Economic Thought & Policy in Less Developed Europe

Economic Thought and Policy in Less Developed Europe The essays in this volume explore and discuss the process of diss...

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Economic Thought and Policy in Less Developed Europe

The essays in this volume explore and discuss the process of dissemination of economic ideas among Europe’s less developed countries and regions, as well as the interaction between economic thought and economic policy in different times and places during the nineteenth century. The comparative approach adopted sheds new light on the course of economic development in Europe’s less developed countries in the nineteenth century and the role played by political economy. Topics covered include: economic policy in Denmark; monetary and trade policy in Norway; the influence of the German Historical School in Finland; land Reform and the abolition of serfdom in Russia and in Poland; protectionist, populist and Marxist reactions to liberalism in Rumania; the evolution of economic thought in the Ottoman Empire; monetary thought and policy in Greece; eclectic economic thought in Serbia; the economic theory of civil society in Italy; liberal and protectionist economic policy recommendations in Portugal; agriculture and political economy before and after the Famine in Ireland. With contributions that disclose important insights into national traditions in economic thought and policy, and the diffusion of ideas in Europe, this work will be essential reading for all scholars of the history of economic thought. Michalis Psalidopoulos is Associate Professor at the Department of Sociology, Panteion University of Political and Social Sciences, Athens. He has written widely, in English, German and Greek, on the history of economic thought. His most recent publications include The Canon in the History of Economics: Critical Essays, London, Routledge, 2000 and ‘Institutional constraints and the internalization of economics: The case of Greece’, in The Development of Economics in Western Europe since 1945, edited by A.W. Bob Coats, Routledge, 2000. Maria Eugénia Mata is Associate Professor at the Faculty of Economics, the New University of Lisbon. She is President of the Portuguese Economic History Society, and has been a member of the Board on Political Economy at the Portugese Ordem dos Economistas, the editorial board of Revisita de História Económica e Social, and the Scientific Commission for the Twelfth International Economic History Congress (Seville, 1998).

Routledge Studies in the History of Economics

1 Economics as Literature Willie Henderson 2 Socialism and Marginalism in Economics 1870–1930 Edited by Ian Steedman 3 Hayek’s Political Economy The socio-economics of order Steve Fleetwood 4 On the Origins of Classical Economics Distribution and value from William Petty to Adam Smith Tony Aspromourgos 5 The Economics of Joan Robinson Edited by Maria Cristina Marcuzzo, Luigi Pasinetti and Alesandro Roncaglia 6 The Evolutionist Economics of Léon Walras Albert Jolink 7 Keynes and the ‘Classics’ A study in language, epistemology and mistaken identities Michel Verdon 8 The History of Game Theory, Vol 1 From the beginnings to 1945 Robert W. Dimand and Mary Ann Dimand 9 The Economics of W.S. Jevons Sandra Peart 10 Gandhi’s Economic Thought Ajit K. Dasgupta 11 Equilibrium and Economic Theory Edited by Giovanni Caravale 12 Austrian Economics in Debate Edited by Willem Keizer, Bert Tieben and Rudy van Zijp 13 Ancient Economic Thought Edited by B.B. Price 14 The Political Economy of Social Credit and Guild Socialism Frances Hutchinson and Brian Burkitt 15 Economic Careers Economics and economists in Britain 1930–1970 Keith Tribe 16 Understanding ‘Classical’ Economics Studies in the long-period theory Heinz Kurz and Neri Salvadori

17 History of Environmental Economic Thought E. Kula 18 Economic Thought in Communist and Post-Communist Europe Edited by Hans-Jürgen Wagener 19 Studies in the History of French Political Economy From Bodin to Walras Edited by Gilbert Faccarello 20 The Economics of John Rae Edited by O.F. Hamouda, C. Lee and D. Mair 21 Keynes and the Neoclassical Synthesis Einsteinian versus Newtonian macroeconomics Teodoro Dario Togati 22 Historical Perspectives on Macroeconomics Sixty years after the ‘General Theory’ Edited by Philippe Fontaine and Albert Jolink 23 The Founding of Institutional Economics The leisure class and sovereignty Edited by Warren J. Samuels 24 Evolution of Austrian Economics From Menger to Lachmann Sandye Gloria 25 Marx’s Concept of Money The God of Commodities Anitra Nelson 26 The Economics of James Steuart Edited by Ramón Tortajada 27 The Development of Economics in Europe since 1945 Edited by A.W. Bob Coats 28 The Canon in the History of Economics Critical essays Edited by Michalis Psalidopoulos 29 Money and Growth Selected papers of Allyn Abbott Young Edited by Perry G. Mehrling and Roger J. Sandilands 30 The Social Economics of Jean-Baptiste Say Markets & Virtue Evelyn L. Forget 31 The Foundations of Laissez-Faire The Economics of Pierre de Boisguilbert Gilbert Faccarello 32 John Ruskin’s Political Economy Willie Henderson 33 Contributions to the History of Economic Thought Essays in honour of R.D.C. Black Edited by Antoin E. Murphy and Renee Prendergast 34 Towards an Unknown Marx A commentary on the manuscripts of 1861–63 Enrique Dussel

35 Economics and Interdisciplinary Exchange Edited by Guido Erreygers 36 Economics as the Art of Thought Essays in memory of G.L.S. Shackle Edited by Stephen F. Frowen and Peter Earl 37 The Decline of Ricardian Economics Politics and economics in Post-Ricardian Theory Susan Pashkoff 38 Piero Sraffa His life, thought and cultural heritage Alessandro Roncaglia 39 Equilibrium and Disequilibrium in Economic Theory The Marshall-Walras divide Edited by Michel de Vroey 40 The German Historical School The historical and ethical approach to economics Edited by Yuichi Shionoya 41 Reflections on the Classical Canon in Economics Essays in honor of Samuel Hollander Edited by Sandra Peart and Evelyn Forget 42 Piero Sraffa’s Political Economy A centenary estimate Edited by Terenzio Cozzi and Roberto Marchionatti 43 The Contribution of Joseph A. Schumpeter to Economics Richard Arena and Cecile Dangel 44 On the Development of Long-run Neo-Classical Theory Tom Kompas 45 F.A. Hayek as a Political Economist Economic analysis and values Edited by Jack Birner, Pierre Garrouste and Thierry Aimar 46 Pareto, Economics and Society The mechanical analogy Michael McLure 47 Strategies and Programmes in Capital Theory Jack Birner 48 Economics Broadly Considered Essays in honor of Warren J. Samuels Edited by Steven G. Medema, Jeff Biddle and John B. Davis 49 Physicians and Political Economy Six studies of the work of Doctor-Economists Edited by Peter Groenewegen 50 The Spread of Political Economy and the Professionalisation of Economists Economic Societies in Europe, America and Japan in the nineteenth century Massimo Augello and Marco Guidi 51 Historians of Economics & Economic Thought The construction of disciplinary memory Steven G. Medema and Warren J. Samuels 52 Competing Economic Theories Essays in honour of Giovanni Caravale Sergio Nistico and Domenico Tosato 53 Economic Thought and Policy in Less Developed Europe The nineteenth century Edited by Michalis Psalidopoulos and Maria Eugénia Mata

Economic Thought and Policy in Less Developed Europe The nineteenth century

Edited by Michalis Psalidopoulos and Maria Eugénia Mata

London and New York

First published 2002 By Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor and Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2002 Editorial selection and material Michalis Psalidopoulos and Maria Eugénia Mata, individual chapters, the authors. All rights reserved. No part of this book may be reprinted or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Economic thought and policy in less developed Europe : the 19th century / edited by Michalis Psalidopoulos and Maria Eugénia Mata. p. cm. Includes bibliographical references and index. 1. Europe–Economic conditions–19th century–Regional disparities. 2. Europe–Economic policy. 3. Development economics–Europe–History–19th century. I. Psalidopoulos, M. (Michalis) II. Mata, Maria Eugénia. HC240 .E284 2002 338.94'009034–dc21 ISBN 0-203-99621-6 Master e-book ISBN

ISBN 0-415-25820-0 (Print Edition)

2001049106

Contents

List of tables and figures List of contributors Acknowledgements

1 Economic thought and policy in nineteenth-century less developed Europe: issues and aspects of their interaction

ix x xii

1

MICHALIS PSALIDOPOULOS AND MARIA EUGÉNIA MATA

2 Economic theory and economic development in Denmark, 1848–1914

21

NIELS KAERGAARD

3 The emergence of an independent Norwegian economic policy: some notes on current views and empirical findings

37

CAMILLA BRAUTASET

4 The influence of the German Historical School in Finnish economic thought around the turn of the century

55

VISA HEINONEN

5 B.N. Chicherin: some liberal aspects of the emancipation of the serfs in Russia

74

BIRGITTA JANSSON

6 Liberal ideas and Slavonic Community: Tomasz Potocki’s programme for Poland JANINA ROSICKA

92

viii

Contents

7 Resisting liberalism: theorizing backwardness and development in Rumania before 1914

105

JOSEPH LOVE

8 Ottoman economic thought and economic policy in transition: rethinking the nineteenth century

129

EYÜP ÖZVEREN

9 Aspects of economic thought and policy in Serbia, 1850–1900

145

KOSTA JOSIFIDIS

10 Economic thought and monetary policy in nineteenthcentury Greece

172

YIORGOS STASSINOPOULOS

11 Political economy in Italy: competition and civil society in the Milanese school, 1750–1850

187

PIER LUIGI PORTA AND ROBERTO SCAZZIERI

12 How are we to become like them? Political economy as a political agenda in early nineteenth-century Portugal

211

ANTÓNIO ALMODOVAR AND PEDRO TEIXEIRA

13 Friedrich List and Oliveira Marreca: some odd coincidences

232

CARLOS BASTIEN

14 The western periphery: Irish agriculture and Irish political economy in the nineteenth century

247

TERRENCE MCDONOUGH AND EAMONN SLATER

Index

270

Tables and figures

Tables 2.1 Distribution of Members of Parliament (Folketinget), % 2.2 Danish exports, distributed according to purchasing country 2.3 Danish agricultural exports, 1875–1910

23 25 25

Figures 2.1 Danish GNP 2.2 Mechanical power available in relation to the workforce size, 1830–1914 3.1 Exchange rates for the Norwegian currency, 1822–42 3.2 The money stock and monetary base, 1819–47 (end of year estimates) 3.3 Fiscal policy of the central government, 1816–1905/06 3.4 Norwegian GDP, 1835–1905

24 26 39 40 47 47

Contributors

Antonio Almodovar is Professor at the Department of Economics, University of Porto, Portugal. Carlos Bastien is Associate Professor at the Higher Institute of Economics and Business Administration, Lisbon, and a researcher at the Economic and Social History Bureau. Camilla Brautaset is a PhD candidate at the Norwegian School of Economics, Oslo, Norway. Visa Heinonen is Professor of Consumer Economics at the Department of Economics and Management, University of Helsinki, Finland. Kosta Josifidis is Professor of Macroeconomics at the Faculty of Economics, Subotica University of Novi Sad, Yugoslavia. Birgitta Jansson is a PhD candidate at the Department of Economic History, Göteborg University, Sweden. Niels Kaergaard is Professor in Agricultural Economics at the Royal Veterinary and Agricultural University, Denmark and Chairman of the Danish board of economic advisors. Joseph Love is Professor of History and Director for Latin American and Caribbean Studies at the University of Illinois at Urbana-Champaign, USA. Terrence McDonough is Lecturer in Economics at the National University of Ireland, Galway. Maria Eugénia Mata is Associate Professor at the Department of Economics, New University of Lisbon, Portugal.

Contributors

xi

Eyüp Özveren is Associate Professor for the History of Economic Thought and Institutional Economics at the Department of Economics, Middle East Technical University, Ankara, Turkey. Pier Luigi Porta is Professor of Economics at the University of MilanoBicocca and Visiting Fellow of Wolfson College, Cambridge. Michalis Psalidopoulos is Associate Professor at the Department of Sociology, Panteion University of Political and Social Sciences, Athens, Greece. Janina Rosicka is Professor for the History of Economic Thought, Jagiellonian University, Krakow, Poland. Roberto Scazzieri is Professor of Economic Analysis at the University of Bologna and life member of Clare Hall, Cambridge. Eamonn Slater is Lecturer at the Department of Sociology, National University of Ireland, Maynooth. Yiorgos Stassinopoulos is teaching associate at the Department of Sociology, Panteion University of Political and Social Sciences, Athens, Greece. Pedro Nuno Teixeira is a member of the Faculty of Economics of the University of Porto, Portugal and a PhD candidate at the School of Business and Economics of the University of Exeter, UK.

Acknowledgements

This volume consists of a selection of papers prepared for session C19 of the 12th World Economic History Congress that was held in August 1998 in Madrid. The papers have been presented and discussed at a pre-session held at Panteion University of Social and Political Sciences, Athens, 7–11 January 1998. Some of them were also presented at the European Society for the History of Economic Thought Conference held in Valencia in February 1999. The editors would like to thank the following institutions for financial support: Panteion University of Social and Political Sciences, National Bank of Greece, Caixa Geral de Depositos, Junta Nacional de Investigacao Cientifica e Tecnologica and Alpha Media Group, Athens, as well as to Dimitris Gazis and John Huffstot for electronic and linguistical assistance respectively. Furthermore M.E. Mata acknowledges the support of the Portuguese Fundacao de Ciencia e Tecnologia, of Praxis XXI programme and of INOVA (Faculty of Economics, New University of Lisbon) and M. Psalidopoulos thanks INOVA and SATPEG for inviting him for a stay at the New University of Lisbon in connection to this project. Michalis Psalidopoulos and Maria Eugénia Mata Athens and Lisbon 2001

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Economic thought and policy in nineteenth-century less developed Europe Issues and aspects of their interaction Michalis Psalidopoulos and Maria Eugénia Mata

Introduction The renaissance of the history of political economy in the last decades of the twentieth century has not only witnessed the multiplication of journals devoted to research on the subject, the establishment of scientific societies, at the national and international levels, and a growing number of dissertations, monographs and edited volumes of symposia and conferences. It has also stimulated a series of comparative research projects, international in scope and multidisciplinary in character. Historians of economics are familiar with the so-called ‘institutionalization project’ that led to six important separate publications (Le Van-Lemesle, 1986; Augello et al., 1988; Barber, 1988; Waszek, 1988; Sugiyama and Mizuta, 1988; Kadish and Tribe, 1993) and the ‘internationalization project’ initiated by Bob Coats (Coats, 1996; Coats, 2000) that extended his former inquiries (Coats, 1981; Coats, 1986). The authors in Steedman (1995) have addressed the evolution of socialism and marginalism in seven, whereas those in Albertone and Masoero (1994) have explored aspects of the interaction between political economy and national realities in ten European countries. Furthermore, a series of national histories of economic thought have appeared (Morris-Suzuki, 1989; Groenewegen and McFarlane, 1990; Sandelin, 1991; Neill, 1991; Boylan and Foley, 1992; Almodovar and Cardoso, 1998).1 Economic historians, for their part, are known to have followed a similar path of enquiry, as well (see Porter and Teich, 1988; Teich and Porter, 1996; among their many joint ventures of a similar kind). The purpose of the present volume is to keep this tradition alive by contributing to a better understanding of the relationship between economic thought and economic policy in nineteenth-century less developed Europe. Before explaining in greater detail the contents of this book, however, let us examine the reasons that led us into this project. In order to conform to publishers’ limits regarding number of words,

2

Michalis Psalidopoulos and Maria Eugénia Mata

history of economics textbooks are usually short on information about the adaptation and incorporation of certain doctrines in economic discourse at a national level. Histories specifically committed to a rational reconstruction of economic theory do not even address that sort of enquiry (see, for example, Niehans, 1990). They argue that since the triumph of marginalism in economics is evident after 1870 in the international economy, why linger on the issue of how it came to dominate academia in specific countries, and the actions of economic policy-makers? On the other hand, books espousing a historical reconstruction of economic theories (Screpanti and Zamagni, 1993) seem to use history simply to aid the reader in understanding the historical background of certain controversies in economics – for example the Napoleonic Wars as a background to the Malthus–Ricardo controversy – rather than focus on a more complex discussion of the processes involving economic theory and society, as the one suggested by Goodwin (Goodwin, 1972). Admittedly, the clarification of the influence of events upon ideas (Eagly, 1968)2 or of theory upon policy and vice versa is a very difficult endeavour and calls for scholarship comparable to that of Schumpeter, in his History of Economic Analysis, which described this history as it evolved within the general history of the social sciences both on a national and international level (Schumpeter, 1953). Our task in this book is far more humble. We first examine what the state of economic thought was in a series of countries. We follow with an investigation of major economic policy issues which, either at a certain moment or over a longer period, alerted intellectuals and stimulated them to write pamphlets, books or articles, to initiate debates and hence to influence policy-makers. Our focus is on academics, businessmen and public-spirited citizens, who took a stand towards their countries’ problems. We aim to discover whether economic thought influenced economic policy, or whether economic policy was conducted with its own specific priorities, without economics significantly affecting this process. The agenda of the governing class and the structure of state–society relations in the nineteenth century point to some very important leads in answering the question concerning the relation of economic thought and policy. Of course, the path of the economy, or what we usually refer to as the economic history of a specific time period, as it is crystallized in certain data, generates its own pressures on economic policy. This project, then, is about economic thought in a – restricted – number of European countries, over time. It seeks to bring out how economic thought got transformed and adapted and how it responded to economic policy issues and its subsequent development. It also throws light on the dissemination of economic ideas, as the leading economies like Britain, France, Germany and the Low Countries, the countries that ‘produced’ economic theory, are excluded from our enquiry since we focus on the industrial latecomers.

Economic thought and policy

3

A typology of countries The time span covered in the following essays starts with the triumph of Adam Smith’s ideas in Britain, from the Battle of Waterloo, and reaches to the end of the gold standard era, the advent of the First World War (1815–1914). This encompasses developments such as the evolution from classical to neo-classical economics, the historical and institutional school response, Marxism and socialism in general and various political movements including the land reform and cooperative movements and their popular advocates. The typology of the countries under study is interesting and may even create the impression that unequals are being compared. Some less developed countries had a sizeable population (Russia, Spain – the latter not covered in this book), while others boasted a small number of inhabitants (Ireland, Greece and Portugal). Some of them struggled to get their national independence (Greece, Poland), while others were politically independent or autonomous under foreign jurisdiction (Norway, Finland). Some countries were members of Empires (Italy, Greece before 1821, Poland, Rumania), others such as Portugal were colonial powers, whereas still others were dependent states torn between many expansive neighbours (Poland). Such strife between neighbouring countries and tensions between rising nationalisms left their marks in political and economic developments, as well. And Russia, despite its economic backwardness, was an influential political power of the day.

Political issues In broad terms the nineteenth century saw the transition from more authoritarian to more democratic political systems and the introduction and strengthening – albeit at a slow, but nevertheless irreversible pace – of institutions of liberal democracy. In most of the countries considered, absolute monarchs conceded power to a landed aristocracy3 and in due course embraced merchant, commercial and industrial classes in power sharing that totally transformed the absolutist political order. On the other hand, with market relations progressing, an industrial labour class was added to the free peasants, thus bringing to the fore demands for freedom of combination and for universal suffrage. In some cases, these developments evolved after national independence (Greece), whereas in others, important intellectual preparations were achieved before national unification (Italy). Industrialization and the Industrial Revolution in particular were major stimuli for these political developments. The emergence of industrial society created discrepancies in existing institutions and in social structure that led to the destruction of the governing social, economic and political order. The less developed European countries, of course, developed industry neither simultaneously nor at the same pace.

4


According to one estimate, per capita industrial production in Europe in 1900 (with Europe as an average at 100) was 254 for Britain, 177 for Germany, 140 for France, but only 85 for Denmark, 48 for Greece, 46 for Portugal, 39 for Serbia, 33 for Rumania and 32 for Finland (Bairoch, 1977: 137–8).4 As the starting positions at the beginning of our enquiry were different, so too were the political and economic developments in every country a century later. Leading societal groups have consolidated their power and initiated direct action against backwardness at different times. In some environments, classes which were threatened by the new order endeavoured to block this change, and preserve their interests, through various means. A third variant came as an outcome of the need of the developed nations to import food and raw materials from the less developed countries and regions. Foreign trade and, later, the export of capital,5 promoted power and societal structures that led to polymorphic curiosities. In some countries, banking and insurance systems were developed before industry; in others, labour legislation and social reforms were introduced before the working class became numerous. As industry progressed – however unevenly – political transformations in the above-mentioned pattern took place.6

Economic policy issues In the wake of changes instigated by the spread of the Industrial Revolution, certain economic policy issues confronted all the governments in less developed Europe. Some of them bore a more general character. The extension of the franchise, for example, meant better care of the population, the raising of health standards, better education and the elimination of illiteracy – activities once left to charity or chance. These changes were brought about gradually and at rates dictated by state finances. Other problems were of a more immediate character, especially those connected with the agricultural sector. The following is a broad categorization. First of all, there was pressure from the peasantry, to abolish serfdom and declare an end to feudal land tenure. This was not always easy in view of the political strength of the landed aristocracy. Property rights in agriculture had to be introduced and land reforms implemented, for many unpropertied peasants found themselves worse off as feudal relations ceased to exist. Second came the encouragement of industry and the creation of means of transport (roads and railroads) and other infrastructural activities. After the German Zollverein the protection of infant industry became a major economic policy issue in almost all of the less developed European countries. Industrial growth, on the other hand, brought a fear of social unrest and legislative measures were sought on many fronts: measures to


5

increase living standards and reduce poverty, to introduce labour legislation and, late in the century, to introduce social security and a ban on socialist propaganda. Third, the tax system had to be reformed. Agriculture was the main tax base for governments with the burden falling on the shoulders of the weakest members in society. An income tax was a long time in coming, whereas in some countries still struggling to stand upright and/or expand their territory, military spending grew, and with it the need to broaden the tax base, or increase the public debt. Fourth, a stable currency unit had to be introduced and defended. The whole economy had to be monetized, meaning that trust in the value of money had to be promoted and price movements monitored. Fifth, and in relation to the above, external economic relations were a major economic policy concern. The currency unit had to be attached to silver, gold, or both, at a parity that could be sustained, in order to facilitate international transactions, and allow the free flow of capital.7 At the same time, existing tariff systems had to be maintained to increase government income, and possibly protect local entrepreneurial activities (Nye, 1991; Overbeek, 1999).

Economic development, seen ex post In the nineteenth century, European countries experienced very substantial growth, at historically unprecedented rates. Europe’s industrial production index stood at 20 in 1830, 33 in 1850, 51 in 1870, 77 in 1890, 100 in 1900 and 157 in 1913 (Berend and Ranki, 1982: 143). Who benefited most from these developments is a matter of debate, but in general, even if the less developed countries were still lagging behind, at the dawn of the twentieth century their living standards were four times higher than those witnessed in the eighteenth century (Maddison, 1997: 445). Technical progress accelerated in the last quarter of the nineteenth century and spread through the export of capital to all corners of Europe. Virtually all countries balanced their budgets by keeping spending low, did not regulate their economies and left growth with private business and the free operation of markets. Even the labour market was flexible, at a time of still weak trade unions. Rich and poor European countries were tied to the gold standard, whereas all factors of production were allowed to move freely. This ‘globalisation of the 19th century’ (O’Rourke and Williamson, 1999) occurred without any supranational institutions functioning as lenders of last resort, or monitoring fluctuations in business cycles that led to short term crises.8 Despite this, ex post optimistic account of events, Europe’s less developed countries and citizens experienced this progress with mixed feelings (Morris, 1995). The blocking of reforms, the frequent reversal of business attitudes, the free market wilderness and the knowledge of the

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relative affluence of the other, who, not accidentally, was also politically dominant, was a source of unrest, as events after 1914 were to show.

The development and diffusion of economics The nineteenth century witnessed the institutions of liberal democracy substituting for the Ancient Regime and with them the doctrines of the classical school diffused throughout Europe. Liberal ideas were, at first, revolutionary and classical economics a subversive set of doctrines for the absolutist order. At a later stage, when liberalism triumphed, not all details of classical economics continued to be welcomed. The wages fund doctrine, the stationary state and other aspects of classical thought, were dismissed in some circles, for they turned an optimist, positivist science dismal and gloomy. British thought was not dominant in continental Europe, as the essays in this book show. French and German thought was more popular on the periphery of Europe, either because of strong commercial ties, or due to the attraction of Paris and Berlin to other European intellectuals looking for a place of study.9 This led to a situation where Adam Smith was regarded as the equal of Friedrich List – where authors such as Carey, Hamilton or St Simon were articulating sound policy advice, or were believed to provide superior guidance on the path of growth, than Mill and Marshall. The outcome was that, at a time when economics started to be taught at the university level, local transmitters of economics had a variety of knowledge to transmit to their fellow countrymen. As our enquiry shows, liberal thought, meaning a free enterprise economy based on private property, co-existed with historist stages of growth theories, with protectionist and socialist-populist-Marxist ideas. This is perhaps the reason why in Europe’s less developed countries we find economics situated in law schools and not in philosophical faculties.

The essays Niels Kaergaard seeks to explore the degree to which economic performance in Denmark between 1848 and 1914 was influenced by an economic policy founded on economic theory. Denmark was not poorer than France or Austria and was more affluent than other Nordic and South European countries in the 1850s. Its economy was based on agriculture and it exported agricultural surpluses mainly to England. As Kaergaard shows, however, Denmark was not to remain the provider of cheap food to a large economy. Based on a fast-growing cooperative movement and under the governance of the Conservative Party until the beginning of the twentieth century, Danish agriculture responded to falling prices of grain on the world market following the 1870s, with a shift to animal products, the demand and prices for which were constantly rising. This switch took


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place without government support and without guidance from theoretical economics. The Liberal Party (‘The Left’), despite holding the majority in the parliament, did not govern the country until 1901. The Conservative Party drew its membership from large landowners and the urban upper classes and had the backing of the King. In 1875 Denmark changed its monetary system from a silver standard to the Scandinavian gold-based monetary union of 1875–1914. A fairly liberal tariff was introduced in 1863 and despite the rise of protectionist voices, a tariff change in 1908 did not alter the picture. In the last decade of the nineteenth century social legislation had come of age. Attempts to provide land ownership to landless peasants were pushed through parliament and a pension scheme for elderly people was established in 1891. The community of academic economists in Denmark remained very limited until 1914, but in 1872 a Danish economic association came into being, and a year later an economic journal was inaugurated. The majority of economists in Denmark was hostile to Ricardian economics because the latter was interpreted as precluding social reforms. Danish economists corresponded with Jevons and Walras and helped to pioneer the mathematical version of neoclassicism or worked in the tradition of the German historical school, providing policy recommendations for the social question. The arguments for social reform were not drawn from economic theory, but rather from socialism and Christian ethics. Camilla Brautaset analyses two important economic policy issues in nineteenth-century Norway: first, monetary policy in the 1820s and 1830s, which, in retrospect, is considered as ‘devastating’ by modern authors, and second, foreign trade policy in the 1840s and 1850s. Norway was under Danish jurisdiction for 300 years, until it became constitutionally independent in 1814. It was, however, to remain subordinate to the King of Sweden until 1905. Norwegian economists debated the issue of free trade versus protectionism as early as the 1830s, with the farmer and politician Ole Gabriel Ueland favouring protection and the academic Anton Martin Schweigaard promoting free trade. In 1842 the Norwegian parliament adopted a more liberal tariff that was gradually implemented and helped Norway benefit from the emergence of a world economy based on commodity trade and capital flows. In the first part of her essay Brautaset focuses on the monetary act of 1822 that tried to bring the local currency, the riksbankdaler to its pre-1813 parity to the then common Danish–Norwegian currency. This deflationary process lasted until 1842. As Brautaset argues, however, the deflation was by no means catastrophic for the real economy. The money stock rose and the discount rate fell throughout the 22 years of deflation. This leads to the conclusion that the appreciation of a ‘devastating’ monetary policy holds only if one takes into account the (Central) Bank of Norway credit market policy that was hostile to local merchants and entrepreneurs. The

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conclusion is that GDP rose constantly in the second half of the nineteenth century. Foreign trade, based on a stable and convertible currency, aided growth and enabled the government to spend on infrastructure and communication. The influence of specific economic theories in this process is not obvious. Policy directives seem to stem from particular vested interests, and on the wishes of the governing Norwegian bureaucracy. Visa Heinonen examines the influence of the German historical school on Finnish economic thought from 1873 to the interwar years, when Casselian neoclassical economics came of age. In the nineteenth century and up to 1917 Finland belonged to the Russian Empire as a Grand Duchy. The Czar dictated fiscal policy and the Finnish Senate had an authority only over tariffs and monetary policy. Despite this narrow room for policy implementation, several liberal economic reforms were introduced, including the free mobility of factors of production and the trade act of 1879, ensuring freedom of trade and business. From 1880 onward the question of national identity dominated the scene. The so-called Fennoman movement, based on the work of Johan Snellman, shaped economic discourse in the country and put an emphasis on social reform. It was natural for Finnish economists to find in List and the German Historical school examples worth following. The Finnish Economic Association, Kansantaloudellinen Yhdistys, followed in the footsteps of the Verein für Socialpolitik from 1884 onward. In the Finnish assembly in the 1880s two groups were traceable: a Swedish-speaking aristocracy in alliance with urban strata and a Finnish peasantry allied with the clergy. The Finns believed in the creation of a national industry and wanted to prevent the rise of socialism by introducing gradual reforms. Finnish intellectuals wanting to become civil servants went to Germany to study Staatswissenschaften, Sciences of the State. The contribution of economists such as Granfelt, Liljenstrand, Yrjö-Koskinen, Mechelin and many others are cited to show how Finnish economists balanced between historical economics and liberal ideas, eclectically arguing in favour of policy measures that would foster Finnish national independence. Nevanlinna’s and Kilpi’s methodological treatises concerning the debates on Method and Value judgements among German economists are analysed with the aim of showing that the reading of the German debates by Finnish economists was explicitly founded in the necessity of social reform in Finland. Finnish economists of the time devoted themselves to empirical social research: the land question, housing conditions in rural and urban areas, unemployment, working conditions in industry etc. When the country became independent, however, other schools of economics started to appear. Birgitta Jansson focuses her attention on the land question in Russia and the role played by B.S. Chicherin in the transformation of the peasants from serfs to landowners. In the 1850s 84% of the Russian population


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were peasants, working for landowners unwilling to exploit their lands in a market-oriented fashion. Defeat in the Crimean War laid the ground for the general acceptance of reforms in agricultural production. Two opposing schools of thought concerning the future of the peasant commune emerged: the Slavophiles and the Westernizers (Walicki, 1969 and 1975). The Slavophiles were nationalists who glamorized the peasant commune and social relations of production of the past. Before Peter the Great, Russia had been for them a kingdom of harmony, of the rule of life by Orthodox Christian standards, of tradition, customs and mutual obligations. Most of the Slavophiles were landowners. The Westernizers, a rather heterogeneous group of liberals, radicals and socialists, as their name suggests, believed that Russia had to develop along with the other major European powers. European industrialization had many dark sides for them, the proletarization of the peasant masses in particular. However, as a latecomer in industrialization Russia could avoid, according to them, these undesirable conditions through the gradual transformation of the peasant commune into modernity. Jansson picks up Chicherin as a case study because he represents a conservative liberal intellectual whose recommendations were used in policy-making and greatly influenced economic policy. Chicherin belonged to the Russian nobility and studied Law at the University of Moscow becoming a Westernizer at the same time. After some writing activities he embarked upon efforts to influence the Russian government and started drafting programmes for liberal political reform. He travelled abroad for three years and upon his return to Russia he began teaching at the University of Moscow. In 1866 he resigned and in 1868 moved to his family estate, wrote books proposing liberal reforms and attacking socialist ideas. As reforms were slow to progress and political radicalism gained ground, Chicherin became more conservative. He proposed a political union between the bourgeoisie and the educated nobility that would grant the Russian people not complete citizen’s rights, but a sensible and firm supervision. He was the mayor of Moscow from 1881 to 1883 and wrote books on political questions until his death in 1904. Chicherin’s historical study of the peasant commune showed that it was created by the state as an institution to ensure centralized power. The establishment of serfdom by law in 1649 was for him a measure that helped landowners extract a surplus from serfs by forcing the latter to work for the former. Serfdom was created in Russia with the rise of the absolutist state. The state obliged the nobility to official duty and, in compensation, it gave the nobles control over peasant production. Serfdom was established because of the shortage of manpower. Other proposals aimed at preserving the commune would limit peasants’ rights and obstruct Russian agriculture. Chicherin was a fierce critic of serfdom. His reform proposal was, however, conservative. In his view, peasants were to purchase their freedom and compensate landowners for land and lost

