Section XIV: The Industrial Revolution, Classical Contemporary Civilization (Ideas and Institutions

Economics, and Economic Liberalism of Western Man)

1958

10. Criticism and Revision of Classical Economics

Robert L. Bloom
Gettysburg College

Basil L. Crapster
Gettysburg College

Harold L. Dunkelberger
Gettysburg College

See next page for additional authors

Follow this and additional works at: https://cupola.gettysburg.edu/contemporary_sec14

Part of the Economic History Commons, and the Economic Theory Commons
Share feedback about the accessibility of this item.

Bloom, Robert L. et al. "10. Criticism and Revision of Classical Economics. Pt XIV: The Industrial Revolution, Classical Economics,
and Economic Liberalism." Ideas and Institutions of Western Man (Gettysburg College, 1958), 55-62.

This is the publisher's version of the work. This publication appears in Gettysburg College's institutional repository by permission of
the copyright owner for personal use, not for redistribution. Cupola permanent link: https://cupola.gettysburg.edu/
contemporary_sec14/10
This open access book chapter is brought to you by The Cupola: Scholarship at Gettysburg College. It has been accepted for inclusion
by an authorized administrator of The Cupola. For more information, please contact [email protected].
10. Criticism and Revision of Classical Economics
Abstract
The work of the classical economists was primarily one of deduction. In a sense it is a tribute to their capacity
to draw corollaries and conclusions from basic principles accepted as established truths. The finely spun
theoretical model which they constructed was not long immune from attack by several quarters. As we shall
see in Chapter XVI, the Marxian Socialists took the labor theory of value and used it to advocate the
overthrow of capitalistic society. [excerpt]

Keywords
Contemporary Civilization, Classical Economics

Disciplines
Economic History | Economics | Economic Theory

Comments
This is a part of Section XIV: The Industrial Revolution, Classical Economics, and Economic Liberalism. The
Contemporary Civilization page lists all additional sections of Ideas and Institutions of Western Man, as well as
the Table of Contents for both volumes.

More About Contemporary Civilization:

From 1947 through 1969, all first-year Gettysburg College students took a two-semester course called
Contemporary Civilization. The course was developed at President Henry W.A. Hanson’s request with the
goal of “introducing the student to the backgrounds of contemporary social problems through the major
concepts, ideals, hopes and motivations of western culture since the Middle Ages.”

Gettysburg College professors from the history, philosophy, and religion departments developed a textbook
for the course. The first edition, published in 1955, was called An Introduction to Contemporary Civilization and
Its Problems. A second edition, retitled Ideas and Institutions of Western Man, was published in 1958 and 1960.
It is this second edition that we include here. The copy we digitized is from the Gary T. Hawbaker ’66
Collection and the marginalia are his.

Authors
Robert L. Bloom, Basil L. Crapster, Harold L. Dunkelberger, Charles H. Glatfelter, Richard T. Mara, Norman
E. Richardson, and W. Richard Schubart

This book chapter is available at The Cupola: Scholarship at Gettysburg College: https://cupola.gettysburg.edu/
contemporary_sec14/10
 10. Criticism and Revision of Classical Economics

The-wnrk of the classical economists was primarily one of

deduction. In a sense it is a tribute to their capacTTy^fo^raw
corollaries and conclusions from basic principles accepted as
established truths. The finely spun theoretical model which

* Ibid., pp. 187-190, 231.

 XIV p. 56

they constrmcted was not long immune from attack by several

quarters. As we shall see in Chapter XVIp the Marxian Social­
ists took the labor theory of value and used it to advocate the
overthrow of capitalistic society.

Another criticism came largely from outside England, much

of it from German writers who argued that the economic life of
a nation is something which cannot be studied deductively,
apart from its historical development. Although The Wealth of
Nations was translated into German the very year in which it
was first published in England, classical theory never made
much headway in Germany. Here tlie classi"cists were accused of
assuming that the experience of England was necessarily the
pattern which all other industrializing countries would follow.
What was good for England in 1870, the Germans argued, might
not be good for Germany, either then or at any other time.
These writers were esnecially critical of the individnnii
^dsmopolit3"i^»" nf-Adam Smith, reflected in his arguments for
laissez-faire and free trade. To counter his argument that the
worldwide division of labor was a thing to be highly desired,
needs .tJhe jig.tive„^h
^ta_tfi^.tcL-reach his hlgtiest and beyond
that his highest cultural development. To them this meant that
strong nationai,ex;.Qa9!mieff» ,
had cT eaT™priority over the international economy
vej^;?!T~'TTTrErWag'e^ AdST'^ith would become
applicable to them only when all states were as highly devel­
oped as England. In the meantime, Germany needed a vigorous
national economic policy, including tariffs.

