♣ Precursors of the classical political economy
= authors who developed some classical
theoretical concepts but mercantilist views
usually prevailed in their writings
(they mostly accepted mercantilist regulatory
economic policies)
Political arithmetick - birth of social sciences (a combination of demography, national accounts, statistics and economic theorising)
William PETTY (1632-1687)
A Treatise on Taxes and Contributions 1622
Political Arithmetic written in 1671-76, published in 1690
Advocacy of using statistical techniques to measure social phenomena
Induction from statistical data
Theory of value and price
- natural value determined by costs of production = utilization of land and labor, later by “embodied” labor
search for a unit of measure - a daily amount of food necessary to sustain a worker
wages on the subsistence level
(motivational explanation typical for mercantilist literature)
♣ Followers of Petty - “the political arithmetick school”
John Graunt (1620-74), Charles D'Avenant (1656-1714), William Fleetwood (1656-1723),
Gregory King (1648-1712)
King's Law
= the percentage changes in the price of corn are a decreasing function of the percentage changes in the size of harvests
an empirical finding leading to the concept of price elasticity of demand
John LOCKE (1632-1704)
Two Treatises of Government 1690
Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money 1691
natural law philosopher
- justification of private property
based on the labor theory of value
(right to own the product of one's
own labor)
unequal distribution of wealth due to ability of money to preserve value (indefinite accumulation of wealth possible)
value of money based on a social convention
quantity theory of money
Dudley NORTH (1641-91)
Discourse upon Trade 1691
stress on deductive method with
reference to Cartesian philosophy
economics should be founded on
self-evident truths
clear and self-evident conclusions
deduced by rigorous use of logic
methodological individualism - harmony of interests on the basis of free individuals following their own interests
[forerunner of A. Smith
and his “invisible hand”]
free trade conclusions
Bernard de MANDEVILLE (1670-1733)
The Fable of the Bees, or Private Vices, Public Benefits 1714
men and women should be accepted as they are, it is the role of government to channel activities of imperfect humankind, full of vice, by rules and regulations toward the social good
ostentatious spending created more jobs than parsimony (saving less useful than spending)
[ idea appreciated by J.M.
Keynes]
French pre-coursers of Classical economy did not feel any need of providing an ethical justification of private property
Laissez-faire was based on an ability of individuals to pursue their own interests
Pierre le Pesant de BOISGUILLEBERT (1646-1714)
Dissertation sur la nature des richesses, de l'argent, et des tributs 1712
arguments against colberism
(stress on agriculture)
all incomes originated, directly or
indirectly from agriculture
free trade (agriculture should receive sufficient earnings => prices should conform to the `natural law')
- natural tendency of the economy
towards equilibrium
[anticipation of Quesnay's
tableau économique and of
the Say's law]
Richard CANTILLON (?1680-1734)
Essai sur la nature du commerce en général 1755
synthesis of English and French economic
theories of his time
cost theory of value
1) more specific than Petty - intrinsic value depends on production conditions, market price = intrinsic value modified by forces of supply and demand
2) market price fixed by the seller and was dynamically modified on the of his estimate of the demand
3) cost of production reduced to the inputs of labor and land
real wages tend to the subsistence level (relation of supply and demand for labor and overpopulation)
[anticipation of Ricardo or Malthus]
wage differentials explained on the bases
of costs of training workers, differences
in risk in different types of work, and
different levels of loyalty and
responsibility required by jobs
[anticipation of A. Smith]
theory of circular flow
three social classes (landowners, tenant-farmers, workers) and three corresponding incomes (rent, profit, farmer's expenditure)
[anticipation of Quesnay]
LAISSEZ-FAIRE REVOLUTION
(1751-1776)
Preconditions of the Industrial Revolution
spread of capitalism in the countryside (Northern France - fermier,
England - enclosure movement)
technical innovations in cultivation methods => increase in agricultural productivity => outflow of labor force from the countryside to cities and towns,
increase of population
large number of technical innovations in new industries
(Hargreave's spinning-jenny in 1764,
Watt's steam-engine 1765, Arkwright's
water-frame in 1768)
cultural preconditions brought about by the Enlightenment (Bacon, Locke, Newton, Descartes, Vico)
new schools of economic thought arose
united by the struggle against
mercantilism and a trial to provide a
scientific foundation to the laissez-faire
doctrine, theoretically quite
heterogeneous
(physiocrats in France, schools of Naples
and Milan in Italy)
* PHYSIOCRATS
The first true school of economic thought
with a master, F. Quesnay and a fervent group of followers, a doctrine to defend and propagate
François QUESNAY (1694-1774)
entries Fermiers (1756), Grains (1757), Hommes (1757) for the Encyclopédie;
Tableau économique 1758;
Maximes générales du gouvernement économique d'un royaume agricole 1758
an integrated theoretical system
- natural order doctrine
scientific contribution
revolutionary concepts of productive and unproductive labor, and a new concept of wealth
the idea of mutual interdependence among productive processes, and the idea of equilibrium
representation of exchanges as circular flow of money and goods among economic sectors
productive labor able to create surplus
(rent) = labor used in agriculture
- unproductive labor used in manufacturing
industry and trade unable to create any
surplus
three social classes: productive
(farmers), sterile (entrepreneurs,
workers, merchants) and class of
landlords (distributive class)
economic role of landlords was to
consume the surplus created by the
productive class
tableau économique model
= simple model of circular flow
representing economy as natural
organism
= ability to reach equilibrium
considered as a manifestation of
the natural order
basic assumptions:
1) simple reproduction
2) agriculture the only sector
capable of producing surplus
over replacement costs
3) equivalent exchange (implicit
cost theory of value)
4) investments in fixed and circular
capital only in agriculture
doctrine of impôt unique (single tax)
only rent (surplus) can be taxed
policy of laissez-faire, laissez passer les
marchandises `scientifically proved'
Anne Robert Jacques TURGOT (1727-81)
critical to the doctrine of productive
labor in agriculture
idea of decreasing returns generated in
agriculture by the intensification of
investments
estimative theory of value based on utility
and scarcity
abstinence theory of capital creation
David HUME (1711-76)
Political Discourses 1752
- laid foundations for English free-trade
economic theory
theory of the adjustment of the balance of
payments based on the price level-specie-flow mechanism = a re-equilibrating process
dynamic version of the quantity theory of
money
= short run real effects, long run neutrality of money => a multiplier effect of price increase in the short run acknowledged