Category Archives: History of Economic Analysis

History of Economics Analysis

1. Economic Analysis Before the Greeks

2. Graeco-Roman Economics

3. The Scholastics

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The 13th Century: The Scholastics on Commercial Activity

Analysis

While all the other points apply to scholastic doctrine of all ages, the one mentioned last holds fully only for the classic period. After the thirteenth century a significant change occurred in the attitude of the scholastic doctors to commercial activity. But the thirteenth-century scholastics undoubtedly held the opinion expressed by St. Thomas, namely, that there is ‘something base’ about commerce in itself (negotiatio secundum se considerata quandam turpitudinem habet, Summa II, 2, quaest. LXXVII, art. 4), though commercial gain might be justified (a) by the necessity of making one’s living; or (b) by a wish to acquire means for charitable purposes; or (c) by a wish to serve publicam utilitatem, provided that the lucre be moderate and can be considered as a reward of work (stipendium laboris); or (d) by an improvement of the thing traded; or (e) by intertemporal or interlocal differences in its value; or (f) by risk (propter periculum). St. Thomas’ wording leaves some room for doubt about the conditions in which he was prepared to admit considerations (d)–(f), and it may be true that others, especially Duns Scotus (1266–1308) and a doctor whom I have not mentioned so far, Richard of Middleton (1249–1306), went somewhat further, especially as regards justifying the social usefulness of the practice of buying in a cheaper market and selling in a dearer one. However, even qualifications (b) and (c) go beyond Aristotle’s teaching. The emphasis all these authors place upon the element of remuneration of some socially useful activity has given rise, on the one hand, to the opinion, which may be correct, that the source of the (moral) ‘right to the produce of one’s labor’ may be found in the scholastic literature, and, on the other hand, to the error that the scholastic doctors held a (analytic) labor theory of value, that is, that they explained the phenomenon of value by the fact that (most) commodities cost labor. For the moment, the reader should only notice that there is no logical relation between mere emphasis upon the necessity, moral or economic, of remunerating labor (no matter whether we translate the Latin word by the English ‘labor’ or by ‘activity’ or ‘effort’ or ‘trouble’) and what is technically known as the labor theory of value.

References:

1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 91.

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The 13th Century: St. Thomas

Analysis

We find small beginnings only—little of sociology, still less of economics. In part this was doubtless due to lack of interest. St. Thomas, in particular, was indeed interested in political sociology but all the economic questions put together mattered less to him than did the smallest point of theological or philosophical doctrine, and it is only where economic phenomena raise questions of moral theology that he touches upon them at all. Even where he does we do not feel, as we do elsewhere, that his powerful intellect is all there, passionately resolved to penetrate into the core of things but rather that he is writing in obedience to the requirements of systematic completeness. More or less, this applies to all his contemporaries. In consequence, Aristotle’s teaching sufficed for them and they hardly ever went beyond it. There was indeed a difference in moral tone and cultural vision and also a shift of emphasis that is accounted for by the different social patterns they beheld. But neither is so important as we might have expected. Since these things are of no great moment in a history of economic analysis, it will suffice to note that the scholastic doctors looked upon physical labor as a discipline favorable to Christian virtue and as a means of keeping men from sinning, which implies an attitude entirely unlike that of Aristotle; that with them slavery was no longer a normal, let alone fundamental, institution; that they gave their blessings to charity and to voluntary poverty; that their ideal of a vita contemplativa carried, of course, a meaning that was quite foreign to Aristotle’s corresponding ideal of life, though there are important similarities between the two; that they repeated but qualified Aristotle’s views on commerce and commercial gain*. (Schumpeter 1954: 90-91)

St. Thomas’ sociology of institutions:

St. Thomas’ sociology of institutions, political and other, is not what readers will expect who are in the habit of tracing the political and social doctrines of the 19th century to Locke or to the writers of the French enlightenment or to the English utilitarians. Considering that, in this respect, the teaching of St. Thomas was not only representative of that of his contemporaries but also was accepted by all the scholastic doctors of later times, its main points should be briefly indicated. There was the sacred precinct of the Catholic Church. But for the rest, society was treated as a thoroughly human affair, and moreover, as a mere agglomeration of individuals brought together by their mundane needs. Government, too, was thought of as arising from and existing for nothing but those utilitarian purposes that the individuals cannot realize without such an organization. Its raison d’être was the Public Good. The ruler’s power was derived from the people, as we may say, by delegation. The people are the sovereign and an unworthy ruler may be deposed… This mixture of sociological analysis and normative argument is remarkably individualist, utilitarian, and (in a sense) rationalist, a fact that it is important to remember in view of the attempt we are going to make to link this body of ideas with the laical and anti-Catholic political philosophies of the eighteenth century. There is nothing metaphysical about this part of scholastic doctrine. Nor did the Catholic doctors countenance political authoritarianism. The divine right of monarchs, in particular, and the concept of the omnipotent state are creations of the Protestant sponsors of the absolutist tendencies that were to assert themselves in the national states. (Schumpeter 1954: 91-92)

St. Thomas’s theory of property:

Having disposed of the theological aspects of the matter, St. Thomas simply argues that property is not against natural law but an invention of the human reason, which is justifiable because people will take better care of what they possess for themselves than of what belongs to many or all; because they will exert themselves more strenuously on their own account than on account of others; because the social order will be better preserved if possessions are distinct, so that there is no occasion for quarreling about the use of things possessed in common—considerations that attempt to define the social ‘function’ of private property much as Aristotle had defined them before and much as the nineteenth-century textbook was to define them afterward. And since he found in Aristotle all he wished to say, he referred to him and accepted his formulations. (Schumpeter 1954: 92-93)

St. Thomas on Just Price:

The relevant part of the argument on just price—the price that assures the ‘equivalence’ of commutative justice—is strictly Aristotelian and should be interpreted exactly as we have interpreted Aristotle’s. St. Thomas was as far as was Aristotle from postulating the existence of a metaphysical or immutable ‘objective value.’ His quantitas valoris is not something different from price but is simply normal competitive price. The distinction he seems to make between price and value is not a distinction between price and some value that is not a price, but a distinction between the price paid in an individual transaction and the price that ‘consists’ in the public’s evaluation of the commodity (justum pretium…in quadam aestimatione consistit), which can only mean normal competitive price, or value in the sense of normal competitive price, where such a price exists. In cases where no such price exists, St. Thomas recognized, as coming within his concept of just price, the element of the subjective value of an object to the seller, though not the element of the subjective value of the object for the buyer—a point that is important for scholastic treatment of interest…Though he presumably thought of nothing beyond providing a more precise criterion of scholastic ‘commutative justice’—which was rightly rejected by the later scholastics—we must nevertheless credit him with having discovered the condition of competitive equilibrium which came to be known in the nineteenth century as the Law of Cost. This is not imputing too much: for if we identify the just price of a good with its competitive common value, as Duns Scotus certainly did, and if we further equate that just price to the cost of the good (taking account of risk, as he did not fail to observe), then we have ipso facto, at least by implication, stated the law of cost not only as a normative but also as an analytic proposition. (Schumpeter 1954: 93)

St. Thomas on Interest:

St. Thomas condemned interest as contrary to commutative justice on a ground that proved a conundrum for almost all his scholastic successors: interest is a price paid for the use of money; but, viewed from the standpoint of the individual holder, money is consumed in the act of being used; therefore, like wine, it has no use that could be separated from its substance as has, for example, a house; therefore charging for its use is charging for something that does not exist, which is illegitimate (usurious). Whatever may be thought of this argument, which among other things neglects the possibility that ‘pure’ interest might be an element of the price of money itself—instead of being a charge for a separable use—one thing is clear: exactly like the somewhat different Aristotelian argument, it does not bear at all upon the question why interest is actually paid. Since this question, the only one that is relevant to economic analysis, was actually raised by the later scholastics, we defer the consideration of the clues for an answer, which St. Thomas’ reasoning nevertheless suggests. (Schumpeter 1954: 93-94)

Notes:

*It’s worth noting that, according to Schumpeter, scholastic thought on the physical and social sciences was heavily influenced by the writings of Aristotle, which were recently introduced to the West in the 13th century.

