------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (August 2006)
Margaret Schabas, _The Natural Origins of Economics_. Chicago:
University of Chicago Press, 2005. xi + 231 pp. $40 (cloth), ISBN:
0-226-73569-9.
Reviewed for EH.NET by Laurence S. Moss, Department of Economics,
Babson College.
_The Natural Origins of Economics_ is brimming with original
material, insights and clever asides and segues. It is not above
taking a few stabs at the older "Whigs" among us and the type of
histories that we have produced in the past. At her best (and there
are places where the book is at its best) Schabas combines a broad
interest in the history of natural science with the important problem
of how classical economics ended up to be what we know today as
"neoclassical" economics. Her book might best be classified as a
contribution to the philosophy of science, explaining how the
development of natural philosophy in the eighteenth and subsequent
centuries affected the content of economic discussion, especially
among the English and French sources. The economic thought of
Germany, Austria, Italy, Spain, Russia and Ireland is not discussed
in any detail.
Schabas shares with Philip Mirowski (1989) the verdict that
nineteenth-century neoclassical economics never achieved much more
than a "superficial resemblance" to contemporary physics and was
never really part of natural science (p. 156). Its pretensions to be
"scientific" were only pretensions and not much more that that.
Perhaps earlier contributions to economics in previous centuries
suffered a similar fate. This, however, is not Schabas's view at all.
Quite to the contrary, Schabas finds a cross-fertilization between
natural science and ideas about wealth and economy, especially in the
eighteenth century. This was all in the past. Today, things are
different. That is her thesis most simply stated.
Although respectful of the older generation of historians of
economics, such as Joseph Schumpeter, Schabas finds more comfort
among that "number of prominent historians of economics" who no
longer choose to tell the story about how economics developed in
terms of progress and analytic clarity (p. 9). To be branded a "Whig
historian" by this younger generation of historians is never
complimentary and often tantamount to being called a "fuddydud" or
worse. Schabas is no Whig (p. 79). She is not a Whig because the
story she tells is not about "progress" leading up to the
glorification of the Walrasian equations and the rest of neoclassical
economics. Still, she tells the story of developments within the
discipline on two related fronts. First, she explains how economic
discussion became steadily more secular, letting the Christian God
problem sink in importance until it has been largely relegated today
to certain evangelical movements and "right wing" think tanks.
Second, she offers an account of how economics went from being
entwined in natural philosophy to its present-day status of being
entirely "mental" and all about human agency. Let us summarize the
first line of analysis and then move on to the second.
The Christian problem in economics consists of attempting to
reconcile two insights that were firmly entrenched in the discipline
certainly as late as the 1830s. The first insight is that God created
men and women and implanted certain instincts or passions in their
bodies. The second insight is that whenever men and women give these
instincts or passions the full throttle, they end up miserably poor,
solitary and sometimes dead. The Malthusian debate and the early
debates over poor law reform in Britain provide dramatic evidence of
this conflict about how a Christian God could have created something
so awful as life on earth. As economics developed, the major thinkers
retreated from a social science centered on instincts and passions
towards an appreciation of human rationality and something Schabas
and other contemporary philosophers term "human agency." This is the
second development that Schabas tries to chronicle.
Human agency means that humans actually make _genuine choices_ and
these choices affect the world around them sometime changing that
world for the better. In the classical world of David Hume and Adam
Smith, individual deliberation existed only in appearance because
what was always and everywhere driving economic development were
those passions and instincts hidden beneath the appearance of
rational discussion. As Hume famously stated, reason is only the
slave of passion and not its master. The passions operated through
the interests of the three classes in society; the landlords, workers
and capitalists. The job of the economist/philosopher was to uncover
the real (hidden) natural laws behind the motions of individuals. In
some of the writings of the classical school economists (Nassau
Senior is mentioned) but certainly by the end of the nineteenth
century when neoclassical economics came of age, the classes have
melted away and all that is left behind is the rational calculating
individual striving after the mysterious substance dubbed "utility"
that (according to Schabas) "flows" into objects. Since wealth is now
mental, economics is now separated from the world of nature.
