"New political economics" then and now: Economic theory and the mutation of political doctrine - Historical Perspectives

American Journal of Economics and Sociology, The,  Jan, 2002  by A.M.C. Waterman

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I

Introduction

THE TERM "POLITICAL ECONOMY" seems to have entered modern discourse for the first time in 1611 in a treatise on government by L. de Mayerne-Turquet (Groenewegen 1987, pp. 904-906). Four years later a fellow "Consultant Administrator," Antoyne de Montchretien, Sieur de Watteville (c.1575-1621), published his Traicte de I'oeconomie politique ([1615] 1889), which though "a mediocre performance and completely lacking in originality" (Schumpeter 1954, p. 168), marks the beginning of an intellectual enterprise that has continued--with some large ups and downs--to this day. The object of that enterprise is to generalize Aristotle's [omicron][iota][kappa][omicron][nu][omicron][mu][iota][kappa][eta] ("economics") to the level of the [pi][omicron][lambda][iota][tau][epsilon][iota][alpha] ("commonwealth" or "state"). For in Aristotle's Politics (1967, pp. 31-32) "economics" is to be construed as "the art of household management" where "household" means a more or less self-sufficient, manorial estate. Hence at the outset "political economy" was an attempt to extend the art of estate management to the needs and resources of a modern nation state, of which France was in the 1600s the foremost example.

It was in this way that Sir James Steuart employed the term in his Inquiry into the Principles of Political (Economy ([1767] 1966). Although Adam Smith rejected the enterprise as futile and harmful, he accepted the usage, but introduced an important analytical distinction between two senses of "political economy." In the normative sense understood by Smith's predecessors and contemporaries (i.e., prescriptions for running France like a manorial fief) the term signifies some "system" of public policy designed to "increase the riches and power" of a country ([1776] 1976, paras. I.xi.n.1; II.5.31; IV.1.3). But in the positive sense that is now orthodox though often contested, "what is properly called Political OEconomy" is "a branch of the science of a statesman or legislator": namely "an inquiry," which is in principle disinterested and open-ended, into "the nature and causes of the wealth of nations" (IV.intro; IV.ix.38; emphasis added).

In this article I shall be concerned with the positive sense of "political economy": that is, as a body of theory that purports to explain economic phenomena. For whatever else has changed, one element of continuity that runs from the political economy of Montchretien and before to that of Joseph Stiglitz and beyond is its inescapable dependence upon theory of some kind.

Another element of continuity is the two-way street that runs between economic theory and political thought and action. In one direction, the "private interests and prejudices of particular orders of men"--not to mention the social and economic circumstances of their time and place--have given occasion to very different theories of political oeconomy," In the other, "[t]hese theories have had a considerable influence, not only upon the opinions of men of learning, but upon the public conduct of princes and sovereign states" (Smith [1776] 1976, p. 11).

A complete intellectual history of the relation between economic and political ideas would look carefully in both directions: to the "context" of the conversation, as well as to the "text" of its recorded exchanges (Skinner 1969). However, I have argued elsewhere that a merely "internalist" attention to "text" can be justified for some purposes (Waterman 1998a, pp. 303-304, 312-313). In this article, therefore, I shall look in one direction only. I shall adopt a rigorously internalist approach, averting my eyes from wars, slumps, classes and cultures, and keeping them fixed on the logic of the ongoing economic-theory conversation. My purpose in so doing is to propose the following strong thesis for debate: The " 'new'political economies" of the present day differ sharply in their ideological implications from those of 50 years ago. Neoclassical orthodoxy provided the intellectual foundations of a collectivist--or at any rate an interventionist and dirigiste--political consensus. But the new political economie s have destroyed those foundations, and have replaced them with economic theories far more congenial to an earlier, laissez-faire consensus born in the European Enlightenment.

The thesis calls for a three-part division of the history of political economy. My story must begin with the "new" political economy of Adam Smith and his successors: a brief reminder of their decisive rejection of the original oeconomie politique of such as Montchretien and Steuart, and of their powerful and influential arguments for widespread laissez-faire. It must continue with the long and gradual retreat from laissez-faire associated with the emergence and development of "neo-classical," marginalist economics after 1870. For as Joan Robinson once said, "neo-classical economics is the economics of socialism." Many of its leading practitioners believed they had discovered a scientific basis for "economic control": the management of a national economy by enlightened administrators acting in the public interest--a sophisticated recrudescence of seventeenth-century oeconomie politique. The story must conclude with a summary of those developments in economic theory in the last 50 years that have destroyed th e rational basis of "economic control," and that now predispose the educated public to a favorable reconsideration of Adam Smith's "natural system of perfect liberty and justice" (Smith [1776] 1976, p. 606).