elevated moral teaching of Carlyle had disgusted the best minds with the law maxims of the Manchester school. Ruskin had not merely protested against the egoistic spirit of the prevalent doctrine, but had pointed to some of its real weaknesses as a scientific theory.1 It began to be felt, and even its warmest partisans sometimes admitted, that it had done all the work, mainly a destructive one, of which it was capable. Cairnes himself declared that, whilst most educated people believed it doomed to sterility for the future, some energetic minds thought it likely to be a positive obstruction in the way of useful reform. Miss Martineau, who had in earlier life been a thorough Ricardian, came to think that political economy, as it had been elaborated by her contemporaries, was, strictly speaking, no science at all, and must undergo such essential change that future generations would owe little to it beyond the establishment of the existence of general laws in one department of human affairs. The instructive repugnance of the working classes had continued, in spite of the efforts of their superiors to recommend its lessons to them—efforts which were perhaps not unfrequently dictated rather by class interest than by public spirit. All the symptoms boded impending change, but they were visible rather in general literature and in the atmosphere of social opinion than within the economic circle. But when it became known that a great movement had taken place, especially in Germany, on new and more hopeful lines, the English economists themselves began to recognize the necessity of a reform and even to further its advent. The principal agencies of this kind, in marshalling the way to a renovation of the science, have been those of Bagehot, Leslie, and Jevons,—the first limiting the sphere of the dominant system, whole seeking to conserve it within narrower bounds; the second directly assailing it and setting up the new method as the rival and destined successor of the old; and the third acknowledging the collapse of the hitherto reigning dynasty, proclaiming the necessity of an altered régime, and admitting the younger claimant as joint possessor in the future. Thus, in England too, the dualism—which exists on the Continent has been established; and there is reason to expect that here more speedily and decisively than in France or Italy the historical school will displace its antagonist. It is certainly in England net after Germany that the preaching of the new views has been most vigorously and effectively begun.

Walter Bagehot (1826-1877) was author of an excellent work on the English money market and the circumstances which have determined its peculiar character (Lombard Street, 1873; 7th ed., 1878), and of several monographs on particular monetary questions, which his practical experience, combined with his scientific habits of thoughts, eminently fitted him to handle. On the general principles of economics he wrote some highly important essays collected in Economic Studies (edited by R.H. Hutton, 1880), the object of which was to show that the traditional system of political economy—the system of Ricardo and J.S. Mill—rested on certain fundamental assumptions which, instead of being universally true in fact, were only realized within very narrow limits of time and space. Instead of being applicable to all states of society; it holds only in relation to those "in which commerce has largely developed, and where it has taken the form of development, or something like the form, which it has taken in England." It is "the science of business such as business is in large and trading communities—an analysis of the great commerce by which England has become rich." But more than this it is not; it will not explain the economic life or earlier times, nor even of other communities in our own time; and for the latter reason it has remained insular; it has never been fully accepted in other countries as it has been at home. It is, in fact, a sort of ready reckoner; enabling us to calculate roughly what will happen under given conditions in Lombard Street, on the Stock Exchange, and in the great markets of the world. It is a "convenient series of deductions from assumed axioms which are never quote true, which in many times and counties would be utterly untrue, but which are sufficiently near to the principal conditions of the modern" English "world to make it useful to consider them by themselves."

Mill and Cairnes had already shown that the science they taught was a hypothetic one, in the sense that it dealt not with real but with imaginary men—"economic men" who were conceived as simply "money-making animals." But Bagehot went further: he showed what those writers, though they may have indicated, had not clearly brought out,2that the world in which these men were supposed to act is also "a very limited and peculiar world." What marks off this special world, he tells us, is the promptness of transfer of capital and labour from one employment to another, as determined by differences in the remuneration of those several employments—a promptness, about the actual existence of which in the contemporary English world he fluctuates a good deal, but which on the whole he recognizes as substantially realized.

