History of Economic Analysis part 11

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History of Economic Analysis part 11. At the time of his death in 1950, Joseph Schumpeter-one of the major figures in economics during the first half of the 20th century-was working on his monumental History of Economic Analysis. A complete history of humankind's theoretical efforts to understand economic phenomena from ancient Greece to the present, this book is an important contribution to the history of ideas as well as to economics.

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History of economic analysis 62 for explanatory analysis. There is nothing surprising or blameworthy in this. It is by slow degrees that the physical and social facts of the empirical universe enter the range of the analytic searchlight. In the beginnings of scientific analysis, the mass of the phenomena is left undisturbed in the compound of common-sense knowledge, and only chips of this mass arouse scientific curiosity and thereupon become ‘problems.’ For Aristotle, interest was no such chip. He accepted the empirical fact of interest on money loans and saw no problem in it. He did not even classify loans according to the various purposes they are capable of serving and does not seem to have noticed that a loan that financed consumption is something very different from a loan that financed maritime trade (foenus nauticum). He condemned interest—which he equated to ‘usury’ in all cases—on the ground that there was no justification for money, a mere medium of exchange, to increase in going from hand to hand (which of course it does not do). But he never asked the question why interest was being paid all the same.9 This question was first asked by the scholastic doctors. It is to them that the credit belongs of having been the first both to collect facts about interest and to develop the outlines of a theory of it. Aristotle himself had no theory of interest. In particular, he should not be hailed as the forerunner of the monetary interest theories of today. For though he linked up interest with money, this was not due to analytic effort but to the absence of it: analysis that eventually leads back to a preanalytic view, that earlier analysis seemed to have disproved, imparts a different meaning to it. [6. GREEK PHILOSOPHY] So far as economics in the technical sense is concerned, we do not lose anything by leaving Greek thought at this point. Unfortunately, we lose a lot in another respect. There is hardly an idea in the realm of philosophy that does not descend from Greek sources, and many of these ideas, while not directly relevant to economic analysis itself, are all the more relevant to the general attitude and spirit of the analyst, though, as I have been careful to point out, such background influences should not be overemphasized. The various post-Aristotelian schools in particular, such as the Skeptics, Stoics, Epicureans, and then the Neo-Platonists, all not only influenced the Roman eclectics such as Cicero and Seneca but also helped to shape directly medieval as well as more modern thought. It goes without saying, for instance, that the Stoic idea of a rational universe1 governed by immutable laws reflects an atti- the fundamental difference he finds between the trader’s and the producer’s gains is essentially preanalytic. This fact has nothing to do with the other fact that he disapproved of the former and approved of the latter. 9 In order to make this point quite clear, let us compare Aristotle’s attitude toward interest with that of Karl Marx, who condemned the phenomenon at least as strongly as did Aristotle. But the analytic problem of interest was all the more important to him. 1 On the meaning to be assigned in this connection to the term rational, see below, ch. 2, sec. 5c.
