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From Adam Smith to Maynard Keynes

From Adam Smith to Maynard Keynes: The Heritage of Political Economy

Series: Heritage
Copyright Date: 1974
Pages: 520
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  • Book Info
    From Adam Smith to Maynard Keynes
    Book Description:

    In this survey of the great exponents of the classical tradition, Vincent Bladen examines the thought and works of Adam Smith, T.R. Malthus, Henry Thornton, David Ricardo, J.S. Mill, Karl Marx, W.S. Jevons, Alfred Marshall, and John Maynard Keynes, and relates their views to modern situations.

    eISBN: 978-1-4426-3208-0
    Subjects: Political Science, Economics

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-x)
  3. Foreword
    (pp. xi-xiv)

    This is not a history of political economy, but rather an introduction to a few of the great books in the English literature of political economy. Its purpose is to stimulate its readers to read the classics. I hope to induce an interest in these works, and to foster among those who do read them an understanding of them and an appreciation of their quality.

    It is not an antiquarian interest that I want to promote, for I believe that contemplation of the work of the great economists of the past will increase the reader’s understanding of current economic writing...

  4. Introduction
    (pp. xv-xxviii)

    Political economists have been, and are, concerned with wealth. Forty years ago when I said to students that we did not need to apologize for this most of them wondered why I found it necessary to offer a defence. In the last few years many, perhaps most, of my students have been critical of this concern for increasing wealth and rapid economic growth. I have therefore included in Book I a Digression on the pursuit of wealth, a defence in these affluent days of our continued preoccupation with wealth. Of course the ultimate concern is for well-being, welfare, ‘weal.’ That...


    • 1 The role of labour
      (pp. 3-6)

      ‘The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes’ (Ivii). Neoclassical economics, with its preoccupation with the rational allocation of scarce resources between alternative uses, rejected notions of human cost and established the concept of alternative opportunity cost. To understand the classics it is necessary to reconsider the notion of cost and in the course of that consideration one may discover that the old notion is still relevant, though not to the theory of allocation and exchange value.

      Professor E. S. Furniss, inThe...

    • 2 Some problems of terminology
      (pp. 7-12)

      Before turning to the text ofThe Wealth of Nations,some terminology should be clarified.

      Adam Smith uses the term the ‘real price’ of anything to mean ‘the toil and trouble of acquiring it’ (30). This is Boulding’s man-time price; it is the obverse of productivity or of Boulding’s ‘coefficients of transformation.’ Growth in the wealth of a nation, increase in ‘plenty,’ is the result of increasing productivity of labour. If you think of man as buying goods from a reluctant nature with his labour then this increase in productivity may be said to spell ‘cheapness.’ This increasing productivity; this...

    • 3 The Wealth of Nations: the theory of production
      (pp. 13-18)

      The subject of this book is wealth not equilibrium; discussion of the growth in productivity takes precedence over discussion of the operations of exchange in the market. I quote again the opening sentence: ‘the annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life’ (Ivii). Adam Smith went on to outline the basis of a theory of production. How well the nation will be ‘supplied with all the necessaries and conveniences’ is regulated by two different circumstances; first, by the skill, dexterity, and judgment with which its labour is generally...

    • 4 Adam Smith on value
      (pp. 19-33)

      At the end of Chapter IV Adam Smith stated his intention to proceed to examine the rules which ‘determine what may be called the relative or exchangeable value of goods’ (28). First he distinguished two different meanings of the word value. It ‘sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys’ (28). He then stated the paradox: ‘Nothing is more useful than water but it will purchase scarce anything ... A diamond, on the contrary, has scarce any value in use; but a very great quantity...

    • 5 On distribution
      (pp. 34-46)

      In Adam Smith, and indeed in the classical writers generally, wages, profits and rents, the incomes the workers, the capitalists and the landlords, are each treated separately. It was not until the neoclassical revolution of nearly a century later that the pricing of the factors of production was integrated with the pricing of their products. Thus emerged a general theory of distribution rather than three special theories of wages, profits, and rent. In the understanding of the forces making for the distribution of income this constituted a very important advance; but it has too often been assumed that the theory...

