The Revolt Against Classical Economics -- Towards Marxism -- The Socialists and the Historians

By the middle of the nineteenth century the collective contributions of the “classical” economists had become an orthodox and accepted body of doctrine.

But it was not without its critics.

England and the continent – Great Britain had a long tradition of individualism since John Locke (1632-1704) – and this was certainly seen in Classical economics. 

As British economics passed across Europe, it was influenced by different cultural and philosophical views.

Examples:

Rousseau:  property rights were conductive to individual and social progress, but that there were desirable social uses of property.

Continental thought – was influenced by a rationalism that rejected material things in search for inner truth!

The emphasis was placed on the group rather than the individual.

Basically, between 1776 and 1848 many writers began criticizing the increase in industrialization that was taking place.  Economic development struck many as uneven. 

The “working class” generally received low wages, worked long hours, and worked under adverse factory conditions.

Thus there were attempts to “socialize” economics by “champions of the working class.”

Historical Progression:  About this time we see the popular idea that society progresses through a series of stages, each better than the last.

Summary:

Defined socialism.

Class conflict - antagonism between workers and capitalists.

Individual vs. the Masses or "society"

Historic stages of economic development

Cooperation vs. Competition

The Socialists and The Historians

Socialism defined:  As we see in Mill’s writings – socialism being defined as the state owning the means of production (not the output).

(Marquis de Condorcet 1743-1794)

Marie Jean Antoine Nicolas Caritat Marquis de Condorcet was French - he was a philosopher, mathematician and political scientist.  Wanted free and equal public education, equal rights for women and people of all races.  Died mysteriously in prison after a period of being a fugitive from French Revolutionary authorities.

Historical Progression:  History has general laws and the historian’s job is to discover these laws by which humans progress “toward truth and well-being.”

Knowledge vs. Social Progress:  He perceived that the development of social progress is more uneven than the development of knowledge. 

He attributed this lag in social development to the fact that history had always been the history of individuals rather than the history of the masses. 

The needs and well-being of society had been sacrificed for the benefit of the few.

Thus we get from him:

(1)     the idea of “natural” laws of historical development

(2)     the “collectivist” view of history as a study of the masses, not individuals - "society" in general sacrificed for individualism.

Henri de Saint-Simon (1760-1825)

The  founder of the "Saint-Simonian" movement, a type of semi-mystical "Christian-Scientific" French socialism of the 19th Century.  Saint-Simon envisaged the reorganization of society with an elite of philosophers, engineers and scientists leading a peaceful process of industrialization tamed by their "rational" Christian-Humanism.

Some of his ideas not easily distinguished between capitalism:

Science and industry were the hallmarks of the modern age – he wanted to organize society so that all barriers were moved (to both).

The key to increase production was reason and in the identity of class interests (which were antagonistic under capitalism).

Had a distrust of self-interest and economics. For example, "the Hand of Greed" where he says that in the simplest forms of all humanity, humans try to survive. With this factor, he sees that all people have the initiative to try to gain a place in the world, no matter how insignificant. To form his form of utopian socialism, the society must eradicate this idea with time and teaching of future generation.

    So we begin to see how self-interest is not necessarily a given -- it can be eradicated with education.  Although we are still born with it (the hand of greed), we can overcome it.

Cooperation and industrial organization would result spontaneously from the progress of society….all done through a commonality of interests.

Antagonism vs. Association:  Under industrialization (capitalism) the industrial chief exploits the worker,  though nominally free, must accept his terms under pain of starvation. The only remedy for this is the abolition of the law of inheritance, and the union of all the instruments of labor in a social fund, which shall be exploited by association. Society thus becomes sole proprietor, intrusting to social groups and social functionaries the management of the various properties. The right of succession is transferred from the family to the state.

Although his ideas of what the ideal social order would look like are not clear – he did advocate that the technical expertise of artists, scientists, and industrial leaders be formally recognized and utilized in the conception and planning of public works designed to increase social welfare.

Although he was not completely “socialist” he was far more so than the classical economists.

But most important was his distrust of self-interest as a guiding force and his insistence that it be replaced by cooperation (or association) and the identification of class interests (antagonistic).

So there was a “common industrial goal.”

His most often quoted slogan is,

          “To each according to his capacity, to each capacity in proportion to its work.”

Saint-Simon insisted on merit being a claim; he advocated a social hierarchy in which each man shall be placed according to his capacity and rewarded according to his works.

Simonde de Sismonde (1773-1842)

French socialist and great rival of Jean-Baptiste Say and the French Liberal School.  He viewed capitalism as being detrimental to the interests of the poor and particularly prone to crisis brought about by an insufficient general demand for goods.  His underconsumption thesis (as we know - was shared by Malthus) and sparked the General Glut Controversy of the 1820s where their theories were pitted against those of Say, Ricardo and the Classical economists in general.

As a major critic of classical economics and capitalism – he laid a foundation for the German historical school (more later).

Class Conflict:  He thought that the industrialized world was made up of conflicts between labor and capital.

Pre-Marxian – he anticipated a class struggle between labor and capital….which was blamed on the institution of capitalism.

But it could be eliminated by changing institutions.

One of the first to believe that technology creates unemployment – as the French economist, Bastiat, pointed out, this is a fallacy - failed to see that the growth of output creates additional employment opportunities.

Argued against workers being subject to competition.

Method – most important disagreement with the Classical school.  He viewed economics as a subject of the science of government – government and economics were inseparable….economics was a moral science.

“the physical well-being of man, insofar as it can be the work of his government, is the object of political economy.”