Modern economics is all about human agency and nature and its search
for genuine laws is gone completely. Schabas's central thesis and the
main theme repeated throughout the book is that the history of
economic thought is a history of how a body of thinking about
"wealth" became both _secularized_ and _denaturalized_. More
important and perhaps more sensationally, Schabas regrets at least
one part of this development. Where certain neoclassical economists
see "progress" in the elevation and appreciation of human agency,
Schabas sees only nonsense and pretentiousness.
Schabas makes her case by drawing on an enormous literature in both
the philosophy of science and the history of science. She backs up
her claims and consistent thematic views in surprising and
interesting ways. For example, historians of science have long
distinguished the mathematical mechanics of Isaac Newton's
_Principia_ (1687) from the experimental physics of Isaac Newton's
_Optics_ (1704). This is old hat to historians of science and
standard textbook material. Schabas is one of the first to suggest
that Newton's scientific work spawned two distinct traditions not
only in science proper but in economics as well. The mathematical
mechanics of the _Principia_ eventually spawned the French mathematic
schools of the Ecole des Points et Chaussees and later Leon Walras
and modern neoclassical economics. The experimental tradition of the
_Optics_ informed much Enlightenment thought about the fluids of
nature from ectoplasm oozing from the medium during the s�ances
attended by economists in the late Victorian period, to the more
promising speculations about magnetism and electricity sparked by
Benjamin Franklin's exciting research and its promulgation in Europe.
This is all quite original and exciting and apt to be on the research
radar screen of historians of economics for years to come.
Her thesis is that Victorian period economic literature -- by which
she means mostly John Stuart Mill, William Stanley Jevons, Philip
Wicksteed and Alfred Marshall -- ended up not only "secular" (with
God removed from the driver's seat of economic development) but also
completely severed from nature and natural processes. By the time of
Marshall's _Principles_ (1890), economics had morphed into a study of
economic phenomena that were entirely the result of human agency and
institutions, and nature and natural processes no longer played much
of a role. Detached from nature and natural processes, the economy is
capable of producing mountains of "utilities" -- the sky is the limit.
As a result, professional economists are mostly engineers out to
"control" the economy with clever mathematical models. With the
denaturalization of economics completed, there is a sharp loss of
interest in "economic laws." Models are not used to determine what
the fundamental underlying laws of economic development are and how
they operate. On the contrary, models help rationalize economic data
and subsequently control those processes natural or otherwise that
have given rise to the data themselves. Economists have become the
social engineers of the modern world (p. 157; cf. Hayek 1955).
It wasn't always this way of course. There once was time when "the
economy" that emerged in scientific discussion was tightly linked to
natural processes. Let us turn our attention to the eighteenth
century and the amazing writings of the Swedish naturalist Carl
Linnaeus. Schabas breaks new ground by emphasizing Linneaus's
importance to the history of economic thought. Linneaus -- that old
Cameralist who advocated protectionism and autarky -- actually worked
within the Swedish Academy of Sciences to establish economics as a
science (p. 31). Linnaeus not only classified the kingdoms of animals
and plants but wrote about the natural "balances" that were
maintained by nature _without the intervention of human agency at
all_. Although the idea of household management was firmly rooted in
Aristotle's manuscripts, Linnaeus insisted that nature matched births
and deaths among the myriad species of plants, insects and animals
automatically so as to maintain balance and keep matters stationary.
Charles Lyell at the start of the Victorian period carried the idea
of an economy of nature further than Linneaus and pondered the ideas
of dynamic equilibrium and the "economy of nature thesis." Later in
the nineteenth century, Charles Darwin's broke with Lyell and
explained how new species are produced from processes already known
in nature. Darwin revolutionized our understanding of nature. But, as
is well known among contemporary historians of economics, Darwin's
insights about evolutionary processes that never reached a final
result did not have much of an impact on the economists of his day.
The possible exception is Thorstein Veblen, who led a heroic and
unsuccessful battle against neoclassical orthodoxy. It was Herbert
Spencer's discussion of evolution that had the major impact on Alfred
Marshall and later economists, and that formulation was stunningly
different from the one Schabas attributes to Darwin himself. Had the
economists of the day followed Darwin more closely, economics may not
have been so denaturalized so quickly.
I should stop for a moment and comment on Schabas's use of the term
"denaturalization." (It does not mean taking away an immigrant's
legal status and then deporting him back to his country of birth.) In
Schabas's vocabulary, denaturalization is a term of art. It suggests
a long and documented process that took place between 1740 and 1890.