    • 6 The neglected and exciting Chapter XI: on the rent of land
      (pp. 47-57)

      In Chapter VII Adam Smith had treated rent as price determining, as one of the costs, along with wages profits, which must in the long run be covered by the price. Now at the beginning of Chapter XI he said:

      Rent, it is to be observed, therefore, enters into the composition of the price of commodities in a different way from wages and profit. High or low wages and profit, are the causes of high or low prices, high or low rent is the effect of it... It is because its price is high or low; a great deal more,...

    • 7 Money
      (pp. 58-61)

      Adam Smith discussed the problems of money at several points. I have already noted his explanation of the reason for holding money: the ‘convenience’ motive in later terminology. Though he did not indicate that the amount held for convenience would depend, other things being equal, on the level of prices (see above, 17-18), surely he thought of the amount needed for convenience at the current level of prices. Just as in the treatment of effectual demand, he identified only one point on a demand curve, or in a demand schedule, so in thinking of the amount to be held as...

    • 8 Productive and unproductive labour
      (pp. 62-68)

      In the ‘Introduction and Plan’ Adam Smith said that the ‘nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion’ according to the ‘skill, dexterity, and judgment with which its labour is generally applied' and according to the proportion between the number of those who are employed in useful labour, and that of those who are not so employed’ (Iviii). The modern economist may be excused if he supposed that Adam Smith was here discussing the importance of high level employment: but, he might ask, why add the words ‘in useful labour’;...

    • 9 Saving and investment
      (pp. 69-74)

      ‘The proportion between capital and revenue, therefore, seems everywhere to regulate the proportion between industry and idleness’ (320). As I have argued in the last section this is not a theory of employment, but of development. If industry is to increase, individuals must decide to hire ‘productive’ labour with a view to profit, rather than menial servants with a view to comfort and prestige. The emphasis is on funds for the employment of ‘productive’ labour rather than for the purchase of materials for them to work up and for equipment to increase their productivity. Adam Smith did, however, recognize that...

    • 10 Town and country
      (pp. 75-78)

      Book III of the Wealth of Nations, ‘On the different Progress of Opulence in different Nations’ is essentially an historical essay in economic development. If one cannot accept his thesis, that the ‘natural order of things ... has in all the modern states of Europe been, in many respects, entirely inverted’ (360), one should not write off the book altogether. There are, in fact, some very useful and suggestive passages, of which that on the mutual gain in trade between town and country is by no means the least important.

      The great commerce of every civilized society, is that carried...

    • 11 International trade
      (pp. 79-90)

      The importation of gold and silver is not the principal, much less the sole benefit which a nation from its foreign trade. Between whatever places foreign trade is carried on, they all of them derive two distinct benefits from it. It carries out that surplus part of the produce of their land and labour for which there is no demand among them, and brings back in return for it something else for which there is a demand. It gives value to their superfluities, by exchanging them for something else, which may satisfy a part of their wants, and increase their...

    • 12 Laissez faire
      (pp. 91-95)

      I propose to discuss Adam Smith’s case for laissez faire at some length, not just to ensure a fair of his case, but because misinterpretation of Adam Smith, and of the classical economists generally, has led to a serious misunderstanding of the modern doctrine of economic liberalism. This latter is an essential element in the philosophy of the West; and in the competition of ideologies it is important to understand, and to clarify for others, the position we seek to defend.

      All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple systems...

    • 13 The education of youth
      (pp. 96-100)

      The education of ‘people of some rank and fortune’ should ‘naturally’ be financed by the fees which student ‘pays to the master.’ ‘Where the reward of the master does not arise altogether from this natural revenue, it is still not necessary that it should be derived from that general revenue of the society, of which the collection and application are ... assigned to the executive power’ (716). There are public endowments the income from which supplements the fees. Adam Smith, whose experience of life in an endowed Oxford (Balliol) had been one of almost complete neglect, devoted many pages to...

    • 14 The canons of taxation
      (pp. 101-103)

      Before entering upon the examination of particular taxes Adam Smith ‘premises the four following maxims with regard to taxes in general,’ maxims that have come to be known as ‘canons.’

