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NOTE 17. The Spread of the Smithian Movement

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Chapter 17. The Spread of the Smithian Movement

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1. The Wealth of Nations and Jeremy Bentham

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Contrary to received opinion, The Wealth of Nations was not an instant success.

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Of the leading British journals of the day, the Annual Register gave it a brief, tepid review,

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while The Gentleman's Magazine ignored it altogether.

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The most influential journal, The Monthly Review, was ambivalent about the book.

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Indeed, there were no citations to The Wealth of Nations in articles on economics for ten

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years after its publication, and no one mentioned the book in Parliament until 1783.

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It was only in the 1780s that the book began to roll.

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By 1789, the wealth of nations had already gone into five editions.

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Between 1783 and 1800, members of Parliament in Britain appealed to the authority of Adam

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Smith 37 times.

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The noted English philosopher, Jeremy Bentham, 1748-1832, son of a wealthy lawyer, proclaimed

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himself a fervent disciple of Smith.

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His first economic work, however, was bold enough to take his master to task for inconsistency

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in his own free market views by upholding usury laws.

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In The Defense of Usury, 1787, Bentham pointed out that usury laws create a scarcity of credit.

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He also stressed that usury is what would now be called a victimless crime and therefore

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not really a crime at all.

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He had noted elsewhere, in a work on morals and legislation, that usury, which, if it

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must be an offence, is an offence committed with consent, that is, with the consent of

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the party supposed to be injured, cannot merit a place in the catalogue of offences unless

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the consent were either unfairly obtained or unfreely.

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In the first case it coincides with defraudment, in the other with extortion.

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In short, in the latter cases, no special laws against usury would be needed beyond

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the common legal prohibitions of force and fraud.

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There are hints in Bentham's defense of usury for the first time in Britain that the fundamental

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cause of interest is time preference.

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Thus, Bentham refers to lending as exchanging present money for future, and also defines

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a saver as someone who has the resolution to sacrifice the present to the future.

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He also understands that added to pure interest is a risk premium proportionate to the risks

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a creditor expects to incur in a particular loan.

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Some Smith biographers have accepted the legend that Bentham's defense of usury converted

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Smith to the free market in lending position, but there is no real evidence to that effect.

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Moreover, it goes against what we know of Smith's general intractability.

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A Scottish friend wrote to Bentham that Smith is supposed to have told a third party that

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he admired the defense and that he could not complain about the treatment Bentham had accorded

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to Smith.

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The friend concluded that Smith had seemed to admit that you were right.

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On reading this, the eager Bentham wrote to Smith, asking him whether he had actually

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converted him to opposition to usury laws.

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Smith, however, received the letter virtually on his deathbed, and he could only send Bentham

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a copy of the Wealth of Nations.

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All this is far too flimsy an evidence of any recantation by Smith.

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2.

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The Influence of Dugald Stewart Adam Smith's lectures converted the merchants

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of Glasgow to a free trade position, but most of his influence was spread through the wealth

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of nations.

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A triumphant movement of Smithian disciples really begins only with Dugald Stewart, 1753-1828.

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Stewart was the son of Matthew Stewart, a professor of mathematics at Edinburgh University.

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Stewart succeeded his teacher, Adam Ferguson, as professor of moral philosophy at Edinburgh

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in 1785.

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Stuart made himself the leading disciple of Smith, and after the death of his master,

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Stuart became his first biographer, reading his account of the life and writings of Adam

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Smith in 1793 to the Royal Society of Edinburgh.

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But by this time, Britain was in the throes of a hysterical counter-revolution, a veritable

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Stewart was a highly prolific writer and an outstanding and notable orator, but he kept his lectures, as well as writings, bland and acceptable to the powers that be.

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Thus, in 1794, Stuart recanted his earlier praise of the great French laissez-faire liberal

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and close friend and biographer of Turgot, Marie-Jean-Antoine Nicolas de Caritat,

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the Marquis de Condorcet, 1743 to 1794.

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This Girondist revolutionary was too hot a topic, and Stuart also made sure to praise the British

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By the turn of the century, however, the worst of the counter-revolutionary hysteria had blown over, and Stuart felt safe enough to propound his true, classical liberal views in books and in lectures.

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Hence in 1799 and 1800, Stewart began to lecture on political economy in addition to his general lectures on moral philosophy.

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He kept giving these lectures until his retirement from Edinburgh in 1810.

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His 1800 lectures remained unpublished until printed as Stewart's Lectures on Political Economy in 1855.

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Since the retirement of the great Thomas Reid, founder of the Common Sense School of Philosophy, from his post as Professor of Moral Philosophy at Glasgow in the 1780s and his death a decade later,

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Dugald Stewart had become the only distinguished philosopher in all of Great Britain. Oxford and Cambridge were still in deep decline.

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With the European war blocking trips to or from the continent, it became the fashion for bright young

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students all over Britain to come to Edinburgh and study under Dugald Stewart. In this way,

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and clinging passionately to the Smithian line, Dugald Stewart, in the first decade of the 19th

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century profoundly influenced and converted a host of future economists, writers and statesmen.

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These included James Mill, John Ramsey McCullough, the Earl of Lauderdale, Canon Sidney Smith,

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Henry Broom, Francis Horner, Francis Jeffrey and the Viscount Palmerston.

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This was thereby developed as a discipline, Stuart giving rise to text writers, publicists,

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editors, reviewers and journalists.

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Typical of this illustrious group was the case of Francis Horner, 1778-1817, who was

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born in Edinburgh, the son of a merchant, and studied under Stuart at the University.

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Returning from England, Horner enrolled in Stewart's new special course in political

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economy in 1799, where he studied the wealth of nations and eagerly read Condorcet and

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Turgot.

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Horner indeed was so impressed by Turgot that he wanted to translate Turgot's writings

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into English.

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Becoming a lawyer shortly thereafter, Horner went to London and became a member of Parliament

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in 1806.

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Inspired by Stuart's teachings, his students, Sidney Smith, Henry Broom, Francis Jeffrey

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and Francis Horner, founded the Edinburgh Review in 1802 as a new scholarly Whig periodical

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devoted to educating the intelligent public in liberty and laissez-faire.

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This Whig magazine was the only economic journal in Great Britain and as such enjoyed great

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The last decade of teaching by Dugald Stewart proved, however, to be the last great burst of the Scottish intellectual ascendancy in Great Britain.

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For the shades of night were rapidly closing in on the Scottish Enlightenment.

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In the first place, Tory repression of liberal and Whig ideas during the generation of War with France continued to be far greater in Scotland than in England.

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More important in the long run was the great revival of militant evangelical Protestantism that swept Western Europe and then the United States in the early years of the 19th century.

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The liberal, moderate and even deistic views that had spread throughout the Western world in the last half of the 18th century were swept aside by resurgent Christianity.

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In Scotland, the result was an intellectual counter-revolution against moderate control of the Presbyterian Church and a purging of the Scottish faculties of moral philosophy and theology of moderate, sceptical and secularist teachings.

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Smith and Hutchison were now denounced in retrospect as guilty of a refined paganism, and with a resumption of strict theological control of the moral philosophy faculty, Scottish universities lost their preeminence in Britain, and slid rapidly downhill, intellectually, if not theologically.

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Neither classical liberal social philosophy nor political economy could survive in that kind of academic climate.

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As a result, intellectual leadership shifted from Scotland to England and out of academia altogether for a considerable period.

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Since English universities were still not hospitable to the new discipline of political economy,

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The locus of economic thought now shifted from Scottish academics to English businessmen,

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publicists and government officials.

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The shift was symbolized by the fact that while the Edinburgh Review continued to be

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published for decades and its nominal home was still Edinburgh, three of its four editors

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had moved to England within a few months of the start of the publication.

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One of them, who died at a very young age, was Francis Horner.

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Moving to London as an attorney, Horner quickly became a Whig member of Parliament, and his

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expertise on monetary matters made him chairman of the famous Bullion Committee in 1810, which

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was to strike a crucial blow for hard money.

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There he worked closely with David Ricardo.

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In the first issue of the Edinburgh Review, Horner reviewed the famous monetary work of

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Henry Thornton as well as a highly important essay by Lord King in a later issue.

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Horner was a member of prominent Whig Clubs in London, the King of Clubs, and Brooks,

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in both of whom he had David Ricardo as a fellow member.

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Horner also shared scientific interests with Ricardo, and both men were members of the

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The Board of the Geological Society of London

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Another illustration of the intellectual shift from Scotland to England is what happened

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to two bright young Scotsmen who studied under Stuart and were later to become major

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leaders in British economics.

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James Mill, 1773-1836, was the son of a Scottish shoemaker who studied under Stuart and was

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was then licensed to preach in the Presbyterian Ministry.

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Failing to find a ministerial post in the increasingly militant Calvinist climate in Scotland,

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Mill was obliged to move to London, where he became editor of the Literary Journal.

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Eventually Mill found employment in the London office of the East India Company,

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which gave him a base to pursue his very active economic and philosophical work in his off hours.

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The younger John Ramsey McCullough, 1789-1864, who studied with Stewart in his last years,

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wrote economic articles in The Scotsman and the Edinburgh Review and organized an economics

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lecture series.

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But despite his obvious merits, McCullough was unable to find an academic post in Scotland

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and finally moved to London to teach political economy at the newly established University

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of London.

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But after four years he spent the rest of his life working as a financial controller

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in England, again writing and being active in economics in addition to his regular work.

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One beneficial result of the Stuart-led sweep of Smithianism in Great Britain is that it

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swamped the competing strain to political economy, the political arithmeticians.

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These political arithmeticians or statistical collectors, as Stewart contemptuously called

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them, had formed a competing school in economics since the writings of Sir William Petty, 1623-1687,

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and his followers in the late 17th century.

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The arithmeticians generally scorned the classical method of arriving at economic laws deduced

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from broad insights into human action and the economy.

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Instead, in a Baconian fashion, they tried in vain to arrive at theoretical generalizations

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from hodgepodge collections of statistical facts.

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With little insight into the laws of the free market, or the counterproductive nature of

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government intervention, the political arithmeticians tended to be mercantilists and British chauvinists,

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Proclaiming the Economic Superiority of Their Homeland

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But this school was demolished by the Smithians, first by Smith himself, who declared in The Wealth of Nations that

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I have no great faith in political arithmetic.

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And then by Stuart, who engaged in a searching methodological critique of this allegedly scientific school of thought.

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Stuart wrote, The facts accumulated by the statistical collector are merely particular

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results which other men have seldom an opportunity of verifying or of disproving, and which can

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never afford any important information.

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In short, in contrast to the replicable quantitative findings of natural science, statistics of

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of human action are mere listings of particular non-replicable events, rather than the embodiment

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of enduring natural law.

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Stewart concluded that, instead of appealing to political arithmetic as a check on the

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conclusions of political economy, it would often be more reasonable to have recourse

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to political economy as a check on the extravagance of political arithmetic.

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Over the 1790s, then, Adam Smith held total sway over economic thought in Britain.