It produced the bete noir of contemporary economics -- neoclassical
economics.
To appreciate the old economics and contrast it with the new, we must
start with the eighteenth-century French literature. As Schabas shows
with depth and eloquence, the physiocrats produced a vast literature
that identified wealth with the bounty of nature and insisted that
while labor may have something to do with value it did little to
produce wealth. Wealth was due entirely to natural processes or the
"rule of nature." It is the expression "rule of nature" that is the
best English translation of the term "physiocracy."
And there is much more to the story that Schabas tells. She provides
convincing evidence that Quesnay's training at the University of
Leiden as a surgeon exposed him to the mechanical philosophy and
human physiology studies of his day. These natural science studies
informed his work in economics. Schabas's praise of the French
Enlightenment and its contributions to the naturalist tradition in
economics is packed into Chapter 3. This chapter is without any doubt
my favorite chapter in the entire book. It is a tour de force not
only because it is clearly written and convincing but because it
introduces the reader to a vast literature in several languages, over
which Schabas has an impressive command.
Schabas covers a vast number of leading French writers and apparently
has consulted the several major journals of the period, such as the
_Journal Oeconomique_ which ran from 1751 to 1772. She is at home
with the majority of contemporary writers who have offered glosses on
the French tradition and they also receive her attention and their
works are respectfully cited as well. The French economists would be
the heroes of the story Schabas tells but for the mathematical
tradition in France associated with the Ecole des Points et Chaussees
and the mischief later caused by Leon Walras, whose simultaneous
equations mesmerized the economics profession after World War II and
hastened the "denaturalization of the economic order" that Schabas
regrets.
Adam Smith's familiarity with the writing of the physiocrats is well
established. Schabas acknowledges that there are thousands of books
and articles about Smith and his economics ideas -- enough to "sink a
small boat" (p. 79). Fortunately, there is no need to discuss these
works because "most of these are Whiggish" (p. 79). To remedy the
deficiencies of this decrepit literature, Schabas offers an original
and alternative pr�cis of Smith's thought.
What Schabas offers about Smith is not new. She had published an
article on Smith in the _History of Political Economy_ and offers
large parts of that article as Chapter 5 in the book under review.
But perhaps it is all worth repeating. Smith did something original
with labor that his predecessors did not do. Whereas John Locke had
labor putting the difference in value on things and "mixing" with
labor to establishing the moral basis for property rights, Smith did
something different. According to Schabas, Adam Smith has labor
operating like "alienable stuff" and filling up objects. Now, filling
up objects is not the same thing as mixing. When labor fills up an
object it is "productive labor," and when it does not do this it is
"unproductive labor." The unproductive/productive labor distinction
lasted quite a long time in economics until it finally died a quiet
death in Marshall's writings, although the Austrian school economists
had long since dismissed the idea as well.
These ideas about labor filling-up objects may have something to do
with the ongoing debates in natural sciences surrounding fluids and
in Smith's time the remarkable ideas of Benjamin Franklin, who took
Europe by storm with his ideas about electricity and its invisible
behavior. Franklin's contributions to natural philosophy and the
great debates about magnetism, electricity and ectoplasm in the world
of con men and s�ances now needs to be included in the history of our
discipline as well.
According to Schabas, Smith did not say much about "individual
autonomy" (read, individual agency) at all. Trade and the division of
labor were caused by a _natural instinct_ that God planted in human
nature to truck, barter and exchange one thing for another. The
market process ideas that we find in Smith's brilliant discussion of
what happens with the sudden and unexpected shift in the demand for
black cloth only mimics what Linnaeus had already written about as
occurring naturally (without any human intervention) in nature. While
Smith never denied the importance of human agency in causing economic
events, he certainly did not emphasize this feature. In Smith's
discussions about economic development and how it proceeds, there are
always deeper forces in the nature of things that override human
folly and errors as they frequently occur.