Graeco-roman economics 63 tude of mind that is not without significance for us. We must be content, however, to cast a glance at the message of Epicurus (about 341–270 B.C.).2 Epicurean philosophy might serve as a standard example for the truth that what a set of ideas comes to mean in the course of time is but distantly related to what the originators meant to convey. Epicurus lived in the Hellenistic period that witnessed the rapid decay of the polis. Active life, to the Greek, had meant active participation in the administration and politics of the city-states. For a man of culture such a life was then no longer possible. And Epicurus’, like many other people’s, answer to the resulting ethical problem—the problem of what might be called spiritual unemployability of the refined mind—was to leave the world alone and to try to achieve detached serenity ( ) by understanding resignation. The causes that produced this particular attitude—there is no good equivalent for the German Lebensstimmung—were historically unique and so is really that attitude itself—or has been until today. But three elements of Epicurus’ system of thought kept on turning up in the later Middle Ages, in the Renaissance, and also later on. The first of these elements is his atomistic materialism that tallies with, and perhaps influenced, later mechanistic philosophies of the universe. The second is this: Epicurus’ attitude to the social environment may indeed be described as a highly sublimated egocentric hedonism or eudaemonism; and though his hedonism and eudaemonism was something very different from the hedonism and eudaemonism of later ages and in particular defined pleasure and pain quite differently, there is still a connecting line that leads from Epicurus to Helvetius and Bentham. Bentham’s boisterous and vulgar utilitarianism would no doubt have shocked the old sage. But, much as we may dislike associating them, we must call both of them hedonists in a wider sense. The third element is the social contract, of which Epicurus, though not the originator, was an important exponent. But the idea was handed to the philosophers of natural law, who adopted it in the seventeenth and eighteenth centuries, by their scholastic predecessors, and this fact does not point to Epicurus. [7. THE CONTRIBUTION OF THE ROMANS] Let us now consider the still smaller contribution of the Romans. 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. Even in the earliest time when Rome was substantially a community of peasants, there were economic problems of first-rate importance that produced violent class struggles. By the time of the first Punic War important commercial interests had developed. Toward the end of the Republic, trade, money and finance, colonial administration, the plight of Italian agriculture, the food supply of the capital, the growth of latifundia, slave labor, and so on all presented problems that, in an artificial political setup created 2 See C.Bailey, Epicurus, the Extant Remains (1926); W.Wallace, Epicureanism (1880). by military conquest and by all the consequences of incessant warfare, might have fully employed a legion of economists. At the height of cultural achievement, at the epoch of Hadrian and Antoninus Pius, when many of those difficulties were temporarily in
History of economic analysis 64 abeyance and peace and prosperity reigned for a time in the vast realm, its able rulers and the galaxy of brilliant generals and administrators around them could have made use of a brain trust. Yet there was nothing of the kind—nothing beyond the occasional utterance of groans about the empire’s unfavorable balance of trade or about latifundia perdidere Italiam.1 [(a) Absence of Analytic Work.] But this is not difficult to understand. 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.2 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. [(b) Importance of Roman Law.] The only other outlet was the law. In order to understand the nature of the Roman achievement in this field and 1 This phrase—that the large landed estates were the cause of the decline of Italy—was the elder Pliny’s (23–79). The very fact that he saw nothing but the obvious, and in particular that he failed to see that the latifundia were as much the consequence as they were the cause of that decline, in itself shows what sort of economics was deemed adequate by a very able and highly civilized Roman (though it was not worse than is our own popular economics). 2 De re publica is the one to come nearest to our field. Yet there is in it very little that could interest the economist, apart of course from what it tells us, directly and indirectly, about the economic conditions of that epoch. That applies still more to the Letters to Atticus.
Graeco-roman economics 65 the reason why, unlike other legal systems, the Roman law plays a role in the history of economic analysis, we must recall a few facts about it. The reader is familiar, perhaps, with the English division of legal material into common law and equity. A somewhat analogous division existed in ancient Rome. There was the old and formalistic civil law (jus civile, jus quiritium), which, however, unlike the English common law, applied only to the affairs of the citizens (quirites) who until A.D. 212 formed but a part of the free population of the empire. This civil law3 was developed by ‘interpretation’ through the agency of a college of priests (pontifices) and also through the agency of an officer of state in charge of judicial administration (praetor urbanus). This additional legal material bears some similarity to the English law of equity. But the bulk of what, to some extent, may be likened to English equity grew from another root, namely, from the relations, commercial and other, between non-citizens (peregrini) or between citizens and non- citizens. The body of legal rules that applied to these was called jus gentium. Note that this term, as used in Roman times, has nothing to do with the meaning it began to acquire from the seventeenth century on, namely, the meaning of Law of Nations (droit des gens, Völkerrecht). Since this body of law was formulated, and largely created, by another officer of state, who was in charge of a separate department of public administration (praetor peregrinus), it was also, together with the legal rules formulated or created by the praetor urbanus, referred to as ‘officers’ law’ (jus honorarium): every praetor codified and promulgated it for his year of office in his edictum. Of course, there was also a steady stream of special enactments of various types. Comprehensive codification or even compilation was not attempted before the fourth century, though those praetorian edicta were fused, and stereotyped in an enactment, in the reign of Hadrian. We have, however, a second-century textbook, the Institutiones, by a jurist whose given name (praenomen) was Gaius. Anglo-American jurisprudence, that is to say, the sum total of the techniques of legal reasoning and of the general principles to be applied to individual cases, is largely the work of the superior courts, whose decisions together with the motivating arguments, as everyone knows, have an authority that approaches that of an enactment. In Rome, the same practical needs produced a similar achievement but in a different way. English and American judges of the highest ranks are professional lawyers and, in principle at least, very eminent lawyers—leaders of the legal profession of great personal authority. The Roman judges were laymen—like our jurors—who had to be told what the law was. And the practicing lawyers were also laymen except for a group of professional pleaders (causidici) who had not much standing. This deficiency was made up in a way for which there is no analogy. Men of position and leisure became interested in legal questions almost as a hobby (unless they 3 The reader should not confuse Civil Law in this sense with Civil Law in the sense used by modern Anglo-American lawyers: in their parlance it simply means the whole of the Roman law preserved in the Corpus juris civilis (see next footnote), as developed by medieval and modern practice.