During the twelfth century more complete knowledge of Aristotle’s writings filtered slowly into the intellectual world of western Christianity, partly through Semite mediation, Arab and Jewish. To the scholastic doctors this meant two things. First, Arab mediation meant Arab interpretation, which was unacceptable to them in some matters of epistemology as well as of theology. Second, access to Aristotle’s thought immensely facilitated the gigantic task before them not only in metaphysics, where they had to break new paths, but also in the physical and social sciences, where they had to start from little or nothing…

…The Roman law came in usefully, not because it brought something that was foreign to the spirit and needs of the age—so far as it did this, its reception was in fact an unmitigated nuisance—but precisely because it presented, ready made, what without it would have had to be produced laboriously. Similarly, the ‘reception’ of Aristotle’s teaching was principally a most important timeand labor-saving device, particularly in those fields that were as yet waste lands. It is in this light—and not in the light of the theory that there was passive acceptance of a lucky discovery—that we must see the relation between Aristotelism and scholasticism.

But so soon as the scholastic doctors realized that in Aristotle’s writings they had all, or nearly all, they could hope for at the moment and that with the help of his doctrines they might accomplish what it would have cost them a century’s work to do by themselves, they naturally made the most of this opportunity. Aristotle became for them the philosopher, the universal teacher, and most of their work took the form of expounding him to students and to the public at large, and of commenting upon him. Moreover, his writings served admirably for didactic purposes since they were in fact summarizing and systematizing textbooks. In consequence, it was in the role of expounders of, and commentators on, Aristotelian doctrine that Grosseteste, Albertus Magnus, and the other leaders mentioned above appeared to the public of their own and of later times. St. Thomas himself became, for many people, simply the man who had succeeded in harnessing Aristotle for the service of the Church. This misconception of the revolution of the thirteenth century and, in particular, of St. Thomas’ performance was not corrected but, on the contrary, was fostered by the scientific practice of the next 300 years. For Aristotle’s work continued to provide the systematic frame for the growing scientific material and to supply the need for nicely pedestrian texts; everything, therefore, continued to be cast in the Aristotelian mold—nothing so completely as scholastic economics, which also illustrates the way in which, by this convenient practice, the scholastic doctors were likely to lose the credit for their original contributions…

…This explains not only the otherwise quite incomprehensible success of Aristotelian teaching through these 300 years but also the penalty the ancient sage was eventually to pay for this success. We may just as well complete the story which is so full of interest to the student of the tortuous ways of the human mind. We have seen that there was nothing in the scholastic system to bar new developments within it or even developments away

References:

1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 87-94.

 

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From the 9th Century to the 12th Century: The Individualist Streak

Analysis

 

