Economic Philosophies

Liberalism, Nationalism, Socialism: Do They Still Matter?

Alessandro Roselli

• Publisher: Palgrave Macmillan
• Year: 2020
• ISBN:
  9783030533175
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The book shows the ideological underpinning of the economist's work, and the ideological perspectives are those that have largely prevailed in the last couple of centuries: liberalism, nationalism and socialism. It is on the ground and strength of these ideologies that systems of political economy have been built. Roselli explores the connections between theory and value judgements to identify the philosophical premises behind the economic reasoning of economists as diverse as Smith, Ricardo, Marx, Pareto, Keynes, Hayek, among others.

Liberalism originally leaned towards an unhindered laissez-faire, then towards a wider role of the State in the economic system, under the influence of socialist ideology, then again it has relied on an individualistic approach to issues of wealth production and distribution; more recently the unrealiability of this approach has been revealed by systemic crises, suggesting new reflections and uncertainties about the coherence of economic reasoning with the liberal idea: an institutional and historical perspective may open new spaces to the understanding of a liberal and capitalistic economy.

The vicissitudes of economic nationalism, its statist and protectionist features, its decline and recent resurgence are examined, being unclear what shape it is currently taking from an economic and political viewpoint. This is particularly obscure in the case of that specific form of nationalism called populism.

The decline and fall of Marx's historical materialism cannot hide the inherent contrast of interest between the two sides of a labour contract. The lasting legacy of socialism is the enduring and multiform relevance – from a cowed labour force to environmental issues - of social themes in modern economies.

© The Author(s) 2020

A. RoselliEconomic PhilosophiesPalgrave Studies in Classical Liberalismhttps://doi.org/10.1007/978-3-030-53317-5_1

Begin Abstract

1. Ideologies and Political Economy in the Nineteenth Century

Alessandro Roselli¹

(1)

City, University of London, London, UK

Keywords

Classical schoolNeo-classical schoolGerman historical schoolMarxist historical materialism

End Abstract

1.1 Schumpeter: At the Origin of Political Economy

Joseph Alois Schumpeter has been one of the few critical minds that have tried to go to the core of economic science. In an essay he wrote more than a century ago, he observed that “the science of economics, as it took shape towards the end of the 18^th century, had grown from two roots which must be clearly differentiated from one another”. The first root originated in the study of philosophy, specifically in that strand of philosophy which considered social activities as the fundamental problem, as the essential element of the world vision. The other root reflected the views of “people of various types” whose interest was focussed on actual, practical matters of their daily lives.¹

Regarding the first stream of thought the social world—until then accepted either as evident in itself and therefore not deserving special attention, or as a mystery explicable only in supernatural, religious terms—was seen in a different perspective, as an intellectual problem to be dealt with natural, not supernatural, methods, based on empirical observation and factual analysis.² For a true understanding of the social world, it had to be explained in rational terms, that is by means of a cause–effect relation in human behaviour. Moral philosophy, as a unity that resulted from these reflections, included Theology, Ethics, Jurisprudence and Economics. “In this organic unity one element affects all the others, almost every thought is of importance for Economics as well”. And at this point Schumpeter names Locke and Hume: “Never again was philosophy to such an extent a social science as at this period”.³

Regarding the other root, the interest in practical, daily matters meant that, differently from the first, it did not see human activity as, per se, problematic. Thinkers belonging to this second stream, on one side rich in business experience, were on the other side devoid of scientific background and reluctant to raise philosophical questions. One can understand why—Schumpeter adds—some excellent beginnings did not have any meaningful follow-up, because, if the immediate, practical problem had been solved, no need was felt of additional and deeper reflection. This sort of literature revealed its freshness and fruits in the direct observation of the social world, but remained fruitless beyond that. However, this “vulgar” economy (the adjective is Schumpeter’s, and was previously used by Marx, however in a slightly different meaning⁴), based as it was on the reality of the business life, gave an important contribution to the rising political economy. Over time, mostly in England, the experience of practical life started being fertilized by a mental habit of a scientific kind: for instance, “Great progress was made when the ‘bullionist’ conception was given up, and people realized instead that exchange rates and balance of trade were correlated”.⁵

This sort of cross-fertilization of practical behaviour and theoretical thinking assumed different character in different countries. In England, political conditions related to parliamentarism favoured an open debate in the public opinion and a pressing need for economic analysis. Elsewhere, autocratic governments discouraged these discussions of political economy. In Germany, the low level of a rational discussion on economics was the result of years of religious wars and reflected a lack of free discussion. There, the adoption of foreign models hindered any original development of economic science. On the other side, in no country as in Germany the State became the object of inexhaustible interest: the State as an essential factor of the process of civilization. “The German not only thought much more about the State than anybody else did but he understood something quite different by the term ‘State’…than Englishmen or Frenchmen [understood]”.