      First: ‘The subjects of every state ought to contribute towards the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state’ (777). We accept the proposition so far as ability to pay goes, but we no longer argue that this is consistent with proportional taxation. Clearly the very poor are not able...

    • Digression 1: Consumer sovereignty
      (pp. 104-113)

      When Adam Smith explained how supply suits itself to effectual demand he was expounding a doctrine of equilibrium, but he was also expounding an essential ingredient in the case for laissez faire. The price system, given a high degree of competition, would produce an allocation of resources in accordance with the desires and preferences of the consumers, that is of the people. This to Adam Smith appeared acceptable because he believed that the individual citizen was better able to judge what would contribute to his happiness or welfare than any government. I do not think he would argue that the...

    • Digression 2: The pursuit of wealth
      (pp. 114-122)

      Adam Smith was concerned with the wealth of nations and its increase, with the conditions under which ‘the nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion’ (Ivii). Edwin Cannan, Adam Smith’s great modern editor, opened his elementary text,Wealth,with these words: The really fundamental questions of economics are why all of us, taken together, are as well off - or as ill off, if that way of putting it be preferred - as we are, and why some of us are much better off, and others much worse off...

    • Digression 3: On competition
      (pp. 123-126)

      The case for laissez faire in Adam Smith depended on the expectation that there would be active competition. This was partly the product of static analysis: monopoly elements would impede the process by which supply ‘suited itself to effectual demand.’ Competition was the condition which guaranteed thatexistingresources would be appropriately allocated and that prices would be kept down to existing costs. Modern elaboration of models of perfect competition has improved our understanding of this process but it has distracted attention from the dynamic view of the classical political economists, who were concerned with growth and development. The case...


    • Introductory statement
      (pp. 129-129)

      Some of the work of the English Classical School of Political Economy will be discussed in this part. I shall confine myself to a few books, which I hope to persuade my readers to read, it is to be hoped with greater profit as a result of my interpretations.

      I shall begin with theFirst Essay on Population, by T.R. Malthus, and then discuss Henry Thornton’sPaper Credit of Great Britainand the monetary views of David Ricardo and T.R. Malthus. The Ricardian theory of value and distribution will be approached via theEssay on the High Price of Corn...

    • 1 Malthus and population
      (pp. 130-143)

      We can make only rough estimates of the population of England and Wales before 1801 when the first census was taken, but we probably now know better what was happening than did Malthus and the economists of that early period. It seems that the population had remained more or less stationary for several centuries before 1700, with the birth and death rates at about thirty-five per thousand. In the first half of the eighteenth century there was slow growth, from five-and-a-half to six-and-a-half millions, but there was no general recognition of this growth, After 1750 an era of rapid population...

    • 2 Malthus: the economist
      (pp. 144-153)

      To alleviate the distress generated by this urban and rural poverty was the purpose of the ‘poor laws.’ Malthus examined their effect in some detail, and his views were very influential for a century. I shall report them rather fully and make brief critical comments as I report. The key-note is struck immediately: the poor laws of England ‘have spread the general evil over a much larger surface’ (74). It is a ‘matter of great surprise’ to many ‘that notwithstanding the immense sum that is annually collected for the poor in England, there is still so much distress among them....

    • 3 The paper pound: Thornton, Ricardo, and Malthus
      (pp. 154-175)

      The prime object of this chapter is to direct attention to the great book by Henry Thornton,The Paper Credit of Great Britain(1802): discussion of the monetary views of Ricardo and Malthus will be brief and will grow out of discussion of Thornton. I hope that the quality of Thornton’s work will become obvious as I expound his views, but I would like to quote from two of his modern admirers. First, Professor Hayek, who edited the modern reprint of thePaper Credit:‘Although Thornton’s merits have long been overshadowed by the greater fame of Ricardo, it has now...

    • 4 The Ricardian theory of value and distribution
      (pp. 176-205)

      Just as Ricardo’s monetary writings grew out of the controversy over monetary policy so his theory of value and distribution was, in its first expression, a product of controversy over the Corn Laws. A brief examination of the historical context will show the drastic change in the climate of opinion resulting from three pamphlets;Essay on the Application of Capital to Land(1815) by Sir Edward West, Observations on the Corn Laws (1814) by T. R. Malthus, and thelnfluence of the Low Price of Corn on the Profits of Stock(1815) by David Ricardo.