In surveying the history of civilizations, we sometimes speak of objective and subjective cases. By an objective civilization we mean the civilization of a society in which every individual stands in his appointed niche and is subject, without reference to his tastes, to superindividual rules; a society that recognizes as universally binding a given ethical and religious code; a society in which art is standardized and all creative activity both expresses and serves superindividual ideals. By a subjective civilization we mean a civilization that displays the opposite characteristics; in which society serves the individual and not the other way round; in short, a society that turns upon, and implements, subjective tastes and allows everyone to build his own system of cultural values. We need not enter into the general question of the analytic standing of such schemes. But we are concerned with the sweeping assertion so often met with that, in the sense explained, medieval civilization was objective and modern civilization is (or until recently was) subjective or individualist, because this touches, or may be supposed to touch, upon the ‘spirit’ in which people conducted or conduct their economic analysis. There cannot be any doubt that some of the characteristics fit—religious life in the age of ‘One God, One Church,’ as compared to religious life in the age of hundreds of denominations, is the standard example. But neither can there be any doubt that as a whole those abstract pictures are ludicrously inadequate. Is it possible to imagine a fiercer individualist than a knight? Did not the whole trouble that medieval civilization experienced with military and political management (and which largely accounts for its failures) arise precisely from this fact? And is the member of a modern labor union or the mechanized farmer of today really so much more of an individualist than was the medieval member of a craft guild or the medieval peasant? Therefore, the reader should not be shocked to learn that the individualist streak in medieval thought also was much stronger than is commonly supposed. This is true, both in the sense that opinion was much more differentiated individually and in the sense that the individual phenomenon and (in speculations about society) the individual man were much more carefully attended to than we are apt to think. Scholastic sociology and economics, in particular, are strictly individualist, if we understand this to mean that the doctors, so far as they aimed at description and explanation of economic facts, started invariably from the individual’s tastes and behavior.

1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 86-87.

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From the 9th Century to the 12th Century: The Platonic Streak

Analysis

Within the little stock, Platonic and Neo-Platonic influences predominated both directly and, through the mediation of St. Augustine’s philosophy, indirectly. But Platonic influence will inevitably bring to the fore the problem of Platonic ideas, the problem of the nature of general concepts (universalia). Accordingly, the first and most famous of all scholastic discussions in pure philosophy was about this problem; and until the end of the fifteenth century it kept on flaring up again and again. We shall not wonder at this or accept it as proof positive of the sterility of scholastic thought. For it should be clear that this problem represents but a particular form of positing the general problem of pure philosophy. To say that the scholastics never ceased to discuss it therefore means no more than that, while interested in a great many other things, they never ceased to be interested in pure philosophy. On the whole, it may be averred that the ‘realistic’ view—the view according to which only ideas or concepts, as such, have real existence, and which is therefore the exact opposite of what we should call a realistic view—prevailed more or less until the fourteenth century when the battle turned in favor of the opposite, the ‘nominalist,’ view…

…This controversy was purely epistemological in nature and has no bearing whatever upon the practice of economic or any other analysis. But it had to be mentioned because, in our own time, the Realism and Nominalism of the scholastic doctors have been linked with two other concepts, Universalism and Individualism, which are held by some writers to be relevant to analytic practice. These writers went so far as to represent Universalism and Individualism as two fundamentally different views of social processes, the conflict between which runs through the whole history of sociological and economic analysis and is indeed the essential fact behind all the other clashes of opinion that occurred throughout the ages. Whatever argument it may be possible to adduce for this doctrine from the standpoint of economic thought or, conceivably, also from the standpoint of a philosophical interpretation of analytic procedures, there is nothing in it that concerns these analytic procedures themselves: the rest of the book will establish this point. Just now we are interested merely in showing that Universalism and Individualism have nothing to do with scholastic Realism and Nominalism. Universalism as opposed to Individualism means that ‘social collectives,’ such as society, nation, church, and the like, are conceptually prior to their individual members; that the former are the really relevant entities with which the social sciences have to deal; that the latter are but the products of the former; hence that analysis must work from the collectives and not from individual behavior. If, then, we choose to call these collectives sociological universals, then the doctrine in question may indeed be said to oppose universals to individuals. But scholastic Realism opposed universals to individuals in quite a different sense. If I were to adopt scholastic Realism, then my idea of, say, society would claim logical precedence over any individual empirical society that I observe but not over individual men; the idea of these men would be another universal in the scholastic sense, claiming logical precedence over the empirical individuals. Manifestly, this would imply nothing about either the relation between the two scholastic universals or the relation between any empirical society (a universal in the sense of universalist doctrine) and the empirical individuals comprising it.

1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 84-86.

