Schumpeter, Graeco-Roman Economics [Part 1]
Michael curates today’s Social Science Files selection:
In his book History of Economic Analysis, first published in 1954, Joseph Schumpeter wrote:
CHAPTER 1 Graeco-Roman Economics
1. PLAN OF THE PART
IT HAS BEEN explained in Part I that no science, in the sense there defined, is ever founded or created by a single individual or group. Nor is it in general possible to assign any precise date to its ‘birth.’ The slow process by which economics, as we now call it, rose into recognized existence ran its course between the middle of the seventeenth and the end of the eighteenth centuries. However, a concept that [was] introduced in Part I may help us to be somewhat more precise, at least so far as the exigencies of exposition are concerned: the concept of Classical Situations.
Such a classical situation emerged in the second half of the eighteenth century and no such classical situation had ever emerged before. Availing ourselves of this, we might be tempted to start somewhere between 1750 and 1800, perhaps with the peak success of that epoch, A.Smith’s Wealth of Nations(1776). But every classical situation summarizes or consolidates the work—the really original work—that leads up to it, and cannot be understood by itself. Therefore, we shall try to cover in this Part, as best we can, the whole span of more than 2000 years that extends from ‘beginnings’ to about twenty years after the publication of the Wealth of Nations. This task is much facilitated by the further fact that, so far as the purposes of this history are concerned, many centuries within that span are blanks.
The classical situation of the second half of the eighteenth century was the result of a merger of two types of work that are sufficiently distinct to justify separate consideration. There was the stock of factual knowledge and the conceptual apparatus that had slowly grown, during the centuries, in the studies of philosophers. And, semi-independent of this, there was a stock of facts and concepts that had been accumulated by men of practical affairs in the course of their discussions of current political issues. These two sources of nascent economics cannot be separated strictly. On the one hand, there were numerous intermediate cases that cannot be classified without cutting many a Gordian knot. On the other hand, right into the time of the physiocrats, the scholar’s technique was so very simple that most of it was within the reach of ordinary common sense and easily rivaled by unlearned practitioners, whose writings, therefore, cannot be dismissed as irrelevant to our purpose: on the contrary, they frequently rose to what we call in this book the scientific level. Broadly, however, our distinction is valid all the same.
Let us recall our distinction between Economic Thought—the opinions on economic matters that prevail at any given time in any given society and belong to the province of economic history rather than to the province of the history of economics—and Economic Analysis—which is the result of scientific endeavor in our sense.
The history of economic thought starts from the records of the national theocracies of antiquity whose economies presented phenomena that were not entirely dissimilar to our own, and problems which they managed in a spirit that was, in fundamentals, not so very dissimilar either. But the history of economic analysis begins only with the Greeks.
Ancient Egypt had a kind of planned economy that turned upon her irrigation system. The Assyrian and Babylonian theocracies had huge military and bureaucratic establishments and elaborate legal systems—of which the code of Hammurabi (about 2000 B.C.) is the earliest legislative monument; they pursued an activist foreign policy; also they developed monetary institutions to a high degree of perfection, and knew credit and banking. The sacred books of Israel, especially the legislative portions of them, reveal perfect grasp of the practical economic problems of the Hebrew state. But there is no trace of analytic effort.
More than anywhere else we might expect to find such traces in ancient China, the home of the oldest literary culture of which we know. We find in fact a highly developed public administration that dealt currently with agrarian, commercial, and financial problems. These problems are frequently touched upon, mainly from an ethical standpoint, in the remains of Chinese classical literature, for instance in the teaching of Kung Fu Tse (551–478 B.C.), who was himself at two stages of his life a practical administrator and reformer, and of Mêng Tzû (Mencius, 372–288 B.C.), from whose works it is possible to compile a comprehensive system of economic policy. Moreover, there were methods of monetary management and of exchange control that seem to presuppose a certain amount of analysis. The phenomena incident to the recurrent inflations were no doubt observed and discussed by men much superior to us in cultural refinement. But no piece of reasoning on strictly economic topics has come down to us that can be called ‘scientific’ within our meaning of the term.
The obvious inference is of course highly uncertain. There may have been analytic work, the records of which failed to survive. But there is reason to suppose that there was not much of it. We have seen before that commonsense knowledge, relative to scientific knowledge, goes much farther in the economic field than it does in almost any other. It is perfectly understandable, therefore, that economic questions, however important, took much longer in eliciting specifically scientific curiosity than did natural phenomena. Nature harbors secrets into which it is exciting to probe; economic life is the sum total of the most common and most drab experiences. Social problems interest the scholarly mind primarily from a philosophical and political standpoint; scientifically they do not at first appear very interesting or even to be ‘problems’ at all.