The economists who developed this line of thought are

called the German historical school. First among them in point
of time was Friedrjch l.Isl'nTySgi^18461) , a professor and polit­
ical figure who was expelled from Germany because of his liberal
views. He lived in America for seven years (1825-1832), return­
ing to his native country as a United States consul in 1832.
The following brief excerpt from his most important book, ap­
propriately titled The National System of Political Economy
(1841), illustrates some~oT~ETs main ideass

The system of the [classical] school suffers--as wp

have iTlready s"Hdwn7T. , from three main defect§,s^ fir^]>,
TroiT boundles¥~cosmopoJiJ;ianx§m^ which neiTHir recognises
the principle oF rationality, nor takes ijaixj-considera-
tion the satisfaction of its interests ;'s^econdl^„ from a
ad mateglaJLAsm. which everywherje. regards c&iefly the
merfii^chajigeabLe--V-aluei-cJ_Jiiiiiigs without taking into
consider alion--tha-^ men.taJL and politlcalT^the!"~presenII!an d
^he_J[jj^re interests, and the productive powers of the
najtl-on; a^disgrganislng parti'^^ii anH
rgdiyijQi-fsmwhich, "ignoring tR"©'~hature an3"character
of social labotir and the operation of the union of powers
in their higher consequencesj considers private industry
only as it would develop itself under a state of free „
 XIV p. 57

interchange with society (i.e. with the whole human race)

were that race not divided into separate national soci­
eties.
Between each individual and entire humanity, how-
ever, ^stands.-^"^ with its~5r)ec.i3l f^np-nag-e an<i,
literature, Xi:s.nRr,ii]11 ay.^Qrxg.in and history, wjJB
.jiaianoa^.>ajid cust^m^ 1 f»w« and Ingtitutioris,
..of Ell these for existeWe^r^iftdmygn^iice,
ion, and r.ontinuance for tle^^ (
separate territory; "Efs^ietv which uinltlea by a -^^sandK
of mxnd a:^ oTn^^nTerests J combines itseli int6~ one j
idependent whole ^ which recognises the law of right fo:^ / /
/arid within itselfj and in its united character is stilly/ i
/opposed to other societies of a similar kind in their /
/national liberty, and consequently can only under the
I{existing conditions of the world maintain self-existence
' and independence by its own power and resources. As the
individual chiefly obtains by means of the nation and in
the nation mental cultures power of productions, security,
and prosperity, so is the civilisation of the human race
only conceivable and possible by means of the civilisation
and development of the individual nations.
Meanwhile, however, an infinite difference exists in
the condition and circumstances of the vpt't nallomii;
we observe among them giants and"dwarfs, well-formed
bodies and cripples, civilised, half-civilised, and bar­
barous nations; but in all of them, as in], tb^ nH-fyi„<jnai
hiitnjan hPinp^ exists the impin:gg'"Crf"^elf-preservatxQji. the
striving for fmproveraeriT which is implanted by nature.
It is the task of politics to civilise the barbarous na­
tionalities, to make the small and weak ones great and
strong, but, above all, to secure to them existence and
continuance. It is the task of national economy to accom­
plish tl|e of the-jia^on. ana to
prepare it"foF~aamrssiQn in|o t¥e universal soHetyof /

