England Economic History

England Economic History

Economic Thought in England From 1870 To About 1936

The more recent developments in the economic thought of England have been touched upon to some extent in preceding chapters. Thus Jevons, Marshall, and Keynes have been discussed; and the concrete-historical work of Bagehot, Leslie, Toynbee, Rogers, and Ingram has been outlined. Thornton and others, too, were mentioned in connection with the downfall of the wages-fund theory. In short, the way has been prepared for a brief general statement concerning the development of economics in England since 1870.

For about a generation after 1850, the Ricardian economics as restated by Mill reigned supreme in England. The tone of the system as a whole was decidedly materialistic, objective, and neglectful of ethical factors, and, needless to say, deduction was its logical weapon. It was highly individualistic. Moreover its spirit, and that of its followers, were quite absolute and dogmatic. To be unorthodox in economics was a serious reproach.

The End of Classicism

Henry Fawcett (1833-1884) and John Elliott Cairnes (1824-1875) may be named as the leaders of the later Classicists. Fawcett did little more than present a compendium of Mill's economics. Cairnes, however, was an acute and original thinker, whose works, entitled Some Leading Principles of Political Economy and Character and Logical Method of Political Economy, have had much influence. The former is notable for its portions on Value and International Trade. It is in the part on value that the author discusses non-competing industrial groups, the theory of which will ever be associated with his name. In view of Thornton's and Jevons's attacks upon the Classicists, Cairnes restates and modifies the theory of value, emphasizing the effect of prospective supply, and defining demand as desire accompanied by purchasing power measured by the quantity offered. At this point, he severely criticizes Mill.

His thought is notable for its rejection of the attempt to treat entrepreneur expenses as "costs" which can determine value. He treats cost as subjective — the sacrifices of labor, abstinence, and risk — and undertakes to show that competition, where it exists, tends to make the entrepreneur's money payments correspond to such sacrifices. It is in this connection that he develops his theory of non-competing groups.

In method, Cairnes was on the whole deductive. He held that with nothing but strict induction the economist could reason till the crack of doom and get nowhere. Like Senior, he stood for a conscious and deliberate abstraction in order to keep economics aloof from "considerations of equity and expediency." His definition of economics is typical: "the science which, accepting as ultimate facts the principles of human nature, and the physical laws of the external world, as well as the conditions, political and social, of the several communities of men, investigates the laws of the production and distribution of wealth, which result from their combined operation." Clearly, this indicates a concept of economic law that is rather exact and absolute; but the inclusion of the social and political conditions of "the several communities" is suggestive of some allowance for institutions and relativity. As compared with Ricardo, the method pursued by Cairnes was an advance, in that he did put many of his deductions to the test of facts.

Cairnes, however, is open to criticism on the score of narrowness. He hardly grasped Jevons's idea of final utility, and consequently saw no good in it. Similarly, he was inclined to state too absolutely the application of his non-competing groups.

But, in a way, Cairnes was in his day the last of the English Classicists. Forces were at work which wrought great modification in the old point of view. In the first place, came a broadening of economic analysis which arose from a recognition of the interrelation of economic and ethical factors; economics became more affected with a humanitarian interest. The labor movement was largely responsible for this development. In the same year that Cairnes died (1875), Parliament passed the Conspiracy and Protection of Property Act, and shortly thereafter the Trade Union Act of (1876), which legislation gave greater legal rights to organized labor. Toynbee was only one of many whose thought was largely colored by sympathy for labor. The attacks of Carlyle (Past and Present, 1843), and of Ruskin, too, no doubt had their effect.

At the same time, the criticisms of the Historical School were working to give a less absolute and abstract cast to English thought. This development began notably with Leslie, who had been influenced by Sir Henry Maine and the German school. It is interesting to note that, just as in the case of France herself, England's attention was attracted to Germany and German thought as a result of that nation's success in the Franco-Prussian War (1870).

And, often associated with the historical point of view, there came a notable development in the biological sciences and the idea of evolution. The names of Spencer, Darwin, and Huxley cannot pass unmentioned here, for their philosophy and method have had no small influence upon economic concepts.