2. FROM THE BEGINNINGS TO PLATO
So far as we can tell, rudimentary economic analysis is a minor element—a very minor one—in the inheritance that has been left to us by our cultural ancestors, the ancient Greeks. Like their mathematics and geometry, their astronomy, mechanics, optics, their economics is the fountainhead of practically all further work.
Unlike their performance in these fields, however, their economics failed to attain independent status or even a distinctive label: their Oeconomicus (house, and law or rule) meant only the practical wisdom of household management; the Aristotelian Chrematistics (possession or wealth), which comes nearest to being such a label, refers mainly to the pecuniary aspects of business activity. They merged their pieces of economic reasoning with their general philosophy of state and society and rarely dealt with an economic topic for its own sake.
This accounts, perhaps, for the fact that their achievement in this field was so modest, especially if compared with their resplendent achievements in others. Classic scholars as well as economists who rate it more highly think of that general philosophy and not of technical economics. Also they are prone to fall into the error of hailing as a discovery everything that suggests later developments, and of forgetting that, in economics as elsewhere, most statements of fundamental facts acquire importance only by the superstructures they are made to bear and are commonplace in the absence of such superstructures. Such as they were, the scientific splinters of Greek economic thought that are accessible to us may be gleaned from the works of Plato (427–347 B.C.) and Aristotle (384–322 B.C.).
Greek thought, even where most abstract, always revolved around the concrete problems of human life. These problems of life in turn always centered in the idea of the Hellenic city-state, the polis, which was to the Greek the only possible form of civilized existence. Thus, by virtue of a unique synthesis of elements that with us dwell in different worlds, the Greek philosopher was essentially a political philosopher: it was from the polis that he looked into the universe, and it was the universe—of thought as well as of all other human concerns—that he found reflected in the polis. The Sophists seem to have been the first to analyze this universe very much as we do now: they are, in fact, the forefathers of our own methods of thought, our logical positivism included.
But Plato’s aim was not analysis at all but extra-empirical visions of an ideal polis or, if we prefer, the artistic creation of one. The picture he painted of the Perfect State in his Politeia (The Republic) is no more analysis than a painter’s rendering of a Venus is scientific anatomy. It goes without saying that on this plane the contrast between what is and what ought to be loses its meaning. The artistic quality of the Politeia and of the whole literature—mostly lost—of which the Politeia seems to have been the peak achievement is well brought out by the German term for it, Staatsromane (literally: state novels). In default of a satisfactory English synonym we must use the word Utopia. The reader presumably knows that more or less under the influence of the Platonic example, this type of literature again found favor in the Renaissance and then continued to be produced, sporadically, to the end of the nineteenth century.
[Footnote about the: … curious affinity that exists between our own reactions to business practice and those of the ancient Greeks. The works of Greek poets and historians are relevant only from this standpoint and need not be considered here though some of the latter, especially Thucydides and Polybius, are of absorbing interest to any student of society. Nor is it necessary to discuss Xenophon, whose Oeconomicus is precisely the sort of treatise on household management that went under similar titles until the sixteenth century, and whose Poroi, a treatise on Attic public finance, is of course very interesting for the economic historian (as is also the pseudo-Xenophontic treatise on the Athenian commonwealth, the survivor of what may have been a large literature written mainly by opponents of the radical regimes in post-Periclean Athens). …]
But analysis comes in after all. There is a relation between the painter’s Venus and the facts described by scientific anatomy. Just as Plato’s idea of ‘horseness’ obviously has something to do with the properties of observable horses, so his idea of the Perfect State is correlated with the material furnished by the observation of actual states. And there is no reason whatever to deny the analytic or scientific character—remember: we do not attach any complimentary meaning to either of these words—of such observations of facts or relations between facts as are enshrined, explicitly or by implication, in Plato’s construction. Reasoning of an analytic nature is still more prominent in a later work, the Nomoi (Laws). But nowhere is it pursued as an end in itself. Consequently it does not go very far.