History of economic analysis 66 taught; the first to lecture on jurisprudence was, so far as we know, M.Antistius Labeo; the first to establish a school, Masurius Sabinus, c. A.D. 30). And they were interested not so much in the individual cases as such as in the logical principles relevant for their solution. They did not plead or do any other kind of legal work except one: they gave opinions on points of law whenever consulted by parties or attorneys or judges. So great was their authority that it may well be compared to that of English judges. It was first officially recognized by Augustus, who granted to the more eminent of these ‘jurists’ a special privilege of giving such opinions, the jus respondendi. These opinions were little monographs which together with more comprehensive works (such as the commentaries ad edictum) piled up to an extensive literature of which the remains, most of them preserved in the extracts made for Justinian’s Corpus (528–33),4 have been the object of admiration ever since. The reason we have for referring to this literature is its genuinely scientific character. Those jurists analyzed facts and produced principles that were not only normative but also, by implication at least, explanatory. They created a juristic logic that proved to be applicable to a wide variety of social patterns—indeed to any social pattern that recognizes private property and ‘capitalist’ commerce. So far as their facts were economic, their analysis was economic analysis. Unfortunately the scope of this analysis was strictly limited by the practical purposes they had in view, which is why their generalizations yielded legal principles but not also economic ones. Mainly, we owe to them definitions—for example, of price, money, of purchase and sale, of the various kinds of loans (mutuum and commodatum), of the two types of deposits (regulare and irregulare), and so on—which provided starting points for later analysis. But they did not go beyond these starting points. Any theorems—for example, about the behavior of prices or about the economic importance of the ‘irregular’ deposit that creates no obligation to return the individual things deposited but only the obligation to return ‘as much of the same kind’ (tantun- 4 A word on that compilation may be welcome to some readers. In A.D. 528, the emperor Justinian appointed a committee of jurists, presided over by his minister of finance (quaestor sacri palatii), Tribonianus, in order to trim into a manageable shape the exuberant foliage of both enactments and legal literature. Apart from subsequent imperial statutes (Novellae), that were added to it, the Corpus juris civilis, as the compilation was called, contains first, the Institutiones, a textbook for beginners based upon that of Gaius; second, the Digestae or Pandectae, which consist of a mass of extracts or quotations from the works of those consulting jurists; third, the Codex, which reproduced all the imperial statutes that were still in force. We are interested only in the Digestae. Unfortunately, Justinian ordered the destruction of everything that was not included in them. But the committee had at least the sense to refrain from mutilating the fragments included. Thus, the Digestae, though invested with the force of law, do not contain pulverized gems—pulverized into paragraphs of a code of law—but the gems themselves, a unique method of codification. Let us bow to the greatest of the authors included: Julius Paulus, Celsus, Papinianus, Ulpianus, Modestinus, Africanus, and Salvius Julianus—the order expressing a personal scale of preference that I cannot expect everybody to share.
