On Classical Economics
Published by EH.NET (February 2007)
Thomas Sowell, _On Classical Economics_. New Haven: Yale University Press, 2006. ix + 304 pp. $35 (cloth), ISBN: 0-300-11316-1.
Reviewed for EH.NET by John Berdell, Department of Economics, DePaul University.
Thomas Sowell’s _On Classical Economics_ forms a remarkably integrated whole given that major parts appeared independently in the 1970’s while others have been recently added. This is evidence of the unity and consistency of the author’s view of classical economics and public policy broadly considered.
First, it is a page turner and quite surprisingly so. Sowell’s tour of classical economics is usually a quick march, one that deliberately skirts the thickets and muddy places that have detained many contributions to the secondary literature. Sowell keeps his reader on the high ground and briskly leads our attention from one classical vista to the next. This renders the work admirably suited for readers new to classical economics, and I look forward to using it with undergraduates. Sowell’s attention is almost entirely devoted to the primary texts with only occasional nods to the secondary literature, indeed he is more inclined to engage popular perceptions of the classics rather than particular interpreters. These perceptions seemed to this reader to be of the 1970’s, even in the more recently written second half of the book, and this provided part of the work’s integrative force. Additionally, there is a strong center of gravity around classical macroeconomics. This is not simply the Malthus-Ricardo debate but a far wider dispute between supporters and deniers of the legitimacy of an equilibrium approach to aggregate income determination. It is Sismondi who garners the most attention within the equilibrium approach while J.S. Mill’s influential dismissal of that approach explains the novelty later attached to Keynes’ equilibrium formulation.
Sowell’s point of departure is a chapter devoted to the “social philosophy” of the classical economists — a diffusely defined group associated with the “authoritative tradition” emanating from the _Wealth of Nations_. That they were “conservative” is placed in doubt by pointing to their anti-aristocratic attitudes and their high wage policies. Their hostility to the state is rightly associated with an aversion to war and, as James Mill put it, the imperial system of “outdoor relief for the upper classes” (p. 7). Rather than asserting the benefits of laissez-faire based on the existence of a “natural harmony of interests” the classical economist are portrayed as seeking to dismantle a politicized disharmony of interests that greatly favored wealth and power. These themes have found considerable favor since the 1970’s as a long list of scholars have sought to undermine the conservative outer works hastily erected around Smith’s work during the 1790’s. Indeed it would be very interesting to have Sowell’s reaction to the works of, say, Donald Winch, Emma Rothschild or Richard Teichgraeber, whose attempts to disassociate Smith from conservatism post date Smith’s Reagan-era embrace.
Classical macroeconomics is very much the star of the show with chapter two tracing the “Say’s” law controversy from Mercier de la Rivi?re onwards: “the physiocrats made Say’s Law and equilibrium income theory mutually compatible, as they were _not_ to be for most of the next 200 years” (p. 25). A wide array of authors is considered and copious notes point to French and English primary texts. The opening statement on demography is decidedly uncharacteristic: “the whole classical school … accepted that the long-run supply curve of labor … was infinitely elastic at some conventional subsistence level.” This obscures the presence of sensitive accounts of increases to “conventional subsistence” documented by Spengler among others.
The misunderstandings surrounding Say’s Law lie at the heart of this book. The Law is presented as actually constituting six distinct propositions, only three of which constituted points of disagreement. The last proposition is that disequilibrium represents “disproportionality” between the current output mix and that preferred by consumers, a view which usually rejected the very possibility of “an equilibrium level of national income” (p. 27). The conflict between these views is brought out in many insightful ways, and a distinction is made between static and dynamic equilibrium income notions: the former is an equilibrium level of income while the latter is an equilibrium growth rate of income. The treatment of monetary theory is attentive to the possibility of hoarding, and whether there are demands for money other than the transactions demand. The notion behind Ricardian equivalence is mentioned, but not the term as such. Indeed, readers are not alerted to the fact that it has been revisited. The absence of any mention of this or other recent echoes of classical disputes suggests a certain determination on Sowell’s part.