Bagehot described himself as "the last man of the ante-Mill period," having learned his economics from Ricardo; and the latter writer he appears to have to the end greatly over-estimated. But he lived long enough to gain some knowledge of the historical method, and with it he had "no quarrel, but rather much sympathy." "Rightly conceived," he said, "it is no rival to the abstract method rightly conceived." We will not stop to criticize a second time the term "abstract method" here applied to that of the old school, or to insist on the truth that all science is necessarily abstract, the only question that can arise being as to the just degree of abstraction, or, in general, as to the right constitution of the relation between the abstract and the concrete. It is more apposite to remark that Bagehot’s view of the reconciliation of the two methods is quite different from that of most "orthodox" economists. They commonly treat the historical method with a sort of patronizing toleration as affording useful exemplifications or illustrations of their theorems. But, according to him, the two methods are applicable in quite different fields. For what he calls the "abstract" method he reserves the narrow, nut most immediately interesting province of modern advanced industrial life, and hands over to the historical the economic phenomena of all the human past and all the rest of the human present. He himself exhibits much capacity for such historical research, and in particular has thrown real light on the less-noticed economic and social effects of the institution of money, and on the creation of capital in the earlier stages of society. But his principal efficacy has been in reducing, by the considerations we have mentioned, still further than his predecessors had done, our conceptions of the work which the a priori method can do., He is fact dispelled the idea that it can ever supply the branch of general sociology which deals with wealth. As to the relations of economics to the other sides of sociology, he holds that the "abstract" science rightly ignores them. It does not consider the differences of human wants, or the social results of their several gratifications, except so far as these affect the production of wealth. In its view "a pot of beer and a picture—a book of religion and a pack of cards—are equally worthy of regards." It therefore leaves the ground open for a science which will, on the one hands, study wealth as a social fact in all its successive forms and phases, and, on the other, will regard it in its true light as an instrument for the conservation and evolution—moral as well as material—of human societies.

Though it will involve a slight digression, it is desirable here to notice a further attenuation of the functions of the deductive method, which is well pointed out in Mr Sidgwick’s recent remarkable work on political economy. He observes that, whilst J.S. Mill declares that the method a priori is the true method of the science, and that "it has been so understood and taught by all its most distinguished teachers," he yet himself in the treatment of production followed an inductive method (or at least one essentially different from the deductive), obtaining his results by "merely analyzing and systematizing our common empirical knowledge of the facts of industry." To explain this characteristic inconsistency, Mr Sidgwick suggests that Mill, in making his general statement as to method, had in contemplation only the statics of distribution and exchange. And in this latter field Mr Sidgwick holds that the a priori method, if it be pursued with caution, if the simplified premises be well devised and the conclusions "modified by a rough conjectural allowance" for the elements omitted in the premises, is not, for the case of a developed industrial society, "essentially false or misleading." Its conclusions are hypothetically vivid, though "its utility as a means of interpreting and explaining concrete facts depends on its being used with as full a knowledge as possible of the results of observation and induction." We do not think this statement need be objected to, though we should prefer to regard deduction from hypothesis as a useful occasional logical artifice, and, as such, perfectly legitimate in this as in other fields of inquiry, rather than as the main form of method in any department of economics. Mr Sidgwick, by his limitation of deduction in distributional questions to "a state of things taken as the type to which civilized society generally approximates," seems to agree with Bagehot that for times and places which do not correspond to this type the historical method must be used—a method which, be it observed, does not exclude, but positively implies, "reflective analysis" of the facts, and their interpretation from "the motives of human agents" as well as from other determining conditions. In the dynamical study of wealth—of the changes in its distribution no less than its production—Mr Sidgwick admits that the method a priori "can occupy but a very subordinate place." We should say that here also, though to a less extent, as a logical artifice it may sometimes be useful, though the hypotheses assumed ought not to be the same that are adapted to a mature industrial stage. But the essential organ must be the historical method, studying comparatively the different phases of social evolution.

