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  1. Wealth
July 31, 2020

Books: A ‘pithy’ guide to history’s most influential economists

By Christopher Silvester

A study of 20 of history’s most influential economic thinkers reveals a broad range of iconoclasts

The Classical School The Turbulent Birth of Economics in Twenty Extraordinary Lives, by Callum Williams (Economist Books, £20)

‘Why bother to learn about the history of economic thought?’ asks Callum Williams in his conclusion to this pithy and amusing guide to 20 thinkers, some of them obvious names, some obscure. One reason is that these thinkers were either important or influential or both, and that we might gain a better understanding of their arguments, which are often misrepresented.

Another is that it helps us to understand history in general, since these thinkers were invariably shaped by events. And the third reason is to appreciate that modern economists, despite their mathematical formulae, are just as fallible as their predecessors. Williams calls these thinkers members of the classical school because, unlike modern economists, they didn’t use mathematics to expound their theories and they tended to ask similar philosophical questions.

This tradition starts with Jean-Baptiste Colbert (1619–83), who was Louis XIV’s finance minister and created the ‘mercantile system’ with its pursuit of trade surpluses – and presided over economic decline. Williams describes Sir William Petty (1623–87) as the inventor of economics because he was the first person to attempt to measure national output, and Bernard Mandeville (1670–1733) as the first moral critic of capitalism.

The chapter on Richard Cantillon (1680–1734) starts with a bang: ‘Of all the people profi led in this book, none had a more eventful life than Richard Cantillon. His was full of sex, fraud and murder. Though he is barely known today, some regard him as the true founder of economics.’

Was he murdered in Mayfair by a disgruntled cook whom he had fired? Or did he stage his own death in order to evade those he had defrauded?

Williams teases us with these questions, but he is more interested in Cantillon because he recognised the role of geography in economics, came up with the concept of trade-offs, and developed the ideas of opportunity costs and ceteris paribus. The ‘first attempt to view the economy as a scientific, mathematical system’ came with François Quesnay (1694–1774) and his Tableau Economique, in which he demonstrated that ‘spending begets other spending’.

Although he had to wait until the 20th century to enjoy influence as an economist as opposed to a philosopher, David Hume (1711–76) has been described as an early monetarist. Williams says that ‘not everything he wrote was super-smart’. His views on population, banks and value are ‘outside the economic mainstream today’, and he had a terror of public debt.

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‘He was writing at a pivotal moment in the economic history of the West,’ Williams explains, when ‘the British government became one of the first in the world to be considered a reliable borrower.’

Hume attacked the mercantilist system, with its dogmatic belief in bullionism and trade surpluses, but his ‘price-specie-flow’ mechanism was overshadowed by his friend Adam Smith (1723–90) and his concept of the division of labour: ‘It is one of the ironies of history that Hume’s undeserved obscurity in economic matters came at the hands of his best friend.’

Williams believes that Smith has been widely misunderstood, for only if one reads The Wealth of Nations in conjunction with his earlier work, The Theory of Moral Sentiments, does one realise that ‘people are not inherently selfi sh, according to Smith, but inherently social’.

For Williams, however, Smith is ‘not quite the trailblazer he is commonly portrayed as’, and despite ‘a knack for brilliant phrases’ his prose is ‘sometimes impenetrable’.

David Ricardo (1772–1823) made a fortune by driving down the price of government debt and then buying it up at rock-bottom prices. His labour theory of value ‘has consumed literally thousands of pages of academic writing’ and his writings have had a profound influence on both classical economists and Karl Marx, so much so that one economist has described Marx as a ‘minor post-Ricardian’.

Jean-Baptiste Say (1767–1832) wrote about economics ‘in an engaging and accessible style’, which, Williams points out, is ‘not something that can be said for many of the people in this book’. Say went into business and spied on British industry to understand why Britain’s economic growth outstripped that of his native France. Say’s law, which, crudely, is that ‘supply creates its own demand’, is ‘misunderstood by almost everyone who has ever talked about it’.

More subtly interpreted, it means that lack of demand should not be a cause of recessions, and hence it prompted Keynes to argue that governments ought to stimulate demand in such circumstances.

Thomas Robert Malthus (1766– 1834) is often abused for his harsh views on population and his callousness towards the poor, but his notion of inadequate demand was later taken up by Keynes. He was wrong about population, failing to realise that productivity growth could outstrip population growth, but he ‘ended up being influential for the right reasons, as well as the wrong ones’.

Although no egalitarian, John Stuart Mill (1806–73) wanted strict limits on inheritance and for workers to share in land and capital.

Today’s Labour Party owes a debt to Mill, Williams suggests: ‘Socialist thought has gone from Mill, via a massive Marxist-Leninist detour, back to Mill again.’ Williams calls Harriet Martineau (1802–76) ‘the Ayn Rand of Victorian Britain’, because her popular fables promoted free-market ideas among the British middle class.

‘She may be a minor figure today but Harriet Martineau is one of the most influential economists in this book,’ he declares. Similarly, while Dadabhai Naoroji (1825–1917), who was the first Asian MP, may seem out of place here since his influence on other economists was minimal, Williams argues that, with his ‘drain’ theory, he was the first person ‘to think systematically about the economic impact of colonialism’.

Most of the thinkers profiled here ‘made big intellectual mistakes’. Indeed, Williams has ‘been frequently baffled at the short-sightedness and daftness’ of some of their ideas, but he explains their various flaws as well as their achievements with a light and irreverent touch.

Main image: Seaport at sunrise, by Claude Lorrain, 1639

This article first appeared in issue 75 of Spear’s magazine. Click here to buy and subscribe

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