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Amidst a flourishing swarm of views, all the major protagonists in England, as we shall

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see below, from Bentham to Malthus to Ricardo, considered themselves devoted Smithians, often

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One Trying to Systematize and Clarify the Admitted Confusions and Inconsistencies of

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Their Master

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3.

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Malthus and the Assault on Population

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One of the first Smythian economists, and indeed a man who was, for two decades, the

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only professor of political economy in England, was the Reverend Thomas Robert Malthus, 1766,

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to 1834. Malthus was born in Surrey, the son of a respected and wealthy lawyer and country

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gentleman. Malthus graduated from Jesus College, Cambridge, in 1788, with honors in mathematics,

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and five years later became a fellow of that college. During that same year, Robert Malthus

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became an Anglican curate in Surrey, in the parish where he had been born. Malthus seemed

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Malthus seemed destined to lead the quiet life of a bachelor curate, when in 1804, at nearly

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40, he married and promptly had three children.

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The year after his marriage, Malthus became the first professor of history and political

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economy in England, at the new East India College at Haleybury, a post he retained until

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his death.

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All his life Malthus remained a Smithian and was to become a close friend though not disciple

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of David Ricardo.

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His only marked deviation from Smithian doctrine, as we shall see, was his proto-Keynesian worry

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about alleged underconsumption during the economic crisis after the end of the Napoleonic

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Wars.

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But Malthus was, of course, far more than a Smithian academic, and he gained both widespread

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In previous centuries, insofar as writers or economists dealt with the problem at all,

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they were almost uniformly pro-populationists.

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A large and growing population was considered a sign of prosperity and a spur to progress.

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The only exception, as we have seen, was the late 16th century Italian absolutist theorist

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Giovanni Bottero, the first to warn that population growth is an ever-present danger, tending,

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as it does, to increase without limit, while the means of subsistence grows only slowly.

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But Bottero lived at the threshold of great economic growth, of advances in total population

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as well as standards of living, and so his gloomy views got very short shrift by contemporaries

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or later thinkers.

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Indeed, absolutists and mercantilists tended to admire growing population as providing

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more hands for production on behalf of the state apparatus, as well as more fodder for

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its armies.

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Even those 18th century writers who believed that population tended to increase without

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Limit, curiously enough, favored that development.

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This was true of the American Benjamin Franklin, 1706-1790, in his Observations Concerning

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the Increase of Mankind and the Peopling of Countries, 1751.

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Similarly, the physiocrat leader Mirabeau, in his famous The Friend of Man, or A Treatise

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Notice on Population, 1756, While comparing human reproduction to that of rats, they would

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multiply up to the very limit of subsistence like rats in a barn, yet advocated such virtually

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unlimited reproduction.

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A large population, said Mirabeau, was a boon and a source of wealth, and it was precisely

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Because people will multiply, like rats in a barn, up to the limit of subsistence, that agriculture, and hence the production of food, should be encouraged.

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Mirabeau had picked up the rats in a barn metaphor from Catillon, but unfortunately did not inherit

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Catillon's highly sensible and sophisticated optimum population realization that human beings

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will flexibly adjust population to standards of living, and that their non-economic values

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will help them decide on whatever trade-offs they may choose between a slightly larger population

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or a Smaller Population and Higher Standards of Living.

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Mirabeau's co-leader of physiocracy, François Canet, however, converted him to a gloomy view of the influence of the alleged tendency to unlimited population growth on standards of living.

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Adam Smith, Malthus's standard-bearer in economics, managed in a typically confused and contradictory fashion,

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at one and the same time to provide Malthus with all his ammunition for gloom and doom,

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while remaining a cheerful proponent of large and growing numbers of people.

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For on the one hand, Smith opined that people would indeed insist on breeding up to the

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minimum of subsistence, the essential Malthusian doctrine, but on the other, Smith asserted

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said cheerfully that the most decisive mark of the prosperity of any country is the increase

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of the number of its inhabitants.

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At about the same time that Adam Smith was sinking into confusion and paving the way

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for the unfortunate anti-population hysteria of Robert Malthus, the unheralded Abate Antonio

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Genovese, the first professor of economics on the continent at the University of Naples,

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was pointing the way to a very different solution to the population question.

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In his Lesione di economia civile, 1765, this excellent utility value theorist was reminiscent

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of Cantillon's insight about an optimum population.

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Under any given conditions, he pointed out, population can either be too large or too

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Robert Malthus was moved to consider the population question by wrestling in friendly and repeated

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argument with his beloved father, Daniel, a fellow country squire in Surrey.

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Daniel was a bit of a radical and was influenced by the utopian and even communistic opinions

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of the day.

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He was a friend and great admirer of the French radical Jean-Jacques Rousseau.

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The 1790s was the era of the outburst of the French Revolution, and it was a decade when

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ideas of liberty, equality, utopia and revolution were very much in the air.

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One of the most popular and influential radical works in England was William Godwin's 1756-1836

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Inquiry Concerning Political Justice, 1793, which was, for a time, the talk of England.

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Godwin, son and grandson of dissenting ministers, had himself been a dissenting minister when

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he lapsed into secularism and became a radical theorist and writer.

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In his utopian belief in the perfectibility of man, Godwin has been generally bracketed

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with the distinguished French philosopher and mathematician Condorcet, whose great

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peon to optimism and progress sketched for an historical picture of the progress of the

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human mind, 1794, was remarkably written while in hiding from the Jacobin terror and in the

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shadow of his arrest and death.

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But the two optimists were very different.

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For Condorcet, close friend of Turgot and admirer of Adam Smith, was an individualist

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and a libertarian, a firm believer in free markets and in the rights of private property.

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William Godwin, on the other hand, was the world's first anarcho-communist, or rather

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voluntary anarcho-communist.

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For Godwin, while a bitter critic of the coercive state, was an equally hostile critic

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of Private Property.

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But in contrast to late 19th century anarcho-communists such as Bakunin and Kropotkin, Godwin did

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not believe in the imposition of rule by a coercive commune or collective in the name

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of anarchistic no-rule.

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Godwin believed not that private property should be expropriated by force, but that

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But individuals, fully using their reason, should voluntarily and altruistically divest

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themselves of all private property to any passer-by.

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This system of voluntary abasement, brought about by the perfectibility of human reason,

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would result in total equality without private property.

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In his voluntarism, Godwin was thus the ancestor of both the coercive communist and the individualist

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In his way, however, Godwin was every bit as and even more appreciative of the benefits

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of individual freedom and a free society as was Condorcet.

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He was sure that population would never grow beyond the limits of the food supply, for

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he was convinced that there is a principle in the nature of human society by means of

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of which everything seems to tend to its level and to proceed in the most auspicious way

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when least interfered with by the mode of regulation.

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The Marquis de Condorcet, sensibly enough, was also not worried about excessive population

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growth wrecking the future libertarian and free market utopia that he envisaged for the

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future of man.

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He was not worried because he believed that on the one hand, science, technology and free

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markets would greatly expand the subsistence available, while reason would persuade people

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to limit population to numbers that could be readily sustained.

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William Godwin, however, was not content with this intelligent treatment of the problem.

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On the contrary, in the first place Godwin worried, in proto-Malthusian fashion, that

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population did always tend to press on resources so as to keep living standards down to subsistence

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level.

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He believed, however, in some sort of leap in being, a new Godwinian man, and institutions

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where reason would instead prevail.

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It would prevail, in fact, by reason making man master of his passions, to such an extent

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that sexual passion would gradually become extinct, and advancing health would make man

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immortal.

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We would then have a future human race of immortal and ever-aging adults, a utopia that

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seems impossibly dotty.

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The men, therefore, will probably cease to propagate.

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The whole will be a people of men and not of children.

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Generation will not succeed generation, nor truth have, in a certain degree, to recommence

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her career every thirty years.

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There will be no war, no crimes, no administration of justice, as it is called, and no government.

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Every man will seek, with ineffable ardor, the good of all.

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William Godwin had learned of the alleged eternal pressure of population down to subsistence

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from Dr. Robert Wallace, 1697-1771, a Scottish Presbyterian minister who had set forth his

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allegedly utopian government in his Various Prospects of Mankind, 1761.

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Mises' ideal utopia was a world government which imposed totalitarian communism, compelling

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equality and eradicating private property.

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The state would bring up all children and all would be taken care of.

289
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The fly in the ointment, however, the serpent in Eden, would be population growth.

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The marvelous conditions provided by world communism would lead to population growing

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Inventing so rapidly that mass misery and starvation would prevail.

292
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As Wallace lamented, under a perfect government the inconveniences of having a family would

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be so entirely removed, children would be so well taken care of and everything become

294
00:31:02.300 --> 00:31:08.860
so favorable to populistness that mankind would increase so prodigiously that the earth

295
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Earth would at last be overstocked and become unable to support its numerous inhabitants.

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There would not even be sufficient room for containing their bodies upon the surface of

297
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the earth.

298
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Hence utopian communism would have to be abandoned.

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William Godwin was too ready to accept Wallace's mechanistic worry about population growth,

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thought rather bizarrely that the withering away of sex would provide the cure for Wallace's

301
00:31:40.620 --> 00:31:47.900
problem and ensure that egalitarian anarcho-communism would prevail.

302
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Daniel Malthus was just the sort of man to be deeply impressed by the Godwinian utopia,

303
00:31:54.460 --> 00:32:01.220
and he and his son Robert spent many happy hours arguing over Godwin's political justice.

304
00:32:01.220 --> 00:32:10.900
2nd Edition, 1796, and his follow-up collection of essays, The Enquirer, 1797.

305
00:32:10.900 --> 00:32:17.060
Robert decided to write a book clobbering these utopian fantasies once and for all and

306
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dredged up the specter of population growth as the inevitable rock upon which such fantasies

307
00:32:23.620 --> 00:32:27.460
would inevitably founder and collapse.

308
00:32:27.460 --> 00:32:33.860
Hence the publication in 1798 of the first edition of Malthus's immensely popular and

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00:32:33.860 --> 00:32:42.060
controversial Essay on the Principle of Population as it Affects the Future Improvement of Society.

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The essay went through five more editions in Malthus' lifetime, gained him the nickname

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of Population Malthus, and gave rise to literally millions of words of heated controversy.

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There was virtually nothing in Malthus' essay that had not been in Giovanni Bottero two

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00:33:00.740 --> 00:33:05.760
centuries earlier, or for that matter in Robert Wallace.

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As in Bottero, all improvements in living standards are in vain, giving rise to an immediate

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and deadly pressure of population growth upon the means of subsistence.

316
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Once again, such mechanistic burgeoning of population can only be limited by the positive

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Check of War, Famine and Pestilence, supplemented by the rather weak preventive check of fewer

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births spurred by continuing starvation, preventive or negative check.

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There is only one thing that Malthus added to the Botero model, the spurious mathematical

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precision of his famous statement that population tends to go on doubling itself every 25 years

321
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or increases in a geometrical ratio, while the means of subsistence increase in an arithmetical

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ratio.

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It is not easy to see why Botero's anti-population hysteria was properly and understandably ignored

324
00:34:10.020 --> 00:34:17.220
in an age of joint growth in population and living standards, while Malthus, writing in

325
00:34:17.220 --> 00:34:22.320
a similar period of growth, should sweep the Western world.