Connected with the theory of modern industry is one subject which Bagehot treated, though only in any incidental way, much more satisfactory that his predecessors—namely, the function of the entrepreneur, who in Mill and Cairnes is scarcely recognize except as the owner of capital. It is quite singular how little, in the Leading Principles of the latter, his active co-operation is taken into account. Bagehot objects to the phrase "wages of superintendence," commonly used to express his "reward," as suggesting altogether erroneous ideas of the nature of his work, and well describes the large and varied range of his activity and usefulness, and the rare combination of gifts and acquirement which go to make up the perfection of his equipment. It can scarcely be doubted that a foregone conclusion in favour of the system of (so-called) co-operation has sometimes led economists to keep these important consideration in the background. They have been brought into due prominence of late in the treatise of Prof. Marshall and F. A. Walker, who, however, have scarcely made clear, and certainly have not justified, the principle on which the amount of the remuneration of the entrepreneur is determined.

We have seen that Jones had in his dogmatic teaching anticipated in some degree the attitude of the new school; important works had also been produced; notably by Thomas Tooke and William Newmarch (History of Prices, (1838-1857), and by James E. Thorold Rogers (History of Agriculture and Prices in England, 1866-82), on the course of English economic history. But the first systematic statement by an English writer of the philosophic foundation of the historical method, as the appropriate organ of economic research is to be found in an essay by T. E. Cliffe Leslie (printed in the Dublin University periodical, Hermathena, (1876; since included in his Essays Moral and Political, 1879). This essay was the most important publication on the logical aspects of economic science which had appeared since Mill’s essay in his Unsettled Questions. Though Cairnes had expanded and illustrated the views of Mill, he had really added little to their substance. Leslie takes up a directly opposed to theirs. He criticizes with much force and verve the principles and practice of the "orthodox" school. Those who are acquainted with what has been written on this subject by Knies and other Germans will appreciate the freshness and originality of Leslie’s treatment. He point out the loose and vague character of the principle to which the classical economists profess to trace all the phenomena with which they deal—namely, the "desire of wealth." This phrase really stands for a variety of wants, desires, and sentiments, widely different in their nature and economic effects, and undergoing important changes (as, needed, the component elements of wealth itself also do) in the several stages of the social movement. The truth is that there are many different economic motors, altruistic as well as egoistic; and they cannot all be lumped together by such a coarse generalization. The a priori and purely deductive method cannot yield an explanation of the causes which regulate either the nature or the amount of the wealth, nor of the varieties of distribution in different social system, as, for example, in those of France and England. "The whole economy of every nation is the result of a long evolution in which there has been both continuity and change, and of which the economical side is only a particular aspects. And the laws of which it is the result must be sought in history and the general laws of society and social evolution." The intellectual, moral, legal, and economic sides of social progress are indissolubly connected. Thus, juridical facts relating to property, occupation, and trade, thrown up by the social movement, are also economic facts. And, more generally, "the economic condition of English" or any other "society at this day is the outcome of the entire movement which has evolve the political constitution, the structure of the family, the forms of religion, the learned professions, the arts and sciences, the state of agriculture, manufactures, and commerce." To understand existing economic relations we must trace their historical evolution; and "the philosophical method of political economy must be one which expounds that evolution." This essay was the most distinct challenge ever addressed to the ideas of the old school on method, and, though its conclusions have been protested against, the arguments on which they are founded have never been answered.

