Economic Thought Before Adam Smith, An Austrian Perspective on the History of Economic Thought, Volume 1, by Murray R. Rothbard
INTRODUCTION
As the subtitle declares, this work is an overall history of economic thought from a frankly Austrian standpoint, that is, from the point of view of an adherent of the Austrian School of Economics.
This is the only such work by a modern Austrian. Indeed, only a few monographs in specialized areas of the history of thought have been published by Austrians in recent decades.
Not only that, this perspective is grounded in what is currently the least fashionable, though not the least numerous, variant of the Austrian School, the Misesian or praxeologic.
But the Austrian nature of this work is scarcely its only singularity.
When the present author first began studying economics in the 1940s, there was an overwhelmingly
dominant paradigm in the approach to the history of economic thought, one that is still paramount,
though not as boldly as in that era.
Essentially, this paradigm features a few great men as the essence of the history of
economic thought, with Adam Smith as the almost superhuman founder.
But if Smith was the creator of both economic analysis and of the free-trade, free-market
tradition in political economy, it would be petty and niggling to question seriously any
aspect of his alleged achievement.
Any sharp criticism of Smith as either economist or free-market advocate would seem only anachronistic,
Looking down upon the pioneering founder from the point of view of the superior knowledge
of today, puny descendants unfairly bashing the giants on whose shoulders we stand.
If Adam Smith created economics, much as Athena sprang full-grown and fully armed from the
brow of Zeus, then his predecessors must be foils, little men, of no account.
And so short shrift was given in these classic portrayals of economic thought to anyone unlucky
enough to precede Smith.
Generally they were grouped into two categories and brusquely dismissed.
Immediately preceding Smith were the mercantilists, whom he strongly criticized.
Mercantilists were apparently boobs who kept urging people to accumulate money but not
not to spend it, or insisting that the balance of trade must balance with each country.
Scholastics were dismissed even more rudely as moralistic medieval ignoramuses who kept
warning that the just price must cover a merchant's cost of production plus a reasonable profit.
The classic works in the history of thought of the 1930s and 1940s then proceeded to expound
and largely to celebrate a few peak figures after Smith.
Ricardo systematized Smith and dominated economics until the 1870s.
Then the marginalists, Jevons, Menger and Valra, marginally corrected Smith-Ricardo
classical economics by stressing the importance of the marginal unit as compared to whole
classes of goods.
And it was on to Alfred Marshall, who sagely integrated Ricardian cost theory with the
supposedly one-sided Austrian-Giovonian emphasis on demand and utility, to create modern neoclassical
economics.
Karl Marx could scarcely be ignored, and so he was treated in a chapter as an aberrant
Ricardian.
And so the historian could polish off his story by dealing with four or five great figures,
each of whom, with the exception of Marx, contributed more building blocks toward the
unbroken progress of economic science, essentially a story of ever onward and upward into the
light.
In the post-World War II years, Keynes, of course, was added to the pantheon, providing
a new culminating chapter in the progress and development of the science.
Keynes, beloved student of the great marshal, realized that the old man had left out what
would later be called macroeconomics in his exclusive emphasis on the micro.
And so Keynes added macro, concentrating on the study and explanation of unemployment,
a phenomenon which everyone before Keynes had unaccountably left out of the economic
picture, or had conveniently swept under the rug by blithely assuming full employment.
Since then, the dominant paradigm has been largely sustained, although matters have recently
become rather cloudy.
For one thing, this kind of great man-ever-upward history requires occasional new final chapters.
Keynes' General Theory, published in 1936, is now almost 60 years old.
Surely there must be a great man for a final chapter?
But who?
For a while Schumpeter, with his modern and seemingly realistic stress on innovation,
had a run.
But this trend came a cropper, perhaps on the realization that Schumpeter's fundamental
General Work, or Vision, as he himself perceptively put it, was written more than two decades
before the General Theory.
The years since the 1950s have been murky, and it is difficult to force a return to the
once forgotten Valra into the Procrustian bed of continual progress.