326
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One reason was undoubtedly the fact that Malthus set himself, with verve and self-assurance,

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against the highly popular and influential writings of Godwin, as well as against the

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ideals of the French Revolution.

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Another was the fact that, by the time his essay appeared, British intellectuals and

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public were turning rapidly away from the French Revolution in a burst of reaction,

331
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Impression, and Continuing War Against France. Malthus had the good fortune of being in tune

332
00:34:55.320 --> 00:35:02.360
with the latest twist of the zeitgeist. But a third element explained his instant renown,

333
00:35:02.360 --> 00:35:08.860
the spurious air of the scientific that his alleged ratios gave to a doctrine in an age

334
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that was increasingly looking for models of human behavior and its study in mathematics

335
00:35:15.240 --> 00:35:18.760
Science and the Hard Physical Sciences.

336
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For spurious Malthus's ratios undoubtedly were.

337
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There was no proof whatever for either of these alleged ratios.

338
00:35:27.340 --> 00:35:33.640
The absurdly mechanistic view that people unchecked would breed like fruit flies cannot

339
00:35:33.640 --> 00:35:39.780
be demonstrated by simply spelling out the implications of the alleged doubling itself

340
00:35:39.780 --> 00:35:42.340
every 25 years.

341
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For example, taking the population of the world at any number, a thousand millions for instance,

342
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the human species would increase in the ratio of 1, 2, 4, 8, 16, 32, 64, 128, 256, 512,

343
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and so forth, and subsistence as 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 and so forth.

344
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In two centuries and a quarter the population would be to the means of subsistence as 512

345
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to 10.

346
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In a few more centuries at the same rate the ratio of population to subsistence would begin

347
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to Approach Infinity.

348
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This is scarcely demonstrable in any sense, certainly not by referring to the actual history

349
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of human population, which in most of Europe remained more or less constant for centuries

350
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before the Industrial Revolution.

351
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Still less is there proof of Malthus' proclaimed arithmetical ratio, where he simply assumes

352
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Malthus one attempt at proof of his ratios was extraordinarily feeble.

353
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Priding himself on relying on experience, Malthus noted that the population of the North American colonies had increased for a long while in the geometric ratio of doubling every 25 years.

354
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But this example hardly demonstrates the fearful outstripping by population of the arithmetically increasing food supply, for as Edwin Cannon astutely notes, this population must have been fed, and consequently the annual produce of food must also have increased in a geometrical ratio.

355
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His example proved nothing.

356
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Cannon adds that by the sixth chapter of his essay, Malthus seems to have had some inkling of this objection to his argument,

357
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and he tries to reply in a footnote that, in instances of this kind,

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the powers of the earth appear to be fully equal to answer all the demands for food that can be made upon it by man.

359
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But we should be led into an error if we were thence to suppose that population and food ever really increase in the same ratio.

360
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But since this is precisely what had happened, Malthus is clearly totally unwitting that the second sentence in this note is in flat contradiction to the first.

361
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Malthus' pessimistic conclusion about man thus contrasted with the optimism of his beloved Adam Smith as well as with Godwin.

362
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For if the inexorable pressure of population growth is always and everywhere destroying any hope of living standards being above subsistence,

363
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Then the result is not only gloomy for any communist or egalitarian utopia, it provides an equally gloomy prognosis for the free market society envisioned by Smith, or far more consistently by Condorcet.

364
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Yet, unfortunately, in his understandable eagerness to demolish the case for egalitarian communism, Malthus threw out the baby with the bathwater, and also cast an unnecessary pall on the far more rational, utopian prognoses of the free society and private property by Smith and especially Condorcet.

365
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It was easy for Malthus to dismiss brusquely Godwin's absurd reliance on the demise of sex to solve the problem of overpopulation.

366
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But his treatment of Condorcet's position was far less cogent.

367
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For the sophisticated French aristocrat had strongly implied that birth control played a major role in his optimism about the libertarian future.

368
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While modern neo-Malthusians are enthusiastic not only about birth control, but also sterilization and abortion as means of family planning, the conservative Malthus drew back in horror from any hint of such measures, which he saw simply as vice.

369
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Malthus denounced Condorcet's solution as either a promiscuous concubinage which would prevent breeding or something else as unnatural.

370
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To remove the difficulty in this way will surely, in the opinion of most men, destroy that virtue and purity of manners which the advocates of equality and of the perfectibility of man profess to be the end and object of their views.

371
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A sally that might apply neatly to Godwin, but scarcely to Condorcet, for whom purity

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was scarcely an overriding concern.

373
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In fact, Malthus held out little hope for mankind.

374
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His one practical proposal was the gradual abolition of the Poor Law, and especially

375
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of the idea of the right of the poor to be supported by the State.

376
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that would discourage excessive breeding among the poor.

377
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All in all Schumpeter's scathing assessment of the essay of 1798 was well deserved.

378
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Malthus, he wrote, held that population was actually and inevitably increasing faster

379
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than subsistence, and that this was the reason for the misery observed.

380
00:41:41.340 --> 00:41:47.260
The geometrical and arithmetical ratios of these increases to which Malthus seems to

381
00:41:47.260 --> 00:41:53.020
have attached considerable importance, as well as his other attempts at mathematical

382
00:41:53.020 --> 00:41:59.260
precision, are nothing but faulty expressions of this view which can be passed by here with

383
00:41:59.260 --> 00:42:05.300
the remark that there is of course no point whatever in trying to formulate independent

384
00:42:05.300 --> 00:42:10.660
laws for the behavior of two interdependent quantities.

385
00:42:10.660 --> 00:42:18.140
The performance as a whole is deplorable in technique, and little short of foolish in substance.

386
00:42:18.140 --> 00:42:23.940
Poor Godwin, however, unfortunately did not come to a similar assessment, at least not

387
00:42:23.940 --> 00:42:25.500
immediately.

388
00:42:25.500 --> 00:42:31.900
He was, after all, not a scholar of population theory, and he had no immediately effective

389
00:42:31.900 --> 00:42:33.300
reply.

390
00:42:33.300 --> 00:42:38.900
It took Godwin all of two decades to study the problem thoroughly and come to an effective

391
00:42:38.900 --> 00:42:48.260
Refutation of His Nemesis. In On Population, 1820, Godwin came to the cogent and sensible conclusion

392
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that population growth is not a bogey, because over the decades the food supply would increase

393
00:42:55.700 --> 00:43:02.660
and the birth rate would fall. Science and technology along with rational limitation of birth

394
00:43:02.660 --> 00:43:08.580
would solve the problem. Unfortunately, Godwin's timing could not have been worse.

395
00:43:08.900 --> 00:43:17.900
By 1820, the aging Godwin, along with Utopianism and even the French Revolution, had been forgotten in Great Britain.

396
00:43:17.900 --> 00:43:29.900
His excellent rebuttal went unread and unsung, while Malthus continued to tower over all as the much admired final word on the population question.

397
00:43:29.900 --> 00:43:36.900
His essay being world famous and Godwin and Condorcet, as he believed effectively disposed of,

398
00:43:36.900 --> 00:43:42.900
Malthus now decided to spend some years actually studying the population problem.

399
00:43:42.900 --> 00:43:53.900
Remarkably, Malthus' second edition of the essay in 1803, on which all five future editions were based, was a very different work.

400
00:43:53.900 --> 00:44:03.900
In fact, Malthus' essay is one of the rare works in the history of economic thought, whose second edition, in effect, totally contradicted the first.

401
00:44:03.900 --> 00:44:11.900
The second edition incorporated the fruits of Malthus' study on population through his travels in Europe.

402
00:44:11.900 --> 00:44:18.900
Filled with copious statistics, the new edition was fully three times the size of the first.

403
00:44:18.900 --> 00:44:20.900
But that was the least of the changes.

404
00:44:20.900 --> 00:44:26.900
For whereas in the first edition the preventive check was minor and hopeless,

405
00:44:26.900 --> 00:44:30.900
as well as a generally vicious possibility for solution,

406
00:44:30.900 --> 00:44:37.960
Malthus now acknowledged that another negative or preventive check, one that entailed neither

407
00:44:37.960 --> 00:44:44.860
vice nor misery, was a real possibility for ameliorating or even suspending the eternal

408
00:44:44.860 --> 00:44:49.060
pressure of population upon the food supply.

409
00:44:49.060 --> 00:44:56.200
This was moral restraint, that is, chastity and restraint from early marriage, which was

410
00:44:56.200 --> 00:45:06.200
is moral and not vicious because it involved neither birth control nor other forms of irregular gratification or improper acts.

411
00:45:06.200 --> 00:45:14.200
Indeed, for Malthus, moral restraint now became the most powerful check on population of them all,

412
00:45:14.200 --> 00:45:22.200
more powerful even than vice or the misery and starvation of the previously dominant positive check.

413
00:45:22.200 --> 00:45:29.000
As a result, human beings were no longer viewed as the puppets of inexorable and gloomy forces,

414
00:45:29.000 --> 00:45:33.720
which could now be overcome by moral restraint and moral education.

415
00:45:34.840 --> 00:45:42.440
In the first edition, indeed, Malthus stood opposed to any growth of leisure or luxury in society,

416
00:45:42.440 --> 00:45:48.840
for such increasing ease would eliminate the extreme pressure needed to awaken naturally

417
00:45:48.840 --> 00:45:53.840
The Theory of Money and Credit

418
00:46:18.840 --> 00:46:31.760
Malthus now emphasized another proposed moral reform in keeping with his new position, that

419
00:46:31.760 --> 00:46:38.040
people try to reduce the number of children by marrying at a later date.

420
00:46:38.040 --> 00:46:44.040
Such moral restraint, he was now convinced, entailed neither of the two dread checks of

421
00:46:44.040 --> 00:46:46.840
vice or misery.

422
00:46:46.840 --> 00:46:53.080
Dr. Gray's discussion of this theme is marked by his characteristic insight and wit.

423
00:46:53.080 --> 00:46:59.320
Contrary to the usual view as to what is involved in Malthusianism, he restricts himself to

424
00:46:59.320 --> 00:47:05.080
telling us not to be in too great a hurry to get married, with a special appeal to his

425
00:47:05.080 --> 00:47:11.680
women readers, who, if they could look forward with just confidence to marriage at 27 or

426
00:47:11.680 --> 00:47:18.440
28, should and would prefer to wait until then, however impatiently the privation might

427
00:47:18.440 --> 00:47:21.160
be borne by the men.

428
00:47:21.160 --> 00:47:26.880
This is the voice of a dear and kindly old uncle, rather than the monster for whom Malthus

429
00:47:26.880 --> 00:47:29.720
has so frequently been mistaken.

430
00:47:29.720 --> 00:47:35.580
And it is as ineffective as the advice of an uncle in such matters usually is.

431
00:47:35.580 --> 00:47:41.520
For even with marriage at 28, there is time for a disconcerting and devastating torrent

432
00:47:41.520 --> 00:47:44.120
of Children.

433
00:47:44.120 --> 00:47:50.400
Oddly enough, however, Malthus' new view was not very far removed from his enemy Godwin's

434
00:47:50.400 --> 00:47:57.800
invocation of virtue, prudence or pride in limiting the growth of population.