JTHation in its normal state possesses one common

language and literature, a territory endowed with mani­
fold natural resources, extensive, and with convenient
frontiers and a numerous population. Agriculture, manu­
factures, commerce, and navigation must be all developed
in it proportionately; arts and sciences, educational
establishments, and universal cultivation must stand
on an equal footing with material production. Its consti­
tution, laws, and institutions must afford to those who
belong to it a high degree of security and liberty, and
must promote religion, morality, and prosperity; in a
word, must have the well-being of its citizens as their
object. It must possess sufficient power on land and at
sea to defend its independence and to protect its foreign
commerce. It will possess the power of beneficially af­
fecting the civilisation of less advanced nations, and by
means of its own surplus population and of their mental
and material capitlal to found colonies and beget new
 XIV p. 58

nations.
A large populations, and an extensive territory en­
dowed with manifold national resourcesj are essential
requirements of the normal nationality; they are the fun­
damental conditions of mental cultivation as well as of
material development and political power. A nation re­
stricted in the number of its population and in territory,
especially if it has a separate language, can only possess
a crippled literature, crippled institutions for promoting
art and scienceo A small State can never bring to complete
perfection within its territory the various branches of pro­
duction, In it all protection becomes mere private monop­
oly, Only through alliances with more powerful nations,
by partly sacrificing the advantages of nationality,, and
by excessive energy;, can it maintain with difficulty its
independence, •

List's work was followed, especially after 1870., by^mauy

treatises containing factual
Classicists had^.MSuaIIl__a3LQi.d<Mi, ano of tho results of the
work~oT~This school was to promrLle the study of economic his­
tory^ For some years students from the major states of the
Western World flocked to German universities to learn econom­
ics as it was taught by the German historical economists,

A cayeful study of the corpus of cla,s.?i,r.a.l econQpiic theory

w i11, 1 ead ,1 o t he caiicOjAalxux-J^^al.^^ he..-^iaBmle^e-aad-
seif-consistent body of thoagrht whirb tha word "classical" sugj^
g^esTs^ Almog±_fxom the very beginniag it prQducjeil.j;a:j44Heg froiT
WTfTila Its own ranks who anticipated many of the lines which
jpevisionist and other thinkers were later to take. These crit­
ics opposed thp> srant regard for the facts .w.hleh.-.characterized
some of the classicists in their haste to generalize. In a
vejir"sTiiriTix~To~~tlG¥~generaTindictment of tlie 'Enlightenment
already noted^ they Inferred that a careful study of the econ­
omy would cast seriousdoubx on the vaiiaity of picturing it as
a_^imple, harmonious meicEiSIsm of smoothly working parts^ "They
questioned whetire]F~self-interest and community interest could
be reconciled in an atmosphere of laissez-faire as often as the
classical economists thought; competition had a distressing way
of leading to monopoly. At a time when evolution was becoming
a, popular doctrine j they questioned-the ^ imi vpirsf:^
^ w h o ^ c f a — t o w a r d a l o nfy-Tiun iij>q li 1 1 hrium
in which the static forces prevail o^LSr-the
^RFnarHcl' neifKer wages, rent nor profits seemed to be moving in
the directions which Ricardo suggested. They questioned whether
man really r'atinnal f.rpatnirp — the "economic jiiaa" -=
that he was sometimes pictured to be;, a creature~^o always
weighed things in measurable terms of pleasure and pain, and who