In chapter 4, Schabas reprints material from another of her articles
in the _History of Political Economy_. This time David Hume is the
subject of an entire chapter. There she deftly documents how Hume's
exposure to the exciting debates about electricity and its properties
may have shaped his appreciation about how money "flows" naturally
from one region to another stimulating trade but settling down to an
equilibrium. Again, human agency is not called upon to tell the story
about the economy and how it works. Surely it is individual cash
balances and individual spending that are driving the sequence of
events that Hume describes in his famous essays about money and
prices, but whatever rational thoughts exist among these individuals
carrying around the cash balances are almost always passed over
without comment. Men were created by God to have their reason or
rational faculties always and everywhere the "slaves of the
passions," and these passions are what are needed to explain economic
relationships. Human nature may be no more predictable than the
weather, but this does not prevent us from developing a general
science of human action the same way we carry on every day with our
conjectural weather forecasts. In the end, Hume regarded "economic
processes as part and parcel of nature" (p. 78).
So it is with the Physiocrats, numerous French Enlightenment
thinkers, David Hume and Adam Smith all drawing insights from natural
experimental science and using these insights to inform a fledgling
body of economic knowledge. When did the history of economic ideas
deteriorate? When did the "denaturalization" that Schabas regrets so
deeply actually begin?
I suspected that David Ricardo with his secular education would get
blamed. But not so. Ricardo's amazing book (and perhaps his previous
pamphlets and essays) "set the substantive and methodological
parameters of the discipline that we know today as economics" (p.
102). However, it was not the enormously influential Ricardo that
drove a wedge between the natural world and the socio-economic world.
Guess who did the mischief?
It was none other than John Stuart Mill. Mill famously argued that
human development although steeped in custom and routine could and
should break free of these customs and traditions. Individuals are
capable of developing "qualities which are the distinctive endowment
of a human being" (Mill 1978 [1859]: 56). In Mill's mature work, it
is the self-development of the individual, and especially the
occasional individual of genius whose liberty to discover and
experiment must be protected from the general intolerance of society
-- from the masses in a democracy. In economics, Schabas joins a long
list of historians of economics and credits Mill with a sharp
distinction between laws of production -- that (supposedly) have
nothing to do with human agency and limit what human action can
accomplish - and laws governing the distribution of wealth. Unlike
the natural laws, the laws governing the distribution of wealth can
be and in many instances should be reengineered by changing the
existing legal institutions and modifying ancient customs. With Mill,
labor is producing utilities and not physical wealth. Human agency
has squeezed out human instinct and passions. According to Schabas,
Millsian economics is entirely different from the economics of Hume
and Smith, Mill allows human nature to be malleable. Schabas sums up
her position that: "While naturalists were bringing man into nature,
treating him as just another biological species and reducing his
intellectual and moral capacities to animal instincts, political
economists such as Mill were taking him out [of nature]" (p. 133).
The result is a social science in which customs, and law-like
relationships surrounding the consumption, production and
distribution of wealth are all mental and the structures of the
economy are "artificially" created (p. 136).
Schabas identifies an interpretive problem in Mill's thought.
Apparently, at the same time in the 1850s when he was immersed in the
reediting of his _Principles of Political Economy_, he wrote an
important essay entitled "On Nature" that was published posthumously
in his _Essays on Religion_ in 1874. In that essay, Mill denied that
nature in any way, shape, or form should be used as a standard
against which to justify the quality of human action. According to
Mill, everything valuable in human life has been artificially created
by human agency. All the bridges, all the tunnels, all the methods of
human manufacture and agricultural wisdom are the result of human
contrivance and discovery. If Mill really believed this, then why
didn't he modify his famous passages in the _Principles of Political
Economy_ and declare laws of production to be as malleable as the
laws of distribution. This is the "Mill problem" that Schabas has
identified.
Actually, there is no Mill problem at all. In later editions of his
_Principles_, Mill explained that the immutable laws of production
always depended on the state of knowledge and when the knowledge base
in society changed so did the constraints on production. The laws of
production were malleable and changed with the advance of knowledge.
This interpretation of Mill was first presented by an old Whig, Pedro
Schwartz, in 1972 but what Schabas has named the "Mill problem" was
dealt with in greater detail by her former colleague Samuel Hollander
(Hollander 1: 222-31). The Schwartz-Hollander tradition supports the
view that Mill privileged human agency in the development of economic
life but did this rather consistently throughout his writings both in
economics and in moral philosophy.
Schabas's view that Mill dealt the last blow to the dying naturalism
in economics is the main theme of Chapter 7. By privileging human
agency, Mill is changing economics irreparably and possibly forever.