For the British, their story was about making society free from an oppressive monarch, while for the Germans it meant the affirmation of a strong State from a backward-looking feudalism. Administrative law took in Germany the same place that political economy had taken in England. In England, merchants discussed among themselves in the same way civil servants discussed in Germany. If in England they discussed about economy, this became economic theory; while in Germany this took the shape of political science of the economy. Schumpeter quotes a work by the German neo-cameralist Johann von Justi (1756), whose plan and aim are the same as Adam Smith’s Wealth of Nations (1776): not so distant in terms of time, but “as regards clarity and insight the two works are separated by the labours of a century”.⁶ As valuable is von Justi’s book in the field of the technique of administration, in economic matters it lacks approaches and methods which were already well available. Von Justi’s practical judgements reveal common sense, but the analytical structure of his work is flawed. It has been recently observed by Werner Plumpe that von Justi shared with Smith the view that common well-being depends on the sound working of the market, but von Justi thought that it is up to the State the duty to channel properly the private interest so that the well-being can be reached by the market. Differently from the Scottish Enlightenment, in the German semantics the role of the State is of fundamental importance. While, according to Smith, the interest of the bourgeoisie was implicitly addressed to the common good through the free exchange on the market (the “invisible hand”), the German tradition thought that the State must be the visible hand that creates that common good.⁷ In Germany, Law acquired the same standing that Economics was playing in Britain; and a doctrine of State economy meant that “the individual problem is never an object of treatment for its own sake but only as part of the whole”.⁸ This systematic approach has characterized economics in Germany “to this [Schumpeter’s] day”, he writes. One may wonder whether this is true up to our own days.

Schumpeter saw well the philosophical roots of the economic science, that is the ideological framework that influences the theoretical choices of the economist, his “wordly philosophy”, to use Robert Heilbroner’s words.⁹

What has just been said about the different attitude that the discussion on economic matters took in Britain and Germany, had a decisive influence on the development of the discipline of economics. The first attitude is focussed on an individualistic point of view, centred on the individual as a rational agent, and therefore assuming that any “unreasonable” action should be seen as a philosophical curiosity if not an uninteresting aberration; the second turns to the State and sees public interest as not necessarily coincident—sometimes in opposition—to the private one.

These philosophies are the premise, often undisclosed, of every economic reasoning that goes beyond what Schumpeter defines as the “vulgar” economy.¹⁰

However, if in their common philosophical origin we make a distinction between the two, it is easy to notice that the first—the vision centred on the rational individual—met fruitfully with the vulgar economy, based as it was on the immediate self-interest in human actions; while the second made more complicated any relation between the rational State and the individual. Indeed, if we put society, or the State as its representative, as the embodiment of rationality, the individual actions do not deserve to be put at the centre of the analyst’s attention. To the extreme, in a sort of ranking, the individual comes always second, after the State. From this perspective, the detachment of the philosophical root (which sees the State as the embodiment of rationality) from the individualistic approach (which looks at the specific person who aims to his personal satisfaction) is certainly wider.

We shall deal first with the approach based on the rational individual (Sects. 1.2–1.5), and then with the one centred on the rational State (Sects. 1.6–1.11). Our reference period in this chapter is mainly the nineteenth century.

1.2 Radical and Moderate Enlightenment: Adam Smith and David Ricardo

Liberalism of the nineteenth century can be seen as centred on the individual, and demanding a new standard governing the relationship between the individual and the State. This standard was based on three main ...

Table of contents

• Cover
• Front Matter
• 1. Ideologies and Political Economy in the Nineteenth Century
• 2. Metamorphoses of Liberalism in the Twentieth Century
• 3. Enemies of Liberalism
• 4. Neoliberalism
• 5. As I See It
• Correction to: Metamorphoses of Liberalism in the Twentieth Century
• Back Matter