      The pattern of protection to...

    • 5 John Stuart Mill, general characteristics
      (pp. 206-227)

      Though Mill had been raised in the Ricardian tradition, hisPrinciples of Political Economyis in the tradition of Adam Smith (and Malthus) rather than of Ricardo. The title suggests this:Principles of Political Economy with Some of Their Applications to Social Philosophy.The Preface to the first edition elaborated the point made in the title. Of Adam Smith’s work Mill said:

      The most characteristic quality ... is that it invariably associates the principles with their applications. This of itself implies a much wider range of ideas and topics, than are included in Political Economy, considered as a branch of...

    • 6 Mill’s Principles
      (pp. 228-271)

      While Mill the Preacher might doubt the importance of increasing production except in ‘the backward countries,’ Mill the political economist was more realistic and put the problem of production, the causes of productivity and of increasing productivity, at the forefront of his study. Perhaps this was related to his expectation of continued population increase: increasing accumulation and increasing productivity would be necessary even if no further improvement in standards of living were desired; and whatever improvement in the condition of the poor might be achieved by redistribution with a stationary population, the existing standard could not be maintained with increasing...

    • 7 Karl Marx
      (pp. 272-316)

      In my introductory remarks to Book Two I have said that I propose to limit my discussion of the work of Karl Marx to those aspects which seem to me to be important for the improvement of ‘bourgeois’ economics. Perhaps I may rephrase this, in view of the context of this chapter, and say, important in understanding the development of the classical literature of political economy. I shall confine my study to two of his works,The Communist Manifesto(1848) and volume I ofCapital(1867). As always, my hope is that I shall persuade my readers to read these...

  7. Book Three AFTER MILL

    • Introductory statement
      (pp. 319-321)

      For ten or twenty years after the publication of Mill’sPrinciplesEnglish political economy was stagnant. True it was at the zenith of its popularity, but the science was resting on its laurels, showing no signs of growth, believed by its chief expositor, and even more firmly by the public, to have reached finality. There was, however, a strong undercurrent of revolt againsta prioritheory and of enthusiasm for the historical method. I do not propose to discuss the work of the Historical School but some indication of its character is necessary as an introduction to the work of...

    • 1 William Stanley Jevons
      (pp. 322-357)

      Jevons recorded in his Journal that he had forwarded two papers to the meeting of the British Association.

      I was informed by the Secretary that they were read before the F Section and the second was approved of: (1) A ‘Notice of a General Mathematical Theory of Political Economy.’ (2) ‘On the Study of Periodic Commercial Fluctuations with five diagrams.’ Brief abstracts are contained in theReport of the Proceedings,1862, pp. 157, 158. A fuller explanation and publication of the above-mentioned theory is deferred until a more suitable period for establishing a matter of such difficulty.¹

      It was not...

    • 2 Alfred Marshall
      (pp. 358-404)

      Jevons had taken a giant step towards modern economics: Marshall went further and may be said to have founded modern economics. For that reason it is more difficult to write about Marshall. To write about his work is to discuss a developing theory of value and distribution explored by him, developed by his pupils and still developing. In a sense we are all Marshallians: but we have largely ceased to read Marshall and this I consider to be a loss. I shall try to throw some light on the character of his contribution and hope to interest some students to...

    • 3 John Maynard Keynes
      (pp. 405-491)

      Paul Samuelson once said:

      It is impossible for modern students to realize the full effect of what has been advisably called the ‘Keynesian Revolution’ upon those of us brought up in the orthodox tradition. What beginners today often regard as trite and obvious was to us puzzling, novel and heretical... To have been born as an economist before 1936 was a boon -yes. But not to have been born too long before:

      Bliss it was in that dawn to be alive,

      But to be young was very heaven.

      TheGeneral Theorycaught most economists under the age of 35 with...

  8. Notes
    (pp. 492-502)
  9. Bibliography
    (pp. 503-512)
  10. Author index
    (pp. 513-516)
  11. Subject index
    (pp. 517-520)