With respect to the dogmatic generalization of the "orthodox" economics, Leslie thought some of them were false, and all of them required careful limitation. Early in his career he had shown the hollowness of the wage-fund theory, though he was not the first to repudiate it.1 The doctrine of an average rate of wages and an average rate of profits he rejected except under the restrictions stated by Adam Smith, which imply a "small and stationary world of trade." He thought the glib assumption of an average rate of wages, as well as of a wage-fund, had done much harm "by hiding the real rates of ages, the real causes which govern them, and the real sources from which wages proceed." The facts, which he laboriously collected, he found to be everywhere against the theory. In every country there is really "a great number of rates; and the real problem is, What are the causes which produce these different rate?" As to profits, he denies that there are any means of knowing the gains and prospects of all the investments of capital, and declares it to be a mere fiction that any capitalist surveys the whole field. Bagehot, as we saw, gave up the doctrine of a national level of wages and profits except in the peculiar case of an industrial society of the contemporary English type; Leslie denies it even fro such a society. With this doctrine, that of cost of production as determining price collapses, and the principle emerges that it s not cost of production, but demand and supply, on which domestic, no less than international, values depend,—though this formula will require much interpretation before it can be used safely and with advantage. Thus Leslie extends to the whole of the national industry the partial negation of the older dogma introduced by Cairnes through the idea of non-competing groups. He does not, of course, dispute the real operation of cost production on price in the limited area within which rates of profit and wages are determinate and known; but he maintains that its action on the large scale is too remote and uncertain to justify our treating it as regulator if price. Now, if this be so, the entire edifice which Ricardo reared on the basis of the identity of cost of production and price, with its apparent but unreal simplicity, symmetry, and completeness, disappears; and the ground is cleared for the new structure which must take its place. Leslie predicts that, if political economy, under that name, does not bend itself to the task of rearing such a structure, the office will speedily be taken out of its hands by sociology.

Leslie was a successful student of several special economic subjects—of agricultural economy, of taxation, of the distribution of the precious metals and the history of prices, and, as has been indicated, of the movements of wages. But it is in relation to the method and fundamental doctrines of the science that he did the most important, because the most opportune and needful work. And, though his course was closed too early for the interests of knowledge, and much of what he produced was merely occasional and fragmentary, his services will be found to have been greater than those of many who have left behind them more systematic, elaborate, and pretentious writings.