Also attacked the theory of self-interest…doesn’t always coincide at the general interest.

Attacked the deductions method of Ricardian economics and preferred the historical method – empirical.

Notes on Reading:

Friedrich List (1789-1846)

A German - and another that laid the foundation for the German Historical School.

Again – we find historical stages: of economic development.

(1)     barbaric

(2)     pastoral

(3)     agricultural

(4)     agricultural-manufacturer

(5)     agricultural-manufacturer-commercial.

Relativist:  He did not believe that, like the classical school had done, we could derive “principles” which would be true all of the time in all circumstances.

Ultimate goal of economic activity should be national development and a lowering of economic power.  In this, he (like Marx) perceived industry as more than the mere result of labor and capital.

Industry was a social force – driving improvements in capital and labor

By representing economic development as a succession of historical stages, he provided a method for the German historical school to follow.

The Utopian Socialists

The utopians regarded capitalism as irrational, inhumane and unjust.

They repudiated the idea of laissez-faire and harmony of interests.  They were optimistic concerning human perfection and the perfection of social order.

Robert Owen (1771-1858)

Born in Wales - he is considered the father of the "cooperative movement" - founded the famous New Lanark Mills in Scotland as an example of the viability of co-operative factory communities. Many industrialists actually visited these "model factories" and some even adopted parts of Owen's system. Owen attempted to extend these into agriculture - advocating collective farming (was tried in the U.S.). Although most of these efforts failed, he became the head of one of the largest trade union federations in Britain in 1843.

His most famous work:  A New View of Society - Essays on the Formation of Human Character (1813) – an individual character is formed for him and not by him.

Poverty was not fault of the working class.

Improve a man’s social environment and you improve man.

Private forces aren’t enough for social reform….need government.

Charles Fourier (1772-1837)

A Frenchman - coined the word féminisme (feminism) in 1837; as early as 1808, he had argued that the extension of women's rights was the general principle of all social progress. Fourier inspired the founding of the communist community called La Reunion - near where Dallas, Texas is today - and other communes in the United States.  Most notable was the North American Phalanx in New Jersey (1843-1855).

Utopian Socialist Communes:  Everything from economic tasks to household tasks would be done communally in his “phalanstere.”

He criticized capitalism basically on the grounds that it wasted resources and lacked nationality in the organization of productive forces.

His communes would provide for the “harmonious combination” of different human characters and tempers.

Anti-individualism. 

Pierre Joseph Proudhon (1809-1865)

Considered a French socialist – but he was also a critic of socialism as well of capitalism.

He wanted to:

(1)     remove all authority (anarchist)

(2)     be concerned with economic justice in exchange.

A very influential anarchist, he was sort of a communal libertarian of his time. But hard to put in any one category such as "communist anarchist."

He published an attack on private property that gained notoriety.

What is property?  He answered - it is theft!

This followed from a labor theory of value where he felt capitalists were stealing from laborers.

But interestingly, he did not want to eliminate private property, not opposed to ownership per se.  But opposed to:

-          unearned income in the form of rent

-          interest

-          profit.

Political powers always tend toward centralization – and tyranny.

Science, rather than self-interest would be the key to social harmony.

He saw an unequal diffusion of market power. 

Regarding the laws of supply and demand: “deceitful law…assuring the victory of the strong over the weak, of those who own property over those who own nothing.”

He was talking of monopoly power given by the state though, not competition – which he generally liked.

His ideal world is one in which people are free to bargain with one another for whatever they want.

German Historical School

  And The Methodonstreit (battle of methods)

Two groups:  older and younger.  The younger being more “extreme” and uncompromising.

Founder (older): Wilhelm Roscher (b. 1817)

The historical method attempts to combine organic, biological analysis and statistics of all kinds in order to discover the laws of the phenomenon at issue.

These laws were always relative to an ever-changing set of institutions.

Roscher wanted to discover broad laws of historical development.

Roscher sought to describe “what has been” and how national or social life “came to be so”.  As he put it:

Our aim is simply to describe man’s economic nature and economic wants, to investigate the laws and the character of the institutions which are adapted to the satisfaction of these wants, and the greater or less amount of success by which they have been attended.  Our task is, therefore, so to speak, the anatomy and physiology of social or national economy (Principles).

Once these natural laws are discovered all we need are better statistics to answer all questions of the politics of public economy.

“a firm island of scientific truth, as universally recognized as truth as are the principles of mathematical physics by physicians of the most various schools.”

Economics is non-separable from other phenomena…social.

Actually his work was not that different from Mills (on money, value, etc.), except that it was an incredible display of historical-statistical data aimed at enlarging upon and elucidating the received economic theory.

Gustav Schmoller – leader of the younger school.

All economic analysis (Ricardian mainly) was useless – led to social conclusions he didn’t like.

He contrasted the method of the classical economists and the neo-classical Austrians (especially Menger) – what he regarded as abstract deductive argument with the historical inductive method of the German school.

This lead to a “battle of methods” between himself and Menger.

Conclusion

Socialist economists and the German historical economists were outgrowths of the same root of Hegelian philosophy.

History being the proper approach to the science of society.

Today we feel that perhaps we need both theory and history.

But what was questioned by all these writers were:

(1)     method (inductive and historical vs. deductive and theoretical) and historical progression 

(2)     self-interest theory as “harmony” -- and even if people do act in their own self interest -- or if they are driven to act by social forces

(3)     concern with the masses vs. the individual – laborers and classes within society - antagonistic class conflicts that arise from unequal wealth (usually)