My own view of the grave deficiency of the few-great-men approach has been greatly influenced
by the work of two splendid historians of thought.
One is my own dissertation mentor, Joseph Dorfman, whose unparalleled multi-volume work
on the history of American economic thought demonstrated conclusively how important allegedly
lesser figures are in any movement of ideas.
In the first place, the stuff of history is left out by omitting these figures, and history
The theory is therefore falsified by selecting and worrying over a few scattered texts to
constitute the history of thought.
Second, a large number of the supposedly secondary figures contributed a great deal
to the development of thought, in some ways more than the few peak thinkers.
Hence, important features of economic thought get omitted and the developed theory is made
Paltry and barren as well as lifeless.
Furthermore, the cut and thrust of history itself, the context of the ideas and movements,
how people influenced each other and how they reacted to and against one another, is necessarily
left out of the few great men approach.
This aspect of the historian's work was particularly brought home to me by Quentin Skinner's notable
The Continual Progress Onward and Upward Approach was demolished for me, and should have been
for everyone, by Thomas Kuhn's famed Structure of Scientific Revolutions.
Kuhn paid no attention to economics, but instead, in the standard manner of philosophers and
historians of science, focused on such ineluctably hard sciences as physics, chemistry and astronomy.
Bringing the word paradigm into intellectual discourse, Kuhn demolished what I like to
call the Hwig Theory of the History of Science.
The Whig Theory, subscribed to by almost all historians of science, including economics,
is that scientific thought progresses patiently, one year after another, developing, sifting
and testing theories, so that science marches onward and upward each year, decade or generation,
learning more and possessing ever more correct scientific theories.
An analogy with the Whig Theory of History, coined in mid-19th century England, which
maintained that things are always getting, and therefore must get, better and better.
The Whig Historian of Science, seemingly on firmer grounds than the regular Whig Historian,
implicitly or explicitly asserts that later is always better in any particular scientific
discipline.
The Huyg historian, whether of science or of history proper, really maintains that for
any point of historical time, whatever was, was right, or at least better than whatever
was earlier.
The inevitable result is a complacent and infuriating Panglossian optimism.
In the historiography of economic thought, the consequence is the firm if implicit position
that every individual economist, or at least every school of economists, contributed their
important might to the inexorable upward march.
There can then be no such thing as gross systemic error that deeply flawed or even invalidated
an entire school of economic thought, much less sent the world of economics permanently
astray.
Kuhn, however, shocked the philosophic world by demonstrating that this is simply not the
way that science has developed.
Once a central paradigm is selected, there is no testing or sifting, and tests of basic
assumptions only take place after a series of failures and anomalies in the ruling paradigm
has plunged the science into a crisis situation.
One need not adopt Kuhn's nihilistic philosophic outlook, his implication that no one paradigm
is or can be better than any other, to realize that his less-than-starry-eyed view of science
rings true, both as history and as sociology.
But if the standard Romantic or Panglossian view does not work, even in the hard sciences,
A fortiori, it must be totally off the mark in such a soft science as economics, in a
discipline where there can be no laboratory testing, and where numerous, even softer disciplines
such as politics, religion and ethics necessarily impinge on one's economic outlook.
There can, therefore, be no presumption whatever in economics that later thought is better
Better than Earlier, or even that all well-known economists have contributed their sturdy might
to the developing discipline.
For it becomes very likely that rather than everyone contributing to an ever-progressing
edifice, economics can and has proceeded in contentious, even zigzag fashion, with later
and inter-systemic fallacy sometimes elbowing aside earlier but sounder paradigms, thereby
redirecting economic thought down a totally erroneous or even tragic path.
The overall path of economics may be up or it may be down over any given time period.
In recent years, economics under the dominant influence of formalism, positivism and econometrics
Science and preening itself on being a hard science has displayed little interest in its
own past.
It has been intent, as in any real science, on the latest textbook or journal article
rather than on exploring its own history.
After all, do contemporary physicists spend much time pouring over 18th century optics?