One of the most original of recent English writers on political economy was W. Stanley Jevons (1835-1882). The combination which he presented of a predilection and aptitude for exact statistical inquiry with sagacity and ingenuity in the interpretation of the results was such as might remind us of Petty. He tended strongly to bring economics into close relation with physical science. He made a marked impression on the public mind by his attempt to take stock of our resources in the article of coal. His idea of a relation between the recurrences of commercial crises and the period o the sun-spots gave evidence of a fertile and bold scientific imagination, though he cannot be said to have succeeded in establishing such a relation. He was author of an excellent treatise on Money and the Mechanism of Exchange (1875), and of various essays on currency and finance, which have been collected since his death, and contain vigorous discussions on subjects of this nature, as on bimetallism (with a decided tendency in favour of the single gold standard), and several valuable suggestions, as with respect to the most perfect system of currency, domestic and international, and in particular the extension of the paper currency in England to smaller amounts. He proposed in other writ8ings (collected in Methods of Social Reform, 1883) a variety of measures, only partly economic in their character, directed especially to the elevation of the working classes, one of the most important being in relation to the conditions of the labour of married women in factories. This was one of several instances in which he repudiated the laissez faire principle, which indeed, in his book on The State in relation of Labour (1882), he refuted in the clearest and most convincing way, without changing the position he had always maintained as an advocate of free trade. Towards the end of his career, which was prematurely terminated, he was more and more throwing off "the incubus of metaphysical ideas and expressions" which still impeded the recognition or confused the appreciation of social facts. He was, in his own words, ever more distinctly coming to the conclusion "that the only hope of attaining a true system of economics is to fling aside, once and for ever, the mazy and preposterous assumptions of the Ricardian school." With respect to method, though he declares it to be his aim to "investigate inductively the intricate phenomena of trade and industry," his views had nor perhaps assumed a definitive shape. The editor of some of his remains declines to undertake the determination of his exact position with respect to the historical school. The fullest indications we possess on that subject are to be found in a lecture of 1876, On the Future of Political Economy. He saw the importance and necessity in economics of historical investigation, a line of study which he himself was led by native bent to prosecute in some directions. But he scarcely apprehended the full meaning of what is called the historical method, which he erroneously contrasted with the "theoretical," and apparently supposed to be concerned with verifying and illustrating certain abstract doctrines resting of independent bases. Hence, whilst he declared himself in favour of "thorough reform and reconstruction," he sought to preserve the a priori mode of proceeding alongside of, and concurrently with, the historical. Political economy, in fact, he thought was breaking up and falling into several, probably into many, different branches of inquiry, prominent amongst which would be the "theory" as it has descended from his best predecessors, especially those of the French school, whilst another would be the "historical study," as it was followed in England by Jones, Rogers, and others, and as it had been proclaimed in general principle by his contemporary Cliffe Leslie. This was one of those eclectic views which have no permanent validity, but are useful in facilitating a transition. The two methods will doubtless for a time coexist, but the historical will inevitably supplant its rival. What Jevons meant as the "theory" he wished to treat by mathematical methods (see his Theory of Political Economy, 1871; 2nd ed., 1879). This project had, as we have seen, been entertained and partially carried into effect by others before him, though he unduly multiplies the number of such earlier essays when, fro example, he mentions Ricardo and J.S. Mill as writing mathematically because they sometimes illustrated the meaning of their propositions by dealing with dealing with definite arithmetical quantities. Such illustrations, of which a specimen is supplied by Mill’s treatment of the subject of international trade have really nothing to do with the use of mathematics as an instrument for economic research, or even for the co-ordination of economic truths. We have already, in speaking of Cournot, explained why, as it seems to us, the application of mathematics in the higher sense to economics must necessarily fails, and we do not think that it succeeded in Jevons’s hands. His conception of "final utility" is ingenious, but we cannot regard it as either "positive" or fruitful. He offers as a valuable result of mathematical investigation the theorem that in every case of exchange the quantity of each of the articles concerned multiplied by its utility is the same. But what is the unit of utility? If we cannot look for something more tangible—not to say more serviceable—than this, there is not much encouragement to pursue such researches, which will in fact never be anything moiré than academic playthings, and which involve the every real evil of restoring the metaphysical entries previously discarded. The reputation of Jevons as an acute and vigorous thinker, inspired with noble popular sympathies, is sufficiently established. But the attempt to represent him, in spite of himself, as a follower and continuator of Ricardo, and as one of the principal authors of the development of economic theory (meaning by "theory" the old a priori doctrine) can only lower him estimation by placing his services on grounds which will not bear criticism. His name will survive in connexion, not with new theoretical constructions, but with his treatment of practical problems, his fresh and lively expositions, and, as we have shown, his energetic tendency to a renovation of economic method.

Arnold Toynbee (1852-1883), who left behind him a beautiful memory, filled as he was with the love of truth and an ardent and active zeal for the public good, was author of some fragmentary or unfinished pieces, which yet well deserve attention both for their intrinsic merit and as indicating the present drift of all the highest natures, especially amongst our younger men, in the treatment of economic questions. He had a belief in the organizing power of democracy which it is not easy to share, and some strange ideas due to youthful enthusiasm, such as, for example, that Mazzini is "the true teacher of our age;" and he fluctuates considerably in his opinion of the Ricardian political economy, in one place declaring it to be a detected "intellectual imposture," whilst elsewhere, apparently under the influence of Bagehot, he speaks of its as having been in recent times "only corrected, re-stated, and put into the proper relation to the science of life," meaning apparently, by this last, general sociology. He saw, however, that our great help in the future must come, as much had already come, from the historical method, to which in his known researches he gave preponderant weight. Its true character, too, he understood better than many even of those who have commended it; for he perceived that it not only explained the action of special local or temporary conditions on economic phenomena, but seeks by comparing the stages of social development in different countries and times to "discover laws of universal application." If, as we are told, there exists at Oxford a rising group of men who occupy a position in regard to economic thought substantially identical with that of Toynbee, the fact is one of good omen for the future of the science.

