The Natural Origins of Economics
Published by EH.NET (September 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.