It is difficult to say just what progress has been due to the mere activity of theoretical criticism proceeding from within, as it were, and uncolored by the above developments from without. For example, it might not be easy to say how much of the downfall of the wages-fund theory was due to the activity of labor organizations, and how much due to a recognition of the inherent logical weakness of the theory. Such progress inside economic thought, however, has been exemplified in the work of Cairnes, Jevons, Marshall, and J. A. Hobson; and the theories of the American economist, F. A. Walker, had great influence in England.

All these developments involving the overthrow of "orthodoxy" came to a head in the decade 1870-1880, and, for a time, economics was a much discredited science.

It is notable that neither Cairnes nor Jevons can be said to have caused the restoration of economics in England. Cairnes accepted too much of the Classical tradition, and above all, his resort to extreme abstraction was not in accord with the practical empiricism which characterizes English thought. Jevons's brilliant thought was too critical and revolutionary — he sought to overthrow the old, and to establish at once a new system based upon marginal utility. It, too, was perhaps too obviously abstract and "theoretical" to be readily adopted in England.
Meanwhile, there had been no effective teaching of economics in the colleges and universities, — "no real working professorship of political economy in Great Britain comparable to the ordinary professorships in any German university," as Professor Ashley puts it. Then Jevons made the most of a chair of political economy and logic at Owens College; a chair was founded at Edinburgh in 1871; and, above all, in 1885 the chair at Cambridge was taken by Professor Marshall, insuring effectiveness at one of the older universities and resulting in the development of the famous "Cambridge School." In 1890 the Royal Economic Society was founded, and the following year the Economic Journal, with Professor Edgeworth as editor, became its organ. The Economic Review, the organ of the Christian Social Union, was established in the same year. From this time on, the spread of economic teaching was rapid.

Two economists may be mentioned as representing the transition from the old English Classicism to Neo-Classicism — Sidgwick (1838-1900) and Nicholson (1850-1927).
Henry Sidgwick's Principles of Political Economy was published in 1883, and undoubtedly did much to regain for economics some of the respect it had lost. The book is based upon Mill, amended by Jevons's theory, with Walker's wages theory included. It is notable, too, that the Germans, Held and Wagner, are referred to.

The careful student will ever remember that Sidgwick was primarily a philosopher, and that his chief contribution to economic thought was his system of ethics. His "rational utilitarianism," influenced by the early Scotch philosophers and Kant, rejects the empirical realism of Bentham and Mill, and sets up intuition, or an instinctive "moral sense," as the test of the good. Also, while making a place for evolution, he rejects the materialistic hedonism of Spencer's utilitarianism which is based on mere survival. This system of ethics Sidgwick applied in his economics, and it influenced the Cambridge School — especially Pigou — to take a moderately idealistic attitude toward social welfare.

In his economic theory, Sidgwick lays marked emphasis upon the theory of value and exchange. While holding that Mill's theory of value is sound in the main, he points out that "equation of supply and demand" is deficient as an explanation of exchange value when both supply and demand vary with price. The fact that cost is to some extent determined by demand is also indicated.

In connection with the theory of international values, Mill is again criticized, and originality is shown in the discussion of the importance of costs of carriage in the problem.

Sidgwick analyzes the Ricardian theory of rent into a confusion of three different ideas: (1) a historical theory of rent origins, (2) a static theory of present tendency, (3) a dynamic theory of tendency to increase in the future as population and wealth increase. This point is characteristic: Sidgwick's work is subtly analytic, and his critical examination of the fundamental concepts of economics is noteworthy.

J. S. Nicholson, in his well-known Principles of Political Economy (1893-1901), presented a survey of economic principles based on Mill, adapting the Classical doctrines in the light of historical criticism on the one hand and of advanced mathematical analysis on the other. The treatment of relative prices, and of profits and wages, has been thought especially noteworthy. While accepting much of the Classical economics, and rejecting the mathematical tendency that came with the marginal-utility economics, Nicholson adopted the ideas of consumer's surplus and quasi-rents. In fact, both he and Sidgwick were closely related to Marshall and the Cambridge School of economic thought.