In the last decade or two, however, the reigning Walrassian-Keynesian neoclassical formalist
paradigm has been called ever more into question, and a veritable Kuhnian crisis situation has
developed in various areas of economics, including worry over its methodology.
Amidst this situation, the study of the history of thought has made a significant comeback,
in which we hope and expect will expand in coming years.
For if knowledge buried in paradigms lost can disappear and be forgotten over time,
then studying older economists and schools of thought need not be done merely for antiquarian
purposes or to examine how intellectual life proceeded in the past.
Their economists can be studied for their important contributions to forgotten and therefore
new knowledge today.
Valuable truths can be learned about the content of economics not only from the latest journals
but from the texts of long-deceased economic thinkers.
But these are merely methodological generalizations, the concrete realization that important economic
knowledge had been lost over time came to me from absorbing the great revision of the
scholastics that developed in the 1950s and 1960s. The pioneering revision came dramatically
in Schumpeter's great History of Economic Analysis and was developed in the works of
Raymond de Rouvet, Marjorie Grice Hutchinson and John T. Noonan. It turns out that the
The Scholastics were not simply medieval, but began in the 13th century and expanded
and flourished through the 16th and into the 17th century.
Far from being cost of production moralists, the Scholastics believed that the just price
was whatever price was established on the common estimate of the free market.
Not only that, far from being naive labor or cost of production value theorists, the scholastics
may be considered proto-Austrians, with a sophisticated subjective utility theory of
value and price.
Furthermore, some of the scholastics were far superior to current formalist microeconomics
in developing a proto-Austrian dynamic theory of entrepreneurship.
Moreover, in macro, the scholastics, beginning with Bourdain and culminating in the 16th century Spanish scholastics, worked out an Austrian rather than monetarist supply and demand theory of money and prices, including inter-regional money flows and even a purchasing power parity theory of exchange rates.
It seems to be no accident that this dramatic revision of our knowledge of the scholastics was brought to American economists not generally esteemed for their depth of knowledge of Latin by European-trained economists steeped in Latin, the language in which the scholastics wrote.
This simple point emphasizes another reason for loss of knowledge in the modern world,
the insularity in one's own language, particularly severe in the English speaking countries,
that has, since the Reformation, ruptured the once Europe-wide community of scholars.
One reason why continental economic thought has often exerted minimal, or at least delayed, influence in England and the United States is simply because these works had not been translated into English.
For me, the impact of scholastic revisionism was complemented and strengthened by the work during the same decades of the German-born Austrian historian, Emil Couter.
Kauder revealed that the dominant economic thought in France and Italy during the 17th and especially the 18th centuries was also Proto-Austrian,
emphasizing subjective utility and relative scarcity as the determinants of value.
From this groundwork, Kauder proceeded to a startling insight into the role of Adam Smith,
That, however, follows directly from his own work and that of the scholastic revisionists.
That Smith, far from being the founder of economics, was virtually the reverse.
On the contrary, Smith actually took the sound and almost fully developed proto-Austrian subjective
value tradition and tragically shunted economics onto a false path, a dead end from which the
The Austrians had to rescue economics a century later.
Instead of subjective value, entrepreneurship and emphasis on real market pricing and market
activity, Smith dropped all this and replaced it with a labor theory of value and a dominant
focus on the unchanging long-run natural price equilibrium, a world where entrepreneurship
was assumed out of existence. Under Ricardo, this unfortunate shift in focus was intensified
and systematized. If Smith was not the creator of economic theory, neither was he the founder
of laissez-faire and political economy. Not only were the scholastics analysts of and
believers in the free market and critics of government intervention, but the French and
and Italian economists of the 18th century were even more laissez-faire oriented than
Smith who introduced numerous waffles and qualifications into what had been in the hands
of Turgot and others an almost pure championing of laissez-faire.
It turns out that rather than someone who should be venerated as creator of modern economics
or of laissez-faire, Smith was closer to the picture portrayed by Paul Douglas in the 1926
Chicago Commemoration of the Wealth of Nations, a necessary precursor of Karl Marx.
