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The Classical Economists Revisited

Author(s):O'Brien, D. P.
Reviewer(s):Allgoewer, Elisabeth

Published by EH.NET (March 2005)

D. P. O’Brien, The Classical Economists Revisited. Princeton, NJ: Princeton University Press, 2004. xviii + 423 pp. $39,95 (cloth), ISBN: 0-691-11939-2.

Reviewed for EH.NET by Elisabeth Allgoewer, Institut f?r Wirtschaftssysteme, Wirtschafts- und Theoriegeschichte, University of Hamburg.

With The Classical Economists Revisited, Denis O’Brien, emeritus at the University of Durham, has provided a revised edition of his The Classical Economists published in 1975 by Clarendon Press. The new edition is very much welcome as it will make this — in itself “classic” — text available to new generations of students and scholars.

While the structure of the original work remains unchanged, a new (final) chapter 11 “Classical Economics: A Retrospect” has been added. Comparing individual chapters with the original, chapter 7 on “International Trade” has received most of the changes. A new (short) section on “Customs Unions” has been added. The newly created subsections mostly cover material also contained in the original version, extended, however, through additional graphical expositions. To chapter 9 on “Classical Public Finance” an appendix on “Net Present Value Taxation” has been added. Furthermore, additional graphical expositions (e.g. figures 6.1 and 6.2) and formal presentations (e.g. on the wages fund theory) have been included. Most importantly, the annotated bibliographies at the end of each chapter have been updated. As in the first edition, the “Further Reading” is invaluable to students trying to find their way into the field. Last but not least, the new edition makes the book even more accessible for reference. The index is considerably more detailed, additional keywords and further names have been included.

In the “Introduction” O’Brien characterizes the approach taken in the book “to convey a picture of the broad range of Classical literature” rather than to focus on “key individuals” (xvi). Accordingly, the material is organized around themes. The first three chapters provide a general introduction. Chapter one on “The Classical Economic Stage” gives an overview of the authors whose contributions are discussed in the core chapters and their educational and professional backgrounds. Noteworthy is O’Brien’s discussion of the importance of institutions, journals, and newspapers which framed the exchange of ideas. This allows him to discuss the extent to which their contributions can be seen as emerging from “a scientific community.”

Chapter 2 on “The Roots of Classical Economics” surveys intellectual influences from philosophy and pre-classical economic writings and inspiration taken from historical developments such as population growth or industrialization. In two admirably concise sections Adam Smith’s system and David Ricardo’s corn model are presented, highlighting these contributions as providing a starting point or point of reference for “later” Classical economists. Their contributions are characterized in some detail for John Stuart Mill and in shorter paragraphs on Robert Torrens, Nassau Senior, John Ramsay McCulloch, Thomas Robert Malthus and Thomas Tooke.

The last of the introductory chapters is on “The Characteristics and Preconceptions of Classical Economics.” It underlines the Classical focus on dynamics and shows how issues of allocation arise in the context of the concern with growth. The occupation with population is traced back to Hume in the following section which continues with a succinct discussion of Malthus’s Essay on Population and its reception by Classical economists. The ensuing section on method is similarly outstanding by providing a dense and accessible overview without simplifying the issues at hand.

Chapter 4 opens the more detailed discussion of Classical analysis to be pursued in the following chapters. The survey of “Classical Value Theory” is subdivided into four sections. Smith’s rejection of subjective value theory and his development of a cost-of-production theory are motivated by his interest in the analysis of macroeconomic distribution. The analysis of market vs. long-run equilibria is discussed and Smith’s concern with labor as a measure of welfare. Ricardo’s contribution to the labor theory of value is the next topic, followed by a discussion of “Cost-of-Production Theories of Value after Ricardo.” The chapter is complemented by a presentation of the contributions of individual authors to subjective value theory in the Classical era substantiating O’Brien’s claim that there was a noteworthy stream of pre-neoclassical subjective-value arguments.

The analysis of “The Classical Theory of Distribution” in chapter 5 treats wages, profits and rents separately before turning to “Relative Shares.” In the section on wages, the analysis of the problems of the wage fund theories deserves mentioning. The discussion of profits is another example of O’Brien’s mastery of exposition when it comes to intricate subject matters. Graphical analysis and Ricardo’s numerical examples are used to contrast Smith’s and Ricardo’s contributions on relative shares.