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labour. The actual reform was introduced in 1861 and corresponded in many ways with Chicherin’s reform proposal. The peasants’ personal dependence on the landowners disappeared but the commune as a tax unit remained and peasants, because of this deliberate act, were kept bounded in the commune. In other words, the free mobility of labour was curtailed with major consequences for the path of Russian industrialization. Janina Rosicka reveals how liberal ideas of laissez-faire and property rights took on new forms under conditions in Poland in the nineteenth century. Poland, having risen as a state in 1760, had the unique – in Europe – experience of being partitioned in 1772, 1792 and again in 1795, with Austria, Prussia and Russia being the countries that exploited the adverse economic conditions in order to place the Polish gentry and the peasants into conflict. In the wake of the emancipation of the serfs in Russia in 1861, thereby eliminating bondage in the Polish part of Russia, the Polish gentry was split into three camps regarding wishes for the future. The first, conservative, advocated the minimum possible reform. The second, enlightened, wanted to use the abolition of serfdom in order to modernize agriculture and the economy. The third, radical, wanted to turn peasants into property owners. Tomasz Potocki was a landowner who had been quite influential among his class since the 1850s, when he wrote about the need to sell land to the peasants, and he became vice-president of the Agrarian Society that functioned as a lobby in that direction. Potocki applied great effort towards reducing the fear of the landowners that, if the situation of peasants were improved, they would turn against the landowners as a class. Using a mixture of the history of European agriculture and historical philosophy, he scrutinized economic, social and legal aspects of European and Polish land conditions, to propose a scheme of reform that would avoid Western errors and lead to opulence. Potocki’s liberalism is founded on private property, on the division of labour and man’s passion for progress. According to him, in order to conquer nature man must associate, belong to an organic whole, work, divide labour and be free. Serfdom was against nature. Association is realized by the alliance between labour and capital within society. Potocki rejected socialist ideas out of fear that the vulnerable Polish state he wanted to see created would be handicapped by them. He made use of the term ‘Slavonic community’ which had two features: first, affection towards land and second, a propensity for collective, community life. This helped him distinguish between native (Polish) Communitism and foreign (Prussian, Russian) feudalism. Potocki’s reform encompassed 14 clauses. Property rights had to be introduced and a bank should provide credit to small farmers. A board to oversee the reform comprising representatives of all social classes and strata involved in the reform would be the guarantee of its success. In Potocki we find free-moving factors of production, competition, private


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property. We do not find homo economicus, self-interest, egoism and the market. This programme becomes a political and economic agenda for national resurgence. His untimely death in 1861 prevented him from witnessing its establishment. Joseph L. Love analyses protectionist, Marxist and populist reactions to Rumanian liberal ideology and policy prescriptions that, although rooted in classical political economy, were very peculiarly adapted to local circumstances. Liberalism was conceived by Rumanians as a doctrine that sought to free economic activity and to promote the international division of labour through trade. The breakthrough towards the independence of the Rumanian nobles over the Ottomans was sealed by the Treaty of Adrianople in 1829, opening the Dardanelles, the Danube and the Black Sea to international trade and freeing Rumania from the obligation of selling its grain to the Ottoman Empire. The grain trade was thereafter conducted with the West, enabling Rumania to import Western goods. The Rumanian elite thought that economic liberties were in harmony with national rebirth. Following centuries of Ottoman rule, liberal economics was considered the key to Westernization and the road to civilization and economic progress. Yet all of this meant the freedom of commerce more than the creation of a free labour market. Serfdom survived into the twentieth century. In Rumania, the defenders of liberalism were not bourgeois opponents of an absolutist state exercising mercantilist policies but, rather, landowners controlling a dependent labour force through extra-economic means. The independence of the country in 1877 coincided, however, with the Great Depression of the 1870s in Europe, shifting economic policies in Europe’s more developed countries to higher tariffs and protectionism. This led, as Love shows, to a ‘statist liberalism’. It included the use of liberal ideology with a strong, nationalist state, hostile to Jews, Greeks and foreigners in general, who controlled significant parts of economic life. In this setting and in the wake of economic developments up to 1914, Love analyses the work of three major Rumanian intellectuals: Alexandru Xenopol, Constantin Stere and Constantin Dobrogheanu-Gherea. Xenopol was a protectionist and an exponent of an industrialized Rumania. Unlike the majority of Rumanian economists, who had strong ties to France until then, he studied in Germany and brought Listian ideas into Rumanian economic discourse. Going beyond a simple transfer of doctrines, however, Xenopol laid great emphasis on the importance of labour within a given society. He held to the classical economists’ labour theory of value and focused on different productivities embodied in agricultural and industrial production to draw conclusions about the importance of the latter. According to him, the state should not only protect local industry, but also assume the role of regulator of economic life granting concessions, guaranteeing purchases and paying export premia to businesses in order to accelerate development. Many of these ideas

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influenced, as Love shows, economic policy between 1880 and 1910, leading to an acceleration of GDP growth and exports, without however creating a Rumanian industrial class (80% of industrial shares and 75% of banking capital belonged to foreigners). This led to the rise of Marxism and populism, doctrines that declared the war against absentee landlords in Rumania, the class that dominated politics. Stere was both a populist and a member of the Liberal Party, a law professor and an editor of a cultural journal. His appeal to small property owners rose after 1895. He denounced the evils of landlordism combined with capitalist production for international markets, that resulted in the poverty of the peasants. His writings were more along the lines of political treatises, offering, however, an analysis of, and policy recommendation for, the peasant problem. He rejected Marxist analysis because factory workers were a negligible figure compared to peasants, and objected to protectionism as a means of development on the basis of its failures over the last 30 years to induce growth, to overcome illiteracy and poor standards of living of the peasants. Rumania should, according to Stere, develop its agriculture and its cooperative movement and found a civilization of its own, based on free peasant producers, bearers of a community-type anti-capitalist developmental spirit. Marxists, as Racovski and Dobrogheanu-Gherea, focused on capitalist relations of production in agriculture and industry, and stressed the need for a political alliance between the urban and the rural proletariat. In numerous publications they attacked Stere’s agricultural populism and underlined the relevance of Marxism. More specifically DobrogheanuGherea supported the view that as capitalism penetrated economically backward countries, existing traditional modes of production would be blocked in their development, causing production, income and growth imbalances. This view – an early antecedent of modern centre-periphery analyses and dependency theory – is followed by Love in Gherea’s subsequent numerous writings on the role of intellectual elites, on socialism and on agriculture in Rumania. Gherea’s policy recommendations that shaped the demands of the Rumanian Left were more of a reformist than a revolutionary kind. He favoured the distribution of the large estates to the peasants, the advancement of capitalist relations in agriculture and universal suffrage. Eyüp Özveren follows Ottoman economic thought and policy during the nineteenth century. He shows that for a long time Ottoman thought was dominated by the idea that political power should use its military apparatus for territorial expansion that would widen the taxable population and raise the production from which state revenue was collected, thus enabling the ruler to further expand his empire. The French and the Industrial Revolution brought this process to a halt. Wars in that age became costly, ethnic nationalisms rose and economic penetration from the West absorbed resources. Ottoman thinkers analysed the fiscal crisis of


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the state and proposed means to encourage trade in order for local merchants to contribute to the financial needs of the sovereign. As Özveren shows, however, the Ottoman Empire did not witness a mercantilist phase, as it did not go through a phase of developing its agriculture as a means of attracting more revenue. Identifying, somehow, output with revenue, the Ottomans used trade only to extract duties and tariffs at their ports and never emphasized production. By introducing trade competition within the Ottoman Empire, the 1838 Anglo-Ottoman Commercial Treaty, further weakened Ottoman authority and led to foreign lending and exchange rate instability. In this setting liberal ideas aiming to introduce property rights and free market institutions were heard, coming mainly, as Özveren notes, from non-Muslim economic thinkers – Greeks and Armenians – who represented traders and money lenders on a social basis. The riposte came from advocates of industrialization, such as Namik Kemal, who were gaining attention in the 1870s. German scholars, however, were not studied in that connection, and the reading of List by Ottoman authors was selective. Economic policy remained liberal up until 1908, when a ‘national economy’ approach, aimed at shifting the ethnic balance of power in favour of the Turks and against the other nationalities of the Ottoman Empire, would come of age. Yiorgos Stassinopoulos analyses economic thought and monetary policy in nineteenth-century Greece, putting at the centre stage of his analysis the issuing policy of the National Bank of Greece, a private bank in whose capital the government had a share, but not a voice in the management. The National Bank operated mainly as a discount rather than as a mortgage bank, having the aim of making its note acceptable in the place of worn out coins of all kinds circulating in a country, whose economy was not fully monetized. Its issuing policy was conducted on Banking School principles, reflecting the dominance of French monetary thought in the Bank’s board of directors. The main exponent of this trend of thought was Efthimios Kehayias, who was deputy governor of the Bank, a Member of Parliament and served twice as Minister of Finance. As Stassinopoulos shows, the National Bank was heavily criticized not only because it neglected loans to the agricultural sector but more so, because, stuck as it was in the Banking School approach to monetary disturbances, it declined to play the role of a lender of last resort in various crises, as in 1848 and 1858. Ioannis Zografos was a most outspoken critic of the National Bank on the grounds that it did not function as it should institutionally. The latter included the encouragement of the productive forces of the country, most notably agriculture. In this connection Zografos advanced the idea of the separation of the activities of the Bank into a banking and an issuing department, an event that took place as late as 1928, when an independent Central Bank came into being.

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Stassinopoulos focuses his attention on the entanglement of the state with the National Bank after 1865. The Bank held the privilege to issue banknotes and the state borrowed money from the Bank to cover its deficits. This mutual dependence horrified many authors, as it allowed quasi permanent inconvertibility, and led to another round of arguments on the proper role of monetary policy among Greek economists. Important from a theoretical point of view was the endorsement of the advantages that an inconvertible currency might offer to Greek production by Nicolaos Gounarakis, later Professor of Political Economy, a bimetallist and a believer in the future of Greek industry. In the course of history – and owing to various criticisms – the National Bank was forced to assume a greater responsibility for the financing of the economy, even if Banking School ideas did not wither away until 1928. Kosta Josifidis offers an analysis and assessment of the work of three major Serbian thinkers at the end of the nineteenth century: Kosta Cukic, an eclectic liberal, Cedomilj Mijatovic, a follower of the Historical School, and Mihailo Vujic, another eclectic economist. By following their works and focusing on their views of political economy, economic doctrines, economic policy and public finance, Josifidis reconstructs Serbian economic thought at a crucial period, namely the independence of the country. Economic thought of developed Europe was disseminated into Serbia, and Serbian economists reworked and adapted economic ideas, fitting them into the framework of their country. Cukic, a student of K.H. Rau in Heidelberg, held many important posts including the Governorship of the first State Bank, the Ministry of Education, and a Professorship for State Sciences. He was the author of the first textbook on economics in Serbia. Cukic was as widely read as his liberal German mentor, and the detailed analysis of his contribution confirms that his work was fundamental in that he created a basis for discussion and debate. Following the German tradition, he mixed classical, subjectivistic and mercantilistic concepts and presented theories and realities about economic life in a systematic way. Mijatovic addressed the young and the general public explicitly as an author. A prolific writer and follower of the historical method, he made an impact on economic discourse and strengthened the tendency among Serbian economists to follow the lead of the German Historical School. Vujic, the last of the great Serbian authors of the time, followed, as did his predecessors, the National School tradition and gave it new prominence. He was anti-Marxist and therefore anti-classical, and tried to combine neoclassicism with the historical approach. Serbian economics of the second half of the nineteenth century can, therefore, be described as a mixture of liberal-neoclassical principles and of historical economics. Even if this mixture may seem odd by the standards of today, it can be explained by the fact that such a theoretical approach best justified the administration and the conduct of economic policy of the time.


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Pier Luigi Porta and Roberto Scazzieri discuss the economic theory of civil society in the work of Milanese authors, as Pietro Verri, Carlo Cattaneo, Giandomenico Romagnosi, Francesco Fuoco and Melchiorre Gioja. As Northern Italy was prosperous in the sixteenth century, but lost economic ground in the seventeenth and eighteenth, Italian economists grew aware of the reversibility of economic progress and contributed to the understanding of the interaction between economic improvement and cultural development. The key concept in the analysis of these processes was, for the Milanese economists, incivilimento and industry. Incivilimento was defined, as Porta and Scazzieri show, as an evolutionary view of civilization in which economic factors play a vital role next to other fundamentals such as institutional traditions and national characters. Verri laid great stress on the creativity of the individual as a source and origin of the formation of wealth. Civil society was an essential prerequisite of industry and competition between producers required a moral sense and a suitable legislation to guide citizens. Cattaneo, greatly influenced by Romagnosi, expanded these ideas into a theory of progress. Progress is the outcome of human effort, a labouring gradual course of trial and error. Cattaneo’s liberalism is shown to address not simply the economic, but all of institutional parts that make up a society. Fuoco and Gioja developed further the notions of incivilimento and industrialism at a time that the state of Milan was about to become a part of unified Italy. The importance of the Milanese School lies in the fact that this farreaching economic reasoning was even possible under the specific economic and political conditions of the day. Antonio Almodovar and Pedro Teixeira focus their attention on economic thought in early nineteenth-century Portugal, that is before the dissolution of the Ancient Regime in 1821. Authors such as Rodrigues de Brito, Silva Lisboa and Acusio das Neves espoused a more liberal approach to economic policy, that would help the Ancient Regime reform itself. Both the mercantile and the physiocratic systems were criticized by these authors, who tried, very cautiously, to spell out the necessity for more economic freedom, while at the same time taking pains to define a path that would promote wealth and prosperity in Portugal. A crucial factor for the Portuguese economy was the advancement of agriculture, the legal framework concerning trade and the question of protectionism, and all these authors tried, without offending the sovereign, to sort out gradual reforms, that would not endanger the existing political power. As Almodovar and Texeira note, however, the combination of liberal policy recommendations that restricted economic activity within the existing Ancient Regime institutional framework posed a serious obstacle for a comprehensive plan for growth. As a result, only after the revolution of 1820 could liberal policies be pursued in practice, with classical political economy playing an auxiliary function through the rationalization of certain measures taken.

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At the same time, political economy entered Portuguese academia and Almodovar and Texeira discuss the legacy of Forjaz de Sampaio for Portuguese economics. Forjaz was very cautious in introducing this potential revolutionary discipline into the conservative environment of the University of Coimbra. He eclectically tried to link and reconcile classical political economy with Portuguese reality, basing his position on continental authors, most notably French, and writing a textbook in the footsteps of K.H. Rau’s treatise. This strategy ensured the inclusion of political economy in the curriculum of Law Schools and helped the discipline to become respectable in the years following 1850. Carlos Bastien focuses his attention on Oliveira Marreca, a protectionist writer, whose works were published between 1836 and 1854, and asks if there is an intellectual connection between Marreca and List. Bastien discusses the two authors comparatively to find coincidences in their work. Marecca offered a critique of liberal economics in his writings and demanded reforms that would foster ‘technological education’ and industrial entrepreneurship in the country. For him protectionism was a sign of political strength that would enable Portugal to rebuild its colonial empire. Despite being less rigorous than List, Marreca is to be credited with analysis and protectionist policy recommendations that had some influence during the 1840s and 1850s, when weak Portuguese industrial performance shrank in horror in the face of British competition. In the last essay Terrence McDonough and Eamonn Slater pick up Irish agriculture and Irish political economy as a subject of study, to argue that the Irish Famine marked a turning point in the theoretical basis of Irish economic thought. Before the Famine, Mountifort Longfield and Richard Whately were the most respected economists. The former was a pioneer in subjectivist analysis, the second saw in political economy a scientific impartiality and an ideological neutrality that would always defend the status quo in society. This occurred in a predominantly feudal society marked by great economic inequality and differences in nationality and religion. In this connection Whately dismissed Ricardian economies for the sake of using political economy to defend property rights, to declare class conciliation and to diffuse this particular line of thought in Ireland in order to contain radical and socialist ideas. William Hancock, Whately’s successor at Trinity College, argued that the legal structure of agriculture prevented capitalism from prevailing, and exerted an influence in economic policy in the middle of the century. After the Famine, Irish political economy shifted from classical deductivism to a more inductive approach. The collection of facts and the use of statistics coincided with John Kells Ingram’s Comtist sociology and T.E. Cliffe Leslie’s social reform demands. Historical research into the Brehon Laws indicated that Irish rural society was closer to its Gaelic origins, which included collective property, rather than to contemporary British inspired contractual laws, favouring private ownership. The result was that


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this legal historicism paved the way for Irish land reform that benefited tenants and even gave them property rights.

Concluding remarks The essays in this book explore and discuss the process of dissemination of economic ideas among Europe’s less developed countries and regions, as well as the interaction between economic thought and economic policy in different times and places during the nineteenth century. They shed new light on, and will hopefully open a fruitful debate about, the course of economic development in Europe’s less developed countries in the nineteenth century and the role played therein by political economy, as they, in our opinion, disclose important insights into national traditions in economic thought, policy and the diffusion of ideas in Europe. Even if no definite answer can be given as to the interrelationship between economic thought and policy in the countries under investigation, certain common themes of the enquiry seem to emerge: the strong position held in many less developed countries by German and/or French as opposed to British economic thought, the role of German scholarship in the dissemination of economic knowledge in the nineteenth century (the case of K.H. Rau’s textbook), the relative autonomy of policy makers in their decisions from economic theory, the fact that governments in less developed countries were called to assume functions and responsibilities in the developmental process, that were performed by institutions of civil society in the economically leading countries. Less developed Europe integrated at an accelerated pace in the nineteenth century into the capitalist world system. Individual European countries became vital parts of the latter, even if, coming out of a variety of social, political and religious contexts, they took functionally different positions of the world system. This is clearly reflected in their national histories of economic thought. To reconstruct and restore them in their historical setting is, we think, a contribution to the history of cultures in Europe, as historical time moves into the twenty-first century. This volume is a step in that direction.

Notes 1 These references are by no means exhaustive. Of the countries that are the subject of enquiry in the present volume, economic thought in Ireland has been treated in Black, 1960, Murphy, 1984 and Boylan and Foley, 1992, Russia in Letiche, 1964 and Italy in Finoia, 1980. 2 This pathbreaking book included essays by R. Eagly, R. Meek, J. Spengler, W. Allen, K. Kurihara and P. Sweezy. Important forerunners in the same direction were Fetter, 1965; Stigler, 1965; and Grampp, 1965. 3 Role and attitudes of this social class in a number of developed countries, is treated in Spring, 1977.

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4 For statistical material concerning the evolution of the economies treated in this book, see Mitchell, 1978; Bairoch, 1976; and Maddison, 1995. It is not possible to do justice with the existing economic history literature concerning the individual countries of less developed Europe. See, however, Cameron, 1993: 254–71; and Milward and Saul, 1977: 215–69, 322–467, who touch upon most of the countries forming our sample. Lampe and Jackson, 1982, and more recently Palairet, 1997, analyse the Balkan economies. For the Ottoman Empire, see out of many works, Pamuk, 1987. 5 See Cameron, 1993: 290 and Berend and Ranki, 1982: 75. As Feis [1930] 1974: 263, put it in relation to government borrowing ‘Any independent state can buy enough rope to hang itself, if it will pay enough’. 6 Out of the numerous books on this theme, see Kemp, 1978. 7 This is another topic that has attracted the attention of scholars lately. See Eichengreen et al., 1996; Bordo and Rockhoff, 1996; Flandreau, 1996; and Redish, 1990. 8 See the classic book by Hydman [1892] 1967. 9 This issue is discussed by Ben-David, 1971.

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Niehans, J. (1990) A History of Economic Theory. Baltimore–London: Johns Hopkins University Press. Nye, J.V. (1991) ‘The myth of free trade Britain and fortress France: tariff and trade in the nineteenth century’, Journal of Economic History 51: 23–46. O’Rourke, K.H. and Williamson, J.G. (1999) Globalization and History: The Evolution of a Nineteenth-century Atlantic Economy. Cambridge, MA: MIT Press. Overbeek, J. (1999) Free Trade versus Protectionism. Aldershot: Elgar. Palairet, M. (1997) The Balkan Economies, c. 1800–1914: Evolution without Development. Cambridge: Cambridge University Press. Pamuk, S. (1987) The Ottoman Empire and European Capitalism, 1820–1913. Cambridge: Cambridge University Press. Porter, R. and Teich, M. (eds) (1988) Romanticism in National Context. Cambridge: Cambridge University Press. Redish, A. (1990) ‘The evolution of the gold standard in England’, Journal of Economic History 4: 789–805. Sandelin, B. (ed.) (1991) The History of Swedish Economic Thought. London–New York: Routledge. Schumpeter, J.A. (1954) History of Economic Analysis. New York: Oxford University Press. Screpanti, E. and Zamagni, S. (1993) An Outline of the History of Economic Thought. Oxford: Clarendon Press. Spring, D. (ed.) (1977) European Landed Elites in Nineteenth Century. Baltimore–London: Johns Hopkins University Press. Steedman, I. (ed.) (1995) Socialism and Marginalism in Economics, 1870–1930. New York–London: Routledge. Stigler, G. (1965) ‘The influence of events and policies on economic theory’, in Essays in the History of Economics. Chicago: University of Chicago Press. Sugiyama, C. and Mizuta, H. (eds) (1988) Enlightenment and Beyond: Political Economy Comes to Japan. Tokyo: University of Tokyo Press. Teich, M. and Porter, R. (eds) (1996) The Industrial Revolution in National Context. Cambridge: Cambridge University Press. Walicki, A. (1969) The Controversy over Capitalism. Oxford: Clarendon Press. —— (1975) The Slavophile Controversy: History of a Conservative Utopia in Nineteenth Century Russian Thought. Cambridge: Cambridge University Press. Waszek, N. (ed.) (1988) Die Institutionalisierung der Nationaloekonomie an den Deutschen Universitaten. St Katharinnen: Scripta Mercaturae.

2

Economic theory and economic development in Denmark, 1848–1914 Niels Kaergaard

Introduction The first aim of this chapter is to analyse the relationship between development in economics and development in the economy. To what degree is economic development determined by an economic policy founded in economic theory, and to what degree is economic theory a reflection of trends in the real society and its economy? The second aim of the chapter is to discuss the relationships between the centre and a peripheral country such as Denmark. The analysis focuses on Denmark, and the period chosen for consideration is 1848–1914. Denmark was not particularly poor during that time. The per capita income in Denmark in 1870 was 43% less than in the United Kingdom and 26% less than in the Netherlands, but 35% higher than in Spain and 19% higher than in Sweden, and almost at the same level as in France and Austria (Maddison, 1991). Nevertheless, Denmark was a peripheral country, insofar as almost all trends in the economy and in Danish economics were determined by developments in the European centres, especially England. The main economic sector in Denmark was agriculture, and this sector was mainly a supplier of food for the industrialized British cities. The theoretical debate and doctrines in Danish economics were strongly influenced by discussions in the leading European centres; British economists such as John Stuart Mill, W.S. Jevons and Alfred Marshall were well known in Denmark, as were the Austrians and the German historical school. The chapter consists of this introduction, three main sections and a conclusion. The next section describes the political context in Denmark. The third section deals with the economy, and the fourth section with Danish economics. Finally, the relationships between economics and the economy, and between centre and periphery, are discussed in the conclusion.

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Political developments, 1848–1914 The year 1848 was characterized by revolutions or revolutionary movements in many countries. This was the case in Denmark, too. Until 1848 Denmark had been an absolute monarchy, consisting of Denmark proper and the two small duchies of Schleswig and Holstein on the border between Denmark and Germany. The people in some parts of these duchies were of German descent, and those in others pure Danish. Growing nationalist feelings led to war between the Germans and the Danes, a war fought in the southern part of Jutland in the years 1848–50. The war ended in a Danish victory, but no division of the duchies along national lines was made in the aftermath. At the same time, radical political changes were taking place in Denmark. In 1849 Denmark introduced a democratic constitution, with a bicameral parliamentary system. There was almost universal male suffrage for elections to the first chamber (Folketinget ), while the large landowners dominated the second chamber (Landstinget ). A new war against the Germans (Austria and Prussia) took place in 1864, and this time Denmark was beaten. Both the duchies then became part of Prussia and remained so until 1920, when the nationality problem was finally resolved through a plebiscite. This fixed the border between Denmark and Germany roughly on the basis of the national affiliations of the populations of the different parts of the area. The Danish governments of the first decades after 1848 were dominated by liberal intellectuals. National issues formed the main focus of attention up until the time of the 1864 war. Gradually the middle and lower classes, especially the farmers, tried to gain power in parliament by electing members from their own classes.1 Some of the liberal intellectuals supported this trend; others thought it would be problematic for the democracy if unschooled common people should dominate the parliament. These differences formed the basis of a constitutional conflict which dominated the period 1872–1901. A party which included both the farmers and the left-wing intellectuals was formed in 1872 under the name Det forenede Venstre (The United Left). From the outset, this party obtained a majority in the first chamber (see Table 2.1), while the Conservative Party Hœjre (The Right), with its membership drawn from the large landowners and the urban upper classes, maintained control of the second chamber. Throughout the period 1872–1901, the conservative King formed his governments from the Conservative Party; however, government initiatives were often blocked by the left-wing majority in parliament. Even though the conflict was at times very dramatic, it was almost completely bloodless. In 1901 the King and the Conservative Party gave up their attempts to dominate the parliamentary majority, and since then every Danish government has been formed by the majority in the first chamber of the parliament.2

Economic theory and economic development

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Table 2.1 Distribution of Members of Parliament (Folketinget)% Year

Venstre (‘The Left’) Liberal Party

Hœjre (‘The Right’) Conservative Party

Socialdemokratiet (‘Social democrats’) Labour Party

Det radikale Venstre (‘The Radical Left’) Social Liberal Party

1872 1873 1876 1879 1881 1884 1887 1890 1892 1895 1898 1901 1903 1906 1909 1910 1913

56 53 73 64 74 76 73 73 68 71 76 80 74 57 44 50 38

44 47 27 36 26 22 26 24 30 22 13 7 12 12 19 11 6

– – – – 0 2 1 3 2 7 11 12 14 21 21 21 28

– – – – – – – – – – – – – 10 16 18 28

Sources: Hœgh, 1972: 43; Elklit, 1984: 29; and Haue, Olsen and Aarup-Kristensen, 1979: 357.

Soon after the establishment of the government of 1901, conflicts within the United Left began to escalate, and in 1905 the party split into two: Venstre (the Left), which consisted mainly of the better-off farmers, and Det radikale Venstre (the Radical Left), the members of which were smallholders and intellectuals. In spite of its name, Venstre took a largely liberal view in economic affairs, and Det radikale Venstre had social-liberal ideas marked by the thinking of John Stuart Mill and Henry George. The only socialist party was the Labour Party. The Danish Labour Party (Socialdemokratiet) was founded in 1878 after the imprisonment of some socialists in the early 1870s (later the police offered these left-wingers their freedom if they accepted one-way tickets to the USA – which they did). The party got its first two members of the Danish parliament elected in 1884, and grew steadily from that time onwards, though it did not achieve an important position in parliament before the First World War. Throughout the period since 1905 there has often been close cooperation between Det radikale Venstre and Socialdemokratiet. Even though Denmark was neutral in the First World War, the beginning of the war in 1914 marked the end of an epoch for Denmark – the epoch which is discussed in this chapter – just as it did for all other European countries.

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The Danish economy, 1848–1914 Economic development in Denmark has been extremely stable. We have national accounts figures since 1818 (though, of course, the quality of the figures is debatable for many decades at the beginning of the period), and Figure 2.1 shows the Danish Gross National Product over time. It would be difficult to imagine a more stable growth pattern. It is important to stress this fact before the changes and cycles are discussed: the overall picture is at all times one of stable growth (see Kaergaard, 1991 for a further discussion). The largest economic sector throughout the period before 1914 was the agricultural sector. The rural population was 78% of the total in 1855, falling to 60% in 1911. In 1870, 52% of the labour force worked in agriculture, with the figure standing at 39% in 1914 (Olsen, 1962: 87). The agricultural sector contributed 50% of the GNP in 1857 and 32% in 1914 (Hansen, 1972: 200, 305). In Danish exports, agricultural products were completely dominant; in the period 1874–1914 agricultural goods accounted for 85–90% of all exports (Olsen, 1962: 231). The distribution of exports by countries is shown in Table 2.2. The fact that Danish exports were mainly food for the British cities is very obvious. There was, however, a remarkable change in agricultural production in the 1880s. For many decades exports had been dominated by grain and Log. scale

9

8

7

6

1815

1835

1855

Figure 2.1 Danish GNP. Source: Hansen, 1974.

1875

1895

1915

1935

1955

1975


25

Table 2.2 Danish exports, distributed according to purchasing country 1875–79 1880–84 1885–89 1890–94 1895–99 1900–04 1905–09 1910–14

Britain %

Germany %

Norway and Sweden %

Others %

41 38 49 56 59 59 53 60

31 32 27 25 20 18 22 28

22 22 16 13 12 12 11 4

6 8 8 6 9 11 14 8

Source: Olsen, 1962: 234.

cattle, but in the 1870s better transportation facilities led to an increased supply of grain from the USA, and consequently to falling prices in Europe. The Danish reaction was a radical transformation of Danish agriculture. Production switched to animal products such as pork (bacon), butter and eggs. The falling prices of grain then became an advantage, because grain was used as an input in animal production. The transformation was a success; exports grew, and the British market became even more important (see Table 2.2). These changes are clearly visible in the figures in Table 2.3. The transformation was made possible by a fast-growing cooperative movement. As mentioned earlier, the dominant element in Danish agriculture was privately owned family farms; these were too small to establish their own dairies. However, the owners of these farms built cooperative dairies and abattoirs. Between 1882 and 1900, 942 cooperative dairies were built, and 266 more were built between 1900 and 1914. In 1914 almost every village had its own cooperative dairy; 41 cooperative abattoirs were built between 1887 and 1914 (Olsen, 1962: 58). Table 2.3 Danish agricultural exports, 1875–1910

1875 1880 1885 1890 1895 1900 1905 1910

Proportion of animal products, %

Proportion of vegetable products, %

Exports as a proportion of production, %

58 51 68 81 87 88 86 91

42 49 32 19 13 12 14 9

38 40 37 43 48 53 58 61

Source: Henriksen, 1993: 3.

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In relation to the main topics of this chapter, it is important to note that this very important transformation took place without governmental support and without guidance from theoretical economics. An analysis of the economic reasons for the transformation and for the cooperative movements can be found in writings on economic history dating from a century later, but no such analysis was formulated by contemporary economists (see Henriksen, 1999). Even though the agricultural sector was still the most important in the economy, Denmark’s industrial revolution also took place during the period under consideration here. The date when the industrial breakthrough in Denmark took place has long been a subject of debate. The most specific theories of recent decades are those of Richard Willerslev (1954 and 1952), Svend Aage Hansen (1970) and Ole Hyldtoft (1984). Willerslev argues for an early revolution starting in the 1850s, while Hansen lays stress on the rapid growth in the 1890s. Hyldtoft tries to combine these two views in a theory of long cycles. Hyldtoft does not see the cycles as substantial changes in the aggregate growth rate, but mainly as changes in the composition of the factors of production. He divides the development into phases of ‘capital depending’ and ‘capital widening’. In the periods 1840–1865 and 1896–1914 both the growth in the stock of capital and the rate of technological progress were very substantial, while the period 1865–96 was characterized by a consolidation of techniques already introduced. Evidence for this separation into three periods is seen in Figure 2.2, Logarithm to h.p. per 100 workers

’14 19

06

’97

1.5

’73 ’55

1.0

’47 0.5

’39

0.0 1831

1845

60

75

90

1905

Year

Figure 2.2 Mechanical power available in relation to the workforce size, 1830–1914. Source: Hyldtoft, 1984: 52.


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where mechanical power per employee is shown. The only extant data, however, are based on industrial censuses for eight different years during the period 1831–1914, and two of these (1831 and 1839) are clearly previous to the period discussed in this chapter. A fuller discussion of this problem is to be found in Kaergaard (1990). It is important for our discussion here that the growth process in the 1890s seems to have been largely independent of economic policy in the period. In a study entitled Vaekst uden plan (Growth without plan), the leading specialist in the history of Danish economic growth, Professor Svend Aage Hansen, concludes that ‘it was a period where economic growth was considerable, but was not in any particular degree stimulated by planned interventions’ (translated from Hansen, 1969: 231). The industrial growth was greatly stimulated by the agricultural transformation; the food industry and the producers of agricultural machinery were important elements of Danish industry. There were, of course, other significant features in Danish economic development 1848–1914, but the agricultural transformation and the industrialization of the country seem by far the most important. Three other topics deserve to be mentioned. In 1875 the monetary system was changed from a Danish silver currency system to a common Scandinavian gold-based currency. The change had been the subject of intense discussion among economists for almost a decade. The Scandinavian currency union of 1875–1914 is often mentioned as being one of the most successful of the monetary unions established in Europe during the latter half of the nineteenth century (see Henriksen and Kaergaard, 1995). If one looks at Table 2.2, however, it is easy to see that the Scandinavian union had only very limited importance for total Danish foreign trade. During most of the period, there was quite an intensive debate on customs law going on. A fairly liberal customs law was introduced in 1863, and a change in 1908 did not create a greater degree of protectionism. The customs debate is one of the areas where the interaction between the economy and economics seems to have been greatest, and this debate will be discussed further in the following section. The final topic which should be mentioned is the start of the Danish welfare state. The last part of the nineteenth century saw the introduction of a number of laws intended to protect the poor, the sick, and children on the labour market, and to ensure that these people had reasonable lives. In 1891 a general pension for poor elderly people was established. The unions’ unemployment insurance was given public support in 1907. One of the social reforms which was strongly supported by the Social Liberal Party, with its dominant group of smallholders, was the various attempts to provide land for agricultural workers (the parliamentary acts of 1897, 1899, 1906 and especially 1919). Denmark in 1914 certainly could not be described as a welfare state, but a number of seeds had been sown

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which were to be important for the later development of the Scandinavian type of welfare system.