Amel Couter's contribution was not limited to his portrayal of Adam Smith as the destroyer
of a previously sound tradition of economic theory, as the founder of an enormous zag
in a Kuhnian picture of a zigzag history of economic thought.
Also fascinating, if more speculative, was Couter's estimate of the essential cause of
a curious asymmetry in the course of economic thought in different countries.
Why is it, for example, that the subjective utility tradition flourished on the continent,
especially in France and Italy, and then revived particularly in Austria, whereas the labor
and cost of production theories developed especially in Great Britain.
Cowder attributed the difference to the profound influence of religion.
The scholastics and then France, Italy and Austria were Catholic countries, and Catholicism
emphasized consumption as the goal of production, and consumer utility and enjoyment as, at
least in moderation, valuable activities and goals.
The British tradition, on the contrary, beginning with Smith himself, was Calvinist, and reflected
the Calvinist emphasis on hard work and labor toil as not only good, but a great good in
in itself, whereas consumer enjoyment is, at best, a necessary evil, a mere requisite
to continuing labor and production.
On reading Cowder, I considered this view a challenging insight, but essentially an
unproven speculation.
However, as I continued studying economic thought and embarked on writing these volumes,
I concluded that Couter was being confirmed many times over. Even though Smith was a moderate
Calvinist, he was a staunch one, nevertheless, and I came to the conclusion that the Calvinist
emphasis could account, for example, for Smith's otherwise puzzling championing of usury laws,
as well as his shift in emphasis from the capricious, luxury-loving consumer as the
and the determinant of value, to the virtuous laborer embedding his hours of toil into the value of his material product.
But if Smith could be accounted for by Calvinism, what of the Spanish-Portuguese Jew-turned-Quaker David Ricardo?
Surely no Calvinist.
Here, it seems to me that recent research into the dominant role of James Mill as mentor
of Ricardo and major founder of the Ricardian system comes strongly into play.
For Mill was a Scotsman, ordained as a Presbyterian minister, and steeped in Calvinism.
The fact that, later in life, Mill moved to London and became an agnostic had no effect
on the Calvinist nature of Mill's basic attitudes toward life and the world.
Mill's enormous evangelical energy, his crusading for social betterment, and his devotion to
labor toil, as well as the cognate Calvinist virtue of thrift, reflected his lifelong Calvinist
world outlook.
John Stuart Mill's resurrection of Ricardianism may be interpreted as his filio-pietist devotion
to the memory of his dominant father, and Alfred Marshall's trivialization of Austrian
insights into his own neo-Ricardian schema also came from a highly moralistic and evangelical
neo-Calvinist.
Conversely, it is no accident that the Austrian School, the major challenge to the Smith-Ricardo
and also vision, arose in a country that was not only solidly Catholic, but whose values
and attitudes were still heavily influenced by Aristotelian and Thomist thought.
The German precursors of the Austrian School flourished not in Protestant and anti-Catholic
Prussia, but in those German states that were either Catholic or were politically allied
to Austria, rather than Prussia.
The result of these researches was my growing conviction that leaving out religious outlook,
as well as social and political philosophy, would disastrously skew any picture of the
history of economic thought.
This is fairly obvious for the centuries before the 19th, but it is true for that century
as well, even as the technical apparatus takes on more of a life of its own.
In consequence of these insights, these volumes are very different from the norm, and not
just in presenting an Austrian rather than a neo-classical or institutionalist perspective.
The entire work is much longer than most, since it insists on bringing in all the lesser
figures and their interactions, as well as emphasizing the importance of their religious
and Social Philosophies, as well as their narrower, strictly economic views.
But I would hope that the length and inclusion of other elements does not make this work
less readable.
On the contrary, history necessarily means narrative, discussion of real persons as well
as their abstract theories, and includes triumphs, tragedies and conflicts, conflicts which are
are often moral, as well as purely theoretical.
Hence I hope that for the reader, the unwanted length will be offset by the inclusion of
far more human drama than is usually offered in histories of economic thought.
Murray N. Rothbard, Las Vegas, Nevada.