Graeco-roman economics 67 dem in genere)—would have been irrelevant digressions. It is therefore not quite correct to speak of an economic theory of the Corpus juris5—not, in any case, of an articulate one—though it may be said with truth that the Roman jurists, by clarifying concepts, did preliminary work.6 The importance of this work—and also of the training in clear thinking that everybody undergoes who studies the literature—is greatly enhanced by the curious fact that the law of the Corpus juris was again taught from the twelfth century on and that subsequently it recovered its authority with the courts of most European countries (‘reception’ of the Roman law). Now, to the end of the eighteenth century, most of the writers on economic questions were, if not businessmen, either clergymen or lawyers by profession: the scholarly training of these two types of economists was largely provided by the Roman and the canon law and so there was a natural avenue by which the concepts, the spirit, and even, perhaps, some mannerisms of the Roman jurists entered the field of economic analysis. Among these concepts was the fundamental one of Natural Law. Once more, however, we defer its consideration, as we did when we met it in Aristotle: it will be more convenient to give later on a connected account of its development. [(c) Writings on Agriculture.] We now turn for a moment to a minor matter, the Roman writings on agriculture (De re rustica). This branch of economic literature that seems to have been cultivated rather extensively by the Romans is more interesting for the economic historian than it is for us. It dealt with the practical principles of farm or rather estate management but rarely touched upon questions that come within our province. For instance, the elder Cato’s advice that the landowner should sell aging slaves before they become useless and that he should show himself as hard a taskmaster as possible when inspecting his estate is no doubt very revealing in many respects but it does not involve any economic analysis. Some of those writers, of whom 5 See, however, Paul Oertmann, Die Volkswirtschaftslehre des Corpus juris civilis (1891), which, though obsolete in parts, is still the standard work on the subject. 6 One point may, however, be worth mentioning. Julius Paulus (1, Dig., XVIII, I) explained the nature of money much as had Aristotle (from the inconvenience of direct barter). The passage is quite straightforward and calls for no comment until he adds that the stamped material of which the money is made (materia forma publica percussa), usum dominiumque (this may be safely translated by purchasing power) non tam ex substantia praebet quam ex quantitate. This passage has puzzled many a commentator and was the subject of a controversy in the eighteenth century. It seems, in fact, to renounce the metallist theory clearly indicated in the preceding sentence. But I do not think that such an ‘aside’ should be taken very seriously. In addition, there is the word quantitas, which has induced some writers to credit Paulus with a quantity theory of money. But there is no indication in the passage of an inverse relation between the quantity of money and its purchasing power. Moreover, the word quantitas is much more likely to mean ‘nominal value’ than quantity. This was its meaning in the literature on money in the Middle Ages and in the sixteenth century. All that Paulus probably meant was that people, in handling money in everyday transactions, usually take a coin at its nominal value without any conscious thought of the commodity value of its materials.
History of economic analysis 68 only Varro and Columella need be mentioned, occasionally made some remarks that suggest later developments, such as that the most profitable use of a piece of land depends, among other things, upon its distance from the center of consumption. But it is as true in these cases as it is in others that the mere statement of facts that are known to us from common experience is of no scientific importance, unless they become the starting point of an analysis that distills from them more interesting results.7 [8. EARLY CHRISTIAN THOUGHT] 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 7 M.Terentius Varro (116–27 B.C.) was a man of some eminence who, in his long life, turned out an almost incredible quantity of literature on all sorts of subjects. Among his extant remains are Rerum rusticarum libri tres in which the remark above occurs. Much less interesting is De re rustica by L.Junius Moderatus Columella (1st century A.D.), which deals mainly with the cultivation of vegetables, trees, flowers, and so on, and with the rearing of animals.
Graeco-roman economics 69 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.