Danish economics, 1848–1914 The University of Copenhagen, founded in 1479, was the only general university in Denmark until 1936. There had been a technical university since 1829 and an agricultural university since 1858. However, the first Business School was not established until the 1920s. In fact, the professionalization of economics began in 1848. In that year the University of Copenhagen instituted political economy as an independent academic discipline. The course in political economy was not highly specialized in pure economics, but was rather a fairly general master’s degree in social science. The University had had a chair in cameralism and public economics since 1762, but from the time when the course in political economy was started there were two chairs in economics and statistics. In 1883 a third chair was established, and this number was not increased again until after 1914. The establishing of a circle of professional economists took a further step forward in 1872, when the Danish economics association Nationaloekonomisk Forening was founded, and in 1873, when the Danish economics journal Nationaloekonomisk Tidsskrift was first published. The 1870s were in many ways a period of new ideas in Denmark. The Scandinavian Currency Union of 1875 and the formation of the political party, Det forenede Venstre, in 1872 have already been mentioned. In addition, the women’s liberation movement became stronger during this period. There had been isolated pioneers before, but in 1871 the Danish Women’s Association (Dansk kvindesamfund) was established, the main founders being a married couple, Frederik and Matilde Bajer. Frederik Bajer (1837–1922) was elected to parliament for Det forenede Venstre in 1872. He was a leading spokesman for women’s liberation, for the peace movement, and for a Danish neutrality policy. He was awarded the Nobel peace prize in 1908. There is no doubt that the emancipation movement was internationally inspired. John Stuart Mill’s ‘On the Subjection of Women’ was translated into Danish in 1869 by the leading Danish leftwing intellectual of the period, the man of letters Georg Brandes. In the issues of Nationaloekonomisk Tidsskrift from the 1870s there are a number of contributions about female students. There are articles about the experiences of Zurich University with female students; Zurich was the first and at that time only European University to admit women.3 In 1875 female university students were accepted in Denmark at all faculties other than the theological (where permission was given for female students to be admitted in 1905). In international economics, the main event in the 1870s was the start of the marginal revolution. It is an overstatement to say that there was a


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revolution in economic theory in the first half of the 1870s, with Menger’s and Jevons’s books appearing in 1871, and Walras’s in 1874. There were in fact several forerunners of these theorists, among whom could be mentioned Senior, Dupuit, Gossen, Jennings, von Thünen and Cournot. Some Danes could be listed among these forerunners, too; for a further discussion see Kaergaard (1996). The best known of the Danish contributions is Frederik Bing4 and Julius Petersen’s5 article in Nationaloekonomisk Tidsskrift in 1873, which concerned the determination of the rational wage rate, and included some remarks about economic methodology. The article has been translated into English and was published in International Economic Papers, 1962. The model used in the paper was analysed by J.K. Whitaker some years ago in Journal of Political Economy (Whitaker, 1982). The article by F. Bing and J. Petersen (both mathematicians) started disputes in Denmark about the proper use of mathematics in economics. The establishment criticized their viewpoints strongly, but to say that ‘mathematical economics was officially declared invalid’ and that ‘the two authors were virtually read out of the economics profession’ (Boserup, 1980: 431) seems inaccurate. Nobody tried to suppress their viewpoints. The editor of Nationaloekonomisk Tidsskrift wrote a letter to Walras about the two authors. This letter resulted in a correspondence in which Walras asked for a summary of the paper in French. Later he referred to the Danish contribution in letters to Italian colleagues (Jaffé, 1965, letters 332, 337, 338 and 341). In an article in Degli Economisti in April 1876 Walras mentioned Denmark along with the UK, Holland and Italy as examples of countries where economists were seriously interested in using mathematical tools. In a similar manner, Professor Falbe Hansen6 wrote to Jevons mentioning Bing and Petersen (Black, 1977: 44). In the period after the publication of the books by Jevons, Menger and Walras, further Danish contributions appeared. Jaffé (1977) mentions that Walras’s Eléments was reviewed only twice outside the French-speaking areas. One review was in Nationaloekonomisk Tidsskrift of 1875. This review illustrates how well-informed the Copenhagen economists were about international developments. The reviewer wonders why Walras did not mention Jevons (who ‘worked with the same questions’). As a matter of fact, Jevons and Walras did come in contact at that time, and when Walras asked Jevons about possible sympathizers he answered: Nor can I readily indicate to you any persons who would take any interest in it except a few that I mention below. ( Jaffé, 1965: 427) Only six names followed: four British, one American and one Danish (V. Falbe Hansen). Undoubtedly V. Falbe Hansen was the person responsible for the contact between Jevons and another Dane, Harald Westergaard,7 which resulted in a well-known letter from Westergaard to Jevons,

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Niels Kaergaard

explaining how differential calculus could be used to solve Jevons’s problems: The chief problem in the book is a question of maximum and minimum. Such problems occur in most sciences, where mathematics are applicable . . . It is the same with political economy. (Black, 1977: 255) The letter was first published in Black (1977), but it gave rise to a remark in the Preface to the 2nd edition of Jevons’s Theory of Political Economy of 1879. Evidence of the role played by Danes in the marginal revolution is found in this edition of Jevons’s book. Jevons had collected a bibliography covering mathematical economics. He commented on it in the following manner: My bibliographical list shows that in recent years, that is so to say since the year 1873, there has been a great increase in the number of mathematic-economic writings. The names of Fontaneau, Walras, Avigdor, Lefèvre, Petersen, Boccardo, recur time after time. In such periodicals as the Journal des Actuaires français, or the National-Oekonomisk Tidsskrift – a journal so creditable to the energy and talent of the Danish Economic School – the mathematical theory of economics is treated as one of established interest and truth, with which readers could naturally be acquainted. In England we have absolutely no periodical in which such discussions could be conducted. The reader will not fail to remark that it is into the hands of French, Italian, Danish or Dutch writers that this most important subject is rapidly passing. ( Jevons, 1879: XL–XLI) The fact that Westergaard and Jevons were well acquainted is underlined by the Preface to the 3rd edition of Jevons’s Theory from 1888, in which Harriet Jevons ( Jevons died in 1882) thanked ‘Wicksteed, Edgeworth and Professor Harald Westergaard of Copenhagen, for the trouble they have taken in revising proofs for me, as in supplying me with the titles of those books which ought to be included’. In the year 1885 the journalist Ernst Brandes8 published a book called Samfundsspoergsmaal (‘Social Problems’). It was not a scholarly book, but a political one. This book was an attack on classic economic theory from beginning to end, and especially an attack on Ricardo’s iron law of wages – and the attack was totally founded on Jevons’s marginal theory. ‘I have learned a lot from Jevons, but it is not my intention to take cover behind his distinguished name’, Brandes wrote (p. 429). The Danish debate about marginalism in the 1870s and 1880s documents how well oriented the Danes were with regard to international literature.


31

It is important to note that these Danish economists are viewed today as neoclassical pioneers, but in their own time they were seen as forming a left-wing coalition between mathematicians and historical economists against the traditional classical economists, who believed strongly in the Ricardian iron law of wages. Both ‘neoclassical’ and historical Danish economists at that time regarded this iron law as the main barrier to social reforms (see Kaergaard, 1995). An example of the combination of discussion of current problems in the economy and ‘home-made’ theory should be given, too. In the 1890s Julius Wulff 9 published several works in which he recommended protectionist policies. In these publications he clearly explained how an increase in demand would result in a process of derived demand increases, and how the strength of the process would depend on how large a proportion of the demand was for foreign goods. If d represents the proportion of demand satisfied by domestic producers, Wulff calculated the multiplier to be 1/(1–d). Wulff ’s ideas were further developed by Fr. Johannsen,10 who used them when discussing the consequences of buying telephone equipment either domestically or abroad. A thorough discussion of early Danish multiplier theory is found in Topp (1981), and of Wulff’s participation in the tariff debate in Larsen (1995). Other examples of early Danish contributions to economics could be mentioned, for instance that of E.Ph. Mackeprang, who in 1906 made econometric estimations of demand functions inspired by the work of Vilfredo Pareto (see Kaergaard, 1984). It should, however, already be clear that Danish economists in this period were very well abreast of the latest results and trends in international economics.

Conclusion Two questions were posed in the introduction – about the relationship between society and theory, and about the relationship between Denmark and the European centres. The question about the relationship between Denmark and the centres is very easy to answer. There were very close connections between Denmark and other countries, especially Britain. The Danish economy responded closely to international changes. The main change seen in the period was the transformation of the agricultural sector from producing vegetable goods to producing animal goods, and this was a reaction to changes in relative prices on the international markets and an adjustment to changing demand on the British market. Danish farms did not follow international trends (in most European countries the farmers called for protection when the cheap American grain arrived), but instead they responded in an almost optimal manner to the changes. The same was true in economics. The Danish economists were very well-informed about what was happening at international centres. Danish

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Niels Kaergaard

economists corresponded in French with Walras and in English with Jevons at a time when Danish economics was largely German-oriented, and more than ten years before marginalism penetrated international thinking in economics. The relationship between Danish economists and the various international schools of thought was rather like that between butterflies and flowers. Danish economists generally ‘fluttered’ from school to school, taking from each whatever they felt they could use. They maintained a broad orientation towards – as well as contacts with – the various international schools within economics, without firmly associating themselves with any of them. They looked at the theories on offer and selected from them, and modified those elements which they could use. In the majority of cases they started with real-world problems, and sought theoretical tools which could be used in their analyses. The question about the relationship between theory and society is much more complicated. There is no doubt that the theoretical economists – university professors – maintained close connections with the worlds of politics and commerce. One reason for this was certainly the small size of the country, in that there were relatively few resources to draw upon. Another reason was that the university was situated in the very centre of the capital, only a few minutes’ walk from the central administration and the parliament. Furthermore, the cornerstone of the university educational structure in Denmark was a broad MA, with a doctoral thesis often being written by a mature researcher supporting himself with a job outside the university; more theoretical specialization by economists doing their PhD studies at a younger age might have resulted in a rather different profile. Nevertheless, it is difficult to find a strong influence from economists on the main changes taking place in Danish society. The main transformation in agriculture was in the 1880s. Industrial progress took place in the 1850s and, in particular, the 1890s. In contrast, the main period of intellectual development was in the 1870s – represented in economics by the founding of the Danish Economics Association and of the Danish Economics Journal. The remarkable Danish contributions to mathematical economics were in the 1870s, too. Many other intellectual issues date from the 1870s (e.g. the admission of female university students and the founding of the Women’s Association). The agricultural transformation took place at the farm level. The leading economist at that time, Professor William Scharling, saw in 1883 (the year in which the transformation really started) no future for the agricultural sector, given the low international grain prices. The industrialization of the 1890s also took place quite independently of experts and economic policy; it has been described as ‘growth without plan’. The Scandinavian currency union was widely debated among economists in the years before it was formed, but the economically rational form for which the economists argued (a clear-cut decimal system, with a


33

5-gram gold coin as the main unit) was not chosen; instead, a unit as close as possible to the old silver currency system was selected. Social reform seems to represent the only area where new theory resulted in action, and that in a rather indirect way. Marginal theory and the beliefs of the historical school were used to argue against the old classical economics, and that for political reasons. The iron law of wages had to be rejected as authoritative science before social reforms could be brought in, and much of the theoretical debate about marginalism in Denmark from 1873 to the turn of the century was related to this question (see Kaergaard, 1995). The positive arguments for social reforms, however, were not drawn from economic theory, but from socialism and Christianity. The very small effects which the development in economic theory had on developments in the real world could perhaps have been caused by the special political situation in Denmark in the period. Economists’ influence normally goes through the government and the politicians, but throughout the entire period 1848–1901 attention of Danish politicians was concentrated on national and constitutional questions. Perhaps that was the reasons why economic arguments played so modest a part in the determination of developments in that period. There was, however, an influence in the opposite direction. Many of the theoretical developments began as arguments in the social debate. Wulff started his multiplier theory during the protectionism debate, and Julius Petersen’s neoclassical distribution theory had its roots in the problems of combining the iron law of wages with social reform. None of the Danish economists was really interested in economic theory for its own sake. Nevertheless, the result was a number of remarkable theoretical contributions, even though none of them was adequately published internationally.

Notes 1 In fact, these classes were nothing like a true proletariat. The dominant class in Denmark in the period 1848–1914, both politically and economically, was made up of relatively well-off farmers whose farms had been in the ownership of their families since the agricultural reforms of the 1780s; it was this group which attempted to take over power as successors to the old nobility. 2 Cabinet responsibility was written into the Danish constitution in 1953, at which time the second chamber was abolished. 3 A special problem at Zurich was the many female international students (especially Russian). In 1873, 100 out of 114 female students were Russian. The medical faculty in particular had a great many Russian women among its students. 4 Frederik Bing (1839–1912) graduated in engineering 1862 and studied mathematics in Paris. He became an actuary and a director of the State Life Insurance Company. He was a close friend of Professor Julius Petersen. 5 Julius Petersen (1839–1910), mathematician, was awarded a doctorate in 1871.

34

6

7

8

9

10

Niels Kaergaard He was a teacher at the Technical University during the period 1871–86, and from 1881 to 1887 he taught at the Military Academy. From 1886 to 1909 he was professor of mathematics at the University of Copenhagen. Vigand Falbe Hansen (1841–1932), professor of economics at the University of Copenhagen, 1877–1902. He made early contributions to the theory of indices, and for this work was made an honorary member of the English Royal Statistical Society. Harald Westergaard (1853–1936), professor of economics and statistics at the University of Copenhagen, 1883–1924. His major work is on demographic matters (Die Lehre von der Mortalit⭸-t und Morbilit⭸-t, 1881), see Kaergaard and Davidsen (1998). Ernst Brandes (1844–92) was the least known of three famous brothers. Edvard Brandes was the founder of the biggest Danish newspaper, and a cabinet member. Professor Georg Brandes was the leader of the movement towards realism in Danish literature. Ernst’s fate was rather tragic. He had his own newspaper in which he tried to combine stock-exchange lists and radical literature; he failed, and committed suicide. Julius Wulff (1852–1924), educated in zoology and English language, became gradually more and more engaged in politics. He was a teacher in a Danish provincial town, Hjoerring, and later editor of the local conservative newspaper. From 1895 he was a member of the Danish parliament, and for some periods chairman of the conservative group. He left Hjoerring in 1893 and moved to Copenhagen, where he was employed in various trade organizations. Frederik Johannsen (1855–1934) was an engineer. He was a self-employed contractor, and was from 1903 onwards managing director of the Danish Telephone company, and from 1916 to 1920 president of the Danish Association of Engineers.

References Bing, F. and Petersen, J. (1873) ‘Bestemmelsen af den rationelle Arbejdslœn samt nogle Bemaerkninger om Oekonomiens Methode’, Nationaloekonomisk Tidsskrift 1: 296–320 (translated as ‘The Determination of the Rational Wage Rate’ in International Economic Papers, 1962). Black, R.D.C. (1977) Papers and Correspondence of William Stanley Jevons IV. London. Boserup, M. (1980) ‘The international transmission of ideas: a small-country case study’, History of Political Economy 12: 420–33. Brandes, E. (1885) Samfundsspoergsmaal (Social problems). Copenhagen: P.G. Phillipsens Forlag. Creedy, J. (1980) ‘The early use of Lagrange multipliers in economics’, Economic Journal 90: 371–6. Elklit, J. (1984) ‘Det klassiske danske partisystem bliver til (The creation of the classical Danish political system)’, in J. Elklit and O. Tonsgaard (eds), Valg og vaelgeradfaerd. Aarhus. Fode, H. (1989) ‘Liberalisme og Frihandel 1814–1914 (Liberalism and Free Trade 1814–1914)’, Dansk Toldhistorie III. Koebenhavn: Toldhistorisk Selskab. Hansen, S.A. (1969) ‘Vaekst uden plan (Growth without plan)’, Aktuelle Oekonomiske problemer – Festskrift til Carl Iversen. Koebenhavn: Nationaloekonomisk Forening. —— (1970) Early Industrialization in Denmark. Copenhagen: Akademisk Forlag.


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—— (1972–4) Oekonomisk vaekst i Danmark I–II (Economic Growth in Denmark I–II). Copenhagen: Akademisk Forlag. Haue, H., Olsen, J. and Aarup-Kristensen (1979) Det ny Danmark 1890–1978 (The New Denmark 1890–1978). Copenhagen: Munksgaard. Henriksen, I. (1993) ‘The transformation of Danish agriculture 1870–1914’, in I.G. Persson (ed.), The Economic Development of Modern Europe since 1870, Denmark and Norway. Aldershot: Elgar. —— (1999) ‘Avoid lock-in: cooperative creameries in Denmark, 1882–1903’, European Review of Economic History 3: 57–78. Henriksen, I. and Kaergaard, N. (1995) ‘The Scandinavian currency union 1875–1914’, in J. Reis (ed.), The History of International Monetary Arrangements, 91–112. New York: Macmillan. Hoegh, E. (1972) Vaelgeradfaerd i Danmark 1849–1901 (The voters in Denmark 1849–1901). Copenhagen: Joergen Paludans Forlag. Hyldtoft, O. (1984) Koebenhavns Industrialisering 1840–1914 (Industrialization of Copenhagen 1840–1914) (with English summary). Herning: Systime. Jaffé, W. (1965) Correspondence of Leon Walras and Related Papers, Vol. I. Amsterdam: Royal Netherland Academy of Science and Letters. —— (1977) ‘The birth of Leon Walras’s Eléments’, History of Political Economy 9: 198–214. Jevons, W.S. (1871, 1879, 1888) Theory of Political Economy. London: Macmillan. Kaergaard, N. (1983) ‘Marginalismens gennembrud i Danmark og maendene bag (The breakthrough of marginalism in Denmark and the men behind it)’, Nationaloekonomisk Tidsskrift 121: 20–42. —— (1984) ‘The earliest history of econometrics: some neglected Danish contributions’, History of Political Economy 16: 437–44. —— (1990) ‘The industrial development in Denmark 1840–1914’, Journal of European Economic History 19: 271–91. —— (1991) ‘The Danish growth model CLEO and the stability of the economy’, Economic Modelling 8: 175–86. —— (1995) ‘Cooperation not opposition: marginalism and socialism in Denmark 1871–1924’, in I. Steedman (ed.), Socialism and Marginalism in Economics 1879–1930. London–New York: Routledge. —— (1996) ‘Denmark in the marginal revolution’, in W.J. Samuels and J.E. Biddle (eds), Research in the History of Economic Thought and Methodology 14: 247–58. Connecticut: Westview Press. Kaergaard, N. and Davidsen, T. (1998) ‘Harald Westergaard: from young pioneer to established authority’, in W.J. Samuels (ed.), European Economist of the Early 20th Century 1: 349–65. Northampton: Edward Elgar. Larsen, H.K. (1995) Holdninger til industriel udvikling i Sverige, Finland og Danmark 1870–1920 (Attitudes to industrial development in Sweden, Finland, and Denmark 1870–1920). PhD dissertation, University of Copenhagen. Maddison, A. (1991) Dynamic Forces in Capitalist Development. Oxford: Oxford University Press. Olsen, E. (1962) Danmarks oekonomiske historie siden 1750 (The economic history of Denmark since 1750). Koebenhavn: G.E.C. Gads forlag. Petersen (-Studnitz), A. (1875) Review of Walras’s ‘Eléments d’economie politique pure’, Nationaloekonomisk Tidsskrift 6: 68–74. Scharling, W. (1883) ‘Hvor laenge vil Danmark forblive et kornudfoerende Land?

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(How long will Denmark continue to export cereal?)’, Nationaloekonomisk Tidsskrift 21: 1–27. Topp, N.-H. (1981) ‘A nineteenth-century multiplier and its fate: Julius Wulff and the Multiplier Theory in Denmark, 1896–1932’, History of Political Economy 13: 824–45. Whitaker, J.K. (1982) ‘A neglected classic in the theory of distribution’, Journal of Political Economy 90: 333–55. Willerslev, R. (1952) Studier i dansk industrihistorie 1850–1880 (Studies in Danish industrial history 1850–1880), (with English summary). Copenhagen: Eimar Harcks Forlag. —— (1954) ‘Traek af den industrielle udvikling 1850–1914 (Aspects of the industrial development 1850–1914)’, Nationaloekonomisk Tidsskrift 92: 242–62.

3

The emergence of an independent Norwegian economic policy Some notes on current views and empirical findings Camilla Brautaset

Introduction1 Norway had been under Danish jurisdiction for nearly 300 years when as an aftermath of the Napoleonic wars, the King of Sweden was made head of state in the autumn of 1814. However, the interplay of the conveyance gave rise to the revitalization of the Norwegian nation state.2 In consequence, the Norwegians were largely allowed to run their own economic policy. The emergence of a national political consensus coincided with a post-war recession and the dawn of a modernization of the economy; thus, the indigence of such governmental tools was precarious. This chapter discusses the decades after 1814 when the first independent economic policy in modern Norwegian history was moulded. Two particular questions are addressed: first, can empirical findings support the traditional view of a ‘devastating’ monetary policy in the 1820s and 1830s? Second, how did the trend towards either protectionism or liberalism in the West effect foreign trade policy in the 1840s and 1850s? Finally, the adopted policies are linked with the overall performance of the Norwegian economy in the corresponding period. The chapter concludes that empirical findings do not correspond with traditional views about the monetary policy of the 1820s and 1830s. Moreover, new sources are utilized to explain the change of trade policy in the 1840s.

Monetary policy A framework for the monetary policy was laid out as the Norwegian Parliament in 1816 decided on the constitution of the central bank, Norges Bank, a bank similar to the Bank of England. The main purpose of the bank was to secure the stability of the Norwegian currency, and to be the sole institution responsible for issuing notes. Speciedaler had been the Danish–Norwegian currency from 1695 up

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until 1813. Now riksbankdaler became the key currency, but was soon replaced by the re-introduction of speciedaler.3 Silver was still declared to be the monetary basis.4 The parliament decided that the new speciedaler was to return to the pre-1813 par value that was 9¹⁄₄ mark of silver per speciedaler. As the value of one riksbankdaler had been 18¹⁄₂ mark of silver, the Norwegian currency had to sustain an appreciation of 100%. After a short post-war boom following the Napoleonic wars, the Norwegian economy suffered from recession for nearly two decades. The setback was particularly severe in some of the leading export earners, notably timber and shipping. These years of crisis have so far been linked to the setting of the face value of the speciedaler and the subsequent monetary policy.5 With such a point of departure, a comparison with the devastating Norwegian monetary policy in the 1920s has seemed inevitable.6 Indeed, several Norwegian economic historians have claimed that a deflationary monetary policy was conducted until the par value de facto was reached in 1835. The following citation illustrating this view, is taken from a conventional textbook in Norwegian economic history: From 1823 onwards systematic actions were taken in order to return to the par value. However, this turned out to be difficult, and the result was a relatively long-lasting deflation process (i.e. an increase of the value of the Daler), interrupted by relatively short setbacks.7 This view of a deflationary monetary policy implicitly adopts the currency theory, i.e. the view that the domestic price level is a function of the quantity of money, with focus on the supply side only.8 Hence, if the aim is to achieve a higher value of the currency, then money has to be withdrawn from circulation in order to increase its purchasing power, which in turn leads prices and profits to fall. As the currency theory implies focus on the supply side only, the supply side constitutes a natural starting point for further discussion. How the return to par should be accomplished was laid out as the Parliament passed the money bill of 15 November 1822. First, a formal line of demarcation between the two existing exchange rates was drawn.9 The exchange rate set by the Bank of Norway, the bank rate, stipulated the inner value of the speciedaler in terms of the rate of redemption into silver. The børskurs, i.e. the quotation, on the other hand, stipulated the external value of the speciedaler. By stating the relative price of a given amount of silver in terms of Hamburger Banco, the quotation thereby declared the value of the speciedaler against foreign currencies.10 Second, the Parliament decided on establishing maximum and minimum values for fluctuations of the bank rate.11 These boundaries from 1823 onwards were set to 190% and 175%, i.e. the amount of notes one had to pay for 100 silver speciedalers.12 As the speciedaler medio 1822 was 216,50, this de facto implied a revaluation of the Norwegian currency.13

The emergence of an independent Norwegian economic policy

39

Third, up until 1822 the bank rate had been following the quotation.14 In principle, this was no longer to be the case. However, as can be observed in Figure 3.1, the central bank established a bank rate slightly above the quotation. This implied a discreet under-valuation of the speciedaler in order to prevent exports of silver. The strategy proved to be successful as confidence in the speciedaler was increasingly attained, and full de jure redemption was reached in 1842. Regrettably, no reliable domestic price series prior to 1850 are available. Henceforth, a deflation in the 1820s and 1830s cannot be verified or falsified in terms in quantitative terms. However, according to several contemporary qualitative sources, falling prices seem to have been the order of the day, particularly in the early 1830s.15 So far, has the monetary policy frequently been made scapegoat for this decline in prices? In order to see if the view of a deflationary monetary policy can be documented by quantitative empirical observations, data on the money stock as well as interest rates will provide at least an indication on whether this was the case or not. More precisely, we are looking for signs of a deliberate contraction of the money stock and rising interest rates.16 Adopting empirical aggregates for the nineteenth century is not, however, a straightforward task. How to measure the stock of money represents one of the dilemmas when mapping a pre-industrial economy. Not only do the data vary in time and space, what should be regarded as contents of the money stock is 250 200

The quotation at Christiania stock exchange Minimum exchange rate set by the Norwegian Parliament Rate of redemption set by the Bank of Norway

150 100 50 0 1822 1824 1826 1828 1830 1832 1834 1836 1838 1840 1842 Figure 3.1 Exchange rates for the Norwegian currency, 1822–42. Sources: The quotations at Christiania stock exchange; Kongeriget Norges tiende ordentlige Storthings forhandlinger i Aaret 1842, i.e. the minutes of the setting of the Norwegian parliament in 1842, Tredie Deel, Chr. Grøndahl, Christiania, 1844: 299f. Minimum exchange rates: Tvethe, Nartin Braun, Norges Statistik, Chr. Tønsbergs Forlag, Christiania 1848: 186f. Rates of redemption: annual average figures calculated on basis of Jahn, Gunnar, Eriksen, Alf and Munthe, Preben, Norges Bank gjennom 150 år, Norges Banks seddeltrykkeri, Oslo, 1966: 46.

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controversial itself.17 A monetarization was a crucial feature of the developing countries in the 1800s this question has to be handled with extra care. Several authorities offer figures of the money stock in the nineteenth century.18 However, the series vary in standards according to criteria of reliability and validity, particularly when it comes to research into primary sources. By comparison, Jan Tore Klovland compiles by far the most sophisticated set of data. Consequently, these figures are adopted as basis for further analysis. Changes in the access and nature of the data suggest separating the figures prior to and after 1848. The series presented for 1819–47 are end-of-year figures, including notes in circulation, money stock and monetary base. These data have been extracted from Bank of Norway’s balance sheets from 1819 onwards, and deposits at saving banks from 1822.19 Figure 3.2 indicates that no absolute contraction in the money stock can be seen. On the contrary, a salient feature of these curves is the persistent long-run growth of the stock of money.20 The average annual growth rate from 1823 until the de facto par value was reached in 1835, was 4.5%. The corresponding growth rate until the par value de jure was established in 1842 was 3.6%. From 1843 to 1847 the money stock had an average annual increase of 4.2%. While the annual average growth rate in the stock of money 1820–47 was 4%, the growth rates in Sweden and Denmark were 0.5% and minus 0.3%, respectively.21 Moreover, while notes in circulation per capita in 1822 were 1.9 speciedaler, it was 4.5 speciedaler in 1842.22 Thus, the data on the money stock do not support the traditional view of a tightening and thereby deflationary monetary policy. 45 40 35

Notes in circulation Money stock

30 25 20 15 10 5 0 1819

1822

1825

1828

1831

1834

1837

1840

1843

1846

Figure 3.2 The money stock and monetary base, 1819–47 (end of year estimates). Source: Klovland, Jan Tore, Quantitative Studies in the Monetary History of Norway, Norwegian School of Economics and Business Administration, Bergen, Part I., Appendix A., 1984, table A1: 4.


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Nor can signs of a deflationary monetary policy be seen in the discount rates. As the Bank of Norway started to operate in 1818, the discount rate was set to 8%. On 14 April 1823 this was reduced to 7%. Further reductions were made in 1825 and 1843, to 6% and 5% respectively.23 As notes in circulation were increasing and interest rates were not very high, the empirical findings address questions to the view of a deflationary monetary policy head on. Gunnar Jahn has also opposed the traditional claim of an obscure Norwegian monetary policy. When examining the Norwegian monetary policy 1823–42, he concludes that the government did not conduct a tightening monetary policy: [o]ne may argue that the government was more or less passive. An active monetary policy in order to bring the speciedaler back to par value, would not only have implied currency policy measures, but also a deliberate tightening monetary policy aimed at reducing the stock of money. However, the discarding of the conventional view of a deflationary monetary policy, 1823–42 implies that the questions of the return to par the deflation are still left open. First, as for the return to par, the traditional view is based on the currency theory. Focusing on the supply side only, it ignores the possibility that altered liquidity preferences could have contributed to the timing and speed of the return to par value. According to Klovland, changes in velocity trends, in particular relative to other countries, seem to have been a phenomenon with high significance in this respect.24 Second, as the Parliament by law signalled its decision to bring the speciedaler back to par, this most likely led to speculations in the Norwegian currency. Thus, the decision per se may have contributed to the achievement of the par rate. Third, as for the deflation, though domestic price data are missing, Rousseaux’s international price index offers vital information.25 For the 1820s international prices increased up to 1825 and declined from 1826 through 1835. If we look at the countries included in Rousseaux’s price index, these were important trading partners of Norway. Contemporary Norwegian qualitative sources confirm that the international phenomenon of deflation in the 1820s gradually was felt further and further afield.26 Henceforth, the price level in Norway seems to have followed the trend observed in other Western countries. Thus, as the majority of the monetary transactions in Norway in the 1820s and 1830s were linked to foreign trade, ‘imports’ of international business cycles through foreign trade probably contributed to the assumed deflation in Norway in this period. Finally, if the Bank of Norway contributed in a negatively manner to

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the trade and industry of Norway in this period, it was most likely through its position in the credit market. The central bank held an unusual strong position in the Norwegian credit sector due to its monopoly of issuing notes. Though saving banks were established from the 1820s onwards, they mainly operated as safety valves to small-scale savers. In consequence, the majority of Norwegian merchants and entrepreneurs were forced to raise money at high interest rates abroad. Contemporary sources confirm that the Bank of Norway did not handle its dominating position in the credit market very professionally, and not in the interest of trade and industry:27 The National Bank is of little or no use to mercantile men, whose convenience does not indeed appear to be in the least degree consulted in its management: occasionally it is prepared to discount food bills, but cannot be relied on for assistance in any emergency; common reform report say (how truly I know not) that except for the management and their personal friends, as well as the bank as the government discount offices, are seldom provided with cash.28 The Bank of Norway’s role in the Norwegian credit market has been the subject of discourse between several economic historians, in particular between Hodne and Nordvik. While Hodne has argued that the central bank hampered the economic growth, Nordvik claimed that this was not necessarily so. The new findings at the PRO, presented for the first time in this chapter, support Hodne’s view in these matters. Moreover, it suggests that the traditional view of the Bank of Norway’s failure to stimulate economic growth in the early 1800s may prove right, though not by means of monetary policy as previously assumed, but rather in terms of the credit policy.

The duality of tariffs: public finances and foreign trade policy Paradoxically, Norway was not a fiscal object for Sweden. Still, de facto home rule from 1814 implied new obligations for the Norwegian state, in particular financial ones. Norwegian taxpayers became aware of this as early as 1816. In addition to the silver tax to fund the new central bank, the parliament enacted a new direct tax to the central government, Landog Kjøpstadsskatten. The towns were supposed to pay one-fifth of this tax, while the rural areas were to pay the remaining. Furthermore, the government also passed a bill of a single tax to finance the withdrawal of the old paper currency issued from 1814, circulating at an amount of 23 million speciedaler. Riksbankdaler was to be withdrawn at a tenth of its value, notably 2.3 million speciedaler (9.2 million NOK). This sum was to be paid up in ten portions by the taxpayers over a period of ten years.