435
00:47:57.800 --> 00:48:04.480
Shorn of the nonsense of the withering away of sex, Godwin was now vindicated, and Malthus

436
00:48:04.480 --> 00:48:11.400
seemed implicitly to agree by taking the refutation of Godwin and Condorcet, who had now faded

437
00:48:11.400 --> 00:48:17.080
from Public View, out of the title page of the second edition.

438
00:48:17.080 --> 00:48:22.960
Unfortunately, however, Malthus never acknowledged any change whatever.

439
00:48:22.960 --> 00:48:29.120
Godwin rightly complained that Malthus had co-opted his own major criticism without credit

440
00:48:29.120 --> 00:48:33.920
or even acknowledging the abandonment of his own views.

441
00:48:33.920 --> 00:48:39.960
Malthus maintained from 1803 onwards that his thesis had not at all been changed, but

442
00:48:39.960 --> 00:48:43.320
only elaborated and improved.

443
00:48:43.320 --> 00:48:49.600
His changes were stuck into the text in passing, while he continued to place great importance

444
00:48:49.600 --> 00:48:52.720
upon his arbitrary ratios.

445
00:48:52.720 --> 00:48:56.180
His changes were evasive, rather than frank.

446
00:48:56.180 --> 00:49:02.340
For example, in his second edition, Malthus quietly removed the self-contradictory note

447
00:49:02.340 --> 00:49:09.680
in which he denied that food could ever increase geometrically, or as much as population.

448
00:49:09.680 --> 00:49:16.840
In fact, he virtually admits that food has sometimes increased geometrically in new colonies,

449
00:49:16.840 --> 00:49:19.080
that is, in North America.

450
00:49:19.080 --> 00:49:25.760
Instead, he now confined his self-confident assertions to prophecy, a prophecy which the

451
00:49:25.760 --> 00:49:31.920
growth of living standards in England proved to be wrong within his own lifetime.

452
00:49:31.920 --> 00:49:38.280
And yet Malthus continued to write that his ratios were self-evident, even though he conceded

453
00:49:38.280 --> 00:49:44.440
said that it was impossible to find out what the rate of increase of unchecked population

454
00:49:44.440 --> 00:49:46.960
would actually be.

455
00:49:46.960 --> 00:49:52.800
In the end, as Cannon justly declares, the essay on the principle of population falls

456
00:49:52.800 --> 00:49:59.360
to the ground as an argument and remains only a chaos of facts collected to illustrate the

457
00:49:59.360 --> 00:50:04.000
effect of laws which do not exist.

458
00:50:04.000 --> 00:50:09.300
Malthus in fact had executed a cunning and successful tactical maneuver.

459
00:50:09.300 --> 00:50:16.080
He had introduced enough qualifications and concessions to fuzz over his argument.

460
00:50:16.080 --> 00:50:21.940
He and his followers could maintain the full arrogance and error of the first edition,

461
00:50:21.940 --> 00:50:28.280
and then, if challenged, beat a clever retreat by bringing up the qualifications and asserting

462
00:50:28.280 --> 00:50:33.720
that Malthus had anticipated and met all the charges against him.

463
00:50:33.720 --> 00:50:39.800
He was able to maintain the hard-nosed position of his first edition while being able to fall

464
00:50:39.800 --> 00:50:43.560
back on the cloudy concessions of his second.

465
00:50:43.560 --> 00:50:49.400
As Schumpeter writes, the new formulation made it indeed possible for adherents to this

466
00:50:49.400 --> 00:50:56.760
day to take the ground that Malthus had foreseen and accounted for practically everything opponents

467
00:50:56.760 --> 00:50:58.580
might say.

468
00:50:58.580 --> 00:51:07.580
He adds that this does not alter the fact that all the theory gains thereby is orderly retreat with the artillery lost.

469
00:51:07.580 --> 00:51:15.580
Unfortunately, however, neither Malthus' followers nor even many of his astute critics realized this point.

470
00:51:15.580 --> 00:51:25.580
And so, Malthus and his followers had ensconced themselves in the security of a theory that, regardless of the facts, could never be refuted.

471
00:51:25.580 --> 00:51:42.580
or they could fall back on what Schumpeter calls the horrible triviality that if indeed population increased geometrically forever and food barely increased at all, then enormous crowding and misery would result.

472
00:51:42.580 --> 00:51:54.580
Unfortunately Malthus' own self-serving interpretation of the changes of his second edition was adopted by nearly all his contemporaries, friends and critics alike,

473
00:51:54.580 --> 00:51:59.420
like, as well as by historians until recent years.

474
00:51:59.420 --> 00:52:04.620
Most of Malthus' readers, for one thing, had been swept away by the verve and panache of

475
00:52:04.620 --> 00:52:11.060
his first edition, and simply didn't bother reading the much longer and stodgier second.

476
00:52:11.060 --> 00:52:18.300
Instead, they simply and conveniently interpreted the new material as merely empirical documentation

477
00:52:18.300 --> 00:52:21.080
of Malthus' original thesis.

478
00:52:21.080 --> 00:52:26.940
And his more thoughtful readers interpreted moral restraint as just another negative check

479
00:52:26.940 --> 00:52:32.460
on population, a mere refinement of the basic theory.

480
00:52:32.460 --> 00:52:39.440
And so, thus protected and interpreted, Malthus' fallacious and inchoate principle of population

481
00:52:39.440 --> 00:52:45.900
carried the day, and adopted enthusiastically by Ricardo and his followers, was to become

482
00:52:45.900 --> 00:52:49.540
enshrined into British classical economics.

483
00:52:49.540 --> 00:52:56.460
As we shall see further in Volume 2, even though Nassau W. Senior, in effect, devastatingly

484
00:52:56.460 --> 00:53:03.860
refuted Malthus, his own piety toward Malthus and his image allowed Malthusianism to remain

485
00:53:03.860 --> 00:53:08.580
at least officially enshrined in economic thought.

486
00:53:08.580 --> 00:53:10.820
It is an unfortunate story.

487
00:53:10.820 --> 00:53:17.500
Thus, as Schumpeter writes, the teaching of Malthus' essay became firmly entrenched in

488
00:53:17.500 --> 00:53:30.500
in the system of economic orthodoxy of the time, in spite of the fact that it should have been, and in a sense was, recognized as fundamentally untenable or worthless by 1803.

489
00:53:30.500 --> 00:53:45.500
It became the right view on population, which only ignorance or obliquity could possibly fail to accept, part and parcel of the set of eternal truth that had been observed once for all.

490
00:53:45.500 --> 00:53:52.000
Objectors might be lectured if they were worthy of the effort, but they could not be taken seriously.

491
00:53:52.000 --> 00:53:59.500
No wonder that some people, utterly disgusted at this intolerable presumption, which had so little to back it,

492
00:53:59.500 --> 00:54:07.000
began to loathe this science of economics quite independently of class or party considerations,

493
00:54:07.000 --> 00:54:12.500
a feeling that has been an important factor in that science's fate ever after.

494
00:54:12.500 --> 00:54:19.820
Certainly, the triumph of the Malthusian fallacy played an important role in the common view

495
00:54:19.820 --> 00:54:27.420
that the science of economics itself was and is cold, hard-hearted, excessively rational

496
00:54:27.420 --> 00:54:31.540
and opposed to the lives and welfare of people.

497
00:54:31.540 --> 00:54:38.660
The idea of economics being anti-human reached a bold and unforgettable expression in Dickens'

498
00:54:38.660 --> 00:54:44.620
Grudge, the caricature of a Malthusian who cackled that poverty and starvation would

499
00:54:44.620 --> 00:54:49.520
be helpful in reducing the surplus population.

500
00:54:49.520 --> 00:54:56.060
In the last half of the 19th century, as Schumpeter writes, the interest of economists in the population

501
00:54:56.060 --> 00:55:01.900
question declined, but they rarely failed to pay their respects to the shibboleth.

502
00:55:01.900 --> 00:55:08.340
Then, in the early decades of the 20th century, at the very same time as the birth rate in

503
00:55:08.340 --> 00:55:11.340
In the Western world began to decline sharply.

504
00:55:11.340 --> 00:55:16.340
Economists revived their interest in Malthusian doctrine.

505
00:55:16.340 --> 00:55:19.340
Schumpeter's irony was properly bitter.

506
00:55:19.340 --> 00:55:23.340
An ordinary mortal might have thought that the fall in the birth rate

507
00:55:23.340 --> 00:55:27.340
and the rapidly approaching goal of a stationary population

508
00:55:27.340 --> 00:55:31.340
should have set worrying economists at rest.

509
00:55:31.340 --> 00:55:37.340
But that mortal would thereby have proved that he knew nothing about economists.

510
00:55:37.340 --> 00:55:44.840
Instead, at the same time that more economists stressed Malthusianism, others stressed precisely

511
00:55:44.840 --> 00:55:46.880
the reverse.

512
00:55:46.880 --> 00:55:52.620
While some of them were still fondling the Malthusian toy, others zestfully embraced a

513
00:55:52.620 --> 00:55:54.080
new one.

514
00:55:54.080 --> 00:55:59.940
Deprived of the pleasure of worrying themselves and of sending cold shivers down the spines

515
00:55:59.940 --> 00:56:06.320
of other people on account of the prospective or present horrors of overpopulation, they

516
00:56:06.320 --> 00:56:12.840
They started worrying themselves and others on account of a prospectively empty world.

517
00:56:12.840 --> 00:56:20.480
By the 1930s, in fact, economists and politicians were howling about the eminence of race suicide

518
00:56:20.480 --> 00:56:23.720
and an excessively falling birth rate.

519
00:56:23.720 --> 00:56:29.200
The Great Depression, as we shall see, was blamed by some economists on a birth rate

520
00:56:29.200 --> 00:56:33.240
which had started falling decades before.

521
00:56:33.240 --> 00:56:39.440
Countries such as France, mindful also of their need for cannon fodder, gave bounties to large

522
00:56:39.440 --> 00:56:40.440
families.

523
00:56:40.440 --> 00:56:49.480
Then, by the 1960s and 1970s, anti-population hysteria arose again, with ever more strident

524
00:56:49.480 --> 00:56:55.340
calls for voluntary or even compulsory zero-population growth.

525
00:56:55.340 --> 00:57:02.000
And countries such as India and China experimented with compulsory sterilization or compulsory

526
00:57:02.000 --> 00:57:09.800
Abortion. Characteristically, the height of the hysteria in the early 1970s came after

527
00:57:09.800 --> 00:57:16.680
the 1970 census in the United States noted a significant decrease in the birth rate and

528
00:57:16.680 --> 00:57:23.200
the beginnings of an approach toward a stationary state of population. It was also observed

529
00:57:23.200 --> 00:57:29.040
that various third world countries were beginning to see a marked slowing of the birth rate,

530
00:57:29.040 --> 00:57:34.960
a few decades after the fall in death rate due to the infusion of Western advances in

531
00:57:34.960 --> 00:57:37.640
medicine and sanitation.