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Early Christians

Analysis

We do not leave the Graeco-Roman world when we now turn for a moment to the Christian thought of the first six centuries. After what has been said about the nature of our aims, it is obvious that there would be no point in looking for ‘economics’ in the sacred writings themselves. The opinions on economic subjects that we might find—such as that believers should sell what they have and give it to the poor, or that they should lend without expecting anything (possibly not even repayment) from it—are ideal imperatives that form part of a general scheme of life and express this general scheme and nothing else, least of all scientific propositions.

But neither is there anything for us to garner in the works of those great men who during these centuries laid the foundation of the Christian tradition. And this does call for a word of explanation. For we might expect that, so far as Christianity aimed at social reform, the movement should have motivated analysis in the way in which, for example, the socialist movement did in our own time. Yet there is nothing of the kind either in Clement of Alexandria (about 150–215) or in Tertullian (155–222) or in Cyprian (200– 258) to mention a few of those who did concern themselves with the moral aspects of the economic phenomena around them. They preached against wanton luxury and irresponsible wealth, they enjoined charity and restraint in the use of worldly goods, but they did not analyze at all. Moreover, it would be quite absurd to suspect mercantilist theories behind Tertullian’s advice to content oneself with the simple products of domestic agriculture and industry instead of craving for imported luxuries, or a theory of value behind his observation that abundance and rarity have something to do with price. The same is true of the Christian teachers of the subsequent period. They lacked nothing in refinement and did develop techniques of reasoning—that partly hailed from Greek philosophy and from the Roman law—for the subjects that seemed to them worth while. Yet neither Lactantius (260–340) nor Ambrosius (340–97)—who might have elaborated a little on his statement that the rich consider as their rightful property the common goods of which they have possessed themselves—nor Chrysostomus (347–407) nor St. Augustine (354–430), the accomplished author of the Civitas Dei and of the Confessiones—whose very obiter dicta reveal analytic habits of mind—ever went into economic problems though they did go into the political problems of the Christian state.

The explanation seems to be this. Whatever our sociological diagnosis of the mundane aspects of early Christianity may be, it is clear that the Christian Church did not aim at social reform in any sense other than that of moral reform of individual behavior. At no time, even before its victory, which may be roughly dated from Constantine’s Edict of Milan (313), did the Church attempt a frontal attack on the existing social system or on any of its more important institutions. It never promised economic paradise or, for that matter, any paradise this side of the grave. The How and Why of economic mechanisms were then of no interest either to its leaders or to its writers.

1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 71-72.

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The Economic Analysis of the Romans

Analysis

The doctrine that practical need—and not, as I hold, the lure of intellectual adventure—is the prime mover of scientific endeavor can be put to the test in the case of ancient Rome…

…In the social structure of Rome, purely intellectual interests had no natural home. Though its complexity increased as time went on, we may, for our purpose, put the case in a nutshell by saying that there were the peasants, the urban plebs (including traders and artisans), and the slaves. And above them all, there was a ‘society’ that no doubt had its business stratum (more or less represented by the order of the equites) but consisted mainly of an aristocracy that, unlike the Athenian aristocracy in the times after Pericles, never retired into opposition to lead a life of refined leisure, but threw itself wholeheartedly into public affairs both civil and military. The res publica was the center of its existence and all its activity. With widening horizons and increasing refinement, it cultivated an interest in Greek philosophy and art and developed a (largely derivative) literature of its own. These things were touched upon lightly, however, and were definitely considered as pastimes, essentially nugatory in themselves. There was little steam left for serious work in any scientific field, as Cicero’s (106–43 B.C.) representative writings are sufficient to show. And this deficiency was not, and could not be, made up by encouraging foreigners and freedmen who were directed primarily toward utilitarian tasks.

Of course, a society of this structure was bound to be passionately interested in history, mainly its own history. This was in fact one of the two main outlets for such scientific curiosity as the Roman mind harbored. But this curiosity was characteristically confined to political and military history. Sociological and economic backgrounds were hastily sketched—such sketches occur even in Caesar—social upheavals were reported with the utmost economy of general considerations. The one great exception is Tacitus’ (c. 55–120) Germania.

1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 66-67.

 

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