CHAPTER 2 The Scholastic Doctors and the Philosophers of Natural Law 1. THE GREAT GAP THE EASTERN EMPIRE survived the Western for another thousand years, kept going by the most interesting and most successful bureaucracy the world has ever seen. Many of the men who shaped policies in the offices of the Byzantine emperors were of the intellectual cream of their times. They dealt with a host of legal, monetary, commercial, agrarian, and fiscal problems. We cannot help feeling that they must have philosophized about them. If they did, however, the results have been lost. No piece of reasoning that would have to be mentioned here has been preserved. In the Germanic states of the West, similar problems arose even before the time of Charlemagne, and we know fairly well from literary sources as well as from documents how they dealt with them. But Charlemagne’s vast empire presented problems of internal administration and international economic rela-tions that had been unknown to any Germanic ruler before him. Practical wisdom, however, not inferior to that of any other age, is all that his measures reflect. The historians and philosophers who adorned his court touched upon economic questions incidentally, if at all.1 So far as our subject is concerned we may safely leap over 500 years to the epoch of St. Thomas Aquinas (1225– 74), whose Summa Theologica2 is in the history of thought what the south-western spire of the Cathedral of Chartres is in the history of architecture. 1 The reader will find an instructive description of the intellectual situation of these times in M.L.W.Laistner, Thought and Letters in Western Europe, A.D. 500 to 900 (1931). 2 New edition: S.Thomae Aquinatis, Doctoris Angelici, Summa Theologica, diligenter emendata de Rubeis, Billuart et Aliorum (Taurini, 1932). The work, though unfinished, has acquired unrivaled authority in the course of the centuries. But it contains much that was revolutionary in St. Thomas’ day, and shortly after his death a number of propositions were declared heretical, though only locally. The canonization of the author in 1323 marks the turning of the tide. It was not, however, until the sixteenth century that Catholic thought definitely rallied round his teaching. Pope Leo XIII’s encyclical Aeterni Patris (1879) made it the official teaching of the Church.
The scholastic doctors and the philosophers 71 2. FEUDALISM AND SCHOLASTICISM St. Thomas’ life extended over the crest of feudal civilization. This term suggests the idea of a particular type of warrior society, namely, of a society dominated by a warrior stratum that was organized, on the principle of vassalage, in a hierarchy of fief-endowed lords and knights. From the standpoint of this hierarchy of warriors, the old distinction between men of free status and men of unfree status had lost much of its original significance. What mattered was not whether a man was free or not, but whether he was a knight or not. Even the Emperor of the Holy Roman Empire of German Nationality—to use the official phrase—who was in theory recognized as the feudal overlord of all Christianity, primarily was, and felt himself to be, a knight; and even the unfree man was a knight as soon as he had got hold of a horse and arms and had learned how to use them—which was at first a very simple matter, though in St. Thomas’ age it had become a highly skilled occupation. This warrior class enjoyed unrivaled power and prestige, and hence impressed the stamp of its own cultural pattern upon the civilization of feudal times. The economic base of this social pyramid consisted of the dependent peasants and manorial craftsmen on whose work the warriors lived. We thus seem to behold what at first sight looks like a structural unit in the sense that the phrase Social Pyramid is indeed meant to convey. But this picture is quite unrealistic. Societies, with the possible exception of primitive tribes and full-fledged socialism, are never structural units, and half the problems they present arise from the fact that they are not. The society of feudal times cannot be described in terms of knights and peasants any more than the society of capitalist times can be described in terms of capitalists and proletarians. Roman industry, commerce, and finance had not been destroyed everywhere. Even where they had been destroyed or where they had never existed, they—and consequently classes of bourgeois character—had developed or developed again before St. Thomas’ day. In many places these classes had outgrown the framework of the feudal organization and, helped by the fact that a well-fortified town was normally impregnable to the knights’ arts of warfare, they had successfully challenged the rule of the feudal lords— the most conspicuous instance being the victorious resistance of the towns of Lombardy. As a historical reality, therefore, feudalism means the symbiosis of two essentially different and largely, though not wholly, antagonistic social systems. But there was another factor of nonfeudal origin and character that the warrior class failed to absorb or to conquer, for us the most important of all, the Roman Catholic Church. We cannot enter into a discussion of the extremely intricate relations of the medieval Church with the feudal powers. The one essential point to grasp is that the Church was not simply an organ of feudal society but an organism distinct from feudal society that always remained a power in its own right. However closely allied with, or dependent upon, feudal kings and lords it may at times have been, however near it may have come to defeat and to being harnessed into the service of the warrior class, it never resigned its own authority and never became the instrument of that or any other class. Since the Church was always able not only to assert itself but also to wage successful war upon the feudal powers, this fact should be too obvious to require explicit statement, were