A History of Economic Doctrines / from the time of the physiocrats to the present day

by Charles Gide; Charles Rist

The advance of this new school meant the decline of the Classical doctrine and the waning of Liberalism. Public interest gravitated away from the teaching of the founders. But in the absence of a new and a definite creed, what we find is a kind of general dispersion of economic thought, accompanied by a feeling of doubt as to the validity of theory in general and of theoretical political economy in particular. The old feeling of security gave place to uncertainty. Instead of the comparative unanimity of the early days we have a complete diversity of opinions, amid which the science sets out on a new career.

In the last Book we shall find that certain eminent writers have succeeded in renewing the scientific tradition of the founders. But every connection with practical politics had to be removed and a new body of closely knit doctrines had to be created before social thinkers could have this new point of view from which to co-operate.

CHAPTER I: THE HISTORICAL SCHOOL AND THE CONFLICT OF METHODS

The second half of the nineteenth century is dominated by Historical ideas, though their final triumph was not fully established until the last quarter of the century. The rise of these ideas, however, belongs to a still earlier period, and dates from 1843, when there appeared a small volume by Roscher entitled Grundriss. We shall have to return to that date if we wish to understand the ideas of the school and to appreciate their criticisms.

The successors of J. B. Say and Ricardo gave a new fillip to the abstract tendency of the science by reducing its tenets to a small number of theoretical propositions. The problems of international exchange, of the rate of profits, wages, and rent, were treated simply as a number of such propositions, expressed with almost mathematical precision. Admitting their exactness, we must also recognise that they are far from being adequate, and could not possibly afford an explanation of the different varieties of economic phenomena or help the solution of the many practical problems which the development of industry presents to the statesman. But McCulloch, Senior, Storch, Rau, Garnier,[799] and Rossi, the immediate successors of Ricardo and Say in England and France, repeated the old formulæ without making any important additions to them. The new system of political economy thus consisted of a small number of quite obvious truths, having only the remotest connection with economic life. It is true that Mill is an exception. But the Principles dates from 1848, which is subsequent to the foundation of the Historical school. With this exception we may say, in the words of Schmoller, that after the days of Adam Smith political economy seems to have suffered from an attack of anæmia.[800]

Toynbee gives admirable expression to this belief in his article on Ricardo and the Old Political Economy:[801] “A logical artifice became the accepted picture of the real world. Not that Ricardo himself, a benevolent and kind-hearted man, could have wished or supposed, had he asked himself the question, that the world of his treatise actually was the world he lived in; but he unconsciously fell into the habit of regarding laws which were those only of that society which he had created in his study for purposes of analysis as applicable to the complex society really existing around him. And the confusion was aggravated by some of his followers and intensified in ignorant popular versions of his doctrines.” In other words, there was a striking divergence between economic theory and concrete economic reality, a divergence that was becoming wider every day, as new problems arose and new classes were being formed. But the extent of the gap was best realised when an attempt was made to apply the principles of the science to countries where the economic conditions were entirely different from those existing either in England or in France.

This divergence between theory and reality might conceivably be narrowed in one of two ways. A more harmonious and a more comprehensive theory might be formulated, a task which Menger, Jevons, and Walras attempted about 1870. A still more radical suggestion was to get rid of all abstract theory altogether and to confine the science to a simple description of economic phenomena. This was the method of procedure that was attempted first, and it is the one followed by the Historical school.

Long before this time certain writers had pointed out the dangers of a too rigid adherence to abstraction. Sismondi—an essentially historical writer—treated political economy as a branch of moral science whose separation from the main trunk is only partial, and insisted upon studying economic phenomena in connection with their proper environment. He criticised the general conclusions of Ricardo and pleaded for a closer observation of facts.[802] List showed himself a still more violent critic, and, not content with the condemnation of Ricardian economics, he ventured to extend his strictures even to Smith. Taking nationality for the basis of his system, he applied the comparative method, upon which the Historical school has so often insisted,[803] to the commercial policy of the Classical school; but history was still employed merely for the purpose of illustration. Finally, socialists, especially the Saint-Simonians, whose entire system is simply one vast philosophy of history, had shown the impossibility of isolating economic from political and juridical phenomena, with which they are always intermingled.

But no author as yet had deliberately sought either in history or in the observation of contemporary facts a means of reconstructing the science as a whole. It is just here that the originality of the German school lies.