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Inevitably, government finance in the first years was managed in an ad hoc way rather than as part of a well-planned economic policy. This view is confirmed when looking at the handling of the national debt. A convention of 1 September 1819 between the Danish and the Norwegian governments decreed that Norway was to pay 3 million speciedaler (12 million NOK) to Denmark. In order to raise money, a foreign loan was arranged.29 The debt to Denmark implied new taxes, though the Norwegian taxpayers already suffered from a heavy tax burden.30 However, as the Land-og Kjøpstadsskatten lapsed in 1836, the Norwegian governmental tax system henceforth was based on indirect taxes only during the period 1837–92. Foreign trade now became the main source of income for public finances.31 The agreement on tariffs and trade between Sweden and Norway, Mellomrikslovene of 1825/1827, renewed in 1872, created a customs union between the two countries.32 However, Norway could to a large extent adopt an independent line when deciding on rates of customs.33 A trend towards higher taxes on foreign trade can be observed in the 1820s and early 1830s.34 The tariffs were particularly severe on imports of inputs and technology for the ‘new industries’. As Norwegian producers became relatively less competitive due to high costs, the economic structure was ‘forced’ to traditional patterns. The first chair of economics in Denmark–Norway, was actually to be held by a Norwegian. In 1762 Ole Stockfleth Phil (1723–65) was awarded the first professorship of political economy at the University of Copenhagen. However, as for Norway the establishment of a formal, academic training in economics was to take time. The University of Oslo was founded in 1811 while Norway was still a satellite under Denmark.35 The planned academic breadth and number of Faculties was ambitious, among them being three chairs in economics, at the time under the nomenclature as statsøkonomi, notably public economics. In practice, however, only one single chair was to be held. The first person to fill this one was Christen Smith from 1814, until Gregers Fougner Lund succeeded him from 1822 onwards. The number of Faculties was also reduced to four: Theology, Law, Medicine and Philosophy. The field of public economics was at first to be included in the Faculty of Philosophy, however from 1840 it was transferred to the Faculty of Law. This transfer was above all due to the merits of Anton Martin Schweigaard (1808–70), who had a remarkable position in the field of Norwegian economic thought in the nineteenth century. Initially he was a professor of jurisprudence. However, during the 1830s his articles on the foreign trade policy and the operation of the Bank of Norway, had a major impact on both the scholars of economics and the politicians. Indeed, in response to his articles in 1836 published in Den Constitutionelle and concerning the Norwegian monetary policy, the Parliament decided that the subject was not to be dealt with until the series of

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articles was completed. This was the first and last time that the execution of a Norwegian Parliamentary case was delayed due to an economist’s writings in a newspaper. Schweigaard was soon to be offered a professorship in political economy at the University of Oslo. Through his career, he had the privilege of practising economics in academia as well as acting in politics. Schweigaard was elected to the Parliament in 1842, serving in that body until 1869. Together with his ally Fredrik Stang, he successfully advocated substantial economic reforms, all in the spirit of liberal economic thought. During their reign, the Norwegian economy went through a transition from a mercantilist-agricultural economy to one of free enterprise and capitalism. Protectionism or liberalism represented the contemporary dilemma in Norway as in most Western countries when deciding on their trade policy. Friedrich List is commonly regarded as the intellectual proponent of protectionism in the nineteenth century. In particular, he elaborated theories of how states should conduct economic policy on different stages of their industrial development by protecting national key industries against premature competition.36 List argued that protectionistic means should be redundant in the long run by an international system of treatises and agreements between equals. The rise and diffusion of economic liberalism is regarded as Adam Smith’s major achievement. In line with political liberalism, Smith focused on the individual. He stressed the commercial freedom of the individuals, where the competitive market was the arena of this freedom. By promoting free trade within a world economy, Smith has been regarded as the founder of the barter tradition, i.e. prosperity generated by international division of economic activities by trade.37 In the case of Norway, the debate on liberalism or protectionism had its heydays in the 1830s and 1840s. Members of Parliament were divided into two opposite camps led by two men of sterling personalities. The farmer and politician Ole Gabriel Ueland was in favour of protectionism in order to support domestic trade and industry. Thus, the basics of his ideas of economic policy correspond with those of List. However, Uelands major opponent, the politician and scholar Anton Martin Schweigaard, advocated ideas of free trade in line with Smith’s theories. Indeed, an article by Schweigaard, Innførselstollen og dens historie, i.e. the history of customs, is regarded as the theoretical and political fundamentals of the nineteenth century Norwegian movement promoting free trade.38 Here, he strongly emphasized the importance of introducing tariffs for the economy by dividing the functions of tariffs into three categories: as a source of government income, as a means of encouraging domestic industries, and as consumption policy. Schweigaard argued that all these concerns dictated reducing the existing tariffs. As the debate went backwards and forwards, Schweigaard and his fellow


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partisans increasingly gained acceptance of their view. In 1842, ten years ahead of Denmark and Sweden, the Parliament decided on reducing the tariffs on numerous goods of imports and exports.39 The opponents, mostly farmers led by Ueland, did in particular fight the reduction of the import duties – without success.40 Looking at the distribution of the tax burden, the urban–rural polarization in these matters is hardly surprising. The contemporary politician Gustav Peter Blom estimated the relative tax burden on the rural and urban areas.41 These figures are not exhaustive in respect of total amount of taxes paid, as they are solely based on observation for one year, only on tariffs on imports and since not all goods are included in the analysis. Nevertheless, Blom’s study offers unique information, and provides documentation for the skewedness of the indirect taxes around 1850. He proved beyond doubt that the governmental taxes in the form of custom duties definitely fell much harder on people in the urban areas than in rural ones.42 However, the shift from a foreign trade policy with strong means of protectionism to a far more liberal policy was not an immediate process. The tariffs were reduced step by step as the Members of Parliament were highly concerned with the question of whether lower duties on foreign trade would induce a deficit in governmental finances. Moreover, the implementation of a liberal policy should be attributed to political pressure from such great powers as Britain. This perspective has hitherto either been ignored or unknown in the traditional works on nineteenthcentury Norwegian economic history.43 By mid nineteenth century, Norway benefited from the international trend towards the creation of a world economy based on free trade. In particular two British acts of liberalization of its foreign trade served as major stimuli for Norwegian trade and industry, namely the abolishing of the British Navigation Acts in 1849/1850 and the reduction of tariffs on timber in 1843, 1847 and 1851. The redundancy of the Navigation Acts stimulated the already expanding Norwegian merchant marine, introducing what has been referred to as ‘the golden age’ of Norwegian shipping.44 While growth prior to the 1850s in particular had been based on Swedish and Norwegian bulk goods, cross-trade freights now increasingly gained importance. By mid 1880s, Norway had the third largest merchant fleet in the world. Moreover, traditionally Britain had been an essential market for Norwegian exports of timber. However, after the Napoleonic wars, this market was ‘closed’ to Norwegian exporters as tariffs on Scandinavian and Baltic timber were artificially high and Britain adopted imperialistic preferences. Thus, the reopening of the British market by mid century gave pace to an expansion of exports of timber, and indirectly to the Norwegian shipping sector as freight of timber was a tonnage-intensive business. In view of this, naturally, the British expected something in return:

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Camilla Brautaset You will observe that remarks are made therein upon the unequal and oppressive nature of the Norwegian customs duties, upon a variety of articles of British industry, while at the same time evidence is given of the benefits which will be derived by the trade of Norway from the liberal commercial measures adopted by Her Majesty’s Government, and from the recent repeal of the British Navigation Laws. These facts may be forcibly pressed upon the attention of the Norwegian government. It is true that Her Majesty’s Government has, by law, the power in case of need, of improving differential duties on foreign trade, but it may not be necessary in this instance, to resort to such a proceeding. You may however, represent that any concessions now made by Norway would render it more easy for the British Parliament to continue to act upon the same liberal principles of commercial policy and you will also point out that when high duties are imposed, as in the case of Norway, for purposes of revenue, high duties often fail in producing the revenue which was expected from them, while on the contrary, both trade and revenue have frequently been increased by reducing duties that were too high.45

The Norwegian government had to follow the path set by Britain, and further reductions of duties were made.46 As seen, this was an audacious departure as tariff revenues were the main source of governmental income. Interestingly, the data on state revenues indicate that the British were right, as an increase rather than decrease of income of taxes during the subsequent years can be observed. Thus, the reduction in tariffs benefited domestic trade and industry as well as public finances. Fiscal policy in terms of deliberate actions in order to control business cycles was unknown in the nineteenth century. Thus, as seen in Figure 3.3, the parliament always tried to balance income against expenditure. When looking at social overhead capital from the 1840s onwards, investments in infrastructure always showed the highest relative growth rate.47 Transport was improved in regard to roads, canals, lighthouses, railroads, and public transport, and after 1858 private, coastal steamer lines. As tariffs were the main source of state income, foreign trade mainly financed these improvements.

Norwegian economic policy and economic growth Official Norwegian national accounts are constructed back to 1865. However, two scholars at the Norwegian School of Economics and Business Administration, Fritz Hodne and Ola Honningdal Grytten, have established some rough estimates back to 1835.48 The figures are spliced with the official series from 1865 onwards, providing comprehensive series on an annual basis for 1835–1914.49 Not surprisingly, the GDP figures show persistent growth.50 Unfortunately, the GDP figures do not document the 1820s and early 1830s.

1,000s NOK 100 90 80 70 60 50 40 30 20 10 0 ⫺10 ⫺20 1816

Income NOK Expenses NOK

1831

1846

1861

1876

1890–1891 1905–1906

Figure 3.3 Fiscal policy of the central government, 1816–1905/06. Sources: For the period 1816–47; Tvethe, Martin Braun, Norges Statistik, Christiania, 1848: 248. For the period 1850–1905, NOS X.178, Statistical Survey 1948, Statistics Norway, Oslo 1948 table 223: 414. Please note that from 1878 onwards, the accounting periods were 1/7–30/6 the following year.

NOK 1,400 1,200

GDP 1910-prices (Mill. NOK) GDP per capita GDP current value (Mill. NOK)

1,000 800 600 400 200 0 1835 1841 1847 1853 1859 1865 1871 1877 1883 1889 1895 1901 Figure 3.4 Norwegian GDP, 1835–1905. Sources: For the period 1835–64; Hodne and Grytten, ‘Gross domestic product of Norway 1835–1915’, in Krantz (ed.), Nordiske Historiske Nationalräkenskaper, Umeå 1994. For the period 1865–1905, NOS XII.163, National Accounts 1865–1960, Statistics Norway – 2nd edn, 1968; table 49: 340f, and table 51: 348f.

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However, qualitative sources offer a story of post-war depression in these decades. Moreover, as seen in this chapter, the traditional claim of a tightening and thereby deflationary monetary policy 1823–42 causing this depression does not hold up against empirical data of the money stock and the interest rates. After the 1850s, one may question the assumption that the authorities could control the monetary base, as we are looking at a small, open economy operating under fixed exchange rates. However, the effective Silver standard from 1842 onwards made the Norwegian currency convertible and stable in terms of value.51 This reduced the risk of investing in Norway. In consequence, Norwegian industry became an object of foreign capital, thus a crucial contribution to the modernization of the economy. Moreover, a stable and convertible currency also improved the conditions of foreign trade considerably. Duties on foreign trade were also the main source for governmental income. From the 1840s onwards, government spending emphasized basic investments in general, and the infrastructure in particular. The pending development of the infrastructure gave a twofold effect on economic growth. Prices on the communication services declined, implying costs to be reduced for consumers as well as producers. Additionally, the heavy investments demanded goods and services from other sectors of the economy. Reductions in tariffs proved stimulating to foreign trade. This liberalization, in turn, accelerated economic growth directly as well as indirectly as increased state revenues facilitated a surge in public investments. Nevertheless, the question whether the Norwegian economic policy reflected a clear-cut ideology is yet unsettled. The trade policy and the governmental efforts to build up the infrastructure do correspond with the ideas of Adam Smith. However, individual politicians, international pressure and the experiences from previous regimes also influenced the economic policy. Thus, as a whole, Norwegian economic policy stepped forward as a delicate combination of adopting international economic thoughts as well as practical concerns of the domestic trade and industry. However, comparing the policies adopted both in the case of external and domestic economic activities, the complementarity is striking. Indeed, the Norwegian government did impose the transition to a modern economy by stimulating integration and deregulating domestic market segments. Moreover, the Norwegian authorities increasingly offered a liberal framework for economic activities during the nineteenth century. Ancient laws impeding the establishing of free commercial activities became redundant.52 Thus, looking at the unity of the economic policy on foreign and domestic affairs suggests that the ideas of economic liberalism increasingly got a foothold in Norway by the middle of the nineteenth century. Competition was increasingly taken as the ideal.


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Final remarks This chapter has addressed two main questions. First, during the first decades of independence, the Norwegian economy experienced severe setbacks. Traditionally, the monetary policy adopted between 1823 and 1842 has been made the main scapegoat for these years of crisis. However, empirical findings do not correspond with the common view as the stock of money was rising and the discount rate declining. Contrary, qualitative sources indicate that the Bank of Norway first and foremost failed in providing trade and industry with sufficient credit. The Norwegian fiscal policy during the first years of de facto independence was dominated by ad hoc actions. This resulted in a heavy increase in the burden of taxes, coinciding with the assumed general recession in the 1820s and 1830s. Though the taxes probably did not cause the crisis itself, it is most likely that they contributed to it. So did the ‘imports’ of deflation and business cycles through foreign trade. Second, like most other West European countries, Norway found herself at the crossroads between protectionism and liberalism by the mid nineteenth century. During the period up to the 1840s, Norwegian economic policy had clear aspects of protectionism. Increasingly, however, freer trade was regarded as being in the nation’s best interest. The Norwegian authorities imposed the transition into a modern economy by stimulating international integration and deregulating domestic market segments. This adoption of a more liberal economic policy in foreign trade, along with the redundancy of ancient laws regulating domestic trade and industry, probably represented the most dramatic departure in Norwegian economic policy and possibly the main political contribution to the modernization of the economy during the nineteenth century.

Notes 1 I am indebted to the following persons at the Norwegian School of Economics: Professors Fritz Hodne and Ola Honningdal Grytten as well as Associate Professor Stig Tenold for valuable comments, and Professor Jan Tore Klovland for allowing me access to unpublished data. Moreover, I would like to express my gratitude to Professor Michalis Psalidopoulos for his comments and suggestions. 2 The decisive moment came as Norway got its constitution on 17 May, supplemented by a revised constitution of 4 November 1814. At first, the Swedes allowed the constitution to contain formulations of extensive national independence. In the years to come, it turned out that this generosity was a temporary one. Nevertheless, as the Norwegian Parliament, Stortinget, resisted any attempts at transferring executive power to the Swedish monarch, Norway could de facto perform as a sovereign state. This process of Grunnlovs konservatisme, i.e. constitutional conservatism, also implied the concentration of power within the Norwegian bureaucracy. Indeed, historians refer to the Norwegian political system 1814–84 as Embetsstaten, notably the Age of the Bureaucracy, as public servants were a majority in most decision-making institutions. The devolution of the union between Norway and Sweden in 1905 did not

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5 6

7 8

9 10 11 12 13 14 15

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Camilla Brautaset imply any radical change, as the decisive moments had been the political play of 1814 and the years thereafter. Mistrust of the Norwegian currency and inflation due to the Napoleonic wars at first reduced the internal as well as the external value considerably. The Norwegian currency was devaluated four times within a short period of time: 1813, 1814, 1816 and 1822. In order to provide the bank’s silver fund of 2 million speciedaler, a silver tax was decreed in 1816. Monetary payment was part of the Law of Money of 1816 and took its effect as voluntary share subscriptions failed. In practice, speciedaler were rarely issued, but served as a measure of a given amount of silver. Speciedaler was the key currency unit until 1875, when the Krone (NOK) was introduced. For a thorough elaboration on these matters, see Keilhau, Wilhelm, Den norske pengehistorie, H. Aschehoug & Co., Oslo, 1952: 74–97. Immediately after the outbreak of the First World War, Norway, like most other European countries, suspended the free gold redemption of its currency. During 1914–20, the combination of a fivefold increase in the money stock and the lack of supply of real goods, led to an inflation of more than 200%. In consequence, the external value of the Krone plunged. As the Norwegian central bank decided on restoring the pre-war gold parity of the Krone in 1920, interest rates were increased and the money stock was whittled down. This deflationary policy, in Norwegian history referred to as the ‘par-policy’, contributed to a deep and persistent depression in the 1920s. T. Bergh, T.J. Hanisch, E. Lange and H. Pharo, Norge fra u-land til i-land, Gyldendal Norsk Forlag, 1983; 3rd edition, Oslo, 1991: 189f. The banking theory on the other hand, suggests that convertible banknotes do not affect the price level as long as the demand for turnover is the basis for issuing money. Most Norwegian scholars in the field do not explicitly distinguish between these theories. However, Sejersted represents one of the few exceptions. See Sejersted, Francis, Norges Bank og Høykonjukturen i 1840-årene, Universitetsforlaget A/S, Oslo, 1968: 34f. G. Jahn, A. Eriksen and P. Munthe, Norges Bank gjennom 150 år, Norges Banks Seddeltrykkeri, Oslo, 1966: 36. As the Norwegian economy was largely based on subsistence agriculture, the quotation can more or less be regarded as a measure of the Norwegian terms of trade until the early 1800s. A regime with similarities to what in modern terms is known as ‘the snake in the tunnel’, in the European monetary system. M.B. Tvethe, Norges Statistik, Chr. Tønsbergs Forlag, Christiania, 1848: 186f. For seasonal, annual exchange rates, see for example T. Solhaug, De norske fiskeriers historie, Universitetsforlaget, Oslo, 1976; table 64: 713. The rates of oscillation were, however, to change step by step during the return to par, by being set to 150–135 in 1824, 135–125 in 1827, 115–110 in 1836, 115–110 in 1839 and 100 in 1842. See for example reports from Christiania and Bergen in the 1830s in Den Kongelige Norske Regjerings Finants-, Handels- og Told Departement, Beretninger om Rigets oeconomiske Tilstander m.m. i Norge ved Udgangen af 1835. Underdanigst afgivne af Rigets Amtmænd, Chr. Grøndahl, Christiania, 1836: 9f, 201. Some of these data are easily available as the Norwegian Official Statistics include data of notes in circulation and interest rates for the nineteenth century. See NOS XI.178 Statistical Survey 1948; tables 158, 159: 299–303, NOS XII.24, Historical Statistics 1968; tables 246: 483 and NOS XII. 291 Historical Statistics 1978; table 257: 484. The growth of the money stock indicated by simple money, M1, departs from


18

19

20 21 22 23 24 25 26 27

28 29 30 31

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what is offered by a broader concept of money, M2, i.e. coins and notes including demand and time deposits of commercial banks. However, in the case of Norway, M2 is not a relevant measure until after 1848, when the first commercial bank, Christiania Bank og Kredittkasse, was established. See for instance NOS XI. 178, NOS XII. 291, B. Mitchell, European Historical Statistics 1750–1970, Macmillan Press Ltd, London, 1975; J.T. Klovland, Quantitative Studies in the Monetary History of Norway, unpublished draft, Norwegian School of Economics and Business Administration, Bergen, 1979 and J.P. Holter and E. Tømrum, ‘Historisk Pengemengdestatistikk 1819–1998’, Penger og Kreditt 3/1999, Bank of Norway, Oslo, 1999. Moreover, Keilhau and Rygg have in particular investigated the Norwegian monetary history of the nineteenth century. However, both approaches should be regarded as qualitative as no systematic series are presented. See N. Rygg, Norges Banks Historie, Vol. I, Centraltrykkeriet, Kristiania, 1918, and W. Keilhau, Den Norske Pengehistorie, Aschehoug & Co., Oslo, 1952. Obviously, optimal series of the money stock are adjusted according to the moneyness of the financial assets. This is not the case for Klovlands figures. However, so far, this has not proved to be a realistic approach, and even given the possibility of estimating such series, it would have been a major timedemanding task. Note, however, that we are at present looking at the nominal value of the money stock. Klovland, op. cit.: 27. Ibid.: 27. NOS XII. 245, op. cit. table 248: 486. Klovland, Jan Tore, op. cit.: 32f. However, Klovland stresses the fact that more data is required in order to provide a satisfactory explanation for the return to par. For adoption of Rousseaux’s price index on the Norwegian economy, see K.B. Minde and J. Ramstad, ‘The development of real wages in Norway, 1730–1910’, Scandinavian Economic History Review, Vol. XXXIV, No. 1, 1986: 97–101. N. Rygg, op. cit.: 278–85. See for instance F. Hodne, ‘Bank-og kredittinstitusjoner 1850–1914’, Norges økonomiske historie 1815–1970, Gyldendal, 1981: 373–411 and H.W. Nordvik, ‘The banking system, industrialisation and econmic growth in Norway, 1859–1914’, Scandinavian Economic History Review, vol. XLI, No. 1/1993: 51–71. Vice-consul Georg Simpson, in letter dated Borregaard, 3 April 1850 to John R. Crow, Her Majesty’s Consul General, Christiania. Public Records Office, Kew Gardens, London. Foreign Office 236, box 5. Additionally, some foreign creditors even got real property, such as forests and saw-mills, as means of payments. Worse, the Norwegian bourgeoisie had substantial foreign debts as well. Consequently, a net flow of capital from Norway to foreign countries is most likely to have been the case up to the 1840s. During this period, fiscal policy to a large extent was concentrated on pork and barrel bargaining as the Parliament convened the duties on exports as well as imports. Duties were placed on the basis of volume rather than value. Customs came under careful consideration as the Norwegian Parliament held sessions every third year until 1870, and on a year-to-year basis from 1870 onwards. ‘Stortingsforhandlingene’, i.e. the minutes of the negotiations in Parliament, government bills and commission reports, provide exhaustive statistics on the setting of the customs revenues. Despite several Swedish attempts to liberate the trade between the two countries, this agreement was valid until 1897.

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33 The Danish–Norwegian law of 1 February 1797, ‘Forordningen om Tolden-og kiøbstads Consumptionen i Danmark og Norge’, signalled the departure from ‘mercantilism’. The decree declared that the duties on trade had turned out as obstacles rather than stimulus to domestic industries in the Danish–Norwegian kingdom. However, when Norway entered the union with Sweden, the protrade trend was to be temporarily put on hold. 34 C. Lund, Det NorskeTollvesens historie. Fra 1814 til 1940, Direktoratet for Toll og Særavgifter, Oslo, 1977: 23–39. 35 Initially, the University was to be located in Kongsberg, a small, regional city based on silver mining industry, about 35 miles outside Oslo. However, these plans were alternated, and finally the government decided on Oslo in 1812. 36 Though he has been seen as implementing nationalism in economics, he stressed that his opposition towards free trade was by no means a narrow nationalistic one. 37 This view was to be elaborated further by others, in particular by David Ricardo, who established the theory of comparative advantage. 38 A.M. Schweigaard, ‘Innførselstollen og dens historie’, 1836, in W. Keilhau, Wilhelm and R. Frisch, Sosialøkonomiske utsnitt, Aschehoug & Co, Oslo, 1940. 39 Storthingets Efteretninger 1836–1854, Jacob Dybwads Forlag, Kristiania, 1893: 391–403. 40 Ibid.: 396f. 41 G.P. Blom, Om directe og indirecte Skat med særdeles Hensyn paa vort nuværende Beskatningssystem, Christiania, 1850. 42 The state tax system was revised in 1892, when a direct government income tax was re-introduced. Like indirect taxes, the tax burden fell hardest on the urban areas. As much as 70% of the income tax was assessed on the towns and cities. 43 The archive from the British consulate in Norway provides exhaustive information on these matters. Public Records Office, Kew Gardens, London. See Foreign Office 236, in particular box 5. 44 Schweigaard and other scholars stressed the paramount importance of the shipping industry when analysing and explaining the modernization of the Norwegian economy in the nineteenth century. See for example Ø. Sørensen, Anton Martin Schweigaards politiske tenkning, Universitetsforlaget, Oslo, 1988: 87–95. 45 Public Records Office, Foreign Office 236, Box 5. Lord Palmerston in letter of instructions to General Council Crowe in Christiania, dated Foreign Office, 24 August 1850. 46 Among these the duties on imports of cotton were substantially reduced, as were the protective tariffs on grain in 1851 and 1869. The duty on imports of grain was abolished in 1869. When reintroduced in 1905, it was a marginal tax. 47 F. Hodne, Stortingssalen som markedsplass. Statens grunnlagsinvesteringer 1840–1914: 293. 48 F. Hodne and O. Grytten, ‘Gross domestic product of Norway 1835–1915’, in O. Krantz (ed.) Nordiske Historiske Nationalräkenskaper, Umeå, 1994. 49 The basis for their series are two publications, Norges Statistik, published in 1840 and 1848, by Schweigaard and Tvethe respectively. Hodne and Grytten adopt these statistics as base year observations for 1835 and 1845. By interpolation and gross adjustments according to literary sources, they offer annual figures. However, neither Schweigaard nor Tvethe state that their statistics are covering 1835 or 1845. When investigating the figures, it would seem that they are estimated averages intending to give a representative survey of the economic status around 1835 and 1845. Notwithstanding, Hodne and Grytten’s series are far more reliable and valid than the figures presented by A. Maddison in Monitoring the World Economy 1820–1992, OECD, Paris, 1995.


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50 An interesting observation is that the recession from 1873 onwards, in international economic historical literature known as ‘the long depression’, does not give a setback in the Norwegian GDP until 1877. A plausible explanation for this may be the relative extensive construction of railroads in this period, mainly financed by the government. Thus, the fiscal policy turned out to be a stimulus to the Norwegian economy three years beyond the onset of the international depression. 51 As we show in the section on monetary policy above. 52 This includes Kjøpstadprivilegiene in 1842/1857 and Handverksprivilegiene in 1839/1866, i.e. respectively the privileges of the market towns and the crafts. Additionally, the Sagbruksprivilegiene, notably the privileges of the established sawmills, were abolished in 1854 with effect from 1860.

References Bergh, T., Hanisch, T.J., Lange, E. and Pharo, H. (1991) Norge fra u-land til i-land. Oslo: Gyldendal. Blom, G.P. (1850) Om directe og indirecte Skat med særdeles Hensyn paa vort nuværende Beskatningssystem. Christiania: Malling. Cappelen, J. and Halvorsen, H.A. (eds) (1993) Storthingets Efteretninger 1836–1854. Kristiania (Oslo): Jacob Dybwads Forlag. Den Kongelige Norske Regjerings Finants-, Handels- og Told Departement (1836) Beretninger om Rigets oeconomiske Tilstander m.m. i Norge ved Udgangen af 1835. Underdanigst afgivne af Rigets Amtmænd. Christiania: Chr. Grøndahl. Frisch, R. and Keilhau, W. (eds) (1940) Sosialøkonomiske utsnitt. Oslo: Aschehoug. Grytten, O.H. and Hodne, F. (1994) ‘Gross domestic product of Norway 1835–1915’, in Krantz, O. (ed.) Nordiske Historiske Nationalräkenskaper. Umeå: University of Umeå. —— (2000) Norsk økonomi i det 19. århundre. Bergen: Fagbokforlaget. Hodne, F. (1981) Norges økonomiske historie 1815–1970. Oslo: Gyldendal. —— (1984) Stortingssalen som markedsplass. Statens grunnlagsinvesteringer 1840–1914. Oslo: Universitetsforlaget. Holter, J.P. and Tømrum, E. (1999) ‘Historisk Pengemengdestatistikk 1819–1998’, Penger og Kreditt 3/1999. Oslo: Bank of Norway. Jahn, G., Eriksen, A. and Munthe, P. (1966) Norges Bank gjennom 150 år. Oslo: Bank of Norway. Keilhau, W. (1952) Den norske pengehistorie. Oslo: Aschehoug. Klovland, J.T. (1979) ‘Quantitative studies in the monetary history of Norway’, unpublished draft, Bergen: Norwegian School of Economics and Business Administration. Lund, C. (1977) Det Norske Tollvesens historie. Fra 1814 til 1940. Oslo: Direktoratet for Toll og Særavgifter. Maddison, A. (1995) Monitoring the World Economy 1820–1992. Paris: OECD. Minde, K.B. and Ramstad, J. (1986) ‘The development of real wages in Norway, 1730–1910’, Scandinavian Economic History Review, Vol. XXXIV, No. 1: 90–121. Mitchell, B. (1975) European Historical Statistics 1750–1970. London: Macmillan. Munthe, P. (1992) Norske økonomer. Sveip og portretter. Oslo: Universitetsforlaget. Nordvik, H.W. (1993) ‘The banking system, industrialisation and economic growth in Norway, 1859–1914’, Scandinavian Economic History Review, Vol. XLI, No. 1: 51–72.

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Public Records Office, Kew Gardens, London. Foreign Office 236, Consulate reports from Norway in the 19th century, in particular boxes 4 and 5. Rygg, N. (1918) Norges Banks Historie, Vol. I. Kristiania (Oslo): Centraltrykkeriet. Schweigaard, A.M. (1840) Norges Statistik. Christiania (Oslo): Johan Dahl. Sejersted, F. (1968) Norges Bank og Høykonjukturen i 1840-årene. Oslo: Universitetsforlaget. Solhaug, T. (1976) De norske fiskeriers historie. Oslo: Universitetsforlaget. Statistics Norway (1949) NOS XI.178 Statistical Survey 1948. Oslo: Statistics Norway. —— (1969) NOS XII.24, Historical Statistics 1968. Oslo: Statistics Norway. Sørensen, Ø. (1988) Anton Martin Schweigaards politiske tenkning. Oslo: Universitetsforlaget. Tvethe, M.B. (1848) Norges Statistik. Christiania (Oslo): Chr. Tønsbergs Forlag.

4

The influence of the German Historical School in Finnish economic thought around the turn of the century Visa Heinonen

Introduction In this chapter the influence of the German Historical School of economics in Finland will be examined. The central theme is the examination of the period of organization of the economics profession in the turn of the century in which the Finnish Economic Association Kansantaloudellinen Yhdistys played an important role. Two factors above all separate a modern profession from a premodern one: (1) expertise that is based on specialized science is organized as a central basis of qualification and justification in practising a modern profession and (2) a modern profession is institutionally specialized and organized as a professional organization (Konttinen, 1991: 217). In Finland the economics profession just began to specialize and organize in the last decades of the nineteenth century and the turn of the century.1 The German historical approach dominated Finnish economics during many decades. The first Professor of Economics in the philosophical faculty was Juho Heikki Vennola (1872–1938) who was a supporter of the German historical school. Many of the leading members of Kansantaloudellinen Yhdistys adopted ideas of the historical school during their study tours to Central Europe and Germany. The historical school was not replaced by neoclassical Casselian economics until the 1930s and the 1940s. This chapter proceeds by first introducing some important economic events as well as the historical and social background of the rise of German historical economics in the Grand Duchy of Finland. Second, the first reactions and reception of historical approach in Finland are examined. Then, the article series Työväenseikka (‘Workers’ Question’) written by Yrjö-Koskinen, historian and great leader of the Fennoman movement, is studied. In this article series it is easy to trace influences of the German ‘socialists of chair’. In the 1870s there was a controversy concerning the interpretation of liberalism, where several writers debated on the issue. Next, the Finnish comments on the ‘Methodenstreit’ in German economics are examined. Ernst Nevanlinna (1873–1932) and Oskar Kaaleb

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Kilpi (1878–1937) were the most active commentators of the methodological discussion. Finally perhaps the most important influence of historical economics is examined: namely the empirical social research performed in most academic dissertations and other studies.