532
00:57:37.640 --> 00:57:43.080
It looked again as if people's habituation to higher living standards will lead them

533
00:57:43.080 --> 00:57:50.600
to lower the birth rate after a generation of enjoying the fruits of lower death rates.

534
00:57:50.600 --> 00:57:57.560
Population levels will indeed tend to adapt to maintain cherished standards of living.

535
00:57:57.560 --> 00:58:04.520
It looks as if Godwin was right, that given freedom, individuals in society and the marketplace

536
00:58:04.520 --> 00:58:08.880
will tend to make the correct birth decisions.

537
00:58:08.880 --> 00:58:10.880
4.

538
00:58:10.880 --> 00:58:14.660
Resistance and Triumph in Germany

539
00:58:14.660 --> 00:58:20.100
In contrast to Great Britain, the German-speaking countries were predictably highly resistant

540
00:58:20.100 --> 00:58:22.900
to the spread of Smithian views.

541
00:58:22.900 --> 00:58:27.980
They had been ruled ever since the late 16th century by Cameralism.

542
00:58:27.980 --> 00:58:34.660
Cameralists, named after the German royal treasure chamber, the Kammer, propounded an

543
00:58:34.660 --> 00:58:40.980
extreme form of mercantilism, concentrating even more than their confrères in the West

544
00:58:40.980 --> 00:58:47.380
on building up state power and subordinating all parts of the economy and polity to the

545
00:58:47.380 --> 00:58:50.380
state and its bureaucracy.

546
00:58:50.380 --> 00:58:56.060
Whereas mercantilist writers were generally pamphleteers scrambling for some particular

547
00:58:56.060 --> 00:59:03.560
form of state advantage, the cameralists were either bureaucrats in one of the 360 tyrannical

548
00:59:03.560 --> 00:59:10.500
German states or else university professors advising the princes and their bureaucracy

549
00:59:10.500 --> 00:59:14.940
how best to maximize their revenue and power.

550
00:59:14.940 --> 00:59:21.140
As Albion Small put it, to the Cameralists, the object of all social theory was to show

551
00:59:21.140 --> 00:59:25.480
how the welfare of the state might be secured.

552
00:59:25.480 --> 00:59:30.700
They saw in the welfare of the state the source of all other welfare.

553
00:59:30.700 --> 00:59:36.460
Their key to the welfare of the state was revenue to supply the needs of the state.

554
00:59:36.460 --> 00:59:41.580
The whole social theory radiated from the central task of furnishing the state with

555
00:59:41.580 --> 00:59:44.380
ready means.

556
00:59:44.380 --> 00:59:50.780
As professors, the Cameralists wrote lengthy tomes cataloging various parts of the economy

557
00:59:50.780 --> 00:59:55.560
and the plans the government should make for each of these parts.

558
00:59:55.560 --> 01:00:00.980
The Cameralists lauded virtually all forms of government intervention, sometimes to the

559
01:00:00.980 --> 01:00:04.940
point of a collectivist welfare warfare state.

560
01:00:04.940 --> 01:00:11.180
They could scarcely be called economists, since they had no notion of regular economic law

561
01:00:11.180 --> 01:00:16.900
that could reach beyond or nullify the plans of state power.

562
01:00:16.900 --> 01:00:25.900
The first major camera-list was Georg von Obrecht, 1547-1612, son of the mayor of Strasbourg,

563
01:00:25.900 --> 01:00:31.500
who went on to be a famous professor of law at the university in that town.

564
01:00:31.500 --> 01:00:37.740
His lectures were published posthumously, 1617, by his son.

565
01:00:37.740 --> 01:00:47.620
In the next generation the one important camera-list was Christoph Bezold, 1577-1638, born in Tübingen

566
01:00:47.620 --> 01:00:53.020
and later a highly influential law professor at the University of Tübingen.

567
01:00:53.020 --> 01:00:59.780
Bezold wrote over 90 books, all in Latin, of which the Synopsis Politicae Doctrinei

568
01:00:59.780 --> 01:01:05.740
1623 was the most relevant to economics.

569
01:01:05.740 --> 01:01:14.020
Another influential cameralist of the early 17th century was Jakob Bornitz, 1570-1630,

570
01:01:14.020 --> 01:01:20.540
a Saxon who was the first systematizer of fiscal policy and who urged close supervision

571
01:01:20.540 --> 01:01:23.500
of industry by the state.

572
01:01:23.500 --> 01:01:29.700
Another contemporary who, however, wrote later, in the middle of the 17th century, was Caspar

573
01:01:29.700 --> 01:01:38.360
by Oliver Klok, 1584-1655, who studied law at Marburg and Cologne and later became a

574
01:01:38.360 --> 01:01:43.700
bureaucrat in Bremen, Minden and, finally, in Stolberg.

575
01:01:43.700 --> 01:01:52.400
Klok published the most famous cameralist work to that date, the tractus juridico-politico-polemico-historicus

576
01:01:52.400 --> 01:01:54.820
de irario.

577
01:01:54.820 --> 01:02:00.020
The most towering figure of German Cameralism came shortly thereafter.

578
01:02:00.020 --> 01:02:08.740
Veit Ludwig von Seckendorf, 1626-1692, who has been called the father of Cameralism,

579
01:02:08.740 --> 01:02:13.800
was born in Erlangen and educated in the University of Strasbourg.

580
01:02:13.800 --> 01:02:19.980
He went on to become a top bureaucrat for several German states, beginning with Goethe,

581
01:02:19.980 --> 01:02:24.980
Der Teutcher Fürstenstadt, 1656

582
01:02:49.980 --> 01:02:59.340
Joachim Becker, 1635-1682, born in Speyer and alchemist and court physician at Mainz,

583
01:02:59.340 --> 01:03:06.540
soon became economic adviser to Emperor Leopold I of Austria and manager of various state-owned

584
01:03:06.540 --> 01:03:07.540
enterprises.

585
01:03:07.540 --> 01:03:14.740
Becker, who strongly influenced Austrian economic policy, called for state-regulated trading

586
01:03:14.740 --> 01:03:20.620
Banking Companies for Foreign Trade and a State Board of Commerce to supervise all domestic

587
01:03:20.620 --> 01:03:22.940
economic affairs.

588
01:03:22.940 --> 01:03:30.540
A pre-Keynesian, he was deeply impressed by the income flow insight that one man's expenditure

589
01:03:30.540 --> 01:03:34.100
is by definition another man's income.

590
01:03:34.100 --> 01:03:39.260
And he called for inflationary measures to stimulate consumer demand.

591
01:03:39.260 --> 01:03:47.400
His well-known work was Politischer Diskurs, 1668. Schumpeter described Becker as brimming

592
01:03:47.400 --> 01:03:53.980
over with plans and projects, but some of these plans did not pan out, as Becker ended

593
01:03:53.980 --> 01:04:00.260
up fleeing from the wrath of his creditors. Apparently his own consumer demand had been

594
01:04:00.260 --> 01:04:09.240
stimulated to excess. Becker's brother-in-law, Philipp Wilhelm von Hornig, 1638-1712, was

595
01:04:09.240 --> 01:04:39.240
von Hornig's central theme was the importance of making Austria self-sufficient, cut off from all

596
01:04:39.240 --> 01:04:46.240
Trade, Wilhelm Freiherr von Schröder, 1640-1688, Wilhelm Freiherr von Schröder, 1640-1688,

597
01:04:49.840 --> 01:04:54.000
Wilhelm Freiherr von Schröder, 1640-1688, Born in Königsberg and a student of law at

598
01:04:54.000 --> 01:05:00.480
the University of Jena, Schröder also became influential as an advisor to Emperor Leopold

599
01:05:00.480 --> 01:05:07.480
I of Austria. Schröder managed a state factory, was court financial counselor in Hungary and

600
01:05:07.480 --> 01:05:14.480
and set forth his views in his Fürstliche Schatz und Rentkammer, 1686.

601
01:05:14.480 --> 01:05:19.480
Schröder was an extreme advocate of the divine right of princes.

602
01:05:19.480 --> 01:05:24.480
His Cameralism emphasized the importance of speeding the circulation of money

603
01:05:24.480 --> 01:05:31.480
and of having a banking system that could expand the supply of notes and deposits.

604
01:05:31.480 --> 01:05:45.480
The system of Cameralism was set in concrete in Germany by the mid-18th century work of Johann Heinrich Gottlieb von Juste, 1717-1771.

605
01:05:45.480 --> 01:05:54.480
Juste was a Thuringian who studied law at several universities and then taught at Vienna and at the University of Göttingen.

606
01:05:54.480 --> 01:06:04.480
He then went to Prussia to become Director of Mines, Superintendent of Factories, and finally Administrator of Mines in Berlin.

607
01:06:04.480 --> 01:06:12.480
Eusty's work was the culmination of Cameralism, including and incorporating all its past tendencies,

608
01:06:12.480 --> 01:06:18.480
and emphasizing the importance of comprehensive planning for a welfare state.

609
01:06:18.480 --> 01:06:24.840
Characteristically, Eusty emphasized the vital importance of freedom, but freedom turned

610
01:06:24.840 --> 01:06:31.040
out to be merely the opportunity to obey the edicts of the bureaucracy.

611
01:06:31.040 --> 01:06:36.920
Eusty also stressed the alleged alienation of the worker in a system of factories and

612
01:06:36.920 --> 01:06:39.720
an advanced division of labor.

613
01:06:39.720 --> 01:06:47.520
Among his numerous works, the most important were Staatswirtschaft 1755, the System des

614
01:06:47.520 --> 01:06:56.060
and Finanzwesens, 1766, and his two volume, The Groundwork of the Power and Welfare of

615
01:06:56.060 --> 01:07:00.100
States, 1760 and 1761.

616
01:07:00.100 --> 01:07:06.040
Eusty, however, came a crapper on his own welfare in the welfare state, and over his

617
01:07:06.040 --> 01:07:10.260
own unwillingness to obey the laws of the realm.

618
01:07:10.260 --> 01:07:15.340
Because of irregularities in his accounts as administrator of the Prussian mines, Eusty

619
01:07:15.340 --> 01:07:19.660
was thrown into jail, where he died.

620
01:07:19.660 --> 01:07:25.820
The other towering figure of 18th century German Cameralism was a follower of Eusty,

621
01:07:25.820 --> 01:07:32.420
Baron Josef von Zonenfels, 1732-1817.

622
01:07:32.420 --> 01:07:38.580
Born in Moravia, the son of a rabbi, Zonenfels emigrated to Vienna, where he became the first

623
01:07:38.580 --> 01:07:45.200
Professor of Finance and Cameralistics and became a leading advisor to three successive

624
01:07:45.200 --> 01:07:47.880
Austro-Hungarian emperors.

625
01:07:47.880 --> 01:07:54.160
An absolutist, mercantilist and welfare state proponent, Zonenfeld's views were set forth

626
01:07:54.160 --> 01:08:04.420
in his Grundsätze der Polizei, Handlung und Finanzwissenschaft, 1765-1767.

627
01:08:04.420 --> 01:08:10.060
His book, remarkably enough, remained the official textbook of the Austro-Hungarian

628
01:08:10.060 --> 01:08:14.500
monarchy until 1848.