Plato’s Perfect State was a City-State conceived for a small and, so far as possible, constant number of citizens. As stationary as its population was to be its wealth. All economic and non-economic activity was strictly regulated—warriors, farmers, artisans, and so on being organized in permanent castes, men and women being treated exactly alike. Government was entrusted to one of these castes, the caste of guardians or rulers who were to live together without individual property or family ties. The changes introduced in the Nomoi are considerable—chiefly they are compromises with reality— but they do not touch the fundamental principles involved. This is all we need for our purpose. Though Plato’s influence is obvious in many communist schemes of later ages, there is little point in labeling him a communist or socialist or a forerunner of later communists or socialists. Creations of such force and splendor defy classification and must be understood in their uniqueness, if at all. The same objection precludes attempts to claim him as a fascist. But if we do insist on forcing him into a strait jacket of our own making, the fascist strait jacket seems to fit somewhat better than the communist one: Plato’s ‘constitution’ does not exclude private property except on the highest level of the purest ideal; at the same time it enforces a strict regulation of individual life, including limitation of individual wealth and severe restrictions upon freedom of speech; it is essentially ‘corporative’; and it recognizes the necessity of a classe dirigente—features that go far toward defining fascism.
The analytic background, such as it is, comes into view as soon as we ask the question: why this rigid stationarity? It is difficult not to answer (however pedestrian such an answer may sound to the true Platonist) that Plato made his ideal stationary because he disliked the chaotic changes of his time. His attitude to contemporaneous events was certainly negative. He hated the Sicilian tyrannos (though we must not translate this word by tyrant). He almost certainly despised the Athenian democracy. Yet he realized that tyranny grew out of democracy and was, in any case, the practical alternative to it. Democracy, in turn, he interpreted as the inevitable reaction to oligarchy, and this again he traced to inequality of wealth, the consequence, as he thought, of commercial enterprise (Politeia VIII). Change, economic change, was at the bottom of the development from oligarchy to democracy, from democracy to tyranny (of a popular leader), that was so little to his taste. Whatever we may think of Platonic stationarity as the remedy, is there not a piece of—almost Marxian—economico-sociological analysis behind that diagnosis?
We need not stay to consider the numerous economic topics that Plato touched upon incidentally. It will suffice to mention two examples. His caste system rests upon the perception of the necessity of some Division of Labor (Politeia II, 370). He elaborates on this eternal commonplace of economics with unusual care. If there is anything interesting in this, it is that he (and following him, Aristotle) puts the emphasis not upon the increase of efficiency that results from division of labor per se but upon the increase of efficiency that results from allowing everyone to specialize in what he is by nature best fitted for; this recognition of innate differences in abilities is worth mentioning because it was so completely lost later on.
Again, Plato remarks in passing that money is a ‘symbol’ devised for the purpose of facilitating exchange (Politeia II, 371 … translated by ‘money-token’). Now such an occasional saying means very little and does not justify the attribution to Plato of any definite view on the nature of money. But it must be observed that his canons of monetary policy—his hostility to the use of gold and silver, for instance, or his idea of a domestic currency that would be useless abroad— actually do agree with the logical consequences of a theory according to which the value of money is on principle independent of the stuff it is made of. In view of this fact it seems to me that we are within our rights if we claim Plato as the first known sponsor of one of the two fundamental theories of money, just as Aristotle may be claimed as the first known sponsor of the other (sec. 5b below). It is highly unlikely, of course, that these theories originated with them, but it is certain that they taught them and that they attached exactly the same meaning to them as did the authors who again took them up from the late Middle Ages on. We may assume this with confidence because those authors display both Platonic and Aristotelian influences clearly enough. In fact, filiation can be strictly proved.
The dialogue Eryxias, which was not written by Plato but has been transmitted to us among his writings and contains nothing that clashes with any of his known opinions, is mentioned here because it is the only extant piece of work that is wholly devoted to an economic subject and indeed treats it for its own sake. Otherwise, the contents of the dialogue—substantially an inquiry into the nature of wealth, which is related to wants and carefully distinguished from money—do not present any great interest.
3. ARISTOTLE’S ANALYTIC PERFORMANCE
Aristotle’s performance is quite different. It is not only that in his works Platonic glamour is conspicuous by its absence, and that instead we find (if such a thing may be said without offense of so great a figure) decorous, pedestrian, slightly mediocre, and more than slightly pompous common sense. Nor is it only that Aristotle much more than Plato—in any case, much more frankly than Plato—co-ordinated and discussed pre- existing opinions that prevailed in what must have been a copious literature. The essential difference is that an analytic intention, which may be said (in a sense) to have been absent from Plato’s mind, was the prime mover of Aristotle’s. This is clear from the logical structure of his arguments.