Ideological and social background of the professionalization of Finnish economic science From 1808–9 onward until December 1917, when Finland declared its independence, it belonged to the Russian Empire as a Grand Duchy. The Russian period has also been called ‘the period of autonomy’. Under this period the revenue of the state was mostly based on customs duties. Unlike other forms of taxes these customs duties could be imposed by the Russian Emperor only. Thus, the financial policy of the Finnish Senate depended very much on the will of the Russians.2 Although the Finnish Senate shaped the actual customs policy, its freedom of action was restricted. During the 1860s Finland had received a monetary unit of its own, the Finnish markka. A silver standard was used from 1860 until the 1870s, and after that the markka was tied to the gold standard. It is possible to identify two periods of economic policy regimes during the late nineteenth century and the decades before the Civil War of 1918. The first one is the period of the ‘great breakthrough’ of liberal ideas concerning economic and political life from the late 1850s to the late 1870s. Several reforms were carried out to liberate business life and create the conditions for the development of the market economy. The economic legislation was modernized to encourage the free mobility of the factors of production and restrictions concerning trade were abolished. The Trade Act of 1879 meant the final breakthrough of the freedom of trade and business. However, there was a paternalist element in all of the reforms carried through during the late nineteenth century. During the early 1880s efforts were made to create a modern labour market. The second period started during the 1870s and the liberal turn of economic policy was heavily criticized. However, this critical debate did not shake the fundamentals of the liberal reforms. The emphasis of the discussion moved to questions of social policy. A long-lasting tax reform aiming towards a general income and property tax was the most important issue in economic policy around the turn of the century.3 The democratic parliamentary reform of 1906 aroused great expectations among people, but their implementation was postponed. The outbreak of the First World War gradually worsened the economic situation in Finland in many ways. It was in this setting that economic science in Finland made serious progress.4 An important factor behind thematization of social questions and organization of Finnish economists was the language question and the rise of Fennomanian movement that was based on nationalist ideology pre-

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sented by Finnish national philosopher Johan Vilhelm Snellman (1806–81). Snellman wrote about the need of becoming conscious of the Finnish national identity and the wholeness of the nation.5 His influence started a growing movement. The political organization started in fact when the first parliamentary session, after the Porvoo session in 1809, took place in Helsinki in 1863. The rising bourgeoisie and many leading civil servants formed a liberal movement (Alapuro and Stenius, 1987: 17). These mainly Swedish-speaking liberals aimed at hastening the development of capitalism. Therefore they were not so interested in problems of the old agrarian society like problems of tenant farmers and landless poor in the countryside (Turunen, 1987: 197). In the Finnish assembly of the representatives of the estates in the 1880s two estates were fighting against two others: the estates of bourgeoisie and aristocracy were Swedishminded while clergy and peasantry were Fennomen. The Finnish scholars and civil servants interested in economic issues began to organize themselves by founding Kansantaloudellinen Yhdistys (the Finnish Economic Association) in 1884. Its leading figure Yrjö Sakari Yrjö-Koskinen (1830–1903) was very active in politics and he was one of the leaders of the so-called Old Finns during the first years of oppression 1899–1905.6 Besides Yrjö-Koskinen, Agathon Meurman (1826–1909) and another historian Johan Richard Danielson-Kalmari (1853–1933) were important names in Kansantaloudellinen Yhdistys and in the Old Finnish Party. Younger social scientists and members of Old Finnish Party were Hannes Gebhard (1864–1933), August Hjelt (1862–1919), Ernst Nevanlinna and Juho Kusti Paasikivi (1870–1956). Thus, during the years of oppression 1899–1905 and 1908–13 the leadership of Kansantaloudellinen Yhdistys was in the hands of the so-called Old Finns (Eskola, 1962: 297). The leaders of the Old Finnish Party had adopted the German socialism of the chair from Yrjö-Koskinen on. It was facilitated by the fact that the Swedish-speaking entrepreneurs were their opponents for language reasons (Eskola, 1962: 442). The Finns thought that a national industry was needed and like Yrjö-Koskinen many of them were worried about the position of labour force in the process of industrialization: they wanted to prevent the rise of socialism and communism by proposing gradual reforms. Thus, there was a strong social reformist emphasis in the thinking of the Old Finns. In the 1890s the workers’ associations which were led by the Old Finns proposed a progressive income and property tax, improvement of workers’ housing conditions and the maximum of ten hours working per day, e.g. (Eskola, 1962: 401). The Old Finnish party wanted to be a party of the whole nation although most of its leading members represented educated circles and earned their living as civil servants. One important feature of the Finnish economics profession was that their training took place in the faculty of law. The importance of the law profession grew rapidly during the nineteenth century in the Grand

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Duchy of Finland. Lawyers held very important positions on the top of the political and administrational hierarchy. The Finnish civil servants’ degree was a condition for access in a public office which was of great significance. That is an interesting similarity to the German model. The Finnish body of civil servants was strongly ruled by lawyers (Konttinen, 1991: 54, 56–67, 104, 116, 221–7). One important reason for adapting ideas of German historical school was that Finns went to Germany to study. Not only economists, most of whom were lawyers, but also other professionals like engineers and physicians (Konttinen, 1991: 241 and 250) found Germany a tempting place to study. The German university system was internationally well respected and attracted students from many countries. Finland and Germany had historically close cultural ties, and during the nineteenth century Germany became more and more important when the old mother country Sweden lost its significance. The University of Berlin where von Schmoller and Wagner taught and the University of Leipzig were particularly popular among Finns. From the people already mentioned Danielson-Kalmari, 1876–7; Gebhard, 1893–4; Kilpi, 1908–10; Lang, 1880–81; Nevanlinna, 1899–1900; Paasikivi, 1899; and Vennola, 1903, studied in Germany.

Reception of German historical economics in Finland Social policy and ideas of the socialists of chair had a ‘social order’ in the Finnish society of the 1870s and 1880s. Already in the 1840s J.V. Snellman wrote about the ‘question of the poor’. In the second half of the nineteenth century Finland was wholly an agrarian society. Some industries started to grow in the beginning of the period of autonomy. Real property was concentrated in the hands of the Swedish-speaking upper class. The number of urban population was still very small, but in the countryside the size of the landless population was large and grew rapidly towards the end of the century. In Finland the ideas of socialists of chair were introduced by Professor of Dogmatics and Moral Philosophy, Axel Fredrik Granfelt (1815–92) in August 1873. Granfelt was a Swedish-speaking supporter of the rising Fennomania. His series of articles ‘Om vår tids sociala rörelser’ (On Social Movements in our Time, Granfelt, 1873) was published in the newspaper Morgonbladet (Björkqvist, 1986: 334).7 In the articles Granfelt presented a critique aimed at the Manchester school of economics. He criticized heavily theories of economic liberalism presented by Adam Smith and Frédéric Bastiat. His critique was basically ethical. Granfelt did not approve of Smith’s and Bastiat’s idea of basing an economic system on pure egoism. Professor of Economic Jurisprudence and Economics at the Faculty of Law at University of Helsinki, Axel Liljenstrand (1821–95) quickly


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answered Granfelt’s critique of economic liberalism.8 He published an article entitled ‘Den politiska ekonomin i förhållande till sjelfviskheten och materialismen i vår tid’ (The Political Economy in Relationship to Egoism and Materialism in our Time, Liljenstrand, 1873) in a journal published by Juridiska Föreningen. In his article Liljenstrand took a position according to which the internal disagreements of economic science arose from a false interpretation of liberalism. According to Liljenstrand ‘immature ideas of free competition’ had caused ignorance of agriculture, birth of ‘unnatural’ industries and even trade wars (Liljenstrand, 1873: 151). In Liljenstrand’s thinking there exists an interesting tension between a Listian historical perspective and economic liberalism. The tension is clearly perceivable in his article ‘Reflexioner om den politiska ekonomins framtid’ (Reflections on the Future of Political Economy, Liljenstrand, 1878–9). In that article Liljenstrand describes a meeting that was arranged to honour the hundred years anniversary of the publication of Smith’s Wealth of Nations in London. The pioneer of neoclassical economics, William Stanley Jevons, had given a speech. Liljenstrand opposes in his article Jevons’s will to make a distinction between inductive and deductive enquiry. Liljenstrand thinks that both methods are needed. He emphasizes that Adam Smith based his enquiry on historical experience (Liljenstrand, 1878–9: 306). According to Liljenstrand the use of the sentence ‘laissez-passer, laissezfaire’ in economics has been harmful. He emphasizes that the sentence was used by physiocrats and not by Smith (ibid.: 309). Liljenstrand writes: In every day life the scientific theories of freedom are often confused with self-damaging. When an economist recommends free trade, will many people mean that custom institution or even all taxes are abolished, although they in no way will ignore their demand for a share in every benefit that society provides with the help of taxes. (Liljenstrand, 1878–9: 310–11) He presents a very interesting methodological specification of his views: he thinks that an examination of historical facts on the basis of a nation’s political situation and cultural and juridical development is appropriate if it is based on political economy (ibid.: 313). The ambiguous text of Liljenstrand can be interpreted in the following way: his own thinking was hovering between classical political economy and historical economics.

Discussion on ‘Workers’ Question’ and the controversy concerning liberalism Yrjö Sakari Yrjö-Koskinen published in 1874 an influential article series named ‘Työväenseikka’ (Workers’ Question) in the journal Kirjallinen Kuukauslehti. The position of industrial labour was discussed in the art-

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icles. Industry was still quite undeveloped in Finland in the 1870s, and social problems caused by industrialization and urbanization had not affected the country seriously. Yrjö-Koskinen had taken part in the public discussion on poor relief already at the turn of the 1850s and the 1860s. In his article series Yrjö-Koskinen criticizes Smithian, Manchesterian and general liberal views of state, and discusses the problems caused by uncontrolled free competition from the point of view of Hegelianism.9 According to him communism and its slighter version socialism shake the basis of societal order when questioning property rights. Yrjö-Koskinen takes the position of socialism of chair: But exactly this kind of sharp conflicts have always been harmful in history, and luckily a transitional party has lately been born in Germany that tries to study on basis of science and Christianity what concessions society to its own good can do to claims of labouring people . . . Of course it is difficult to say beforehand, how soon the socialists of chair can manage to find out and carry out those right means that can level down the slopes and up-hills in contemporary European societies. The laying of ground that is based upon something else than mere free competition right of interests is already according to us an unforeseen step forwards, and therefore we welcome this ‘historico-ethical school’ in the science of political economy with hope of good future. (Yrjö-Koskinen, 1874: 96) Yrjö-Koskinen proposes public supports for savings of working people. He recommends founding of provincial saving banks and issuing of small bonds and refers to French experience. All in all, he recommends moderate social reforms and calls attention to the position of rural workers, control of labour protection and other social measures. Wilhelm Lavonius (1832–97) published an article named ‘Katedersocialisterna’ (Socialists of the Chair, Lavonius, 1874) in the Journal of Juridical Association at the same time with Yrjö-Koskinen’s article series.10 Lavonius’s article is a descriptive presentation of socialism of chair and constitutive meeting of the Verein für Sozialpolitik held in Eisenach in 1873. It is written from quite a positive point of view. Lavonius maintains that social reforms are needed in Finland to improve the position of rural population. In the 1870s there was a controversy in the Finnish press concerning the interpretation of liberalism. On the other side were Fennomen who had been influenced by the German Kathedersozialismus or socialism of the chair. The opponents were the Swedish-speaking liberals Liljenstrand and Leo Mechelin (1839–1914), who is considered the leader of the liberal group. The liberalism controversy began with the already mentioned presentation of the ideas of socialists of the chair by Professor Granfelt,


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with Liljenstrand’s quick answer to Granfelt’s critique of liberalism and with articles written by Lavonius and Yrjö-Koskinen. (Heinonen, 1987: 68–70 and appendix 3.) The ‘second round’ of the liberalism controversy started with Professor Karl Gabriel Thiodolf Rein’s (1838–1919) article published in Kirjallinen Kuukauslehti (Rein, 1878). Rein was appointed Professor of Philosophy at the University of Helsinki in 1869. Later he was also rector and vicechancellor of the university. Rein was an active writer and a supporter of the Finnish Nationalist (Fennoman) Party (Björkqvist, 1986: 480). Rein’s article is a philosophical essay upon the ideological content of liberalism (ibid.: 485). He criticizes heavily economic liberalism: For freedom as it is understood in liberalism is wholly negative criteria; it is no productive force, because it comes true only by removing obstacles that harm appearance of productive forces. If those forces do not exist, freedom cannot create them. It must be admitted that many times those productive forces, which exist and seem to sleep idle, can awake and develop when getting the chance to try what they can produce; otherwise they must be waken and developed even by force, and it is one sided to decide in advance that freedom always influences advantageously and compulsion the other way round. (Rein, 1878: 77) Rein opposes liberalism, which according to him should lead to everyman’s war against everybody. He also criticizes socialism, which is based on materialism and ‘hatred of all the ideal struggles of human life – religion, family, fatherland’ (ibid.: 179). Rein thinks that socialism has gone too far in its opposing of individualism and limiting of personal freedom. He takes the transitional position of the socialism of the chair. Rein’s views have a very clear Listian flavour. He uses the Listian notion of forces of production and emphasizes the differences between different nationalities (Björkqvist, 1986: 487). Rein mentions the juxtaposition of Fennomen’s writing to Kirjallinen Kuukauslehti and Swedish-speaking liberals who wrote to Helsingfors Dagblad. Another important article published by Rein was named Kansantalouden uusi oppikunta (Rein, 1879a). In that article Rein criticizes the liberalist notion of free competition. According to him a rise in prices and rents, different consumption habits and speculation caused uncertainty in workers’ conditions of living. He thought that socialism had found a better solution to the problem than liberalism: socialists aimed to a more equal society. Rein writes: There is no equality where not only inequality in possession of property but also possibilities to acquire wealth are as a matter of fact different, because both chance and order in society favour one person

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Visa Heinonen and one social class more than other in struggles to acquire wealth. This must be solved; but it can happen only that way that society exclusively undertakes the acquisition of wealth and its distribution. (Rein, 1879a: 4)

According to the socialists the formation of capital should be arranged by the state. Only labour income should be private by nature. Rein approves many ideas of socialists but not the means to achieve their ends. According to him the collectivization of the whole economy and striving to instantaneous social change instead of historical evolution were the mistakes of socialists (Björkqvist, 1986: 482). According to socialism of the chair individual freedom and private property should be maintained. Socialists of the chair tried to combine collective and private economy. Accumulation of capital into the hands of a small minority was supposed to be prevented by progressive taxation. In his article Rein also writes on: social policy, social legislation, state intervention in the economy and custom protection. Rein follows in many sense the lines of thought of the Belgian socialist of the chair Émile de Laveleye.11 The aforementioned Swedish-speaking leading liberal Leo Mechelin opposed Rein’s views in an article published in Finsk Tidskrift (Mechelin, 1879).12 Mechelin deals in his article mainly with issues of language and nationality. According to him liberalism is more a protest against despotism (Mechelin, 1879: 132) than an idea going back to the age of reason when freedom was considered to be guaranteed to all in society like Rein thinks. Mechelin remarks that Rein mixes up freedom of association with decentralization and autonomy. He regards that liberalism does not preach abstract freedom without any contact to state and without the notion of solidarity. Rein published a series of articles (Rein, 1879b) in the newspaper Morgonbladet as an answer to Mechelin. Rein claims that Mechelin had misunderstood his ideas when thinking that Rein wanted to eradicate liberalism from Finland. Rein wrote that he only tried to show that liberalism alone is an inadequate principle of statesmanship. When writing of liberals Rein means the disciples of Adam Smith, the representatives of the classical political economy and the Manchester school of economics. The divergent interpretations of liberalism by the participants in the controversy can be summarized as follows: Liljenstrand and Rein wrote about liberalism as an economic school of thought, whereas Yrjö-Koskinen and Mechelin meant rather liberalism as a political movement. According to Liljenstrand the controversies of economic science were based on mistakes in interpreting liberalism. Yrjö-Koskinen, Lavonius and Rein confessed their support to the socialism of the chair.


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The ‘Methodenstreit’ from the Finnish perspective The Austrian pioneer of the marginalist revolution, Carl Menger, published in 1883 his methodological work Untersuchungen über die Methoden der Socialwissenschaften und der politischen Ökonomie insbesondere which started the famous methodological controversy (Methodenstreit). The controversy also attracted attention in Finland although Finns did not analyse the arguments systematically. Mäki (1984: 112) has pointed out that already in November 1885 Joel Napoleon Lang (1847–1905) gave a lecture at Kansantaloudellinen Yhdistys in which he presented the same division of economic science as Menger had done two years before without mentioning Menger’s name (Lang, 1893: 4). Lang, however, did not explicitly handle the methodical controversy. Agathon Meurman gave a lecture on the same forum in December 1894. In his lecture he criticizes ‘Manchester school fanatics’ of dogmatism and trust on general laws of national economy. He criticizes Henry George of ignoring historical and geographical matters. Meurman considers George as an extreme representative of the Manchester school of economics. Meurman (1897) wrote about the mathematical method of the Manchester school. Because he did not use references, it remains unclear, whether he meant British marginalists – Jevons, Marshall, Edgeworth, Wicksteed, Sidgwick – many of whom like representatives of the Manchester school were supporters of free trade. In methodological questions Meurman clearly takes the position of the historicists. This was a common position among members of Kansantaloudellinen Yhdistys. After the turn of the century the methodological discussion in Finland took place mainly in Historiallinen Yhdistys, the association of historians, where the collectivist conception of history of the historian Karl Lamprecht (1856–1915) was discussed (Mäki, 1984: 114). The young historian Ernst Nevanlinna took part in the discussion by publishing a booklet named Kaksi kansantalouden tutkimuksen merkkimiestä (‘Two prominent Men in Economics’, Nevanlinna, 1913). In his booklet Nevanlinna examines Gustav von Schmoller and Adolph Wagner and their work. In the methodological controversy von Schmoller was Menger’s main opponent and the object of criticism. In the controversy the difference between the two approaches, was often perceived as ‘difference or different emphasis of deductive and inductive method’ (Mäki, 1984: 114). The core of the controversy was exactly in the methodological difference: on the one side a historical and empirical approach in research, and on the other side an approach aiming at an abstract universalist theoretical system. Nevanlinna poses two clearly different methodologies against each other: Schmoller’s whole training and his disposition have affected in such a way that he has always been a strong supporter of induction . . . Menger subordinated the means and ends of research practised by

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Nevanlinna sees von Schmoller’s methodological point of view as moderate. According to him Menger’s critique aimed at von Schmoller was not wholly justified because ‘Schmoller sharply denies the claim that he or his approach would mean one-sided support of empirical method and induction . . . he is wholly aware of necessity of deduction’ (Nevanlinna, 1913: 33). Adolph Wagner represented a kind of transitional position in methodological controversy. German socialists like Marx, Engels and especially Rodbertus had influenced him (Nevanlinna, 1913: 73). Wagner was ready to give recognition to representatives of British classical political economy, because they have ‘rightly examined and taught to understand the skeletal structure of private economic connection and basic features of its statics and dynamics’ (ibid: 76). According to Wagner their mistakes are a false conception of state and seeing society and economy as mechanical and unhistorical phenomena. Nevanlinna describes Wagner’s views: according to Wagner the deductive method is the right one but the Englishmen have misused it. Nevanlinna leaves open the possibility that there is a deep divergence between the views of Wagner and both on the other side the historical school and on the other side the Englishmen and the Austrians (Nevanlinna, 1913: 102–3.). Here he perhaps anticipates his own methodological turn to a supporter of Gustav Cassel’s (1866–1945) neoclassical economics (Mäki, 1984: 115–16). The representatives of the youngest generation in German historical school, Sombart and Weber criticized historical economics inside the Verein für Sozialpolitik in the ‘value judgement controversy’ (Werturteilstreit) in the first decade of the twentieth century. Sombart and Weber, who were representatives of a radical wing at the Verein, were supporters of value objectivity as a guiding principle in social scientific research. Oskar Kaaleb Kilpi13 presented and shortly commented standpoints of the controversy in his article ‘Talous- ja sosiaalipoliittiset ideaalit nykyajan kansantaloustieteessä ja niiden kritiikki’ (Ideals of Contemporary Economic and Social Policy and its Critique, Kilpi, 1915) in the journal Yhteiskuntataloudellinen Aikakauskirja, published by Kansantaloudellinen Yhdistys. The value judgement controversy was about the old scientific dispute about the objectivity of values. The controversy culminated in the session of the Verein für Sozialpolitik in Vienna 1909. Max Weber, Werner Sombart and the Englishman Joseph Nicholson were supporting value objectivity while Adolph Wagner, Eugen von Philippovich, Albert Schäffle,


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Johannes Conrad and Alfred Marshall held the position that values are part and parcel of social scientific discussion (Kilpi, 1915: 252). According to Kilpi, Brentano and von Schmoller held the transitional position between those two standpoints. Kilpi raised two questions. Was Weber’s and Sombart’s critical position going to be purely methodological? Does it lead to a birth of a kind of neoliberal school? He answered the first question by writing that criticism can lose its meaning as an independent position, if the socialists of chair take the critique seriously. He answers the other question by remarking that a birth of a new school is not impossible because many journals are already in the hands of critics (ibid.: 255). Kilpi saw the criticism presented by Sombart and Weber aimed to establishing a new school of thought. About the case of Finland he wrote in strongly social reformist air: In Finland social reforms are just beginning. Here we have a lot to do with land question and labour legislation. There is no room for a counteraction, if it is connected to resistance of social reforms. (ibid.: 257) He acknowledged the fruitful influence of the ‘critical position’. So, Kilpi seems to be a true reformist in spirit of socialism of chair. That was the dominant position among members of Kansantaloudellinen Yhdistys.

Historical economics as empirical social research In the second half of the nineteenth century empirical social research performed after the model of the German historical school was significant in the preparation of social reforms. Social problems raised by industrialization, urbanization and transformation of social structure were very important. This line of research had a connection with the development of social statistics, which was important in the Nordic countries (Alapuro and Alestalo, 1992: 78). Kansantaloudellinen Yhdistys was the forum of Finnish empirically oriented researchers who spoke for the need of social reforms in order to prevent the culmination of social problems. The rise of empirical social research was preceded by a debate upon the ‘workers’ question’ and socialism mentioned earlier. The ‘land question’ was the burning social problem in Finland of the turn of the century (Soikkanen, 1961: 36–9; Haatanen, 1968: 36) and the background of the rise of the empirical social research. The Finnish nationalist elite saw enlightenment and education of lower social classes as a challenge. Before the organization of political parties at the turn of the century, Kansantaloudellinen Yhdistys was an especially important forum of the discussion and planning of social reforms. Alapuro and Alestalo (1992) have divided the empirical research done by

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Kansantaloudellinen Yhdistys in two distinct areas: the research of the rural population and the research of the worker population. Already in the 1880s Kansantaloudellinen Yhdistys carried out an enquiry questioning the land ownership and circumstances of the rural areas. A series of research reports Tutkimuksia taloudellisista oloista Suomen maaseuduilla (‘Enquiries on the economic conditions on the Finnish countryside’) was published. Axel Warén (1869–99) published a study on the crofters’s living conditions. He used statistical data, interviews, and many kinds of documents as his research data. In the true mood of the German socialists of the chair, he believed that the problems could be solved by legislative reforms (Alapuro and Alestalo, 1992: 86). Hannes Gebhard continued Warén’s work. He was originally a historian but later an agricultural economist and one of the founders of the Finnish cooperative movement. Gebhard had studied in Germany in 1893–4 under the leadership of the famous German agricultural economist Max Sering (1857–1940) and the leaders of the younger generation of the German historical school Gustav von Schmoller and Adolph Wagner (Paasikivi, 1986: 209). His dissertation (Gebhard, 1889) was a historical study. In 1899 Gebhard was appointed to the lectureship of agricultural economics and statistics, and, finally, to the extraordinary professorship of Agricultural Economics and Statistics in the Faculty of Agriculture at the University of Helsinki in 1909. As a university teacher Gebhard was inspiring. Edvard Gylling, Yrjö Jahnsson, O.K. Kilpi, Sulo Wuolijoki, and Martti Kovero were among his pupils. He also acted as chairman of Kansantaloudellinen Yhdistys in 1900. Later Gebhard directed his intellectual efforts towards practical and ideological questions concerning the cooperative movement. The first holder of the chair of economics in the philosophical faculty of the University of Helsinki founded in 1906, Juho Heikki Vennola, presented his dissertation (Vennola, 1900) in history. He had studied history and statistics in Sweden in 1897 and continued economic studies in Germany and Austria during 1903 and 1906–8. Vennola’s studies were empirical studies dealing with concrete issues like the price of corn or state finances (Vennola, 1904 and 1908). Vennola held the professorship until his death. In the 1920s he was very active in politics and even become the Prime Minister of Finland. Jaakko Forsman (1867–1946), was the first co-editor of the first Finnish social scientific journal, Yhteiskuntataloudellinen Aikakauskirja (later Kansantaloustieteellinen Aikakauskirja, Finnish Economic Journal ) founded in 1905. He was one of the best experts of socialism and labour movement in the circle of the Finnish Economic Association. He wrote several articles on these issues. A booklet Mistä syystä sosialismi levisi Suomen maalaisväestön keskuuteen (Why did Socialism spread among the Finnish rural Population, Forsman,


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1912) is particularly interesting and includes a clear reference to the Schmollerian historical methodology. Forsman writes: although the logical deduction was carried out quite correctly as itself, it can lead to mistakes nevertheless, because in human life and action in fact follows rather little logic and consistency. One feels himself to move on quagmire in this kind of mass psychological study. But may it be so, thus one has to get some impression of the interaction of external conditions and people’s mental life, if one is to understand historical development at all. Without this kind of enquiry sudden phenomena such as large national movements which bounce up from underground will stay inexplicable mysteries. (Forsman, 1912: 6–7) An important contribution to the Finnish empirical social research was Eino Kuusi’s (1880–1936) dissertation Talvityöttömyys, sen esiintyminen, syyt ja ehkäisytoimenpiteet Suomen suurimmissa kaupungeissa (Winter unemployment, its performance, causes and prevention in Finland’s largest cities, Kuusi, 1914).14 It was the first wider study concerning unemployment in Finland. Kuusi’s emphasis is on describing the level of unemployment in construction work in the largest Finnish cities Helsinki, Turku, Tampere and Vyborg. Eino Kuusi analysed several factors influencing the level of employment in construction like the specific character of construction as business, migration, occupational specialization and the possibilities of stabilizing the influence of business cycles and thus gave a versatile picture of the phenomenon under scrutiny. Kuusi refers to the works of Gustav von Schmoller, Eugen von Philippovich, Adolph Wagner and Sidney and Beatrice Webb in several pages of his book (Kuusi, 1914: 275, 322–3, 375, 388, 390–1, 415, 426, 444, 449). The first initiatives of the study of conditions of the Finnish working class were presented in the Workers’ Association of Helsinki in the late 1880s, and the need of wider studies was expressed at the second meeting of representatives of labour movement at Tampere in 1896. The collection of statistical data was started particularly at the Workers’ Association of Helsinki (Alapuro and Alestalo, 1992: 102–3). Oskar Groundstroem (1868–1940), G.R. Snellman (1864–1922) and Vera Hjelt (1857–1947) did a pioneering work concerning the economic conditions of working people. Oskar Groundström had a statistician’s training and worked as a registrar in the Finnish Statistical Central Office. He gave several lectures at the Kansantaloudellinen Yhdistys and the Swedish-speaking society Ekonomiska Samfundet. Groundstroem’s study (Groundstroem, 1897) was the first survey on the issue (Alapuro and Alestalo, 1992: 103). The question of workers was the largest social problem according to Groundstroem. His study was a standard statistical study and he dealt with

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problems of data collecting, the representativeness of the data and the calculation of statistical parameters as well. Registrar G.R. Snellman compiled 12 of the 16 research reports under the title Työtilasto (‘Work Statistics’) published between 1903 and 1914. These studies were basic empirical inquiries of the working conditions of industrial workers in Finland in different industries, such as tobacco factories, bakeries, and machine workshops. Their importance was equal to the reports of Tilattoman väestön alakomitea mentioned above. Snellman represented together with Leo Ehrnrooth and Oskar Rosenqvist the radical social policy orientation in the Swedish-speaking society, Ekonomiska Samfundet i Finland (Pipping, 1944: 38–40; Björkqvist, 1986: 524). One of the above mentioned 16 reports of the Työtilasto series was Vera Hjelt’s survey Tutkimus ammattityöläisten toimeentuloehdoista Suomessa 1908–1909 (A Study on Workers’ Living Conditions in Finland, 1908–09, Hjelt, 1912). Hjelt’s study was the first empirical survey on the living conditions and consumption of working people in Finland. For her data, Hjelt used account books completed by worker families for one year. Her study was the first thorough empirical study of consumption performed in Finland. Some members of the Finnish labour movement contributed to the empirical social research literature of the living conditions of the industrial working population. Various social reformist minded people such as Hannes Gebhard, August Hjelt, Jaakko Forsman participated in the activities of the Finnish so-called ‘Wrightian’ labour movement before its radical orientation in the 1890s and adoption of a socialist programme at the meeting in Forssa in 1903 (Alapuro and Alestalo, 1992: 101). In 1909 Hannes Gebhard’s disciple Edvard Vilhelm Gylling (1881– 1938) defended his dissertation Suomen torpparilaitoksen kehityksen pääpiirteet Ruotsin vallan aikana (The Main Features of the Finnish Tenant Farmer Institution during Swedish Rule, Gylling, 1909). The character of the study was legal historical. Next year Gylling was appointed a docent of statistics at the University of Helsinki. Gylling’s research methodology was historical and statistical. The textbook of economics, Kansantaloustieteen oppikirja, written by Laura and Leo Harmaja (1914) must be mentioned as well. It was the first one written in Finnish language and was used for several decades at the university and other institutions. The authors were a married couple, both trained economists. They studied together in Germany and also translated Johannes Conrad’s Volkswirtschaftspolitik (Conrad, 1913) into Finnish. Leo Harmaja’s (1880–1949) writings deal with customs policy, economic history, social policy and history of economic thought. His wife Laura (1881–1954) was a pioneer of household and consumer economics in Finland and also published articles on household economics in international journals (Björkqvist, 1986: 554; Heinonen, 1998: 92–107, 229–36).


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Conclusions The influence of the German historical economics among Finnish economists can clearly be seen as methodical: most of the academic dissertations written before the year 1920 were empirical studies. The main reasons for the strong support of historical economics were (1) the training system – economics was taught at the faculty of law until 1906, when an independent chair was established and most scholars interested in economics were trained lawyers or historians; (2) strong cultural and scientific ties to Germany; (3) the practical and policy orientation of Finnish social scientists at the turn of the century; (4) the authoritarian society of economists; and (5) the poor ability to follow the international discussion which had taken place in Great Britain, Italy, France and also in Austria in the era when economists began to use new concepts and mathematics in their writings. It took until the 1930s and 1940s before neoclassical economics began to overshadow historically oriented economics. Professor J.H. Vennola at the University of Helsinki was busy with politics in the 1920s and did not have time to follow the development of economic science. The new generation, i.e. people like Bruno Suviranta, Arthur Montgomery, Lauri af Heurlin, C.-E. Knoellinger, C.A.J. Gadolin and Matti Leppo, started their career in the years between the two World Wars. The economic profession was institutionalizing and finding new approaches of research. The homogeneity and authoritarianism of the Finnish economic profession were so strong that even the internationally wide influence of Keynesian economics reached Finland in the 1940s and the 1950s.

Notes 1 An earlier version of parts of this article has been published in Heikkinen et al., 2000. For other sources of the history of Finnish economic thought in the nineteenth century, see: Björkqvist, 1986; Heikkinen et al., 1999; Jahnsson, 1907–8; and Koskenkylä et al., 1984. 2 Heikkinen et al., 2000: 163–4. 3 Heikkinen, 1997: 27–30; Heikkinen et al., 2000: 141–2, 168–71. 4 Heikkinen et al., 2000: 188; Kuusterä, 1989: 318–24. 5 I have written elsewhere on Snellman’s economic thought (see Heinonen, 1996). 6 Yrjö-Koskinen was a trained historian and a professor of history at the University of Helsinki. He received liberalist influences while studying in Paris in the 1860s. However, later he was strongly influenced by German social policy thinking and historical economics. He was the founder of Kansantaloudellinen Yhdistys and its chairman in 1892 and 1899. 7 The newspaper Morgonbladet was published in 1872–84 in Helsinki. It was the organ of the Swedish-speaking educated Fennomen (supporters of the Fennoman Party). Its chief editor was August Hagman. 8 Liljenstrand had studied in Germany, France and England in 1850–1. He served as a professor in 1857–77. As an economist he can be characterized as a

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12

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Visa Heinonen very moderate liberalist hovering between economic liberalism and historicism. Liljenstrand published the first economic science text book in Finland (Liljenstrand, 1860). According to Yrjö-Koskinen the state is a manifestation of national spirit. Its task is to progress a nation’s economic and intellectual development. Unlimited free competition can Kirjallinen Kuukauslehti was the central organ of the Fennoman Party (Finnish Nationalists). It was published during 1866–80 in Helsinki. The articles dealt with many kinds of lead to a common war among people (Heinonen, 1987: 149–50). Wilhelm Lavonius’s Om tull-lagstiftning i Finland (On Customs Legislation in Finland, Lavonius, 1873) was the first dissertation dealing with customs tariff polity and its theory. However, the emphasis was strongly jurisprudential. Later Lavonius served as a justice court appeal (Björkqvist, 1986: 323). Émile de Laveleye, Professor of Economic Science at the University of Liége, visited Finland in summer 1877 (Björkqvist, 1986: 445). He was well-known for his many-sided publications on economics, history of social policy, socialist thought and monetary theory. He represented the left-wing faction of socialists of the chair in historical school. Leo Mechelin taught economics in 1877–82 after Liljenstrand had resigned and was followed by Joel N. Lang. Finsk Tidskrift is the oldest cultural journal in the Nordic countries still published today. It was founded in 1876 as a counterbalance to the journal Kirjallinen Kuukauslehti which was the main organ of the Finnish-minded nationalists, the Fennomans. Finsk Tidskrift was aimed at the liberal-minded Swedish-speaking intelligentsia. Its first chief editors were C.G. Estlander (1876–86) and M.G. Schybergson (1896–1907). O.K. Kilpi studied at the university of Helsinki and in Germany under Wagner and Schmoller as well. His statistical dissertation (Kilpi, 1913) was among the first studies in Finland dealing with social classes. Also his later research was strongly empirical by nature. Kilpi served as Professor of Economics at the Helsinki School of Economics and Business Administration. Eino Kuusi taught social policy in the 1920s and published a large book on it at the beginning of the 1930s. In 1928–31 he served as Professor of ‘Practical Economics’ at the University of Tartu (Dorpat) in Estonia (Alapuro and Alestalo, 1992: 121). Kuusi was a representative of the inheritance of historical economics and German social policy thinking, both in his research work and in his practical activities.