629
01:08:14.500 --> 01:08:20.940
In this atmosphere deeply permeated with Cameralism, it is no wonder that Smith's wealth of nations

630
01:08:20.940 --> 01:08:24.260
made little headway at first in Germany.

631
01:08:24.260 --> 01:08:29.900
However, Britain had an important foothold in Germany, for the electorate of Hanover

632
01:08:29.900 --> 01:08:35.460
Hanover was a continental possession of the British dynasty in the heart of Prussia and

633
01:08:35.460 --> 01:08:40.660
therefore this land was under strong British cultural influence.

634
01:08:40.660 --> 01:08:45.220
Hence the first German review of the wealth of nations appeared in the official journal

635
01:08:45.220 --> 01:08:49.020
of the University of Göttingen in Hanover.

636
01:08:49.020 --> 01:08:54.180
The University of Göttingen had developed the most respected department of philosophy,

637
01:08:54.180 --> 01:09:01.000
History and Social Science in Germany, and by the 1790s it had become a flourishing nucleus

638
01:09:01.000 --> 01:09:06.120
of Smithianism in the otherwise hostile German climate.

639
01:09:06.120 --> 01:09:12.800
Taking the lead in introducing Adam Smith into German thought was Friedrich Georg Sartorius

640
01:09:12.800 --> 01:09:19.080
Freiherr von Woltershausen, 1765-1828.

641
01:09:19.080 --> 01:09:26.400
Sartorius was born in Kassel and studied theology and history at the University of Göttingen.

642
01:09:26.400 --> 01:09:33.520
Soon Sartorius taught history at Göttingen by the 1790s, expanding his repertoire to

643
01:09:33.520 --> 01:09:37.480
courses in political science and economics.

644
01:09:37.480 --> 01:09:45.000
Sartorius published selections of Adam Smith's works and his Handbuch der Staatswirtschaft,

645
01:09:45.000 --> 01:09:54.100
Berlin, 1796, was explicitly an economic textbook summarizing the views of Adam Smith.

646
01:09:54.100 --> 01:10:00.260
An expanded summary of Smith's work appeared a decade later as Concerning the Elements

647
01:10:00.260 --> 01:10:07.820
of National Wealth and State Economy According to Adam Smith, 1806.

648
01:10:07.820 --> 01:10:12.700
In the same year, however, there appeared another volume which set forth Sartorius'

649
01:10:12.700 --> 01:10:28.940
Sartorius differs from Smith's odd value theory and affirms that the main source of value

650
01:10:28.940 --> 01:10:32.020
in its use is consumption.

651
01:10:32.020 --> 01:10:38.020
The value of labor, too, is determined by its usefulness, and therefore it cannot serve

652
01:10:38.020 --> 01:10:44.140
live as an invariable measure of value, and neither can money, since money prices are

653
01:10:44.140 --> 01:10:50.060
also subject to the changing interplay of supply and demand.

654
01:10:50.060 --> 01:10:56.660
Sartorius therefore finds Smith's labor theory of value a strange and deceptive conclusion.

655
01:10:56.660 --> 01:11:02.900
Unfortunately, Sartorius' other main deviation from Smith is a great weakening of Smith's

656
01:11:02.900 --> 01:11:07.140
already shaky devotion to laissez-faire.

657
01:11:07.140 --> 01:11:12.380
Sartorius advised frequent interventions by the state.

658
01:11:12.380 --> 01:11:19.620
Sartorius was one of a great quartet of professors who propagated Smithian doctrine in Germany.

659
01:11:19.620 --> 01:11:27.700
Another was Christian Jacob Krauss, 1753-1807, a distinguished philosopher who was born in

660
01:11:27.700 --> 01:11:34.360
East Prussia and studied under Immanuel Kant at the University of Königsberg, later becoming

661
01:11:34.360 --> 01:11:36.800
a close friend of Kant.

662
01:11:36.800 --> 01:11:42.840
Krauss took his doctorate at the University of Halle, but spent a formative year at Göttingen,

663
01:11:42.840 --> 01:11:47.040
where he imbibed a lasting interest in economics.

664
01:11:47.040 --> 01:11:53.320
After gaining his doctorate in 1780, Krauss became professor of practical philosophy and

665
01:11:53.320 --> 01:11:59.500
cameralia at the University of Königsberg, where he taught not only philosophy, but also

666
01:11:59.500 --> 01:12:05.160
the Greek classics, history, English literature and mathematics.

667
01:12:05.160 --> 01:12:12.280
By the early 1790s, however, Krauss's interests became entirely devoted to economics.

668
01:12:12.280 --> 01:12:18.320
Indeed, Krauss was one of the first persons in Germany to acclaim the wealth of nations,

669
01:12:18.320 --> 01:12:25.960
which he hailed as the only true, great, beautiful, just, and beneficial system.

670
01:12:25.960 --> 01:12:32.760
Krauss greeted Adam Smith with none of the deviations or hesitations that had beset Sartorius.

671
01:12:32.760 --> 01:12:38.000
In fact, he trumpeted the wealth of nations as certainly one of the most important and

672
01:12:38.000 --> 01:12:41.720
beneficial books that have ever been written.

673
01:12:41.720 --> 01:12:46.440
Krauss even dared to liken Smith's book to the New Testament.

674
01:12:46.440 --> 01:12:51.660
Certainly since the times of the New Testament, no writing has had more beneficial results

675
01:12:51.660 --> 01:12:54.440
than this will have.

676
01:12:54.440 --> 01:13:00.800
Curiously enough for a German academic, Krauss published very little during his lifetime.

677
01:13:00.800 --> 01:13:07.540
He was, however, a highly influential teacher. His lectures at Königsberg were always crowded,

678
01:13:07.540 --> 01:13:13.340
and he was considered the most important professor there, with the exception of Kant.

679
01:13:13.340 --> 01:13:19.240
After his death, Krauss's friends published all his manuscript writings, the most important

680
01:13:19.240 --> 01:13:27.820
of which was Die Staatswirtschaft, five volumes, Königsberg, 1808-1811.

681
01:13:27.820 --> 01:13:33.860
The first four volumes of this work were essentially a paraphrase of Smith's Wealth of Nations,

682
01:13:33.860 --> 01:13:38.340
substituting Prussian for British examples.

683
01:13:38.340 --> 01:13:43.740
The fifth volume of Die Staatswirtschaft was by far the most important.

684
01:13:43.740 --> 01:13:49.500
For there, Krauss presented his own contribution to Smithian economics.

685
01:13:49.500 --> 01:13:54.820
Krauss addressed himself to Prussian economic policy in lecture form.

686
01:13:54.820 --> 01:14:04.460
The volume was an incisive call for individualism, free markets, free trade, and a drastic reduction of government intervention.

687
01:14:04.460 --> 01:14:10.740
Krauss began with the fundamental insight that every individual wants to improve his lot.

688
01:14:10.740 --> 01:14:21.180
The desire and effort of each individual to improve his lot is the basis of all state economy, like the force of gravity in the universe.

689
01:14:21.180 --> 01:14:27.260
But if men wish to improve their own lot, then government coercion, requiring certain

690
01:14:27.260 --> 01:14:34.960
actions, or forbidding others, must necessarily cripple and distort such effort at improvement.

691
01:14:34.960 --> 01:14:40.000
For otherwise, why don't individuals do what government wants of their own accord,

692
01:14:40.000 --> 01:14:42.020
and without coercion?

693
01:14:42.020 --> 01:14:46.660
And since they don't wish to do so, they will seek means of evading the government

694
01:14:46.660 --> 01:14:49.660
mandates and prohibitions.

695
01:14:49.660 --> 01:14:55.620
In all these cases, and in stark contrast to the Cameralists, Krauss puts himself in

696
01:14:55.620 --> 01:15:01.900
the point of view of the individuals in society subject to government edicts, and not in the

697
01:15:01.900 --> 01:15:07.060
point of view of the officials issuing the decrees.

698
01:15:07.060 --> 01:15:13.180
A charming memorial to Christian Krauss was set forth to a friend by the great statesman

699
01:15:13.180 --> 01:15:20.900
of Reform, Baron Karl von Stein, 1757-1831.

700
01:15:20.900 --> 01:15:26.980
Stein said of his friend and adviser, The whole province, Prussia, has gained in light

701
01:15:26.980 --> 01:15:29.100
and culture through him.

702
01:15:29.100 --> 01:15:35.180
His views force their way into all parts of life, into the government and legislation.

703
01:15:35.180 --> 01:15:41.860
If he has set up no brilliant new ideas, he has at least been no glory-seeking sophist,

704
01:15:41.860 --> 01:15:48.380
To have presented the plain truth clearly and purely and correctly expressed, and to

705
01:15:48.380 --> 01:15:53.940
have communicated to thousands of auditors successfully, is a greater service than to

706
01:15:53.940 --> 01:15:58.700
arouse attention through chatter and paradoxes.

707
01:15:58.700 --> 01:16:05.200
Krauss had an unassuming but genial personality, which laid strong hold on its environment.

708
01:16:05.200 --> 01:16:11.540
He had flashes of new insight and great applications, and often astonished us by his unexpected

709
01:16:11.540 --> 01:16:18.860
Conclusions. Reading his writings, everything there is clear and simple, and at present,

710
01:16:18.860 --> 01:16:21.260
you need nothing more.

711
01:16:21.260 --> 01:16:27.700
A third member of the Smithian professorial quadrumvirate in Germany was August Ferdinand

712
01:16:27.700 --> 01:16:36.940
Lüder, 1760-1819. Lüder was also a product of the University of Göttingen, studying

713
01:16:36.940 --> 01:16:43.940
Ludwig was a professor there, and becoming professor of philosophy. He was also a history professor and court counselor in Brunswick.

714
01:16:43.940 --> 01:16:58.940
Lüder had done a great deal of work in historical and geographical statistics, publishing the Statistical Compendia, Historical Portfolio, 1787 and 1788,

715
01:16:58.940 --> 01:17:06.940
and Repository for History, Statistics and Policy, 1802-1805.

716
01:17:06.940 --> 01:17:20.940
But in the meantime, Luther read Adam Smith and became an enthusiast, publishing a Smithian work in 1800-1802 on national industry and state economy.

717
01:17:20.940 --> 01:17:34.940
In addition to a compendium of Smith's views, Luther provides an impassioned defense of freedom in all its social and political aspects, as well as in the strictly economic sphere.

718
01:17:34.940 --> 01:17:49.940
As Luther wrote in another work, I hazarded everything for freedom, truth and justice, for freedom of industry as well as of opinions, of hand as of spirit, of person as well as of property.

719
01:17:49.940 --> 01:17:56.860
A fascinating aspect of August Lüder is that he was driven both by Smithian methodology

720
01:17:56.860 --> 01:18:03.580
and by his devotion to freedom to repudiate his beloved life work, the investigation into

721
01:18:03.580 --> 01:18:05.760
national statistics.

722
01:18:05.760 --> 01:18:11.720
For not only would statistics mislead government policymakers, but government planners could

723
01:18:11.720 --> 01:18:18.780
scarcely hope to plan at all without a raft of statistics at their command.