A chapter on classical microeconomics follows in which a consideration of longer term growth is placed within the context of diminishing agricultural returns, rent determination and value. Foreshadowing a major theme of the work, J.S. Mill is found holding to the proposition that the subsistence level of consumption had remained constant in the face of accumulating evidence to the contrary.
The chapter on classical methodology draws out several themes running through the preceding chapters. Ricardo’s terminology and method of abstraction is alternately critiqued and defended. Richard Jones provides the critique: Ricardo’s terms were so specific to his theoretical system that his “rent” could never correspond to the rent that anyone anywhere understood in “the ordinary and vulgar sense of the word” –thus Ricardo had generated “general principles” devoid of “any generality”(p. 85). An unusual team speaks for the defense as J.S. Mill and Marx successively assert the need for abstractions that cut across the multiplicity of causes active in any particular case. Only then is it possible to start the “return journey” to a specific case which will appear as a rich composite of individual relations (p. 86). The use of such thoroughgoing abstractions was the source of long running confusions and misunderstandings between those authors (such as Malthus and Jones) who sought to explain a given state of affairs and those (such and Ricardo and Marx) who sought to establish the laws governing the system’s direction of change.
Schumpeter’s injunction to the effect that to understand Marx one must understand Ricardo and Hegel provides the point of departure for the penultimate chapter. The Marx-Engels dialectical method is described as one of “successive approximation.” This method confused some of his readers into constructing elaborate critiques of his “law of value.” In contrast Sowell depicts Marx as pragmatically employing a particular definition of value to extend Ricardo’s consideration of distribution and resource allocation. Three themes in Marx’s treatment of crisis are carefully balanced against one another. As far as the preceding debate between “disproportionality” and insufficient demand is concerned, Marx is found to be essentially in the former camp, but expectational errors and ensuing overproduction in the “principal articles of trade” may cause a general glut of commodities through an interruption of the credit system (p. 177). The expectational errors which lie at the heart of crises are alternatively presented as expressions of the “unconscious” or uncoordinated actions of humans under capitalism. Lastly, considerable emphasis is placed on capitalism’s tendency to undermine itself by crippling, estranging and mutilating the worker (p. 162).
In the closing chapter Sowell reflects upon the history of economic thought. J.S. Mill carries the most painful lesson: even brilliant well meaning people can be elitist and ignorant. An egalitarian theme heard throughout Sowell’s writings is sounded to good effect here: free markets are “one of the most revolutionary concepts to emerge in the long history of ideas” and their adherents are contrasted to those “who have not been able to accept the humbling thought that their own presumably superior wisdom and virtue might be superfluous, if not damaging” (p. 189). The distinction between a classical “tradition” as opposed to a classical “era” is revisited as Sowell suggests that Cournot and Sismondi’s intellectual innovations failed to become part of that tradition because “they both wrote within a framework too unfamiliar to their contemporaries” (p. 200). The growing use of mathematics and statistics in economics is approvingly mentioned: it has reduced linguistic wiggle room and speeded the empirical rejection of poorly performing theories.
Sowell’s choice not to have inquired into the recent literature on the authors examined here may prove off-putting for some readers, especially in light of the criticisms he advances against J.S. Mill. Yet this has produced an exciting and fresh look at a wide range of classical texts, and despite — or perhaps because of — this characteristic the policy relevance of the issues and personalities considered is always kept clearly in view.
References:
Rothschild, E. (2001). _Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment_, Cambridge: Harvard University Press.
Spengler, J. J. (1942). _French Predecessors of Malthus; A Study in Eighteenth-century Wage and Population Theory_, Durham: Duke University Press.
Teichgraeber, R. F. (1986). _”Free Trade” and Moral Philosophy: Rethinking the Sources of Adam Smith’s Wealth of Nations_, Durham: Duke University Press.
Winch, D. (1978). _Adam Smith’s Politics: An Essay in Historiographic Revision_, Cambridge: Cambridge University Press.
John Berdell is the author of _International Trade and Economic Growth in Open Economies: The Classical Dynamics of Hume, Smith, Ricardo and Malthus_ (Edward Elgar, 2002). He is currently working on Richard Cantillon.