References Alapuro, R. and Alestalo, M. (1973) ‘Konkreettisen sosiaalitutkimuksen tulo Suomeen’, in R. Alapuro, M. Alestalo and E. Haavio-Mannila (eds), Suomalaisen sosiologian juuret, 84–147. Porvoo: WSOY. —— (1992) ‘Konkreettinen sosiaalitutkimus’, in R. Alapuro et al. (eds), Suomalaisen sosiologian historia, 77–148. Juva: WSOY. Alapuro, R., Alestalo, M. and Haavio-Mannila, E. (eds) (1973) Suomalaisen sosiologian juuret. Porvoo: WSOY. —— (1992) Suomalaisen sosiologian historia. Juva: WSOY. Alapuro, R., Liikanen, I., Smeds, K. and Stenius, H. (eds) (1987) Kansa liikkeessä. Kirjayhtymä: Vaasa. Alapuro, R. and Stenius, H. (1987) ‘Kansanliikkeet loivat kansakunnan’, in R. Alapuro et al. (eds), Kansa liikkeessä, 8–49. Kirjayhtymä: Vaasa. Björkqvist, H. (1986) Den nationalekonomiska vetenskapens utveckling i Finland intill år


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1918, Meddelanden från stiftelsens för Åbo Akademi forskningsinstitut, nr. 109. Åbo: Åbo Akademi. Conrad, J. (1913) Kansantalouspolitiikka II (Volkswirtschaftspolitik; transl. Laura and Leo Harmaja). Porvoo: WSOY. Eskola, S. (1962) ‘Sosiaalipolitiikka suomalaisen puolueen ohjelmassa vuonna 1906’, Studia historica Jyväskyläensia 1, 391–450. Jyväskylä: Jyväskylän yliopisto. Forsman, J. (1912) Mistä syystä sosialismi levisi Suomen maalaisväestön keskuuteen. Helsinki: Otava. Gebhard, H. (1889) Savonlinnan läänin oloista vuoteen 1571. Helsinki. Granfelt, A.F. (1873) ‘Om vår tids sociala rörelser’, Morgonbladet, 188, 190, 191, 196, 197. Groundström, O. (1897) ‘Helsingin työväen taloudellisista oloista. Esitelmä Kansantaloudellisen Yhdistyksen kokouksessa 1894’, Esitelmiä Kansantaloudellisessa Yhdistyksessä 2. Porvoo: Kansantaloudellinen Yhdistys (The Finnish Economic Association). Gylling, E. (1909) Suomen torpparilaitoksen kehityksen pääpiirteet Ruotsinvallan aikana, Taloudellisia tutkimuksia IX. Helsinki: Kansantaloudellinen Yhdistys. Haatanen, P. (1968) Suomen maalaisköyhälistö. Tutkimusten ja kaunokirjallisuuden valossa. Porvoo: WSOY. Harmaja, L. and Harmaja, L. (1914) Kansantaloustieteen oppikirja. Helsinki: Otava. Heikkinen, S. (1997) ‘Labour and the market. Workers, wages and living standards in Finland, 1850–1913’, Commentationes Scientiarum Socialium 51, Helsinki, The Finnish Society of Sciences and Letters and The Finnish Academy of Science and Letters. Heikkinen, S., Heinonen, V., Kuusterä, A. and Pekkarinen, J. (2000) The History of Finnish Economic Thought 1809–1917, The History of Learning and Science in Finland 1828–1918, 17a. Ekenäs: Societas Scientiarum Fennica. Heinonen, V. (1987) Snellmanista viljatulliin: keskustelu tullipolitiikasta Suomessa autonomian ajan lopulla. Unpublished Pro gradu thesis, The University of Helsinki, Department of Economics. —— (1996) ‘Zwischen Nationalismus und Liberalismus: J.V. Snellman – ein finnischer Anhänger der nationalökonomischen Ideen von Friedrich List’, ‘Die Vereinigung des europäischen Kontinents’, Friedrich List – Gesamteuropäische Wirkungsgeschichte seines ökonomischen Denkens (Hrsg. Eugen Wendler), 143–65, Ulm. Stuttgart: Schäffer-Poeschel Verlag. —— (1998) Talonpoikainen etiikka ja kulutuksen henki. Kotitalousneuvonnasta kuluttajapolitiikkaan 1900-luvun Suomessa. Bibliotheca historica 33. Helsinki: Suomen Historiallinen Seura. Hjelt, V. (1912) Tutkimus ammattityöläisten toimeentuloehdoista Suomessa 1908–1909. Työtilasto XIII. Helsinki: Suomen senaatti (The Finnish Senate). Jahnsson, Y. (1907–8) Tutkimuksia Suomen kansantaloustieteen historiasta 1810–1860. Erityisesti silmälläpitäen yleisten kansantaloudellisten suuntien kehitystä. Helsinki. Kilpi, O.K. (1913) Suomen ammatissa toimiva väestö ja sen yhteiskunnalliset luokat vuosina 1815/75, 1, Maaseutu, Väestötilastollinen tutkimus papiston käkilukutaulujen tiedoista, Taloustieteellisiä tutkimuksia 12. Helsinki: Kansantaloudellinen Yhdistys. —— (1915) ‘Talous- ja sosiaalipoliittiset ideaalit nykyajan kansantaloustieteessä ja niiden kritiikki’, Yhteiskuntataloudellinen aikakauskirja 11: 229–57. Konttinen, E. (1991) Perinteisesti moderniin – professioiden yhteiskunnallinen synty Suomessa. Jyväskylä: Vastapaino.

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Koskenkylä, H., Pekkarinen, J., Räikkönen, A. and Vartia, P. (eds) (1984) Sata vuotta suomalaista kansantaloustiedettä – Kansantaloudellinen Yhdistys 1884–1984. Vammala: Kansantaloudellinen Yhdistys. Koskinen, Y. (1874) ‘Tyovaenseikka, Kirjallinen Kuukauslehti, 1, 4, 8, 9: 1–9, 91–7, 195–9, 219–27. Kuusi, E. (1914) Talvityöttömyys, sen esiintyminen, syyt ja ehkäisytoimenpiteet Suomen suurimmissa kaupungeissa, Taloustieteellisiä tutkimuksia XV. Tampere: Kansantaloudellinen Yhdistys. Kuusterä, A. (1989) Valtion sijoitustoiminta pääomamarkkinoiden murroksessa 1859–1913, Historiallisia tutkimuksia 149. Jyväskylä: Societas Historica Finlandiae. Lang, J.N. (1893) ‘Kansallisen taloustieteen merkitys opetusaineena’, Esitelmiä Kansantaloudellisessa Yhdistyksessä I. Porvoo: WSOY. Lavonius, W. (1873) Om tull-lagstiftning i Finland. Helsingfors: J.C. Frenckell & Son. —— (1874) Kateder-socialisterna. Tidskrift utgifven af Juridiska Föreningen i Finland X: 197–212, 293–309. Liljenstrand, A. (1860) System af samfundsekonomins läror, Ett forsook, Första häftet. Helsingfors. —— (1873) ‘Den politiska ekonomin i förhållande till sjelfviskheten och materialismen i vår tid’, Tidskrift utgifven af Juridiska Föreningen i Finland IX: 142–52. —— (1878–9) ‘Reflexioner om den politiska ekonomins framtid’, Tidskrift utgifven af Juridiska Föreningen i Finland XIV–XV: 301–13. Mechelin, L. (1879) ‘De politiska partierna’, Finsk Tidskrift IV: 116–47. Meurman, A. (1897) ‘Näkökohtia kansantaloustieteen alalta’, Esitelmiä Kansantaloudellisessa Yhdistyksessä II. Porvoo: WSOY. Mäki, U. (1984) ‘Metodologisen ajattelun juonteita suomalaisessa kansantaloustieteessä’, in H. Koskenkylä et al. (eds), Sata vuotta suomalaista kansantaloustiedettä – Kansantaloudellinen Yhdistys 1884–1894, 109–40. Vammala: Kansantaloudellinen Yhdistys. Nevanlinna, E. (1913) Kaksi kansantalouden tutkimuksen merkkimiestä. Helsinki: Kustannusosakeyhtiö Kirja. Paasikivi, J.K. (1986) Paasikiven muistelmia sortovuosilta II. Juva: WSOY. Pipping, H. (1944) Ekonomiska Samfundet i Finland 1894–1944 – En Återblick. Ekonomiska Samfundets Tidskrift, 61–2. Rein, K.G. Th. (1878) ‘Liberalismi ja socialismi’, Kirjallinen Kuukauslehti, 4, 8: 73–9, 169–79. —— (1879a) ‘Kansantalouden uusi oppikunta’, Kirjallinen Kuukauslehti, 1, 2: 1–10, 31–7. —— (1879b) ‘Ännu några ord om “liberalismen”’, Morgonbladet, 106, 116, 117, 123. Soikkanen, H. (1961) Sosialismin tulo Suomeen. Ensimmäisiin yksikamarisen eduskunnan vaaleihin asti. Porvoo: WSOY. Turunen, I. (1987) ‘Ammattiyhdistysutopia – Vuosisadan vaihteen liberalistista yhteiskuntapolitiikkaa’, in R. Alapuro et al. (eds), Kansa liikkeessä, 194–210. Vaasa: Kirjayhtymä. Vennola, J.H. (1900) Pohjois-Suomen maalaisvarallisuus 16:lla ja 17:llä vuosisadalla, I. 1559–1641, Tutkimuksia Suomen Taloudellisesta Historiasta 2. Helsinki: Suomalaisen Kirjallisruden Seura. —— (1904) Viljan ja leivän hintasuhteista Suomen kaupungeissa silmälläpitäen hintatilaa 1890-luvun alkupuolella. Taloustieteellisiä Tutkimuksia 1. Helsinki: Kansantaloudellinen Yhdistys, Otava.


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—— (1908) Luontais- ja rahataloudellinen astetaistelu kansantaloudessa ja valtion finanssit, Taloustieteellisiä Tutkimuksia 8. Helsinki: Kansantaloudellinen Yhdistys, Otava. Wendler, E. hrsg. (1996) ‘Die Vereinigung des europäischen Kontinents’. Friedrich List – Gesamteuropäische Wirkungsgeschichte seines ökonomischen Denkens. Ulm: SchäfferPoeschel Verlag Stuttgart. Yrjö-Koskinen, Y.S. (1874) ‘Työväenseikka, Kirjallinen Kuukauslehti’, 1, 4, 8, 9: 1–9, 91–7, 195–9, 219–27.

5

B.N. Chicherin Some liberal aspects of the emancipation of the serfs in Russia Birgitta Jansson

Introduction The ownership of land has always been an important question and has played a significant role in the development of different countries. For Russia issues concerning the private ownership of land have been central for centuries and are still unsolved. In the middle of the nineteenth century this question came into focus because of the intention to emancipate the serfs.1 One problem was that ownership of land was very vaguely defined by legal usage. Land fell into several categories; first the land which clearly belonged to the landlords.2 This land was cultivated by the peasant commune3 (selskoe obshchestvo or mir) who paid the landlord an annual quit-rent (obrok) or through forced labour (barshchina). Second, the land held in common by the peasant commune which was allotted by the commune to the different households. Third, the small garden plots held by each household. The serfs’ right to land was based on the commune or on the household (dvor) and not on individuals. The serfs were owned by the landlord but the existing law threw no light on the question of to whom the land belonged, except for the first category. This confusion may be explained by defining ‘land ownership’.4 In a broad sense ownership may have two different forms, first the peasant household’s possession which is defined through custom and second political formalized legal ownership. Because of these two definitions the ownership of land cannot be given a distinct and general determination. The ownership of real property has never consisted only of ownership but has also concerned other rights, based on special rights of disposition such as the right to use, lien, easement, and the right of redemption. Ownership has always been limited partly through restricted rights in favour of other private persons and through legal restrictions in favour of the state and society in general such as protection against neglect and tree felling of forest. The distinction between the right to use and ownership was not clear in Russia. The right the Russian serfs had before the emancipation was the right to use. This was not individual but linked to the peasant commune. As a consequence of this right, the commune was

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empowered to redistribute the land and decide which family had the right to specific pieces of land.5 In the minds of the serfs they were not slaves, they saw themselves as the rightful owners to the land that they cultivated. The phrase ‘We belong to you, but the land belong to us’6 is well-known and characteristic of the serfs’ opinion about land and serfdom. In the middle of the nineteenth century Russia was still an agrarian society; 84% of the population were peasants, 6% belonged to the towns, population and the remaining 10% belonged either to the nobility or military.7 During the nineteenth century the agricultural sector became more market oriented. The main production for sale was grain, flax, linen, alcohol, wool and lard. Most of the production was sold to the military sector. Despite the more market-oriented production the unstable prices for grain led to an unwillingness among the majority of landlords to invest in the agricultural sector. Serfdom provided them with a workforce almost free of charge which resulted in lack of interest in investment in more capital-intensive farming. The changes that were made were selective and more or less negligible. The industry sector was also limited and focused on primary military needs. The main production was iron and textile where serfs were used as the main labour source. As in the agrarian sector this state of affairs delayed the introduction of modern technology and an effective organization of the production. The general industrial development started in the last quarter of the nineteenth century.8 Politically Russia was an autocratic state. After defeat in the Crimean War it became obvious that Russia was in need of reforming and the most important area was the agricultural sector. In 1855, after the death of Tsar Nicholas I a debate concerning the future development of the society started. The new Tsar, Alexander II was, from the beginning of his era, seen as a liberal Tsar. The intellectuals had great expectations of him. Reforms had to come from above, to be introduced to the people and not be forced upon the state by the people. The Tsar would become an enlightened ruler and the intellectuals would help him in this process. During the first time of his rule a wave of liberalism flowed over the country and it became possible to discuss issues openly that had been forbidden before. One issue of great importance for the government and the intellectuals was the emancipation of the serfs. The government started to work out a reform mainly for two reasons: worries connected with economic development and a wish to preserve social and political stability. The serfs were very dissatisfied with their situation and the number of serfs’ revolts grew steadily during the first half of the nineteenth century. Public opinion was in favour of emancipation. The abolishment of serfdom would remove one of the country’s foremost obstacles to development. A major question in these discussions was how the landlords and the serfs should be compensated for the consequences of emancipation.

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• •

Should the serfs be freed with or without land? If the serfs were given land should that land be individually or collectively owned? Should the landlords be compensated for the loss of their serfs and if yes, how?

•

The Russian peasant commune (selskoe obshchestvo or mir) played a central role in the discussion before the emancipation. The Russian historian Kachorovsky defines it as: an institution in which, as a result of the interaction between law and custom, the right to command over the property belongs to the commune as a whole but the right to cultivate/use the property belongs to every single member of the commune.9 The commune was based on three principles: • • •

The land was held collectively; it belonged to the commune and not to the individual peasant. Every household had the same right to a piece of land as the other households in the commune. The land was tilled individually. The commune had the right to redistribute the land among its members from time to time, usually every tenth year, depending on the size of the household. This was to reassure each member in the commune had an equal economic basis and could pay their share of the tax.

The people that took part in the reform debate were divided in two major camps; the Slavophiles and the Westernizers.10 The Slavophiles were a quite homogeneous group. Most members were sons of relative wealthy landlords. The most well-known Slavophiles and also the leaders were A.S. Khomyakov, I.V. Kireevsky, the Aksakov brothers and J.F. Samarin. The Westernizers were a heterogeneous group – liberals, conservatives, radicals and socialists. Their members came from all parts of the society. What made them seem as a group was their common criticism of the tsarist administration and their criticism of the Slavophile standpoint. The common opinion among Slavophiles and Westernizers was that the peasant commune was a unique break from the old traditional Russia, something that gave Russia her special character. The Slavophile ideology was based on the idea that Russia had a distinctive feature which separated her from the rest of Europe. Slavophiles glamorized the peasant commune and the time before Peter the Great. They wanted to build the Russian future on her past and thereby avoid the terrible effects of the Western European development. The European

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development was nothing that Russia should copy. For the Slavophiles the Russian history before Peter the Great was a time of harmony, free from internal fights and class struggle. The government was based on mutual agreement and not as in Western Europe based on power and strength. The Russian people were connected through the orthodox Christian belief. This view of Russia before Peter the Great was strongly romanticized and exaggerated. There was no need for a constitution or any other form of modern government. The old Moscow State was founded on an inner truth and the main problem was to find the way back to this harmony. The Slavophiles feared the creation of a large group of landless peasants, a proletariat. Russia had to find her own way of development and this should be based on the peasant commune, this special organization of people which was unique for Russia. For the Slavophiles the peasant commune reflected the true ideal of Christianity based on a patriarchal society where everybody knew their place and were dependent on each other. Russia should find her own way of development, built on her tradition and her unique features and one possible way to do this was by keeping the commune. The Slavophiles’ view on Russia’s past, present and future was conservative. The Westernizers believed that Russia had to develop along the same lines as the rest of Europe. Russia was a part of Europe, she was only a bit behind for the moment. It was now possible to decide how and at what pace Russian development should follow Europe. For most Westernizers some aspects of European industrialization were frightening, especially those which resulted in the creation of a large population of poor landless peasants, as had occurred in England. By retaining the peasant commune the worst effects of industrialization could be avoided. Russia could take the best part of the European development and mix it together with the best part of the traditional Russian way of life. It was only natural that some sort of democracy and industrialization should come to Russia. But it was important to protect Russia from the worst forms of capitalism. For the radical socialist among the Westernizers the peasant commune could be used as a short cut to socialism. Russia had a unique chance to develop into socialism before the rest of Europe and that was because she had preserved this institution from the time of original communism. At that time the peasant commune was probably the most glamorized institution in Russian society. The debate about its origin was loud and intensive. This glamorizing aspect dealt surely with the fact that it was possible to interpret whatever the debaters wanted in the life of the commune. The interpretations ranged from genuine communism to genuine Christianity – dependent on the debaters’ own thoughts and beliefs. This debate led to a historical investigation of the origin of the commune. And as such it was a way of investigating Russian identity and by doing so explain why Russia was in a position to choose a different path of development than the rest of Europe.

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During this debate it became clear that it was impossible to emancipate the serfs without granting them property rights on land for two reasons; the vaguely defined ownership of the land in law and the fear of uprisings and severe social disturbances, the backwardness of the peasants who although illiterate and religious, believed in the Tsar myth at the same time.11 To emancipate without considering these factors could lead to uprisings and sever social disturbances. This chapter will examine the emancipation of the serfs from a liberal view and focus on one man, Boris N. Chicherin, who was one of the leading liberals in Russia. He regarded himself as a spokesman for the reforming autocracy and generally referred to himself as a ‘conservative liberal’.

B.N. Chicherin: life and activities Boris Nikolaevich Chicherin (1828–1904) belonged to an old and wellknown family of the Russian nobility.12 At the age of sixteen he began his studies at the University of Moscow. Among his teachers were T. Granovsky, who became his personal friend, as well as K.D. Kavelin and P.G. Redkin. Chicherin studied at the Faculty of Jurisprudence which was strongly influenced by Hegelianism and something of a nest for the Westernizers. In 1853 his master’s dissertation Regional Institutions in Seventeenth-Century Russia13 was rejected because it criticized the seventeenth-century Russian administration. He went to St Petersburg and attempted successfully to get it accepted at the University there. In St Petersburg he met his old teacher Kavelin and, in 1855, wrote some articles, at his request, about the need for reform and the peasant commune. After the death of Nicholas I in 1855, repression in society softened as did censorship. In the following three years Chicherin was able to publish his dissertation and articles on history and politics. He became a member of the group around the journal Russian Messenger and published articles in Alexander Herzen’s journal Voices from Russia. After a conflict with M.N. Katkov, the editor of Russian Messenger, concerning the peasant commune, Chicherin, together with others who shared his opinion, founded the journal Atenei. In 1856 Chicherin tried for the first time to influence the Russian government. He was convinced, as were many other liberals, that reforms had to come from above. It was the Tsar who should reform the country, the intelligentsia could and should help and support him in this work. The first political programme from the liberals, a request to the government, was as follows:14 • • •

the liberation of the serfs; guarantees for freedom of conscience; restrictions on censorship.

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Two years later we find an extended political programme designed by Chicherin which included: 15 • • • • • • •

freedom of conscience; first of all freedom of religion; emancipation of the serfs; freedom of expression for the public opinion; abolition of censorship on books; freedom of education; publicity for the activities of the government; publicity in judicial proceedings.

One question of great importance in the discussion before the emancipation of the serfs was the peasant commune. Chicherin claimed that the commune had been created by Peter the Great as an instrument for the state to rule over the peasants and force them to pay their tax obligations to the state. This rather modern view was in strong opposition to the general view, held by the Slavophiles and other Westernizers, which held that the peasants’ commune was a genuine old Slavonic tradition. In the summer of 1858 Chicherin left Russia for a journey through Western Europe which lasted for three years. During his European journey Chicherin visited England, France, Switzerland, Italy, Austria and Germany and met various European intellectuals and statesmen, including L. von Stein, I. Passy and L.A. Thiers, B. Disraeli, W. Gladstone, J. Russell and Lord Palmerstone. In an attempt to work out a platform for criticism of the Russian society Chicherin met A. Herzen in London, in the autumn of 1858, but almost immediately they disagreed.16 At the end of November 1858 Chicherin wrote an open letter to Herzen in which he criticized Herzen’s radicalism in public. Chicherin accused Herzen of being too radical and of throwing away the basis for a cooperation between the government and the intelligentsia. This criticism deepened the conflict between Chicherin and Herzen and also led to a conflict between Chicherin and the radical part of the liberal movement which defended Herzen against Chicherin’s criticism. In spring 1861 he returned to Russia. He had been offered the position of extraordinary professor in State Law at the University of Moscow. In 1866 he published his dissertation On Popular Representation17 where he used England as an example of a limited monarchy based on parliamentary grounds as the best system of ruling a country. In 1866 he and five other professors resigned their position in protest against the government’s involvement in an internal university conflict. In 1868 Chicherin moved to the family estate Karaul, in the Tambov province. He was elected as a member of the zemstvo18 in Kirsanov and in the Tambov’s assembly. He never completely withdrew from political life and many of his books contained political messages, the book Property and

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the State 19 was written to promote liberal reforms and counteract the socialist ideas of the revolutionary movement.20 Generally Chicherin wrote in favour of a constitutional monarchy. However he had experienced the bureaucratic way in which the Tsar ruled during his work in the zemstvo and came to realize that some form of governmental control was necessary. He maintained the independence of the nobility and more or less abandoned his faith in a strong Hegelian monarch. He blamed the arbitrariness of government for the growing radicalism in society. The government didn’t stand up as a moral leader in the confused society. The strong political movement at the beginning of the 80s shocked Chicherin and made him abandon his ideas of freedom. Instead he wanted more law and order and social stability. He began to fear the socialists and therefore did not want censorship to be completely abolished. The propaganda from the socialists was too dangerous to distribute to a large ignorant public. In 1880 Chicherin’s political programme was based on a union between the bourgeois and the educated nobility, which would be strong enough to stand up against the tyranny of the autocracy. He sought a rational organization of the agricultural sector, and the development of industry and trade. The nobility, together with a strong bourgeoisie, should play a dominant role in society. ‘Reasonable’ freedom under the rule of a holy and sovereign monarch was the key to progress. What the Russian people needed was sensible and firm supervision and not direct freedom. He was elected mayor of Moscow in 1881 but was dismissed from the post on a direct order from Alexander III when, in a speech on the coronation day of the new Tsar on 1 March 1883, he claimed the independence of the zemstvo and demanded a constitution. After his forced resignation he moved back to the family estate. He worked a bit within the district zemstvo and started to study science and even published books and articles on chemistry, zoology and analytical geometry. But it was difficult for him not to write about politics. Between 1896 and 1900 he published a number of articles about contemporary political questions. Chicherin’s last political book Russia on the Eve of the Twentieth Century 21 was published in 1900. The book, printed in Berlin, was published anonymously and signed ‘a Russian patriot ’. In this book Chicherin demanded a constitutional monarchy. He defended civil rights, demanding equal rights for the Jews, a constitution for Finland, independence for Poland and national freedom for the Baltic states. Boris Nikolaevich Chicherin died on 3 February 1904, having written and published 30 books and 86 articles.

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Chicherin and the emancipation of the serfs The main questions in mid-nineteenth-century Russia concerned the need for agrarian reform. Chicherin opposed the romantic opinions about the peasant commune held by the Slavophiles and most of the Westernizers. The debate concerning the origin of the peasant commune interested Chicherin because it focused on Russia’s history and traditions as well as its future. He approached the question by thoroughly studying the historical origin of the peasant commune and found out that it was created by the state. After drawing this conclusion he attacked the intellectuals who wanted to save the peasant commune, by showing that it was necessary to abolish both serfdom and the peasant commune to give Russia the ability to develop in a similar direction as other European states, particularly England and France. As early as in his master dissertation, Regional Institutions in SeventeenthCentury Russia, Chicherin investigated the origin of the peasant commune and found that it was a relatively new institution. It was created by the state to fulfil the needs of the state. Chicherin argued that the peasant commune had existed throughout Russian history but had served different purposes. In the patriarchical stage22 the commune was organized through the clan and was an expression of relationships based on political and economical power. During this stage the redistribution of land among the members in the commune was in use. In the second stage, the civil society was established by the Princes and the commune became obedient directly under the private interest of the Princes. Finally, during the development of the absolutist state the commune became a tax unit and the lowest administrative unit.23 Chicherin stated that it was not until serfdom had been established that the redistribution of land among the members in the commune came into use again. When the serfs’ freedom of mobility was curtailed it became profitable, for the landlords, to keep the serfs on a similar economic level and to get as much profit as possible from their work.24 Chicherin put a lot of effort into proving that the peasant commune was not a rest from a happy past. Once the true origin of the peasant commune was revealed as an invention by the state, it could be argued that it was possible and necessary to change this form of peasant organization when serfdom was abolished. In the article ‘Survey of the Historical Development of the Village Commune in Russia’25 Chicherin continued his analysis of the commune. He began by defining two forms of slavery in Russia – slavery (kholopstvo) and serfdom (krepostnoe pravo). He stated that every form of submission had its place in the historical process. Slavery existed when the state did not exist. It was a sign of power and wealth to have many slaves. Slavery and the commune existed in Russia during the patriarchical stage. This was not exclusive to Russia – we find similar ways of organizing peasants in collective communes in other parts of Europe.26

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With the arrival of the Princes, Russia was transformed. The land became private property, the so-called votchina was established, and contracts were drawn up between the landlords and the peasants. These contracts were based on the existence of the peasant commune but they also included individual rights, for example the right to move from one place to another and a regulation of the tax burden. These contracts were individual and gave individual right to land. The original patriarchical commune had ceased to exist. Serfdom was created in Russia with the rise of the absolutist state and reached its strongest position in the eighteenth century. The state was now interested in having obedient servants who carried out its policy. One way of ruling was to tie the servants (nobility) to the state through official duty and as a compensation for this give the state servants total control over the peasants that lived on their land. Serfdom was established by giving the nobility control over peasant production. This powerful absolutist state met opposition from the nobility who resisted official duty and the peasants who resisted serfdom. The freedoms of both were strongly reduced. One historical justification of serfdom could be that it was established because of the shortage of manpower. Russia’s open eastern border made it possible for peasants who resisted serfdom to run away. But in the long run the flight could not give freedom because the state had the law on its side and could force the peasant back to the estate. In the seventeenth century Moscow put a tax burden on all classes and gave the nobility full control of the peasants’ commune as a compensation. Peter the Great imposed a capitation tax and as a result the practice of repartitional land tenure developed. Chicherin drew four conclusions based on his research of the peasant commune:27 1

2

3

The commune of modern times had not survived from the patriarchical society; instead it had been invented by the state. It was not the result of a voluntary agreement among free men. It was created by the state for the needs of the state. The peasant commune was not similar to the communes of other Slavic people which had maintained their primitive character through history. The Russian commune had its specific qualities which had descended from Russian specific historical conditions and had nothing in common with the history of the Western Slavs. Thus the commune developed logically in accordance with the same principles which governed the whole history of Russian society and the Russian state. The commune of the middle ages confined its activities to collecting tribute, and its role was purely financial; there was no joint tenure, no restrictions on the right of succession, no communal police, no communal economic institutions. These had developed with the strengthening hand of the state.

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The modern commune arose out of the obligations laid on the peasant population beginning with the sixteenth century, primarily enserfment, and the imposition of the poll tax.

These conclusions formed the basis for Chicherin’s critical stand in the debate against the groups that wanted to keep the peasant commune after the emancipation. As Chicherin saw it a maintenance of the commune would limit the peasants’ rights and affect the development of a modern agriculture sector in a negative direction. A deglamorizing of the commune was necessary as a first step to change Russian agriculture. If it could be shown that the commune was a modern institution without historical justification and therefore that it need not be kept on traditional grounds, then change towards modern agricultural production was possible. It was necessary to show that Russia had developed historically and the commune was a result of historical change. As Chicherin puts it: The foundation of our commune is principally an achievement of modern times and to compare it with the patriarchical commune among other peoples implies denying us the ability to historical development.28 Chicherin was, however, to remain alone with this negative opinion about the commune. In the article ‘On Enserfment’, published abroad, Chicherin could be more outspoken. He stated that a reform of the agrarian sector was preferred instead of a revolution from below. His argumentation for the abolition of serfdom was based on the fact that it was morally, politically, economically and historically unjustified and as such did not correspond to the needs for the future.29 Serfdom was unjustified on moral grounds because it was immoral that one person should own another person. It was also cruel and demeaning because landlords could abuse and victimize their serfs. No law could put an end to this since landlords could ignore the law. The only way to put an end to this cruel system was to abolish serfdom. Serfdom was unjustified on political grounds. Based on the premise that the rise of the state was the result of a common wish to establish peace and order in a chaotic world, the laws that the state established should involve all its members. Therefore it was politically unjustified that those laws were not obeyed in the private sector under which serfdom existed. It was not possible to have the law divided into two parts, one concerning the public sector and the other the private sector. The third argument against serfdom was an economic one. Serf labour was simply not competitive with free labour. Under serfdom the serfs had very little incentive to work efficiently on their landlords’ land. Serfdom destroyed the entrepreneurial spirit. In Russia serfdom had led to landlords falling into debt and serfs into misery.

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Serfdom had lost its historical justification. If serfdom was established because of a shortage in manpower, the growth of population had diminished that problem. A better central administration had also made mass desertions among serfs impossible. The nobility had been emancipated in 1762. The state should have emancipated the serfs as well, but when it failed to do so the tax burden was put only on the serfs. That was a great social injustice. The fifth argument concerned the future. If serfdom was not abolished it would have disastrous effects on the Russian state and society. It was impossible to create a proper financial system or build a modern army on the principles of short service terms and advancement of common soldiers to officer rank. Nor was it possible to abolish censorship since the fear of social upheaval among the serfs and a revolution from below was a realistic fear. These five arguments were a very strong accusation against the current system and involved all of its parts; the Church, the politics, the economy, the history and the future. The state had nothing else to do than to abolish serfdom. The only way for Russia in the future was without serfdom. Chicherin analysed the condition of the Russian system correctly. Serfdom had served its historical purpose and it only contributed in keeping the serf at a low economic level, in preventing an expansion of the domestic market and in keeping domestic demand at a very low level and thereby limiting the possibilities of an industrialization of the country. Morally it was not possible for a state which had the ambition to be one of the superpowers in Europe to have nearly half of its population in bondage. The enlightenment during the eighteenth century had put the individual at the forefront and the idea of owning a person was alien to Christian beliefs. Chicherin went further and presented a reform proposal.30 The general questions concerned civil rights and freedom. Chicherin proposed a reform in two steps. The first step of the reform would give the serfs back some of the civil rights that had been taken from them. The right to marry without prior permission from the landlord, the right to seek justice, even against landlords, in a court of law, and the right to personal mobility under the condition that another peasant took their place. In this first step the peasants would retain the same piece of land as they had before the reform, and also the amount of labour dues (barshchina) and money dues (obrok) payable to their former landlord would remain constant. In this step Chicherin saw the state as a supervisor of the landlord and that the landlord’s power over the peasants should be reduced as much as possible. In the next step the state would allow the peasant to buy his freedom from his landlord by compensating the landlord for dues owed to him. The peasant was also to be allowed to buy the land that he had tilled.