724
01:18:18.780 --> 01:18:24.620
Statistics is not only misleading, therefore, it becomes a necessary condition for the very

725
01:18:24.620 --> 01:18:29.100
government intervention which must be repudiated.

726
01:18:29.100 --> 01:18:35.320
Lüder levelled his criticisms in two volumes on statistics, Criticism of Statistics and

727
01:18:35.320 --> 01:18:41.720
State Policy, 1812, and Critical History of Statistics.

728
01:18:41.720 --> 01:18:48.280
In the preface to his criticism, Lüder wrote movingly, On the strongest pillars and the

729
01:18:48.280 --> 01:18:54.960
The firmest foundation, the structure of statistics and policy seemed to me to rest.

730
01:18:54.960 --> 01:19:00.660
I had devoted the happiest hours of my life and the greatest part of my time to statistics

731
01:19:00.660 --> 01:19:02.760
and policy.

732
01:19:02.760 --> 01:19:08.260
Everything in me could not but revolt at the convictions which pressed upon me.

733
01:19:08.260 --> 01:19:11.480
But the current of the times flowed too swiftly.

734
01:19:11.480 --> 01:19:18.280
Ideas, which had entered my very marrow, had to be reviewed and exchanged for others.

735
01:19:18.280 --> 01:19:23.360
One prejudice after another had to be recognized as prejudice.

736
01:19:23.360 --> 01:19:30.120
More and more indefensible appeared one rotten prop after another, one rent and tear after

737
01:19:30.120 --> 01:19:31.120
the other.

738
01:19:31.120 --> 01:19:37.440
Finally, to my no small terror, the whole structure of statistics collapsed, and with

739
01:19:37.440 --> 01:19:42.360
Policy, which can accomplish nothing without statistics.

740
01:19:42.360 --> 01:19:48.360
As my insight grew and my viewpoint cleared, the fruits of statistics and policy appeared

741
01:19:48.360 --> 01:19:50.760
more and more frightful.

742
01:19:50.760 --> 01:19:56.840
All those hindrances which both threw in the path of industry, whereby not only welfare

743
01:19:56.840 --> 01:20:00.040
but culture and humanity were hindered.

744
01:20:00.040 --> 01:20:05.420
All those hindrances to the natural course of things, all those sacrifices brought to

745
01:20:05.420 --> 01:20:11.520
to an Unknown Idol, called The Welfare of the State or the Common Wheel, and bought

746
01:20:11.520 --> 01:20:18.280
with ridicule of all principles of philosophy, religion and sound common sense, at the cost

747
01:20:18.280 --> 01:20:21.840
of morality and virtue.

748
01:20:21.840 --> 01:20:27.680
With such perceptive insight into the evils of statistics and policy, one shudders to

749
01:20:27.680 --> 01:20:33.520
think of Luther's reaction to the current world, where statistics and policy, both then

750
01:20:33.520 --> 01:20:49.520
The fourth influential German-Smithian academic was Ludwig Heinrich von Jacob, 1759-1827.

751
01:20:49.520 --> 01:20:56.020
Jacob studied at Hala and then taught at the University of Kharkov in the Ukraine.

752
01:20:56.020 --> 01:21:01.680
As a result, Jacob became a consultant to several commissions at St. Petersburg and

753
01:21:01.680 --> 01:21:05.400
helped spread Smithian economics to Russia.

754
01:21:05.400 --> 01:21:10.600
But for most of his life, Jakob taught political economy and philosophy at the University of

755
01:21:10.600 --> 01:21:18.360
Halle, where, like Christian Krauss, he combined Kant and Smith's individualism into an economic

756
01:21:18.360 --> 01:21:21.080
and philosophical whole.

757
01:21:21.080 --> 01:21:27.640
Like Krauss also, Jakob played an important advisory role in the liberal Stein-Hardenberg

758
01:21:27.640 --> 01:21:30.000
reforms in Prussia.

759
01:21:30.000 --> 01:21:36.220
His most important work was his Principles of Economics, 1805.

760
01:21:36.220 --> 01:21:42.800
At any rate, under the influence of the Quadrum Verat of Sartorius, Krauss, Lüder and Jacob,

761
01:21:42.800 --> 01:21:48.320
the Smithians rather rapidly took over one economics department after another from the

762
01:21:48.320 --> 01:21:54.540
older Cameralists, who were pushed back, where they more properly belonged, into the departments

763
01:21:54.540 --> 01:21:57.820
of law and administration.

764
01:21:57.820 --> 01:22:03.220
and views also penetrated the civil service and were responsible for the important failed

765
01:22:03.220 --> 01:22:10.260
liberal reforms in the early 19th century of Stein and Hardenberg in Prussia.

766
01:22:10.260 --> 01:22:16.780
Stein and Hardenberg, it should be added, had both studied at the University of Göttingen.

767
01:22:16.780 --> 01:22:24.220
In a little over a decade, Smithianism had triumphed over Cameralism in Germany.

768
01:22:24.220 --> 01:22:29.220
5. Smithianism in Russia

769
01:22:29.220 --> 01:22:34.220
Smithianism also began to penetrate Russian political culture.

770
01:22:34.220 --> 01:22:43.220
Cultural and intellectual life had only begun to flower in that backward and despotic empire in the mid-18th century.

771
01:22:43.220 --> 01:22:50.220
The University of Moscow, the first university in Russia, started at the late date of 1755.

772
01:22:50.220 --> 01:22:56.540
Enlightenment ideas spread in Russia, and we have seen that Catherine the Great at least

773
01:22:56.540 --> 01:22:59.860
flirted briefly with physiocracy.

774
01:22:59.860 --> 01:23:05.620
French was the language of the Russian court, and so any ideas prevailing in France, the

775
01:23:05.620 --> 01:23:11.780
home of the Enlightenment, had to be taken seriously in Moscow and St. Petersburg.

776
01:23:11.780 --> 01:23:17.500
In addition, the Scottish version of the 18th century Enlightenment was, in a sense, carried

777
01:23:17.500 --> 01:23:40.900
In the 1760s, it was the custom of Empress Elizabeth of Russia, the daughter of Peter

778
01:23:40.900 --> 01:23:46.780
the Great, to select outstanding students to finish their studies abroad.

779
01:23:46.780 --> 01:23:54.300
As a result, the Empress made the fateful choice of sending to Scotland in 1761 two men who

780
01:23:54.300 --> 01:23:59.720
would be particularly instrumental in spreading Smithian ideas to Russia.

781
01:23:59.720 --> 01:24:06.860
The more important of the two was Semyon Efimovich Desnitsky, son of a Ukrainian petty bourgeois

782
01:24:06.860 --> 01:24:18.860
and his lifelong friend and classmate at University, Ivan Andreevich Tretiakov, 1735 to 1776, son of an army officer.

783
01:24:18.860 --> 01:24:30.860
The two studied at Glasgow University for six years, studying eagerly under Adam Smith until the latter left his chair at Glasgow in 1764.

784
01:24:30.860 --> 01:24:42.360
At Glasgow, Desnitsky and Tretyakov heard Smith's Wealth of Nations lectures, and also studied under Smith's colleague and former student, John Millar.

785
01:24:42.360 --> 01:24:49.360
When the two Russian students were in financial difficulty, Adam Smith lent them money to tide them over.

786
01:24:49.360 --> 01:25:01.360
The two Russians returned to Moscow in 1768, imbued with Smithian doctrine, and promptly became the first Russian professors of law at Moscow University.

787
01:25:01.360 --> 01:25:07.360
In Moscow, the young Smithians ran into strong faculty hostility.

788
01:25:07.360 --> 01:25:27.360
The majority of professors at Moscow University had been German, and the Germans strongly opposed the successful drive by the younger Russians to teach in Russian rather than Latin, and even more were the Germans hostile to the two Smithians liberal, reformist and anti-clerical views.

789
01:25:27.360 --> 01:25:34.360
Dessnitsky and Tretiakov each published a Smithian book in their first year back in Russia.

790
01:25:34.360 --> 01:25:43.360
Both books were largely verbatim transcriptions of Smith's lectures, with Dessnitsky ghostwriting Tretiakov's volume.

791
01:25:43.360 --> 01:25:49.360
Of the two from that point on, Tretiakov was the more faithful Smithian.

792
01:25:49.360 --> 01:25:52.360
Dessnitsky more the independent thinker.

793
01:25:52.360 --> 01:26:09.360
Both men were dominant in the political and law faculty at Moscow University, with Desnitsky becoming known as the outstanding Russian social and political theorist of the second half of the 18th century, as well as the father of Russian jurisprudence.

794
01:26:09.360 --> 01:26:14.360
Desnitsky also translated the Great Blackstone into Russian.

795
01:26:14.360 --> 01:26:21.640
Empress Catherine the Great became interested in the latest intellectual craze, the Scottish

796
01:26:21.640 --> 01:26:27.760
Enlightenment, and on Dessnitsky's return from Russia, commissioned him to write a Smithian

797
01:26:27.760 --> 01:26:34.880
reform plan for Russia, a massive volume, the Predstavlini, which he finished and sent

798
01:26:34.880 --> 01:26:38.480
to Catherine in 1768.

799
01:26:38.480 --> 01:26:43.520
Its basic thrust was that of moderate political reform.

800
01:26:43.520 --> 01:26:50.300
He proposed a system of two-house representation along with independent, life-appointed judges

801
01:26:50.300 --> 01:26:56.040
serving as checks and balances on the executive and legislature.

802
01:26:56.040 --> 01:27:02.340
Catherine the Great read the Predstavleni and incorporated politically trivial suggestions

803
01:27:02.340 --> 01:27:10.720
into her famous 1768 reform decree, the Nakaz, which was translated into English, French

804
01:27:10.720 --> 01:27:12.340
and German.

805
01:27:12.340 --> 01:27:18.060
The Predstavlany itself, however, was far too radical to see the light of day, and it

806
01:27:18.060 --> 01:27:25.460
remained unpublished until the revolutionary year of 1905, when it inspired liberal reformers

807
01:27:25.460 --> 01:27:29.940
and was reprinted twice in rapid succession.

808
01:27:29.940 --> 01:27:35.620
The influence of Smithianism in Russia was redoubled by the fact that Princess Ekaterina

809
01:27:35.620 --> 01:27:42.600
Anna Dashkova resided in Scotland in the late 1770s, while her son studied at Edinburgh

810
01:27:42.600 --> 01:27:44.460
University.

811
01:27:44.460 --> 01:27:50.840
Dashkova wrote proudly of her close friendship with such immortals as Adam Smith, the Reverend

812
01:27:50.840 --> 01:27:55.520
William Robertson, Adam Ferguson and Hugh Blair.

813
01:27:55.520 --> 01:28:00.580
But despite their eminence, the hostility of the Russian state and church, seconded

814
01:28:00.580 --> 01:28:06.760
by most of the Moscow faculty to the two jurists' liberal views got them ousted from their

815
01:28:06.760 --> 01:28:09.080
university posts.