Chapter 6 on “Classical Monetary Theory” starts with a somewhat short overview of the historical background. However, this would be my only criticism of an otherwise superb discussion of a topic which has received much attention. A fairly unanimous Classical consensus on “The Nature of Money” focusing on money as a means of exchange based on a monometallic standard and leading to a narrow definition of money is developed. Nonetheless, O’Brien convincingly argues that Classical economists appreciated the function of banking. “The Basic Theory” founded on the quantity theory of money and the price-specie-flow mechanism are developed and linked to the analysis of the international distribution of precious metals. On this background the arguments brought forward in the Bullionist controversy and the debates between Currency and Banking Schools are discussed in detail. Dealing with Say’s law of markets in the next section complements the analysis in the conventional way. In contrast, the section on “Inflation” covers material usually given little attention. O’Brien underlines the Classical awareness of real effects of changes in the money supply, traces the analysis back to Hume and shows how these arguments were used to warn of deflation rather than to advocate inflation.

Chapter 7 covers “International Trade.” The discussion of Smith’s contribution is followed by a detailed exposition of the analysis of comparative advantage. O’Brien sets off the Classical argument from a Heckscher-Ohlin type analysis, a sideline which I find welcome in countering the stripped-down presentations of the Classical arguments contained in many textbooks on trade. The following sections cover Classical contributions on the determination of terms of trade supported by graphical exposition. Free trade is further examined under the heading “Trade Policy,” where widely accepted exceptions to the principle are expounded and the case for unilateral free trade is discussed. The analysis of “Customs Unions” and “The Transfer Problem” are illustrations of O’Brien’s claim that much of neoclassical trade theory emerged straight from classical principles. However, O’Brien emphasizes that Classical authors posed the issues in the context of growth whereas neoclassical analysis focused on static analysis leaving much of the dynamic aspects to be “rediscovered” in recent decades.

Chapter 8 on “The Classical Theory of Growth and Development” opens with Smith’s growth theory, a section which repeats some of the material already covered in chapter 2. The following section surveys “The Classical Vision of Growth after Smith” focusing on Malthus, McCulloch and J.S. Mill, thus avoiding similar repetitions of Ricardo’s contribution. The Classical debates on the effects of machinery and the possibility of gluts are covered in the next section. Finally, the distinction between productive and unproductive labor is discussed.

Chapter 9 on “Classical Public Finance” takes up an often neglected subject. Smith’s general principles of taxation serve as the starting point. A thorough discussion of the distinction between direct and indirect taxation and Classical economist’s evaluation of both types of taxes follows. According to Classical insights, national debt, a topical issue in the Classical era as O’Brien shows, presents a burden on the future. Ricardo’s and Malthus’s arguments are presented as exceptions to this broad consensus, although on different grounds. Ricardo’s case is discussed in detail and confronted with the modern version of Ricardian equivalence.

“The Policy Prescriptions of Classical Economists” are surveyed in chapter 10 which starts with a discussion of “The Legitimate Role of Government” aiming at the refutation of the “caricature of Classical economists as wild-eyed laissez-faire dogmatists” (327). Instead, O’Brien argues, the Classical writers were the earliest “fully to appreciate the allocative mechanism of the market.” At the same time they were “clear that it could only operate within a framework of restrictions” (328). The following sections cover aspects of the debates on domestic policy issues: the Factory Acts, the effects of mechanization, the Poor Laws, public provision of education and trade unions. Classical contributions to policy controversies beyond the domestic sphere are taken up in the sections on “Policy for Ireland” and “Colonies and Colonial Policy.”

The final chapter entitled “Classical Economics: A Retrospect” aims at an overall evaluation. It highlights arguments developed in the core chapters, most of which have already been mentioned. O’Brien again underlines his case for Classical economics as a body of thought developed by a number of contributors rather than by a few outstanding thinkers. His emphasis on the dominance of issues of dynamic analysis is repeated. The longevity of the Classical contributions to monetary theory, monetary policy analysis and international macroeconomics is reconfirmed. The concern with pressing problems in the Classical literature on public finance is contrasted with much less applicable twentieth-century contributions in the field. Last but not least, the policy orientation of Classical economics is emphasized, a characteristic certainly not accentuated in many textbook treatments focusing on theoretical contributions.