* FriedrichList, The National System of Political Economy,

trans, Sampson S, LTbyd (London; Longmans, 6feen7 and Co., 1885)
pp. 174-176,
 XIV Po 59
was Insensitive to any coasideration, that was not economic in
nat-ure, to anything which did r^ot affect his purse.
MaJLthms himself,, departing in n'omeroias ways from the anal­
ysis of Ricardoj, illustrates this criticigm of theory
from the inside» ir^ir~BeTdre~the factory system made its ap­
pearance, there was a long record of 'unevenness in the level
of economic activity in Western Europe. This can be traced to
such factors as warSj changes in the weather^ and influxes of
precious metals into the money system„ Now the rhythm of pros­
perity and depression which we know as the trade or business
cycle was more pronounced than ever before. Since the prole­
tarian was almost always completely dependent upon his wages
for the support of his family, periodic depression meant un­
told misery and hopelessness for hlmo Jean B.aptiste Say, who
popularized and revised Adam Smith on the ContinentT''haa formu­
lated a law bearing his name (1803) which held that long-run
overprodactlon was lni.possible„ He 6.xpla.ined that tha SUPPIV of
goods iinmedialjal^^ig,y;ea;i;:,ps..±±.a . nyfiiii d^and for «gi
if"'"tnere Is an overproduction in shoes., it means simply that an
error has been made^ and that there Is underproduction in some­
thing else J perhaps soap. This is a temporary situation which
will adjust itself quickly if there is no outside interference.
The price of shoes will drop; more shoes will be bought and
fewer may be produced for a time. The price of soap will in­
crease,, and a similar self-adjusting process will occur there„
In reply 5 Malthus ar-pri f hgt ^ s TOintives were not
as simple as Sav'^s law had made them,, and that commodities
couia not De treated as "so many mathematical figures." Peonl^
engage ^ ^ ''•'e.a..sr>ns , aoTne nf fnv
,the purpinwp? Q'a-t?iiy And;, warned .Maithus J, if~iaving is e^es-
siveinan economy., and goods are not purchased,, depression in­
stead of self-adjustment might result. He urged the government
to be prepared to undertake a program of public works in times
of heavy uaemployment, This analysis has exercised an Influence
on recent t.hought about the business cycle.
By 1870 a comprehensive resurvey of classical economic
theory was In progress in England^, Germanys Austria^ and else­
where. If but one name within the continuing classical tradi­
tion must be identified with this developments it should be
that of Alfred (1842-1924) <, who was for many years
(1885-1908) professor of political economy at Cambridge Univer­
sity. His Jgrinciples of Economic:S (1890) went through eight
editions durJn^ his lifetime and long occupied the place as a
text formerly held by John Stuart Mill's book. Marshal1"s wor|g
in 1 f»a]i th.pnyv_, wh1 r.b
yith so^e 1s ,stm r.a,1 by _
^'ic'kii.'.mullis^.^. .although^ as we shall see in
Chapter XXI, since the 1920°s it has been under strong attack
in the writings of John Mayn.ard Keynes (1883-1946) and his
followers.
 XIV p. 60

Marsi^ai'^, tempered and expanded much of classical theory In

the light of the criticisms advanced against it from many quar-
• -Bg-ComMjaed the deductive and IxidTi^rtlappT^na^hps to^
—iji-~a,».,3v,ay«.-whj.£h,.,.made 1 t^,,^posg^J?Xe-.^,ox»«S3i|«t!L„,.K,6X.9«tSii«-Jiis—

arrj^vlng at .ei:nnomic-'tyu-th. He was aware that the rise of the

gjiant business corporation and the growing power of labor organ­
izations had introduced new factors which greatly altered the
characteristic market situations of Ricardo"s time. Monopolis-
tlji_.CQliditlons were becoming much mor^ pr^yaJfint thaji.Zajay±J3SSg'
3:^^mb ling' pure competition, They had to be taken into account
as factors in~"expralning price determination ^ and in a period
shorter than the long run which had so absorbed the classicistso
By Marshall's time the greatly increased production of commod­
ities j by creating a hitherto unknown abundance» had attracted
the attention of economists to consumption, a branch of their
discipline which, in spite of Adam Smith's admonition, they had
hitherto neglected. As never before they became Interested in
the inequality of the distribution of income as a phase of con­
sumption and as a source of unhapplness and social unrest. Per­
haps most Important of all for the future, by the end of the
nineteenth century economic theory was losing some of that air
of finality which had led many of its adherents to believe that
man was powerless before the inflexible natural laws which had
produced the status quo with all of its apparent inequities.
As we shall see in Chapter XVII, the conviction that men in
so^ileJ:¥-Actlng together could really changf -in i-h^ h-s-
re^ons they wi^hed.J3a;£ta^^-.a^e3g__ffie.mi^ the task of eco­
nomic liberalism. As Marshall himself put it:

0 o oNow first are we getting to understand the extent to

which the capitalist employer, untrained to his new duties,
was tempted to subordinate the wellbelng of his workpeople
to his own desire for gain; now first are we learning the
Importance of insisting that the rich have duties as well
as rights in their individual and In their collective ca­
pacity; now first is the economic problem of the new age
showing itself to us as It really is. This is partly due
to a wider knowledge and a growing earnestness. But how­
ever wise and virtuous our grandfathers had been, they
could not have seen things as we do; for they were hurried
along by urgent necessities and terrible disasters.
But we must Judge ourselves by a severer standard.
For we are not now struggling for national existence; and
our resources have not been exhausted by great wars....
But the nation has grown in wealth, in health, in education
and in morality; and we are no longer compelled to subor­
dinate almost every other consideration to the need of
Increasing the total produce of Industry,
In particular during the present generatimn thiR i n ­
creased prosperity has made us rich and strong enough_to
mpose on free enterprise; some temporary
ffia'feHal loss being subletynr "rOTft-siFf" ftf «
^nd greater ultimate gain. But these new restraints are
 XIV p. 61