816
01:28:09.080 --> 01:28:18.160
Each was forcibly retired from the university, Tretyakov in 1773 and Desnitsky in 1787,

817
01:28:18.160 --> 01:28:23.260
and each died early, a few years after their ouster.

818
01:28:23.260 --> 01:28:28.700
Picking up the Smithian torch for the next Russian generation was a German Smithian,

819
01:28:28.700 --> 01:28:41.700
He was the Baltic German nobleman Heinrich Friedrich Freiherr von Storch, 1766-1835.

820
01:28:41.700 --> 01:28:49.700
Born in Riga and educated at Jena and Heidelberg, Storch spent his life high up in the Russian Civil Service,

821
01:28:49.700 --> 01:28:54.700
becoming a professor at the Imperial Cadet Corps at St. Petersburg,

822
01:28:54.700 --> 01:29:02.060
and Educating the Future Czar Nicholas I and his Younger Brother in Smithian Political Economy

823
01:29:02.060 --> 01:29:17.060
Helping to bring Smithianism to Russia, von Storch wrote in German a nine-volume historical and statistical work on Russia at the end of the 18th century, 1797 to 1803,

824
01:29:17.060 --> 01:29:24.500
and later wrote a treatise on economics in French, Cours d'Economie Politique, 1815.

825
01:29:24.500 --> 01:29:30.060
The book was published in St. Petersburg for the education of the future czar.

826
01:29:30.060 --> 01:29:37.700
A moderate Smithian, von Storch, sensibly rejected the idea that some labor was unproductive

827
01:29:37.700 --> 01:29:45.060
and dabbled in a form of pre-Keynesian income analysis in his last work in 1824.

828
01:29:45.060 --> 01:29:52.660
6. The Smithian Conquest of Economic Thought

829
01:29:52.660 --> 01:29:57.860
By the turn of the 19th century, the views and doctrines of Adam Smith had swept the

830
01:29:57.860 --> 01:30:04.740
board of European opinion, though they had scarcely been embodied in political institutions.

831
01:30:04.740 --> 01:30:10.420
Even in France, as will be seen in the second volume of this series, the pre-Smithian subjective

832
01:30:10.420 --> 01:30:17.140
of Mutility Scarcity Approach to Value as well as the stress on entrepreneurship in the market,

833
01:30:17.140 --> 01:30:24.060
continued to be prominent, but only under the cloak of a proclaimed devotion to Adam Smith

834
01:30:24.060 --> 01:30:28.900
as the founder of economic theory and free market policy.

835
01:30:28.900 --> 01:30:37.180
In the hands of James Mill and Ricardo in England, of J.B. Say in France, and throughout the rest of the continent,

836
01:30:37.180 --> 01:30:42.780
Adam Smith would be treated as the embodiment of the new discipline of political economy.

837
01:30:43.980 --> 01:30:49.660
There were advantages, but probably greater disadvantages, to this Smithian dominance

838
01:30:49.660 --> 01:30:57.900
over economic thought after the 1790s. On the one hand, it meant at least a moderate appreciation of,

839
01:30:57.900 --> 01:31:05.020
and devotion to, freedom of trade at home and abroad. Even more solidly, it meant a keen

840
01:31:05.020 --> 01:31:11.140
in understanding and a steadfast adherence to the virtues of saving and investment, and

841
01:31:11.140 --> 01:31:17.860
a refusal to indulge in proto-Keynesian worry about hoarding or underconsumption.

842
01:31:17.860 --> 01:31:24.500
Moreover, this adherence to what Schumpeter calls the Turgot-Smith view of saving and

843
01:31:24.500 --> 01:31:31.780
investment also meant a determined opposition to wildly inflationary schemes of expansion

844
01:31:31.780 --> 01:31:34.660
of money and credit.

845
01:31:34.660 --> 01:31:41.380
On the other hand, there were dire costs to economic thought in this Smithian takeover.

846
01:31:41.380 --> 01:31:47.300
Even on the monetary front, Smith had gone against his 18th century colleagues in adopting

847
01:31:47.300 --> 01:31:54.400
crucial aspects of John Law's inflationary doctrine, in particular praising expansion

848
01:31:54.400 --> 01:32:00.100
of bank credit and money within a specie standard framework.

849
01:32:00.100 --> 01:32:05.660
In this way, Smith paved the way for later apologetics on behalf of the Bank of England

850
01:32:05.660 --> 01:32:09.580
and its generation of credit expansion.

851
01:32:09.580 --> 01:32:15.900
More fatefully, Smith totally set back price and value theory and led it into a fateful

852
01:32:15.900 --> 01:32:20.380
cul-de-sac from which it took a century to recover.

853
01:32:20.380 --> 01:32:24.580
In some respects, it has never fully recovered.

854
01:32:24.580 --> 01:32:30.340
At the root of Smith's drastic changes in theory was undoubtedly his Calvinist contempt

855
01:32:30.340 --> 01:32:33.820
for luxury consumer spending.

856
01:32:33.820 --> 01:32:42.440
Hence only work on material goods, that is, material capital goods, was productive.

857
01:32:42.440 --> 01:32:48.460
Hence too Smith's interventionist call for usury laws to lower the rate of interest so

858
01:32:48.460 --> 01:32:56.180
so as to ration savings and channel them away from luxurious consumers and speculative projectors

859
01:32:56.180 --> 01:32:59.580
to sober prime borrowers.

860
01:32:59.580 --> 01:33:05.860
Smith's contempt for consumers also led him to discard the time-honored subjective utility

861
01:33:05.860 --> 01:33:12.700
scarcity theory of value, and to seek the cause of value not in frivolous consumers

862
01:33:12.700 --> 01:33:18.940
but in real cost or labor pain embodied into the product.

863
01:33:18.940 --> 01:33:25.220
Hence Smith's crucial shift of emphasis in economic theory away from consumer demand

864
01:33:25.220 --> 01:33:32.380
and actual market prices and towards unrealistic long-run equilibrium.

865
01:33:32.380 --> 01:33:39.860
For only in long-run equilibrium does a labor pain or cost theory of pricing take on even

866
01:33:39.860 --> 01:33:42.620
superficial plausibility.

867
01:33:42.620 --> 01:33:50.240
But the exclusive attention to long-run equilibrium led Smith to toss out the entire entrepreneurship

868
01:33:50.240 --> 01:33:57.500
and uncertainty approach that had been elaborated by Catillon and Turgot, for in a timeless

869
01:33:57.500 --> 01:34:05.020
final equilibrium there is obviously no problem of change or uncertainty.

870
01:34:05.020 --> 01:34:10.740
Smith's labor theory of value led to Marxism and all the horrors to which that creed has

871
01:34:10.740 --> 01:34:17.220
has given rise, and his exclusive emphasis on long-run equilibrium has led to formalistic

872
01:34:17.220 --> 01:34:24.760
neoclassicism which dominates today's economic theory, and to its exclusion from consideration

873
01:34:24.760 --> 01:34:28.660
of entrepreneurship and uncertainty.

874
01:34:28.660 --> 01:34:35.060
Smith's stress on the economy in perpetual equilibrium also led him to discard his old

875
01:34:35.060 --> 01:34:42.620
by my friend David Hume's important insight, even if inferior to Cotillon's, into the international

876
01:34:42.620 --> 01:34:49.840
speciflow price mechanism and to the important business cycle analysis that lies clearly

877
01:34:49.840 --> 01:34:52.740
implicit in that doctrine.

878
01:34:52.740 --> 01:34:59.300
For if the world economy is always in equilibrium, then there is no need to consider or worry

879
01:34:59.300 --> 01:35:05.340
The Theory about increases in money supply, causing price rises and outflows of gold or

880
01:35:05.340 --> 01:35:12.780
silver abroad, or to consider the subsequent contraction of money and prices.

881
01:35:12.780 --> 01:35:19.360
In essence, then, the common picture of economic thought after Smith needs to be reversed.

882
01:35:19.360 --> 01:35:25.540
In the conventional view, Adam Smith, the towering founder, by his theoretical genius

883
01:35:25.540 --> 01:35:31.860
Smith, by the sheer weight of his knowledge of institutional facts, single-handedly created

884
01:35:31.860 --> 01:35:38.340
the discipline of political economy, as well as the public policy of the free market, and

885
01:35:38.340 --> 01:35:44.860
did so out of a jumble of mercantilist fallacies and earlier absurd scholastic notions of a

886
01:35:44.860 --> 01:35:46.680
just price.

887
01:35:46.680 --> 01:35:50.020
The real story is almost the opposite.

888
01:35:50.020 --> 01:35:56.040
Over Smith, centuries of scholastic analysis had developed an excellent value theory and

889
01:35:56.040 --> 01:36:03.360
monetary theory, along with corresponding free market and hard money conclusions.

890
01:36:03.360 --> 01:36:08.500
Originally embedded among the scholastics in a systematic framework of property rights

891
01:36:08.500 --> 01:36:15.980
and contract law based on natural law theory, economic theory and policy had been elaborated

892
01:36:15.980 --> 01:36:23.240
still further into a veritable science by Cantillon and Turgot in the 18th century.

893
01:36:23.240 --> 01:36:29.180
Far from founding the discipline of economics single-handed, Adam Smith turned his back

894
01:36:29.180 --> 01:36:35.820
not only on the scholastic and French traditions, but even on his own mentors in the considerably

895
01:36:35.820 --> 01:36:43.480
more diluted natural law of the Scottish Enlightenment, Gershom Carmichael and his own teacher, Francis

896
01:36:43.480 --> 01:36:45.440
Hutchison.

897
01:36:45.440 --> 01:36:51.780
The most unfortunate aspect of the total Smithian takeover in economics was not so much his

898
01:36:51.780 --> 01:36:58.040
own considerable tissue of error, but even more the blotting out of knowledge of the

899
01:36:58.040 --> 01:37:03.620
rich tradition of economic thought that had developed before Smith.

900
01:37:03.620 --> 01:37:10.080
As a result, the Austrians and their nineteenth-century predecessors, largely deprived of knowledge

901
01:37:10.080 --> 01:37:16.920
of the pre-Smith tradition were in many ways forced to reinvent the wheel, to painfully

902
01:37:16.920 --> 01:37:23.960
claw their way back to the knowledge that many pre-Smithians had enjoyed long before.

903
01:37:23.960 --> 01:37:29.720
Adam Smith and the consequences of Smith is an outstanding example of the Coonian case

904
01:37:29.720 --> 01:37:32.160
in the history of a science.

905
01:37:32.160 --> 01:37:37.800
In all too many cases, the development of knowledge in a discipline is not a steady

906
01:37:37.800 --> 01:37:45.960
Continuous March Upward into the Light, Patiently Discarding Refuted Hypotheses and Adding Continually

907
01:37:45.960 --> 01:37:49.480
to the Stock of Cumulative Knowledge.

908
01:37:49.480 --> 01:37:56.200
But rather, the history of the discipline is a zigzag of great gain and loss, of advances

909
01:37:56.200 --> 01:38:03.320
in knowledge followed by decay and false leads, and then by periods of attempts to recapture

910
01:38:03.320 --> 01:38:11.480
lost knowledge, trying, often dimly and against fierce opposition, to regain paradigms lost.