After Mill, it is Marshall, Philip Wicksteed, William Stanley Jevons,
and Ysidro Edgeworth who hammer in the last coffin nails to the older
economics. The naturalized economics is gone. Neoclassical economics
is here and later on in the twentieth century will cover its
deficiencies by the mathematics of nineteenth-century physics
(Mirowski: 377).
I conclude this review by offering two short criticisms that seem to
me to be quite fundamental. First, the "utility" theory is clearly
the bad guy in Schabas's story. By treating utility as a mental
substance like the oozing ectoplasm of the s�ance room that flows
into things and objects making them valuable it is difficult not to
present modern economic ideas as laughable and grotesque. Still, not
all neoclassical economists (and certainly not the Austrian school
group) treated utility this way. The insight that is especially
strong in Carl Menger's works is that what made objects valuable was
their perceived suitability toward satisfying human wants or needs.
As Friedrich A. Hayek and others explained repeatedly during the
entire twentieth century, certain valued objects such as "toys" or
"tools" were such because the human mind attached meaning and
discovered uses for their natural features. An empirical or
ontological investigation of their _measurable_ characteristics might
never produce a clue as to why a child's mind might find them
interesting and engaging or a carpenter might find them useful or
helpful. It seems to me that this version of the utility theory is
far removed from the ectoplasm of the s�ance room and not something
laughable or ridiculous (Hayek 1955, p. 27; cf. Mirowski: 354- 58).
The Austrian school of utility theorizing did not have utility
"flowing" into objects.
My second criticism is to challenge her claim that modern
neoclassical economics is "denaturalized." Certainly, there was
heroic effort circa 1950 to present the basic ideas of welfare
economics without any reference(s) to human institutions. This was
considered to be progress in pure economics. But the remarkable point
that all commentators quickly realized, was that it could not be
done. Impossible! Also, the Walrasian equations needed to take notice
of the "technological coefficients of production" that determined the
maximum output that could be squeezed out of any amount of input
given the "state of the arts." Even with a stable and well-curved
production possibilities curve, someone's preferences were needed to
figure out what maximum social welfare could possibly mean. It is
this curious interaction between human agency and objective reality
that makes economics so interesting as a social science. In other
words, welfare economics was not denaturalized in Schabas's sense.
And there are many other examples of nature biting back. During the
enormously important debates from about 1880 to 1930, about the
interest rate and how it was formed in a modern competitive economy
the consensus was that the _structure of the world_ in the form of
investment opportunities played an important part along with
subjective time-preference in the determination of the rate of
interest.
These criticisms are aimed to direct Schabas to a larger literature
in economics that many of the older Whigs have written about and
documented in their histories of analysis. I do not think that
despite the importance of human agency, the economics literature had
ever entirely divorced itself from nature in Schabas's sense. The
Schabas study is an important study and worth further discussion but
it is certainly not the whole story about economics or its origins.
References:
Hayek, Friedrich, _The Counter-Revolution of Science: Studies on the
Abuse of Reason_. London: The Free Press, 1955.
Hollander, Samuel, _The Economics of John Stuart Mill: Theory and
Method_, 2 volumes. Toronto: University of Toronto Press, 1985.
Mill, John Stuart, _On Liberty_. E. Rapaport, editor. Indianapolis:
Hackett Publishing, 1978 [1859].
Mirowski, Philip, _More Heat than Light: Economics as Social Physics:
Physics as Nature's Economics_. Cambridge: Cambridge University
Press, 1999 [1989 first edition].
Laurence S. Moss is a past president of the History of Economics
Society and now serves as editor of the _American Journal of
Economics and Sociology_. He has written articles on a variety of
topics in the history of economics including Austrian school
economics, the Salamancan school, and Georgist economics and is
currently working on the Dublin school of Irish economists in the
first part of the nineteenth century.
Copyright (c) 2006 by EH.Net. All rights reserved. This work may be
copied for non-profit educational uses if proper credit is given to
the author and the list. For other permission, please contact the
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229).
Published by EH.Net (August 2006). All EH.Net reviews are archived at
http://www.eh.net/BookReview.
-------------- FOOTER TO EH.NET BOOK REVIEW --------------
EH.Net-Review mailing list
[log in to unmask]
http://eh.net/mailman/listinfo/eh.net-review
|