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Chicherin claimed that the peasants had a moral right to the land they had tilled for generations. To make this possible the state would establish special rural banks in which the peasants could borrow money. It would take about twenty years to complete the reform and Chicherin thought that it would be possible for some of the peasants to buy their land and freedom earlier than others. Chicherin saw the peasant commune as a hindrance for the development of the agricultural sector. The commune refused to permit any kind of right to private ownership of land. If instead private ownership was established for the peasant this would mean not only the full power of person over things but also create a space within which man is free to order his life at his own discretion. It would open up an entrepreneurial spirit. In accordance with the liberal ideas of civil rights, a single person may act in an egoistic way but by doing so the best for the majority will be strengthened and increased. Chicherin was not ready to give the peasant full civil rights immediately because in his view the Russian peasant was simple and innocent, traditionally religious and in need of help, guidance and supervision. Therefore the state should act as a guardian for the peasants during the reform. Chicherin advocated the peasants’ right to land but he did not think it was necessary to keep the commune. It was not obvious that the peasant would want to stay in the commune or in any other form of collective land ownership. Chicherin pleaded for a new way of organization of the countryside with many small farmers alongside large farmers with origins from the old landed estates. It was the French agricultural system he had in mind. From his point of view a free and relative prosperous farming population which would be the base of political and social stability on the countryside was desirable. Chicherin had a wish for a society where everyone had their place, a way of finding peace in the society thereby changing one social institution it would lead to a more stable and peaceful state as a whole. A society built on differences, social classes or groups but where those had their given place and found peace in a changeable world. To free the peasants without land, which would give them a base for their income thereby creating a landless proletariat, could be a ground for social disturbance in society. Land ownership was a very important question, one which must be solved in a thorough way. By emancipating the peasants with land, the possibility of social upheaval would be diminished. When we summarize Chicherin’s reform proposal we find that three important questions were answered. The peasants should be freed with land on an individual basis. The argument for this was that the commune was not the traditional rest from a happy past that his critics claimed. In his studies he had shown the contrary; the commune was a relatively new institution, its main purpose was to support efficient tax collection. And, logically, a continuation of the

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peasant commune would delay an introduction of a rational agriculture. The purpose of the reform proposal was to free the peasants with land and this would create independent farmers. The land should be sold to the peasants on an individual basis and not to the commune. It was necessary to dissolve the commune and give the peasants the right to private ownership of land. The landlords would be compensated for the loss of their property, both in the form of land and labour. The main purpose of the reform was to build a society with a free and mobile working-force. By introducing civil and economic freedom Russia would change and encourage individual activities. It was important that the state would not force an abolition of the commune. This should be done spontaneously by the peasants themselves. They would see for themselves that individual tilling of land was preferable. If the state attempted to force the abolition of the commune it could lead to protests and the goals of the reform would not be reached. It was a risk of the opposite effect where peasants might choose to hold on to an old, traditional, irrational system simply because they felt threatened by a far too authoritarian state. From the Slavophile camp one reaction to Chicherin’s reform proposal was from Koshelev, the editor of Russkaia Beseda. He agreed with Chicherin that to keep serfdom would be disastrous for the Russian development, but disagreed on giving the land to the peasants on an individual basis. For the Slavophiles the commune was essential, it was the foundation of the Russian social order. Another reaction was from Beliaev who argued that the commune was native to the life of the Russian; that the government, in imposing serfdom, had only made use of an institution deeply imbedded in the national ethic. Because of the character of the commune it was important to keep it even after an emancipation of the serfs.

The reform The final reform was introduced on 19 February 1861 and the emancipation was divided into three phases.31 The first phase required the establishment of official offices before the end of 1861. These offices were created as the basic administrative organization of strictly peasant self-government. The peasants were subjected to the authority of the government-appointed peace mediators,32 who exercised wide powers, both defined and ad hoc, over the organs of peasant administration. The peasants’ personal dependence on the landlords was to disappear and they were now free to marry with whom they wish, acquire property, carry on business and start legal proceedings. Landlords had one year to decide which part of the arable land peasants would be allowed to buy.

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They were required to specify whether the area under cultivation corresponded to the size that was decided in the Reform Act and defined the money (obrok) and labour (barshchina) due to the former serfs. This list would be approved by the local peace mediator. Together with the peasants the peace mediator examined the list and solved any uncertainties and looked through the list to ensure that it corresponded with the law. Once the list was approved it was read to all the inhabitants of the villages. If the landlord was unable to provide such a list of obligations and available land, it then became the duty of the peace mediator. All lists for the entire country were to be completed within a two-year period – until 1863.33 The second phase of the reform was a period under these ‘temporary obligations’. During this phase the obligations that were established in the lists were to be followed and this would continue to be the case until the peasants had bought their piece of land from the landlord. This phase was not fixed in time but the purchase of the land should preferably be done within a period of twenty years. The third phase concerned regulations governing the purchase of land. If the peasants did not have enough money to purchase the land it was possible to obtain a state loan. The state paid the former landlord 75–80% of the purchase-sum in the form of bonds. The peasant then paid the remaining 20–25% of the purchase-sum directly to the landlord except cases where the landlord carried out the purchase without the peasant’s approval.34 The conditions of the state loan required the peasant to repay the loan within 49 years and the amount was fixed at an estimated tax share of the land plus a rate of interest.35 After some time the consequences of the reform were more clear. One of the negative aspects of the reform was that the landlord retained the rights to forests and meadow-lands and the peasants had to pay the landlord for the right to have their animals pastured there. Before the reform this had been free land and all animals were pastured there. The reform kept the peasants bonded to the land and to the commune as an organization for the peasants. The members of the commune were collectively responsible for the payment of the loans to the state. Most of the peasants had trouble repaying the loan to the state. This problem was based on the fact that the price the peasants paid for the land was too high. As a result the peasants had to pay both for the land and for their personal freedom. One result of the reform was that the state paid the nobility for their loss of land and the loss of their serfs. And the former serfs had to pay for the land that they had tilled for generations and for their personal freedom. The size of land that the peasants received after the reform was on average 20% less than that they had before the emancipation. And because of the high price of the land, the collective obligation to fulfil the loan to the state organization and the problems involved in

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dividing the land into private plots, the reform did not create a free mobile workforce. Because of the collective responsibility that the commune had for the payment of the state loan, it became difficult to get an ordinary loan from a bank to buy land from the commune. But at the end of the nineteenth century the village community was weakened by more enterprising peasants who improved farming and were able to buy land from the commune. This group became the so-called ‘kulaks’.

Conclusions The final reform corresponds in many ways with Chicherin’s reform proposal but not in one very important way – the maintenance of the commune. In order to explain why the peasant commune was such a strong institution we have to look at the law. The time between 1861 and 1906 is unique for Russia: new laws were written and peasant customs were elevated to the level of specific peasant law. For the peasant communities, custom and civil law became one. The statute of 19 February 1861 also singled out the peasantry as an estate with a particular form of communal organization, subject to specific legislation administered by local courts of peasant magistrates. These courts had to judge according to custom which was recognized as the source of law. In 1887 nine-tenths of the population were excluded from the jurisdiction of the national civil law and placed under customary peasant law.36 In this new law the ownership of land was laid down. For the Russian peasants the ownership of land was closely connected with family property. All property was family property. The ownership of the farm belonged to all members of the family and this had strong roots in the peasants’ consciousness. This principle was valid both for land held by the commune as well as the small garden plots. According to the new law from 1861: the subject of the right to land and demesne is not the peasant head of household [domokhozyain] himself, but to the family, all the household [dvor].37 The head of the family was the administrator of the family property, he was not the legal owner nor did he have unlimited right to use of the property. This does not mean that the farm was administered according to democratic principles or that the family members had equal rights. This principle of family property was closely connected to and strengthened by the institution of collective responsibility for the settlement of duties, taxes, and debts. This new law, based on custom, tells us that the idea of collective responsibilities was very strong in the minds of the Russian peasants. This idea worked against individual action and did not correspond to

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Chicherin’s proposal of abolishing the peasant commune and at the same time abolishing serfdom. The position held by the commune in Russian society was too strong to be abolished. It was defended by the intellectuals, Slavophiles and Westernizers, who strongly opposed Chicherin’s opinion about the commune as a modern institution. These groups saw the peasant commune as a unique rest from the old traditional Russia, something that gave Russia her special character. From the tsarist administration the peasant commune was kept because of a fear of social change and the thought that, by keeping it, it would prevent a revolution. Chicherin put a lot of effort in showing that the peasant commune was a modern institution. It was created by the state for the needs of the state and therefore it was possible to change it. The reform could create a free mobile workforce and an independent and relatively prosperous peasantry with civil rights. But the emancipation reform that was enacted was not sufficient for creating the basis for the modernization of society. One old traditional model was left and delayed the development to a civil society – the peasant commune.

Notes 1 In 1857 the Russian population was 59.2 million; 84% were peasants and less than half of the peasants were serfs (22.8 million). The other part of the peasant population were state peasants. Ya. E. Vodarsky, Naselenie Rossia za 400 let (XVI–nachalo XX vv) Moscow, 1973: 54–6. 2 It was only the nobility that had the right to buy land with serfs but not all among the nobility owned serfs. The largest part of the nobility consisted of persons that belonged only to the nobility by name. When I use the word nobility in this chapter I refer to the land and serf-owning part of the nobility, the Landlords. 3 When I use the words peasants and peasant commune in this chaper I refer to the serf peasants and the serf peasant commune. 4 For an introduction to the problems concerning the questions on ownership of land see A. Loit, När kronans jord blev böndernas. Bördsköpen under Johan III:s tid, in M. Revera and R. Torstendahl (eds), Bördor, bönder, börd i 1600-talets Sverige Lund, 1979: 38–41. 5 An interesting remark is that the state peasants in Russia had the right to use the state’s land and even descent right. This might explain why they used the land as if it belonged to them, they bought and sold it. 6 In Russian ‘My vashi, a zemlya nasha’. T. Emmons, The Peasants and the Emancipation, in W.S. Vucinich (ed.), The Peasant in Nineteenth-Century Russia, Stanford, 1968: 67. 7 Ya. E. Vodarsky, Naselenie Rossia za 400 let (XVI–nachalo XX vv), Moscow, 1973: 56. 8 P. Lyashchenko, History of the National Economy of Russia to the 1917 Revolution, New York, 1949, Chapter XX. 9 F.M. Watters, ‘The peasants and the village commune’, in W.S. Vucinich (ed.), The Peasant in the Nineteenth-Century Russia, Stanford, 1968: 134.

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10 This presentation of the two groups – Slavophiles and Zapadniki – is very short and only a brief introduction. For more information about the groups, see for example, A. Riasanovsky, A Parting of Ways, Oxford, 1976; A. Walicki, The Slavophile Controversy: History of a Conservative Utopia in Nineteenth-Century Russian Thought, Oxford, 1975. 11 The latter implied that the Tsar knew them personally and that he wanted the best for them. In the peasants’ view the nobility and the tsarist bureaucrats stood between the Tsar and them. The situation in the country was such as it was because the Tsar did not know the peasants’ real situation. The nobility had told him a lot of lies about the peasants’ lives. 12 B.N. Chicherin, Memoirs, 4 vols., Moscow, 1929–34 (Vol. 1, Moscow in the Forties; Vol. 2, Journeys abroad; Vol. 3, Moscow University; Vol. 4, Zemstvo and the Moscow duma). 13 In Russian the title is Oblastnyia uchrezhdeniia v Rossi v XVII-m veke. 14 Voices from Russia, book 1: 21f. 15 Voices from Russia, book 4: 112–14. 16 They both described their meeting in their memoirs. B. Chicherin, Memoirs, Vol. 2, Moscow, 1932: 49–52; and A. Herzen, My Past and Thoughts; the Memoirs of Alexander Herzen, 4 vols, London, 1968, Vol. 2: 624ff. 17 The Russian title is O narodnom predstavitel’stve, Moscow, 1866. 18 Zemstvo was a form of local self-government. In January 1864 a reform was carrying through whose aim was to increase local self-government. 19 The Russian title is Sobstvennost i gosudarstvo, 2 vols, Moscow, 1882–3. 20 B.N. Chicherin, Memoirs, Vol. 4, Moscow, 1934: 108. 21 The Russian title is Rossiia nakanune dvadtsatago stoletiia, Berlin, 1901. 22 The time before AD 862 Chicherin saw the historical process as being divided into three stages, Patriarchal (before AD 862), Civil society (AD 862–1480) and the state (AD 1480– ). 23 B.N. Chicherin, Regional Institutions in Seventeenth-Century Russia, Moscow, 1856. Reprinted in Paris, 1968: 575f. 24 Ibid.: 519f. Serfdom was established by law in 1649. 25 The Russian title is Obzor istoricheskogo razvitiia sel’skoi obshchiny v Rossii. First published in Russian Messenger, no. 1 (1856) and later in Studies in the History of Russian Law (Opyty po Istorii Russkago Prava), Moscow, 1858. 26 B.N. Chicherin, ‘Survey of the historical development of the village commune in Russia’, in Studies in the History of Russian Law, Moscow, 1858: 32. 27 Ibid.: 57ff. 28 Ibid.: 58. 29 B.N. Chicherin, ‘On enserfment’ (O krepostnom sostoianii ) in Voices from Russia, book 2, London, 1856: 127–229. 30 Ibid.: 175–225. 31 The Reform Act was read in all churches on 7 March. The time was well chosen, it was during Lent so the peasants did not use alcohol. The serfs were dissatisfied with the reform and after Easter uprisings started again. In 1861 there were 1,859 peasants uprisings, most of whom protested against keeping labour dues. 32 The peace mediator was a man from the nobility who was officially appointed by the province governor to mediate between the peasants and their landlord in questions concerning the reform act. 33 M. Florinsky, Russia: a History and an Interpretation., 2 vols, New York, 1953: 888f. 34 Ibid.: 888ff. 35 This led to an accumulation of the debt and together with the bad situation for the harvest and agriculture it became more or less impossible to pay back the

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loan. In an intention to solve the problem with the growing debts the time in which it should be paid was extended until the 1950s. Improvements in agriculture and the revolution in 1905 led to all debts being cancelled. 36 The court’s jurisdiction included the civil cases and minor criminal offences of the peasant population within a volost. 37 T. Shanin, The Awkward Class, Oxford, 1972: 220.

References Chicherin, B.N. (1929, 1932, 1934) Memoirs, 4 Vols. Moscow. —— (1856) Regional Institutions in Seventeenth-Century Russia. Moscow. Reprinted Paris: The Hague, 1968. —— (1858) ‘Survey of the historical development of the village commune in Russia’, in Studies in the History of Russian Law. Moscow. —— (1856) ‘On enserfment’, in Voices from Russia, book II. London. Florinsky, M. (1953) Russia: a History and an Interpretation, 2 Vols. New York: Macmillan. Herzen, A. (1968) My Past and Thoughts: the Memoirs of Alexander Herzen, 4 Vols. London. Loit, A. (1979) ‘När kronans jord blev böndernas. Bördsköpen under Johan III:s tid’, in M. Revera and R. Torstendahl (eds), Bördor, bönder, börd i 1600-talets Sverige. Lund: Studentlitteratur. Lyashchenko, P. (1949) History of the National Economy of Russia to the 1917 Revolution. New York: Macmillan. Riasanovsky, A. (1976) A Parting of Ways. Oxford: Clarendon. Shanin, T. (1972) The Awkward Class. Oxford: Clarendon. Vodarsky, J.E. (1973) Naselenie Rossia za 400 let (XVI–nachalo XX). Moscow. Vucinich, W.S. (ed.) (1968) The Peasant in Nineteenth-Century Russia. Stanford: Stanford University Press. Walicki, A. (1975) The Slavophile Controversy: History of a Conservative Utopia in Nineteenth-Century Russian Thought. Oxford: Clarendon.

6

Liberal ideas and Slavonic Community Tomasz Potocki’s programme for Poland Janina Rosicka

In this chapter we will attempt to show how liberal ideas were employed in a European underdeveloped agrarian country which lost its independence in the last decade of the eighteenth century. In these circumstances liberal ideas of laissez-faire and of private property assumed new shapes and created hope for modernization and future development. The chapter deals with Tomasz Potocki’s case. This Polish aristocrat created a political programme of peasants’ affranchisement using liberal ideas. The chapter is divided into five parts. We begin with a short introduction concerning the history of Poland; then we discuss Potocki’s interpretation of liberal ideas and his economics of agriculture; his analysis of European agriculture; and his study of the Polish case including his project of peasants’ emancipation.

Introduction Poland experienced a long economic, social and intellectual decline from the second half of the seventeenth century until the 1760s. In the 1760s a process of modernization of the state began which embraced political, social and economic reforms.1 The shape of these reforms was elaborated during a long debate among Polish gentry (the szlachta) about the ‘arrangement of relationship’2 between the szlachta and the peasants.3 The debate started in the 1730s, and in the 1780s it turned into a country-wide discussion. The topics of this debate were: the abolition of serfdom, the introduction of money rent, and the release from bondage. The modernization was stopped by three succesive partitions of Poland (1772, 1792, 1795). In the nineteenth century, under new circumstances, the so-called ‘peasant’s question’ became a tool for the invaders to put pressure on the szlachta. In 1846 a peasants’ revolt occurred in Poland’s Austrian part. The peasants killed the szlachta and burned their manors. This was called the ‘Galician massacre’. Prussia and Austria abolished serfdom in the first half of the nineteenth century. Russia dictated its own conditions and the Polish peasant was degraded into a kind of livestock. The Tsar delayed his decision in spite of the szlachta applications for releasing villains from

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bondage, and the szlachta was threatened by the possibility of peasants’ revolts. The abolition of bondage was arranged in 1861 but only in the Polish part of Russia. In the mid nineteenth century the only group which was in a position to initiate reforms in the Russian part of partitioned Poland was the szlachta. However, their enthusiasm was diminishing and they were horrified by the scale of the ‘Galician massacre’. The szlachta became more and more disinclined. They considered staying within their manorial estate as a recipe for survival and the debate on the ‘peasant’s question’ lost its impetus. The three main solutions elaborated during this debate were: • • •

conservative (‘sarmatian’)4 – to release the peasants from bondage and to minimize all other changes; moderate (‘enlightened’) – to release the peasants from bondage and to modernize agriculture; radical (‘romantic’) – to turn peasants into owners of the land they cultivated.

Now only one remained – the ‘enlightened’ – the evolutionary modernization of agriculture. The szlachta was not so busy with the question of whether to introduce or not to introduce a reform. The country was poor and the szlachta was more concerned with practical things, such as how to gather the means to implement a reform. The only capital of the szlachta were enthusiasm and hope for peasants’ productivity after introducing the reform. In this difficult political position the szlachta needed peasants’ support and it became more and more aware that it had to seek confederates among peasants. In 1851 Polish aristocrat Tomasz Potocki printed his book On Making Rural Relationship in Poland [O urzadzeniu stosunkow rolniczych w Polsce] (Poznan, 1851). The author5 assumed a pen-name ‘Krzyztopor’ which referred to his heraldic arms. The second edition of his book appeared in 1859 enlarged by a supplement: ‘Carlsbad Mornings or Analysis of Objections, Supplements as well as Notices Concerning the Book on Making Rural Relationship in Poland’ [Poranki karslbadzkie, czyli rozbior zarzutow, uzupelnien i uwag nad pismem o urzadzeniu stosunkow rolniczych w Polsce] (Poznan, 1859). Soon the book enjoyed popularity among the szlachta and Potocki gained the szlachta’s favours. They accepted his programme and he became a leader of the szlachta lobby which wanted to sell land to peasants. The visible result of these activities was the establishing of the Agrarian Society6 in 1859 which rallied aristocracy and rich szlachta. The society promoted the programme of social and technological modernization of agriculture by introducing the reform in their estates, organizing competitions, and editing a journal Agrarian Society Annuals. Tomasz Potocki became a vicepresident of this society. After almost one hundred years of debate on the ‘peasant’s question’

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there was almost nothing new to say. Potocki’s contribution was that he connected two things: a romantic imaginary institution – Slavonic community, and the szlachta’s fears; in a new order. Hitherto the szlachta’s fear of a peasants’ revolts made the Slavonic community useless as a base for future arrangement of relationships between the szlachta and peasants. Potocki transformed this fear into real hope, showing the practical application of this institution as a school for peasants for running farms, and at the same time a school for managing and responsibility, and simultaneously a kind of security of the szlachta’s interests. Gathering all arguments used in the debate Potocki’s books provided theoretical (philosophical and economic) arguments as well as a social basis for the reform, and it provided a useful scheme for the szlachta, which wanted to carry out the reform. He divided his book into two parts: ‘On Labour Organization’ and ‘On making Agrarian Relationships in Poland’. He started with a theoretical argumentation for peasants’ emancipation, then he considered the history of agriculture in European countries as well as in Poland, and finally he recommended his project of the reform. The first part introduced liberal philosophy and economics into a rather strange, for these social sciences, rural environment; the second was composed of comparative research of economic, social and legal aspects of European agriculture, and of Polish agriculture in particular; finally his scheme of the reform showed how to avoid Western errors, especially poverty, and to enjoy opulent and solvent peasants.

Liberal ideas According to Potocki, man is provided with reason, freedom and a ‘passion for progress’ by Providence. Within this spiritual realm man is superior to other creatures. In the material realm the human condition alters, and weak man acts under the impact of his material wants. In order to satisfy a variety of wants man needs two social institutions: society and division of labour. There is no possibility of getting ‘good labour’ without property. Work is connected with property of ‘fruits of labour’, and this property has to be the ‘full’ property. That means the owner can dispose of his property, and in particular the property can be a subject of inheritance.7 Inequality of property is the result of a variety of people.8 The privileged class becomes a leader of society on the understanding that the privileged people have to work for the progress of society, as Potocki writes, ‘they will be productive’. To give up this social work results in privileged people looking only after themselves and as a consequence they may lose their title to be the leader of society.9 Nowadays heritage of privilege is ‘unprogressive’ and every man must work to stand on his ground.10 This understanding of equality is promoted by democracy, and we should not be afraid of this kind of equality because it does not mean an ‘equality in use’.


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The task of mankind is to conquer nature. In order to achieve this aim we are assisted by three ideas: ‘association, division and freedom’. 11 In this triad, ‘association’ means that we need organic society in order to manage; ‘division’ means division of labour; and ‘freedom’ means liberty for labour and no serfdom. Welfare within the material realm resulted from increasing production. The growth of production depended on three factors: the idea of association is realized by ‘alliance between labour and capital’; the idea of division is materialized by ‘division of labour’; and the idea of freedom needs ‘independence of labour’. Wealth consists of ‘immovables’ (land, frames of work) and ‘capital’ (understood as tools of labour). The most important factor is capital. Capital gives impetus to production and in this way capital conducts the ‘emancipation, education and improvement’ of mankind. There is a possibility of using credit which, however dangerous, becomes a ‘miraculous weapon increasing twofold the power of capital’.12 Division of labour is made more efficient by the improving of practice and organization. Independence of labour increases competition. Each of them: capital, credit, labour, affects production, and the best way of organizing economy is to give freedom to all participants. ‘The happiest country is the country governed as little as possible’.13 Potocki is not a glorifier of progress. The industrial period brings more wealth than the agrarian period, however more wealth is obtained at the cost of crisis and poverty of the ‘proletariat’. Potocki is convinced of a tendency: ‘more wealth more poverty’.14 In this new civilization the diminishing of physical sufferings is accompanied by the growth of mental sufferings. A Parisian proletarian prospers better than a French peasant, Potocki argued, he is better dressed and he works not so hard. Nevertheless he is conscious of his low-born class and his education creates new pains for him. Man’s fate is ‘work not pleasure; conflict not delight’. Socialists want land flowing with milk and honey. They propagate the association between rich and poor, and the right to work. These ideas are, for Potocki, simply silly. What do rich and poor have in common is that the former gives capital to the latter, he thinks. The state cannot fulfil such a duty, and work is a duty, not a right. The socialist ideas about association and labour are wrong. Potocki admits that socialists are right in saying proletarians are poor, and he makes an appeal to rich people to take care of the proletariat and to think about creating some institutional help. However, in overcoming economic crisis, caused by over-production, a wise policy can help, to abolish tariffs and to introduce free trade.15 This philosophical and economic compendium took 67 pages of Potocki’s book. He finishes this part by doing a recapitulation. The basic rule of progress16 is the full property of land, as the ‘mainspring of welfare of nation’.17 The three guiding rules are: labour and capital must be connected and directed to land; there must be a division of labour in agriculture; and labour must be free. Contrary to socialists, he writes: ‘Labour in itself is nothing, it becomes something by acting . . . its value is evaluated

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by what does it really make not by what can it make.’18 So, labour needs capital in order to start. Capital and ‘immovables’ (‘frame’) have absolute value, and in opposition to them labour has relative value.

Economics of agriculture For Potocki agriculture is the beginning, and the base of human civilization, so among human wants the most important is to be in possession of land. In the very beginning there were plenty of land and land was ‘quasi collective property’, then step by step scarcity of land appeared. In the period of plenty property came into being in the shape of a ‘pure act’ embracing physical activity of its owner, after this period property is the pure act and a legal act.19 The scarcity of land is interpreted by Potocki as a positive phenomenon introducing society and ownership. The ownership – Potocki called it the ‘exclusive property’ – is the ‘social law and innate right’ organized by a new peopled world which has run short of ‘games, fishes, and pastures’. This world is governed by the law of diminishing returns: there are more and more people; and there is less and less land. As a result of this law the ‘voluntary work’ became insufficient, and slavery appeared because the owners of capital have to force other people to do work. Potocki is not interested in coercion or jurisdiction questions; for him the most important is the economic fact of the coexistence of labour and property because under these circumstances capital is made. The presence of capital transforms image of land and land becomes the ‘frame of work’. So there are three factors of production: frame of work, capital and labour. Capital is energetic, brisk and rapid; stationary land is a ‘frame’; and relative labour totally depends on both: capital and land, and this specific gradation of mobility produces the main difference among them.20 In human civilization the first economic power was land. At the very beginning land was a gift of nature. At present there are three economic factors that determine land value: quality of soil (‘innate productivity’); increase of land value caused by capital; and, as well as these two, the demand for ‘fruits of the earth’ and supply of capital in agriculture. Man has a title to property of the last two. In practice, however, there is no possibility of isolating the natural productivity of land from the other factors, and in fact man is the owner of all of them. In Potocki’s book property becomes the most important social institution. The subject of property is both to control and to command. Potocki lays emphasis on active understanding and use of property. Property is not only to be possessed but is also – and even principally – a form of capital. If property has no features of capital it is a case of wrongly used property. The single person is the best owner. There are two threats that interfere with production: too big concentration on property, and too little property; the second is more dangerous. The main social and economic question is the proper convergence of frame and property-capital.


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In comparison with other Polish economic writers, Potocki is very interested in the analysis of labour. He distinguishes two kinds of labour: labour employed by – as he writes – a ‘single person’ which means a man of small property or a man without property; and labour employed by large property. The ‘single person’ may work in three ways: first, to run his own frame employing his own tools; second, to run another person’s frame employing his own tools; and third, to run another person’s frame employing another person’s tools. For him the first way is the most efficient; the second less efficient; and the third is ‘totally wrong’. If property is too large to be managed by his owner, which is the case of the szlachta’s estates, there are three ways of administration: by rustics; by serfs; and by wage-earners. The first descended from slavery is the most inefficient because it is governed by coercion and fear.21 The second is the way of production in a poor society and the beginning of feudalism, and in such a kind of agrarian economy the only stimulus to increase efficiency is a ‘stick’; Potocki claims: ‘Serfdom is a pure waste of powers and time’.22 The third kind of labour, called by Potocki the ‘emancipated labour’, is modern and the best. It gives the biggest possible profit, and it causes the least problems to its owner. ‘Emancipated labour’ demands a new kind of economy. This must be the ‘money-economy’ governed by competition. Free labour and competition are both prerequisites of a healthy economy. Emancipated labour results in competition as the outcome of free prices of labour. We do not need to be afraid of the new economical competition, it is friendly towards people. The common interest in cultivating competition should be recognized by the owners of estates as well as by peasants: higher rent of land means higher peasants’ wages, and vice versa. Money is the ‘main regulator of relationship between capital and labour’ and it acts as a substitute for feudal coersion and fear.23 In this context Potocki analyses tenure. He arrives at the conclusion that each of three sorts of tenure – fixed ratio of crop division between owner and tenant as in Italy and France; owner’s fixed share in crops expressed in natural measure; and money-rent – is unprofitable for participants. Even hereditary tenure is considered by him as a solution prevented from bringing together lands, and therefore being a hindrance in a ‘rational’ land cultivation. He gives an example of America ‘where starvelings come’ and stop being poor because ‘property breeds capitals’.24 For Potocki there is a gulf between tenure and property separating future from past. He concludes: ‘To sum up, tenure increases real existing opportunities while property increases future opportunities’.25 The tenure is a feudal ‘obsolete’ institution immune from modern purposes. The new economy introduces a new order of coexistence of landlords and peasants by dividing up the economy into two parts: large and small agricultures. The landlords should provide a specialization which needs capital; and peasants should provide a labour-consuming cultivation. In

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this way the new order becomes the order of independent though complementary parts. As in the first part, Potocki finally recapitulates seven conditions of a good agrarian economy: • • • • • • •

property is the base of agriculture; others factors of production are: land, capital, and labour; capital conspicuously increases the volume of production; labour must be emancipated; money relations in agriculture must exist; both large and small agriculture are desired; property is preferable to tenure.26

European agriculture Potocki starts with a history of agriculture in European countries: England, Ireland, France, Austria, Prussia. For him English agriculture is like a ‘refined park’. However, he emphasizes the fact that the growth of English agriculture is accompanied by growing rural pauperism. The case of Ireland becomes a cause of reflection. Potocki wonders why having the same laws as England, Ireland has a poor agriculture. He thinks that this is partly a result of the oppression of the Catholics.27 Stagnation is a main feature of French agriculture. French agriculture is not so wealthy as the English, however this is compensated by a lower rate of pauperism.28 Austria is a scene of conflict between those who want to transform agriculture, and the conservatives. Austrian politics consists of doing things by halves, and it brings ‘lamentable moral impact’. Although dismissive of Prussian politics, Potocki praises the Prussian administration. He discusses the Prussian rural reform and law extensively, and enumerates the weaknesses of this reform: a lack of village schools and financial institutions, especially agrarian banks.29 The third chapter is dedicated to Slavonic agriculture. In the historical introduction there are repeated arguments elaborated by the Polish historians Joachim Lelewel and Waclaw Aleksander Maciejowski.30 Potocki is more interested in Maciejowski’s version of ancient history of the Slavs, a version very useful for reformers because it supplied them with historical arguments. According to Maciejowski there were two Slavs’ institutions: collective property and self-government. Either slavery or poverty existed. The seniors (the Polish gentry) were elected, and patriarchalism was the pivotal relationship. Feudalism was not a Slavonic invention, and it was forced by German invaders. In the course of time there remain two truly Slavonic features: affection towards land and towards homeland; and a ‘propensity for collective life’. This propensity was called by Lelewel ‘communitism’ in order to lay stress on self-goverment.31 After this historical introduction, Potocki describes the Russian agricul-


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ture as very backward and the Russian gentry as the ‘unlimited rulers of peasants’. He mentions that patriarchalism is present in the Great-Russia ‘guberniyas’ because the owners are engaged in politics.

The case of Poland For Potocki the history of Poland is a fight between native communitism and foreign feudalism. He separates the following four periods: • • •

•

from communitism to monarchy, the abolition of collective land property; fight between magnates and the King who was supported by communities, welfare of both town folk and country folk; the decline of towns, agriculture and industry started in 1496 (King Jan Olbracht’s Law: peasants were forced to stay on their land, they were forbidden to buy land); the first efforts to help peasants in the second half of the eighteenth century.

He gives a historical description of these periods in 200 pages. The last period is related by him in full detail, especially the experiments carried by his relatives August and Adam Potocki who affranchised peasants and introduced money-rent.32 This description becomes an introduction to his scheme for agriculture reform. Potocki’s scheme is composed of 14 clauses. In the preamble (the first four clauses) Potocki says what, when, and which way to carry the reform through. The goal is formulated very clearly: abolishing serfdom and simultaneously making the way leading to real peasants’ property. These parallel actions are justified by economic argument: only both freedom and safety of property may encourage peasants to work. The reform cannot be introduced against the law as an impulsive act which would bring the szlachta to ruin. The cost of serfdom should be recompensed by peasants. The best thing is to reform by voluntary contract. There are two ways of abolishing serfdom: by establishing money-rent as in England; and by affranchisement. The English way is not suitable for the Polish country dominated by small property. So the only way is to sell land to peasants. Peasants will be stimulated by property and their payment helps the szlachta to manage without serfdom. The guarantee of peasants solvency will be their land and their prestations. The contract must be accepted by all peasants of a particular village. One village will be one district, and several districts will be the community. The community administration set together of administrators and cashiers of villages will run collective funds ‘like a board of company directors’. In this way communities become the school of economic thinking and of responsibility for peasants. In fact the project provides a collective

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responsibility of the community to the landlord. The community contracts a debt and the community must deal with unreliable debtors. The community may take possession of debtor’s land and of his part-payment. Peasants enjoy rights of hereditary tenure, they can leave their land, and have the right of appeal with communities’ authorities. Only the community has the right to deprive a peasant of land. A special bank must be established to give credit to communities. Such a Polish bank must be supported by the ‘whole country’ because an improvement in agriculture is in the interests of every Polish citizen. The repayment of loans will be the community’s duty. Potocki only wants administrative actions and prefers eviction to fees or distrain upon debtor’s livestock; as well as temporary tenure to serfdom. The matter of the last 14 points is who will personally carry the reform. Potocki’s proposition provides a two-level hierarchy of authorities: local and ‘guberniyan’. Local authorities of community consist of three members: a representative of the szlachta, a representative of peasants and a geodesist; ‘guberniya’ authorities consist of five members: a representative of the szlachta, a representative of the peasants, a representative of the bank, a lawyer; as well as an administrator as the representative of political power. To recapitulate, Potocki shows consistency between the first, theoretical, and the second, historical and practical, part of his book, enumerating the following features of his project: respect for personal freedom; safety of property, equality in law, emancipation of labour. He is convinced that his project manages ‘to put a stop to socialism’; to improve peasants’ morality and to enlarge production.