It becomes still clearer when we observe his method of work: for instance, his political concepts and doctrines were drawn from an extensive collection he laboriously made of constitutions of Greek states. Of course, he also looked for the Best State, which was to realize the Good Life, the Summum Bonum, and Justice.
[Footnote: It is interesting to note that he, too, philosophized primarily about the Greek city-state which, in spite of the exploits of his illustrious tutee, was and remained for him the only form of life worthy of serious attention. That Alexander’s stupendous experiment in political construction completely failed to stir his imagination and to set his mind working on the vast vistas opened up by that experiment is highly characteristic of the man.]
He also overflowed with value judgments for which he claimed absolute validity (as do we). He also gave normative form to his results (as do we). And finally he also went hortatory on Virtue and Vice (as we do not).
[Footnote: He therefore refused assent to the pleasure-and-pain doctrines about behavior that were gaining ground in the Greece of his day. But though he did not give a utilitarian definition of happiness, he placed the concept of happiness in the center of his social philosophy. Whoever does this has taken the decisive step and has committed the original sin: whether he then emphasizes virtue and vice or pleasure and pain is secondary—the way is smooth from the one to the other.]
But, however important all this may have been to him and, for more than 2000 years, to all his readers, it does not concern us at all; as I have said already and shall use every opportunity to repeat again and again, all this affects the goals and motives of analysis but it does not affect its nature.
[Footnote: If any doubt were possible concerning Aristotle’s analytic intention, it would be removed by his programmatic statement: ‘As in other departments of science, so in politics, the [given] compound [of phenomena] should always be resolved into the simple elements or least parts of the whole’ (Politics I, 1). To be sure, the term ‘re-solving’ is but a literal equivalent to ‘analyzing’ and actually identifies only a particular type of the activity we mean to indicate by analysis. It is, however, the spirit of the passage that counts and not its particular wording. The passage as a whole clearly expresses the fact that Aristotle consciously applied an analytic method.]
But only a small part of his analytic performance is concerned with economic problems. His main work as well as his main interest, so far as social phenomena are concerned, was in the field we have decided to call economic sociology or rather it was in the field of political sociology to which he subordinated both economic sociology and technical economics. It is as a treatise or textbook on state and society that his Politics must be appraised. And his Nicomachean Ethics—a comprehensive treatise on human behavior presented from the normative angle—also deals so preponderantly with political man, with man in the city-state, that it should be considered as a companion volume to the Politics, making up together with the latter the first known systematic presentation of a unitary Social Science.
The reader presumably knows that up to, say, the times of Hobbes, all that went under the name of political science and political philosophy fed upon the Aristotelian stock. For our purpose, it must suffice to note:
that not only was Aristotle, like a good analyst, very careful about his concepts but that he also co- ordinated his concepts into a conceptual apparatus, that is, into a system of tools of analysis that were related to one another and were meant to be used together, a priceless boon to later ages;
that, as is indeed implied in his ‘inductive’ approach alluded to above, he investigated processes of change as well as states;
that he tried to distinguish between features of social organisms or of behavior that exist by virtue of universal or inherent necessity [greek word] and others that are instituted by legislative decision or custom;
that he discussed social institutions in terms of purposes and of the advantages and disadvantages they seemed to him to present, and that he himself thus gave in, and led followers to give in, to a particular form of the rationalist error, namely, the teleological error. …
[Footnote: Teleology, or the attempt to explain institutions and forms of behavior causally by the social need or purpose they are supposed to serve, is obviously not always erroneous: many things in society can be, of course, not only understood in terms of their purpose but also causally explained by it. In all sciences that deal with purposive human actions, teleology must always play some role. But it must be handled with care; and there is the ever-present danger of making improper use of it. Mostly, this improper use consists in exaggerating the extent to which men act, and shape the institutions under which they live, according to clearly perceived ends that they consciously wish to realize in the most rational way. This is why the teleological error may be called a particular instance of the wider category of rationalist errors. It is interesting to note, however, that Aristotle was quite free from the teleological error in matters outside of his social science. In Physicae auscultationes (II, 8) he recognized, for instance, that our teeth are adapted to chewing food, not because they were made for this purpose but, as he thought, because individuals who are by accident endowed with serviceable teeth have a better chance of surviving than those who have not. What a curious piece of Darwinism!
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The Source has been:
Joseph Schumpeter, History of Economic Analysis, Allen & Unwin 1954, Routledge 1981
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