The praise that The Classical Economists received in the reviews of the 1975 edition pertains to the revised version. Even though much has been published since on the subject matter, none of the many monographs and textbooks “can hope to compete with the comprehensive range, the firm grasp of detail and the lucid expository style of Professor O’Brien’s work” as Marc Blaug put it in his review of 1976. Andrew Skinner stated in 1976 that the book “should appeal to students of economics … and especially to those who do not have an extensive knowledge of the classical period — an audience which the author has constantly in mind.” His verdict, that when measured against O’Brien’s aims, the book “is not markedly unconventional” can also be extended to the revised edition. I would, however, add that given the stated intention of providing an introduction to the broad literature “by” Classical economists and “on” Classical economics, a conventional design does serve this purpose best — especially if it is so masterfully executed as in this case.

I particularly enjoyed reading the three introductory chapters which provide the framework to the more detailed discussions following in the thematic chapters on theory and policy issues. As I tried to show above, the chapter on monetary policy is outstanding. The chapters on trade and public finance represent areas covered in passing in comparable monographs. Finally, the chapter on policy draws together a wide range of material which allows O’Brien to circumscribe a “Classical approach” to economic policy issues. This does not imply the uncovering of straight-forward common principles. Rather, it assembles evidence against the frequent allegation of randomness in Classical policy advice. Finally, I find it worth emphasizing that although Smith, Ricardo, and J.S. Mill clearly receive most of the coverage, O’Brien succeeds in presenting Classical economics as “essentially a communal effort” (356). The profiles of many of the less known figures emerge clearly.

There is one count on which I was disappointed with the revised edition. Given the outpouring of publications since the first edition, I had hoped to find an explicit discussion of some of the more fervent debates concerning the interpretation of Classical economics. O’Brien briefly mentions the issue in the introduction (xv) just to refer the reader to the controversial literature which he lists in three large notes. O’Brien’s mastery in presenting complicated matters in a form accessible to students, his skill in clarifying contentious issues in the historical sources and his ability to do justice to authors with opposing views would make him an ideal authority to present these “variant readings” (362, n.1) in an even-handed account.

Finally, O’Brien’s occasional references to a Keynesian mainstream survived the revision. To a younger generation of economists they must seem anachronistic. A similar point can be made about the direction of the argument in the section on economic policy. The text explicitly disputes a perception of Classical economists as overly laissez-faire. However, in between the lines a further case seems to be developed criticizing an over-optimistic belief in the effectiveness of government intervention. This belief might have been widespread at the time when the book was originally written but is no longer today, especially not in economics departments. In short, in view of younger readers these implicit arguments seem to reduce some of the potential of the chapter. I find many students who attend history of thought classes to be disappointed by the little modern economic theory seems to offer on economic policy issues. They dislike the “narrow technical focus of modern literature” (362) and the aloofness of its policy conclusions. However, many of them subscribe to a basically liberal outlook also contained in Classical economics. On this background Classical economists developed — if controversial — positions on pressing policy issues which go beyond the demand for reduced government intervention so popular today.

Notwithstanding these minor points of criticism The Classical Economists Revisited is an asset to any university or private library. Even though O’Brien designed the book “to be read as a continuous text” (xv), I would highly recommend it to students wishing to work on individual aspects of Classical economics. The chapters provide concise introductions to issues and topics, the bibliographies lead the way to the secondary literature and stress over and again the importance of reading the original texts. O’Brien’s book is a proof as to how enlightening the Classical literature is and to how fascinating it becomes.

References:

D.P. O’Brien, The Classical Economists (Oxford: Clarendon Press, 1975).

Reviewed by Andrew S. Skinner, The Economic Journal, Vol. 86, No. 342 (Jun,. 1976), 373-75.

Reviewed by Mark Blaug, Economica, New Series, Vol. 43, No. 171 (Aug., 1976), 325-6.

Elisabeth Allgoewer is Professor of Economics at the University of Hamburg. She is currently working on aspects of the reception of classical economic thought by German-language authors.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):19th Century