different from the old. They imposed not as a means

o^ class domination: but with the..pjuiiLose of _dMjejaillng
t.hft wpak; and especially children
children j in matter& in which they are not .abi u^e
thei forces of competition ia-their OWB, defence „ "TKe" aim
is to devise J deliberately and promptly, remedies adapted
to the quickly changing circumstances of modern industry;
and thus to obtain the good, without the evil, of the old
defence of the weak that in other ages was gradually
evolved by custom,
gradually we may attain to an order of social
life in which the common good overrules individual caprice,
even more than it did in the early ages before the sway
of individualism had begun. But unselfishness then will
be the offspring of deliberate will 5 though aided by in­
stinct individual freedom then will develop itself in
collective freedom; — a happy contrast to the old order
of life 5 in which individual slavery to custom caused
collective slavery and stagnation, broken only by the
caprice of despotism or the caprice of revolution„ *

JThe-g^^eat-jand permanent contribution of the classical econ-

qmi§ts^ wdiscipline of ernnnmirs anfi-search
for the prlncip 1 es which thas.,JihQugM..je.xB 1 ai ned hssLJliejLjaake
their. 11vi-ng. Thefr" analysis set many of the directions which
students of economics have taken ever since. A considerable
portion of that analysis has survived in recognizable form to
the present day. The classical economists could scarcely be
expected to comprehend in their day the varied impact which the
Industrial Revolution continues to have on Western life. Most
of them were at a loss in fully understanding the developments
of their own time. Perhaps they could be expected to have
amended their theories sooner. Even here., John Stuart Mill
demonstrated that the classicists were capable of entertaining
new ideas.

In conclusion, the student might consider the opinion of

an outstanding economic historian on the nature of political
economy as it has continued to develop since the time of Adam
Smith. Sir William J„ Ashley^(1860-1927)^as probably the first

positi^ at Harvard University (1892-1901) before returning to

his native England and the University of Birmingham (1901-1925).
The following is taken from ^ Introduction to English Economic
History and Theory (1888);

Political TCp.nnnmy is not a body of absolutely true

doctrines, revealed to the world at xhe end of the last
ana the Beginning of the present century,,but a number of
more thAnr-iAs^ p;p^f^T-ajriggTlons^

* Alfred Marshall, Principles of Economics (London; Macmlllan

and Co., 1898), pp. 47-49.
 XIV p. 62

NG age Gince MEN..had beeN_w 1;^-

QujL^xts .€G<>nom4G-."ideas. Political Economy was not born
fully armed from the brain of Adam Smith or any other
thinker: its appearance as an independent science meant
ojily ..the dlsentang,lement of economic...lrjam philosophical
and.political specuXationo
Just as the history of society, in spite of apparent
retrogressions J, reveals an orderly development, so there
has been an orderly development in the history of what men
have thought, and therefore in what they have thought con­
cerning the economic side of life.
As modern economists have taken for their assumptions
conditions wE'lch only in modern times have begun to exist.o
so "'earJi,e,r or uncon-
sclously. on-^cQndltlcms,..tli^ii-..presferjt.- Hence the theories
o^ thepa^ must be judged in relation to the facts of the
past, and not in relation to those of the present.
History seems to be proving that no great institution
has been without its use for a time, and its relative
justification. Similarly, it is beginning to appear that
no great conception, no great body of doctrines which
really influenced society for a long period, was without
a certain truth and value, having regard to contemporary
circumstances.
Modern economic theories therefore, are not aai|§|r
gally''fTCTgT~Tf!re^ 'fFtt'e' hel
postulate Idid not
n, linTe-SS cinPTPty
_Ltsre^ when anr'l c>-<-Tr T-iof>r.Tnog gl-.
hpontnpg g|ationarv ^ the con-
ditionsji,11 have changgdcai. *

* W. J, Ashley, An Introduction to English Economic History and

Theory (New York: G, P. Putnam's Sons, 1888), pp, x-xl.