It is no part of our plan to pass judgment on the works of contemporary English authors,—a judgment which could not in general be final, and which would be subject to the imputation of bias in a greater degree than estimates of living writers in foreign countries. But, for the information of the student, some opinions may be expressed which scarcely any competent person would dispute. The best brief exposition of political economy, substantially in accordance with Mill’s treatise, is to be found in Fawcett’s Manual (6th ed., 1884). But those who admit in part the claims of the new school will prefer Mr and Mrs Marschall’s Economics of Industry (2d ed., 1881). Better, in some respects, than either is the Political Economy of the American professor, Francis A. Walker (1483), whose special treatises on Money and on the Wages Questions may also be recommended. Other meritorious works are J. E. T. Roger’s Manual of Political Economy, 1770; John Macdonnell’s Survey of Political Economy, 1871; and John L. Shadwell’s System of Political economy, 1877. Prof. W.E. Hearn’s Plutology (1864) contains one of the ablest extant treatments of the subject of production. Mr Goschen’s is the best work on the foreign exchanges (10th ed., 1879). Mr Macleod, though his general economic scheme has met with no acceptance, is recognized as supplying much that is useful on the subject of banking. Prof. Roger’s Six Centuries of Work and Wages (1884) is the most trustworthy book on the economic history of England during the period with which he deals. W. Cunningham’s Growth of English Industry and Commerce, 1882, is instructive on the mercantile system. Dr W. Neilson Hancook has shown in a multitude of papers a most extensive and accurate knowledge of the social economy of Ireland.

On American political economy the reader will consult with advantage an article in the Fortnightly Review for September, 1880, by Cliffe Leslie, which was written after the publication of his collected essays. We can only mention some of the best-known works (besides those of F.A. Walker) produced in the United States. Amongst them are E. Peshine Smith’s Manual of Political Economy, 1853; Francis Bowen’s American Political Economy, 1870; Amasa Walker’s Science of Wealth, 1867; A. L. Perry’s Elements of Political economy, 1866 (the two former writers are protectionist, the two latter free-traders; Perry is a disciple of Bastiat). The principal works on American economic history are those of A.S. Bolles, entitled Industrial History of the United States, and Financial History of the United States, 1774-1789, 1879.

We cannot here overlook a work like that of Mr Sidgwick (1883), to which we have already referred on a special point. It is impossible not to respect and admire the conscientious and penetrating criticism which he applies to the a priori system of economics in its most mature form. But it is open to question whether the task was wisely undertaken. It cannot be permanently our business to go on amending and limiting the Ricardian doctrines, and asking by what special interpretations of phrases or additional qualifications they may still be admitted as having a certain value. The time for a new construction has arrived; and it is to this, or at least to the study of its conditions, that competent thinkers with the due scientific preparation should now devote themselves. It is to be feared that Mr Sidgwick’s treatise, instead of, as he hopes, "eliminating unnecessary controversy," will tend to revive the stériles contestations and oiseuses disputes de mots, which Comte censured in the earlier economists. It is interesting to observe that the part of the work which is, and has been recognized as, the most valuable is that in which, shaking off the fictions of the old school, he examines independently by the light of observation and analysis the question of the industrial action of Governments.


FOOTNOTES (page. 396)

(1) The remarkable book Money and Morals, by John Lalor, 1852, was written partly under the influence of Carlyle. There is a good monograph entitled John Ruskin, Economist, by P. Geddes, 1884.

FOOTNOTES (page 396)

(1) Jones, whose writings were apparently unknown to Bagehot, had, as we have seen, in some degree anticipated him in this exposition.

FOOTNOTES (page 398)

(1) That service was due to F. D. Longe (Refutation of the Wage-Fund Theory of Modern Political Economy, (1866). Leslie’s treatment of the subject was contained in an article of Fraser’s Magazine for July 1868, reprinted as an appendix to his Land-Systems and Industrial Economy of Ireland, England, and Continental Countries 1870.

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