Conclusion ‘Nowadays we are living in a political-industrial epoch; there is prevalence of an industrial question in Western Europe, and prevalence of a political question in Eastern Europe. Moreover we are living at the end of the critical period waiting for the organic period.’33 Potocki locates himself at the cross-roads of the two different solutions: the ‘enlightened’ – to imitate Western Europe, and ‘sarmatian’ – to rely entirely upon local tradition. He sees his location as a privileged one, giving the possibility of avoiding Western errors and of creating a mixture of the best of the West and East. He would like to know the splendours and miseries of his status as an owner of land, and he is looking for an institutional solution which would enable him to be the active participant of events. He knows that he is free to act within his estates and he understand that his future status depends on his voluntary resignation of his powers regarding peasants. His ‘political question’ is the calculation of losses and profits. The losses are small because his powers are seeming and he cannot execute them; serfdom is inefficient and his estates bring no profits. The future profit is apparent:


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he can make a gesture of resignation in order to come to the fore, being a productive member of a social elite. He wants to be in the foreground, to be a leader of the transition period. His political vision is a conception of security going through the period of transition between feudalism and industrialism. In order to achieve this goal he recognizes the present position of the social elite. The szlachta have two enemies: the invader which played a rough game with the ‘peasants’ question’, and the peasants who – at best – are lazy and at worst may become killers. Nothing remains for them to do in this uncomfortable situation but to try to transform peasants into potential supporters and thus to disable Russia from interfering in Polish affairs. Potocki’s special invention is a comeback for Slavonic communities in a new modern commercial environment. By employing economic and historical arguments Potocki prepares his reader for the acceptance of his practical project. His theory of civilization is a common-sense adaptation of utilitarism, positivistic philosophy and cameralistic ideas. He selects economic theories and terminology by its adaptation to Polish rural economy following Polish economists Stanislaw Staszic, Piotr Maleszewski, Fryderyk Skarbek, and Henryk Kamienski who wanted to create a special kind of ‘labour economics’.34 In Potocki’s economics we can find production factors and competition, however, we cannot find such important Western economic institutions as: homo oeconomicus, interest, egoism, and market. It is not economics of a Protestant book-keeper, it is rather the economics of good husbandman. The most important social institution becomes property. According to Potocki it should be the total property, which means that there is no seperation between management and property. Potocki creates special economics of agriculture, not of industry, and there is no room for egoism, there is rather a need for making sacrifices and thinking about duties. The historical argument is used in order to show that to imitate England or France is not useful for Poland, and that there is an old Slavonic invention – community and there is a time to try to reconstruct this institution. These economic and historical arguments establish appropriate ‘rules of the game’. According to Potocki the reform is not very complicated. There is a need for one intervention in order to make a proper contract between peasants and the szlachta and then community will run itself. This image of friendly separation brings optimism and shifts the troubles connected with insolvency on community. The szlachta becomes bystanders of the emancipation of peasants. Both of them will receive money and time to think about their own estates. Credit and peasants’ part payments heal Polish agriculture. Potocki does not write about threats, he is a good propagator. Potocki takes the mythical romantic institution of community and transforms it into the real world in which he lives. He says to the szlachta:

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the most important is labour, we have a duty to emancipate it. In order to do this we should create a nation consisting of proprietors; Poland should be a working nation. Politics needs definitions of goals and both economics and history enabled to formulate goals. We have to believe in economics; property can cure labour. We need a period of transition, about twenty years, during this period the peasants should get accustomed to be owners, and the szlachta should be cured of the patriarchalism. ‘To sell land to peasants we increase the number of defenders of social order’35 and we save ourselves, peasants, and Poland. In order to achieve success we have to act locally within our own estate and to think globally. The works of Potocki are very interesting from the standpoint of the history of economic policy, because they show how liberal ideas like laissez-faire and private property have assumed new shapes in a European underdeveloped country. The idea of laissez-faire created hope for managing without the help of foreign authorities, and the idea of personal property promoted transformation of passive or even hostile peasants into conscious Polish citizens; they both created hope for the improvement and future development of villages – the only place Poles could govern. Potocki wrote his book in order to convince the Polish aristocrats and rich szlachta to introduce brave reform. The task was difficult, the majority of them were conservative, and modern thinking about peasants as proprietors and future citizens was simply shocking for them. He achieved success, becoming a vice-president of the Agrarian Society in 1859. We may even say that his activities precipitated a little the course of events and contributed to the abolition of serfdom in the Russian part of Poland and accelerated the abolition of serfdom in Russia. However he could not manage to introduce his reform in his estates. His peasants opposed the reform because of high payments and because of suppression of a feudal institution of easement (common woods and pasturages). His legacy is, however, important as future developments in Poland were to show.

Notes 1 See: N. Davies, God’s Playground: A History of Poland, Clarendon Press, Oxford, 1981, 2 vols; R.F. Leslie, Reform and Insurrection in Russian Poland 1856–1865, London, 1963; P.S. Wandycz, The Price of Freedom: A History of East Central Europe, Routledge, London–New York, 1992. 2 It was a very popular notion used by disputants. 3 On the debate about the “peasant’s question” see J. Rosicka, Polskie spory o wlasnosc. Narodziny nowozytnej mysli ekonomicznej na ziemiach polskich (1765–1830) [Polish Disputes over Property. The Emergence of Modern Economic Thought in Poland (1765–1830)], Akademia Ekonomiczna w Krakowie, Krakow, 1984. 4 Polish gentry (‘szlachta’) traced their origin back to ancient Roman Sarmats. Sarmatism as a style of life created in seventeenth century. Sarmatism was a mixture of Western and Eastern cultures. From the West, sarmatism took the chivalrous culture with its personal patterns and the cult of ancient Rome.


5

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32 33

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From the East – through the mediation of Turkey – came such features as ostentation in clothes, approval of laziness, contempt for townspeople. In fact the szlachta accepted only those values which directed admiration toward the szlachta. Sarmatism became a kind of religion. The leading feature was one of Eastern provenance – inertia. The economic sphere was dominated by patterns of this culture. There were two rules: autarchy, and the neglect of career. Sarmatism offered for the landless szlachta the glamour of being nobles in recompense for their low economic status. At the same time it animated the energy of the szlachta towards ostentatious consumption and idleness. Tomasz Potocki (1809–61) was a landlord and an officer of the Polish Army. He took part in the November insurrection, which was a regular war between Poland and Russia lasting one year (1830–1). As one of the first Poles he was honoured with the highest military distinction, Virtuti Militari. After the amnesty he took care of his estates and he modernized them. He was one of the initiators of the journal Annuals of Country Economy and he popularized technological and social modernization of agriculture (crop rotation, sugar industry, abolition of serfdom). See R. Czepulis, Mysl spoleczna tworcow Towarzystwa Rolniczego, Ossolineum, Wroclaw, 1964; and W. Grabski, Historia Towarzystwa Rolniczego 1858–1861, Warsaw, 1904. A. Krzytopor [T. Potocki], O urzadzeniu stosunkow rolniczych w Polsce, 2nd edn, Poznan, 1859: 62. Ibid.: 135. Ibid.: 12. Ibid.: 12–13. Ibid.: 16. Ibid.: 21. Ibid.: 22. Ibid.: 29–30. Ibid.: 53–8. Ibid.: 62–4. Ibid.: 89. Ibid.: 64. Ibid.: 79. Ibid.: 106. Ibid.: 92. Ibid.: 99. Ibid.: 106. Ibid.: 130. Ibid.: 130. Ibid.: 62–4. Ibid.: 157–8. Ibid.: 172. Ibid.: 175. See M.H. Serejski, Przeszlosz a terazniejszosc, Studia i szkice historyczne, Ossolineum, Wroclaw, 1965; and A. Witkowska, Slowianie my lubim sielanki . . ., Warszawa 1972. Communitism was called ‘slavophilism’ by Russia and in the nineteenth century it became a nationalistic ideology justifying conquests. On Polish communitism, see F. Bronowski, Idea gminowladztwa w polskiej historiografii Geneza formowania sie syntezy republikanskiej J. Lelewela, Lodz 1969; and J. Ujejski, Dzieje polskiego mesjanizmu do powstania listopadowego wlacznie, Lwow, 1931. A. Krzyztopor [T. Potocki], O urzadzeniu . . .: 369. Ibid.: 17–18.

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34 J. Rosicka, Polskie spory . . .: 71–117. 35 A. Krzyztopor [T. Potocki], urzadzenie, appendix ‘Poranki karslbadzkie’ (Karlsbad Morning): 47 (separate numeration).

References Bronowski, F. (1969) Idea gminowladztwa w polskiej historiografii (Geneza formowania sie syntezy republikanskiej J. Lelewela). Lodz: Wydawnictwo Lodzkie. Davies, N. (1981) God’s Playground. A History of Poland, Vol. 2. Oxford: Clarendon Press. Czepulis, R. (1964) Mysl spoleczna tworcow Towarzystwa Rolniczego. Wroclaw: Ossolineum. Grabski, W. (1904) Historia Towarzystwa Rolniczego 1858–1861. Warsaw: Gebethner & Wolff. Grynwaser, H. (1951) Kwestia agrarna i ruch wloscian w Królestwie Polskim w pierszej polowie XIX wieku (1807 – 1860). Wroclaw: Pisma, Ossolineum. Jedlicki, J. (1988) Jakiej cywilizacji Polacy potrzebuja. Warsaw: PWN. Kieniewicz, S. (1962) Miedzy ugoda a rewolucja (Andrzej Zamoyski w latach 1861–62). Warsaw: PWN. —— (1953) Sprawa wloscianska w postaniu styczniowym. Wroclaw: Ossolineum. Leslie, R.F. (1963) Reform and Insurrection in Russian Poland 1856–1865. London. Limanowski, B. (1946) Historia demokracji polskiej w epoce orozbiorowej, 3rd edn. Warsaw: Ksiazka i Wiedza. [Potocki, T.] Krzyztopor, A. (1859) O urzadzeniu stosunkow rolniczych w Polsce, wyd.ii plus appendix ‘Poranki karslbadzkie’. Poznan: published by author. Rosicka, J. (1984) Polskie spory o wlasnosc. Narodziny nowozytnej mysli ekonomicznej na ziemiach polskich (1765–1830). Krakow: Wydawnictwo Akademii Ekonomicznej. —— (1991) ‘Ekonomia zachodnia i gmina slowianska’, Zeszyty Naukowe AE Krakow: 346. Serejski, M.H. (1965) Przeszlosc a terazniejszosc. Studia i szkice historyczne. Wroclaw: Ossolineum. Skarga, B. (1964) Narodziny pozytywizmu polskiego (1831–1864). Warsaw: PWN. Stankiewicz, Z. (1967) Dzieje wielkosci i upadku Aleksandra Wielopolskiego. Warsaw: PWN. Sreniowski, S. (1963) Studia nad prawem i stosunkami agrarnymi Królestwa Polskiego, 1831–1864. Warsaw: PWN. Walicki, A. (1975) The Slavophile Controversy: History of a Conservative Utopia in Nineteenth-Century Russian Thought. Oxford: Oxford University Press. Wandycz, P.S. (1992) The Price of Freedom: A History of East Central Europe from Middle Ages to the Present. London–New York: Routledge. Witkowska, A. (1972) Slowianie my lubim sielanki. Warszawa: PIW. Zabko-Potopowicz, A. (ed.) (1973) Zarys polskiej mysli ekonomiczno-rolniczej do drugiej wojny swiatowej. Wroclaw: Ossolineum.

7

Resisting liberalism Theorizing backwardness and development in Rumania before 1914 Joseph L. Love

I From the perspective of what would later be called the Third World, Rumanian intellectual history before the First World War offers precocious critiques of an economy and society in which liberalism was the dominant ideology, though one extensively adapted to local circumstances and interests. Protectionist, Marxist and Populist schools were ably represented. Their target was (economic) liberalism, that corpus of ideology, theory and policy prescription which sought to free economic activity from all constraints on the market, and to promote the international division of labour through the alleged complementarity of parts of the world economy. Its reception and application in the Balkans largely had to await the independence of the states emerging from the Ottoman Empire in Europe which, in the Rumanian case, was achieved in rising degrees of formal autonomy between 1859 and 1877. As the nineteenth century unfolded, Rumanian boieri (boyars or nobles) and their families increasingly sought Western goods, which had to be purchased in European currencies. But there could be no free export of grain to pay for such imports until the Turkish monopoly of sea routes leading to the mouth of the Danube had been broken. This was effected when Russia defeated Turkey in a war in 1828–9, securing for itself control of the river’s mouth and adjacent shores of the Black Sea. By the Treaty of Adrianople of 1829, ending the conflict, the Sublime Porte lost the right to requisition grain from the Principalities of Wallachia – modern Muntenia and Oltenia – and Moldavia.1 Further, Count Pavel Kisseleff, in effect the Russian overlord of the two quasi-states still under Turkish suzerainty, increased the flow of trade between them. But Western powers had also played a role in the Adrianople accord, and both the Dardanelles and the Danube were opened up to international commerce. European shipping became increasingly important on the Danube and the Black Sea after 1829, and Rumanian landlords shifted their wheat surpluses from the Ottoman Empire to Western markets. As trade and other contacts beyond the Ottoman lands developed, it

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was clearly not Russia but the West whose cultural and economic achievements Rumanian elites sought to emulate. Liberalism as a combination of social values, theory, and economic policy prescription was viewed in nineteenth-century Rumania as part of a broader process of ‘civilization’, or Westernization.2 The boier elite began to abandon the caftan and increasingly adopted French fashions and tastes in the decades following the Napoleonic Wars, and chose the French language as its vehicle of communication. As the century advanced, the use of French became mandatory for all those laying claim to general education. Westernization, civilization and economic progress tended to be viewed as closely related processes, at least until the 1860s, when members of the conservative and nationalist Junimea (‘Youth’) school first expressed scepticism about the effectiveness of importing Western institutions, whole-cloth. Economic liberalism had the enormous appeal of breaking through the limitations on national growth and development imposed by foreign rule. By the nineteenth century, in the words of another student, ‘economic liberties were in harmony with the movement of national rebirth, of passing to a European style of life, of breaking the chains of the regime of Turkish capitulations’. Liberal economics was not only seen as a necessary guide for development and a counterpart to liberal political institutions, but was insistently pressed on the Rumanians by Britain and France, which helped guarantee Rumanian independence from Turkey.3 Yet the dominant groups in Rumania were much more eager to introduce freedom of commerce than a free labour market. Serfdom had been theoretically abolished in Wallachia and Moldavia in the middle of the eighteenth century by the Phanariot4 prince Constantin Mavrocordat, but boieri found ways to evade the law through the extension of corvee labour. Following a Western model of modernization, in 1863 the first ruler of a united Rumania, Prince Alexandru Cuza, secularized monastic estates, accounting for about 20% of the national territory.5 The following year, with Turkish suzerainty in advanced decline, boieri became absolute owners of their estates.6 Simultaneously, peasants obtained their full legal freedom, including the formal abolition of corvee, as well as plots of land, though lords retained a larger share of the country’s agricultural property.7 The Napoleonic Code was introduced, ushering in formal contract law, but it had the effect of camouflaging the fact that rural labour contracts were really part of a continuing system of lord–serf relations. Such facts became more obvious after the reformist Cuza was forced to abdicate in 1866, and de facto serfdom survived into the twentieth century. By 1905 a quarter of the peasantry had no land, and another quarter had less than two hectares.8 Among the several early writers supporting the adoption of liberal economics was the aristocrat Alexandru Moruzi (1815–78), who defended free trade and who saw tariff walls as barriers to Westernization as well.9 Another was Prince Nicolas Sutu [Soutzo] (1798–1871), one of the most

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important political figures of the mid-nineteenth century. Sutu had helped Kisseleff elaborate the Organic Regulation (1830), a set of decrees which standardized feudal dues owed by villagers to their lords, lengthening the effective time of corvee service per year.10 Despite this notoriously anti-liberal action, Sutu helped popularize the works of Adam Smith, David Ricardo, Jean-Baptiste Say, and Michel Chevalier among the Rumanian elite. Writing in French about his native Moldavia in 1840, Sutu believed that the principality was ‘essentially agricultural’, and repeated his judgement in 1866.11 This assessment was in all likelihood influenced by the beneficial effect of the international division of labour suggested by Smith and Ricardo, whose thesis of ‘comparative advantage’ was probably familiar to Sutu.12 In Rumania, as in many other backward areas, the defenders of liberalism were not bourgeois opponents of an absolutist state exercising mercantilist policies but, as often as not, were latifundists (or sons of estate owners) controlling a dependent labour force by extra-economic means. In any event, liberalism and in particular its prescription for the international division of labour met the needs of Rumania’s boier class; they used it to gain absolute ownership of their estates, to expand their sales of grain abroad (to satisfy their increasing appetites for Western imports), and to extract rising amounts of de facto corvee labour from their peasants, under the guise of state-enforced labour contracts. Liberalism in its purest form of (relative) laissez-faire had a short life in Rumania. It could only be fully implemented after the country had obtained its formal independence in 1877, when Rumanians had taken up arms alongside Russia against Turkey, in the Near East Crisis. But, largely as a consequence of the Great Depression which had begun in 1873, the high tide of liberalism in Europe was to end six years later, when Germany introduced a heavy grain tariff. Other continental powers followed suit. In 1885 Rumania denounced its commercial convention with AustriaHungary, because of Imperial restrictions on Rumania’s agricultural exports. A customs war soon broke out between the two countries, to last until 1893. With the customs tariff of May 1886, Rumania ended its brief experience with ‘classic’ liberalism, raising tariff walls against the manufacturers of the Empire, its main supplier of industrial goods at the time. This was the beginning of a period of a ‘statist liberalism’,13 in which liberal ideology was increasingly adapted to, and associated with, nationalist aspirations, even xenophobia, directed against Jews in Moldavia and to a lesser extent, against Greeks in Wallachia. More significantly for ideological and economic history, Rumanian Liberals fastened on to industrial development ‘as a means of reducing . . . non-Rumanian influence and the dependence on Hapsburg imports at the same time’.14 In one classic interpretation – Stefan Zeletin’s – the Liberal-dominated state consequently became the most important element in the capitalist development of Rumania.15

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II Classical liberalism was opposed by writers in several schools, adapted to local realities. The most important of these were a protectionist school (based in part on the work of Friedrich List), populism and Marxism. We will consider important writers in each group. In the first, Alexandru D. Xenopol was the protectionist writer who most explicitly justified protectionism in terms of unequal exchange. Xenopol, a Moldavian, received his higher education in Germany, where he was sent to study with financial assistance from the Junimea group.16 A professor of history at Iasi ( Jassy) and a magistrate, he became a Gramscian ‘organic intellectual’ of the dominant Liberal Party, exponent of an industrialized Rumania from the 1880s.17 Xenopol held that Rumania was the victim of a process of unequal exchange between the exporters of industrial goods and those of agricultural products.18 Unlike earlier members of the Junimea, Xenopol was a materialist, and believed that cultural development was based on material progress, of which industrialization was a major aspect in modern times.19 As an advocate of protectionism, Xenopol reversed the position of Alexandru Moruzi, who associated the unimpeded flow of goods across national borders with the advance of (Western) civilization.20 For Xenopol too, civilization, nation-building, and economic development were simultaneous processes, but he associated economic development with the division of labour within a given society. In a country dominated by traditional agricultural techniques, there was little economic specialization.21 Xenopol’s most radical views on industrialization were expressed in Economic Studies, a collection of articles he first published in 1879, and revised and expanded in 1882. Heavily influenced by the views of Friedrich List and Henry Carey, Xenopol went far beyond his German and American inspirers to assert that the exchange of manufactured for agricultural goods on the international market constituted exploitation. Following the classical economists, Xenopol accepted the labour theory of value, which had now been abandoned by the rising marginalist school associated with Jevons, Menger, and Walras. Xenopol focused on the different productivities of labour embodied, in his view, in agricultural and industrial production. He associated farming, at least the traditional kind known in Rumania, with munca bruta – raw, unskilled, or brute labour – and industry with munca inteligenta – intelligent or skilled labour. Rumania was exporting agricultural goods embodying much more labour than was embodied in the industrial goods it imported.22 In foreign trade, he calculated that a ton of imports, which he equated with industrial goods, was worth 828 lei (presumably in 1872), while a ton of exports, equated with agricultural goods, was only worth 158 lei; thus the difference in value was more than five to one.23 Xenopol alleged that the international division of labour was a swindle. Western (or as he put it, British and French) economic theory


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was ideology at the service of particular national interests, a theme echoed in the 1930s by the Rumanian trade theorist Mihail Manoilescu and by some Third World economists after the Second World War.24 In fact, argued Xenopol, even England and France, as well as Germany and the United States, had built their industrial preeminence on protectionist policies. England, beginning with Edward IV – later followed by Cromwell – and France, beginning with Colbert, had successfully pursued stateinduced policies of industrialization.25 Tendentious though his views might be, it served Xenopol’s purpose of showing the need for state intervention in his own country. Despite the Junimea’s sponsorship of his foreign study, Xenopol radically reinterpreted the school’s doctrine of recent Rumanian history as forma fara fond (form without substance).26 Adapting the ‘upside down’ notion of Rumania’s development by the Junimists, Xenopol saw his country’s development (‘civilization’) as fatally one of sus in jos – from above to below – and argued that the state would have to induce development, and industrialization in particular. The state would provide ‘external’ protection with tariff barriers, but ‘internal’ protection for industry was also required, in the form of tax concessions, subsidies, guaranteed purchases and export premia.27 Further, sus in jos implied that highly capitalized industries with large numbers of workers per firm would have to precede small ones with modest capital investments and few workers per unit, and the state needed to concentrate its efforts on the former group.28 According to this early version of the ‘Big Push’ thesis, Rumania’s economic development was ‘upside down’, and necessarily so, if it were to catch up with the West in an era of international cartels.29 What would have been an abnormal form of development in the West was a ‘normal’ one for a backward country like Rumania.30 Consequently, the country had railroads before highways, a banking and insurance system before industry, political independence before economic independence and a written constitution before constitutional practice.31 There were many dangers inherent in the economic position of a country which remained purely agricultural, thought Xenopol. One was a dependency on the industrial countries, which set both the prices of their own goods on the world market, as well as the agricultural prices of their non-industrialized trading partners.32 Further, the stratification of agricultural and industrial countries in the world market was a dynamic process, and Xenopol seemed to imply that the poor would get poorer if Rumania and other agrarian countries persisted in their agricultural specialization. Xenopol had no doubt that Western countries could and did impede the industrialization of backward agrarian countries by their use of the doctrine of free trade.33 For these reasons, the international division of labour had to be rejected. The peoples of backward areas of the Continent including Rumania, along with those of Asia, Africa and Latin America, were ‘slaves whose labour built the civilized fortress of [Western] Europe’.

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The West exploited the rest of the world through the exchange of goods produced by skilled labour for those produced by brute labour.34 The industrial protection policies defended by Xenopol and others in the Liberal Party may have had a beneficial effect, at least in the middle term. Rumania’s industrial protection laws of 1886–7 and 1904–6 provided for high tariffs on manufactured products and domestic tax exemptions for industry, as well as exemptions from tariffs on industrial inputs and railway freight subsidies. A government survey in 1901 revealed that 112 firms had taken advantage of the 1886 law, and that this group of producers then employed 12,752 workers.35 In the years preceding the First World War and perhaps as early as the 1880s, Rumania’s Old Kingdom (Wallachia and Moldavia) achieved rates of industrial growth of 6% to 8% a year in real terms, well above the continental average.36 Rumania’s overall economic growth rate, too, was more than respectable for the last three decades before the First World War.37 And per capita income, at 307 dollars in 1910, was higher than that of Portugal and the other Balkan states, except Greece. However, growth owed significantly to rising petroleum exports and the revival of the international wheat trade.38 In fact, the value of Rumania’s exports rose from $9 million in 1850 to $136 million in 1914. Between 1880 and 1910, Rumania’s annual rate of export growth, at 3.3%, was higher than that of the ‘periphery’ of European states as a whole (2.8%). However, there was a price to pay: 80% of all industrial shares were in foreign hands, as was 75% of the capital in banking at the time of the First World War.39 In addition, there is abundant evidence that the income differential between the peasantry and other sectors of society was widening.

III Towards the end of the nineteenth century, two other schools of thought would offer critiques of the society in which a dominant but highly adapted liberalism, championed by a protectionist, industrializing Liberal Party but resisted by an agrarian and more free trade-oriented Conservative Party, tended to hide an ugly social reality. These schools, which in neighbouring Russia were locked in conflict for control of the national Left, were populism and Marxism. Rumania’s traditions of populism40 – especially but not exclusively of the Russian variety – and Marxism interacted, mixed, and resulted in fruitful and sophisticated debates in the two decades before the First World War. In Rumania, populism and Marxism were both interpreted as ideologies appropriate to latecomers to the world of the industrial revolution. Exponents of the two schools agreed on most of the calamities and some of the benefits of the rise of capitalism in Rumania. In particular, both addressed the exploitation of the peasantry. They associated the action of the direct oppressors, the traditional landed class (the boieri), with


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Rumania’s being pulled into the ‘vortex’ of international capitalism, as an agricultural supplier to the industrialized West.41 Both schools decried the twin evils of latifundism and absenteeism of landlords, who leased their estates to rapacious tenant farmers organized into trusts.42 They further denounced the rising rents peasants had to pay landlords, and mounting corvee requirements.43 Populists (poporanisti) and Marxists engaged one another’s arguments in their journals, and produced a sophisticated discourse on development before the War of 1914. Populism is difficult to define. One may begin by saying it is an ideology of those who see their society as backward, even archaic, relative to the capitalist West. Industrial capitalism, a powerful force emanating from abroad, is viewed as transforming local agriculture-based societies in undesirable ways: It ruins, then proletarianizes, the peasant and artisan classes, partly through a process of unequal exchange both between town and hinterland, and between industrial and agricultural societies at the international level. In its mature phase, the exponents of populism sought forms of non-capitalist modernization, making it akin to socialism. In any case its supporters sought to defend small producers against the massifying and depersonalizing forces of industrial civilization.44 In Eastern Europe populism appeared in a variety of forms, all of whose adherents viewed manifestations of capitalism in those societies as destructive. Moreover, capitalism at the local level was seen as degenerate, and essentially doomed to failure against the superior competition of the West. In Russia, populism and Marxism were movements with strong Hegelian foundations, both dating from the middle years of the nineteenth century. Alexander Gerschenkron holds that there could have been no Russian Marxism without the populist tradition, while Andrejz Walicki argues that Russian populism would be inconceivable without Marxism as a predecessor.45 Both are right in that they refer to different moments in the two movements as they developed and interacted in the latter years of the nineteenth century. Populism and Marxism both viewed the penetration of capitalism into Russia and its consequences as the social problem, and advocates of the two schools engaged in a modes-ofproduction debate as it applied to their country. While the populists strove to overcome it, to pass beyond it, the Marxists viewed the development of capitalism in Russia as a grim necessity – or an accomplished fact, by the time of Lenin’s The Development of Capitalism in Russia (1899). In Rumania, a country cheek-to-jowl with Russia, it is hardly surprising that this ideological exchange had major repercussions. Not only was the Russian state the leading foreign intervenor in Rumania in the nineteenth century, but the outstanding exponents of both populism and Marxism in that nation had spent their formative years in Russia, absorbing the radical ideologies prevailing there. In Rumania the two traditions of populism and Marxism would find expression, respectively, in the works of Constantin Stere, who spent his youth in (Russian) Bessarabia – now the Republic

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of Moldova46 – and in those of Constantin Dobrogeanu-Gherea, who spent his early years in the Ukraine. Their debates, and those of their ideological allies in Rumanian journals from 1890 to 1920, asked basic questions about the path to capitalist development, including the issue of whether the existing economy of Rumania could be defined as capitalist, precapitalist or some fusion of the two.

IV Rumanian populists, despite the impact of Russian ideas on their work, did not develop a revolutionary or putschist tradition; rather, their voices were reformist, as those of the Marxists tended to be as well.47 The Rumanian populists also differed from their Russian exemplars in lacking the communal traditions of the obshchina,48 at least to the same extent. Constantin Stere, Rumania’s most influential populist, was born in 1865. Stere was the scion of a boier family which held property in Russian Bessarabia, and for his political activism as a youth, he was exiled to Siberia. Stere subsequently immigrated to Rumania, and there became a theorist of populism (from 1893), law professor, and sometime rector of Rumania’s first university at Iasi. He attached himself to the Liberal Party, though he never concealed his populist convictions. His journal, Viata Romaneasca (Rumanian Life), founded in 1906, was not only a vehicle for populism, but a cultural and political forum.49 Stere outlined his political position as early as 1893–4, and it appealed to small property owners in city and countryside.50 A decade later he eloquently denounced the evils of latifundism, now combined with capitalist production for international markets, which together, he argued, resulted in the poverty of the masses. In 1906 latifundists owned over four million hectares, according to government statistics, while peasants held 3 million; the former averaged 4,000 hectares per estate, and the latter, only 3.25 hectares per plot.51 In Upper Moldavia, Stere disclosed that one foreign trust of lessees (arendasi), the Fischer Association, controlled 242,000 hectares.52 In the three counties concerned, which Stere called ‘Fischerland’, 140,000 peasants did not even own a cow, and almost half of all children died before reaching age five.53 Writing in the wake of the peasant revolt that swept the country in 1907, Stere wrote that it was no accident that in Dobrogea, on Rumania’s southern border, where peasants owned 71% of the private property, there was no revolt.54 Elsewhere peasants suffered from decreasing food consumption (and an overdependence on maize); as a result, the rural population suffered from pellagra as well as tuberculosis. Between 1876 and 1901–5, cereal exports had increased from 60,000 to 250,000 wagonloads, but the number of cattle in Rumania had decreased, while the consumption of maize had fallen from 230 kilos per person in 1876 to 130 in 1901–5. Meanwhile, the share of the crop that the peasant had to remit to the landowner or lessee at harvest time


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had greatly risen.55 Stere even held that the net income of the landless peasantry was negative, anticipating one of the concerns of Alexander Chayanov and the neopopulists.56 Like the Marxist Dobrogeanu-Gherea, Stere rejected the idea that Rumania’s development simply lagged behind that of the West. In Viata Romaneasca’s manifesto in its first number in 1906, Stere had proclaimed, ‘Our situation is not only backward, which would be bad enough; it is abnormal, which is much worse.’ Stere and his group saw the problem as a cultural one as well: The development of the peasantry was ‘the means of attaining a truly national culture’.57 Populists campaigned for agrarian and parliamentary reform, including an extension of the suffrage to peasants. Stere’s major work, a polemic against the Rumanian socialist movement and a critique of the agrarian structure, appeared in Viata Romaneasca in 1907–8, a period encompassing the great peasant revolt. Entitling his study ‘Social Democracy or Populism?’, Stere met his opponents, of whom Constantin Dobrogeanu-Gherea and Cristian Racovski were the most prominent, on their own ground, in citing propositions and empirical findings by Marxist authors to build his case for populism. The work offered an analysis of, and solution to, the peasant problem. In his study Stere sought to establish the relevance of peasant-based populism and the irrelevance of Marxist socialism for the Rumania of his day. He estimated that peasant tillers numbered 3.5 million, while workers in factory enterprises totalled only 40,000.58 Thus peasants were 87–88 times more numerous than factory workers in Rumania, and the latter were considerably fewer than artisans.59 Under such conditions, social democracy – the Marxist analysis and programme of the Second International – was irrelevant, Stere believed: it did not address the problems of the vast majority of the people, and because the formal proletariat was so small, Marxists had no chance of taking power to implement their programme.60 Industrialization, which process the government had attempted to stimulate with tariff and fiscal concessions to new enterprises in 1886 and 1906, Stere contended, had palpably failed.61 Thirty years of protectionism had resulted only in the exploitation of the consumer, who had to import at artificially high prices or buy local goods at similar expense.62 In truth, the basic conditions for industrialization in Rumania were lacking, Stere believed. Rumania could never hope to become an industrial state, because large-scale industry (industria mare) required large markets. There was no such market within the country, even for textiles. Further, Stere believed, large-scale industry required foreign markets, because modern labour-saving technology reduced the level of employment and therefore consumption at home. Within the industrialized countries, as Marx had shown, an ‘industrial reserve army’ was required to keep wages at a minimum level. Consequently, among the industrial powers, a struggle for markets and colonies was occurring.63 Marx and Kautsky had both made the point that capitalism requires an export trade, Stere noted.

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To obtain large markets such as the Great Powers enjoyed, Rumania would have to acquire colonies or protectorates by force, or win markets abroad through the superiority of its wares. Could the nation compete on foreign markets under these conditions? The answer was obvious: Rumania could not outvie the Western Powers militarily or industrially, in part because of the vast technological lead of the West. Moreover, Rumania’s level of civilization – today we might say ‘human capital’ – put the nation hors de concours, because 80% of its people were illiterate.64 In fact, the existence of the industrial giants meant that other countries were forced to become their agricultural suppliers, as India had become for England.65 For these several reasons, ‘only [economic] interest, ignorance, or the ideé fixe of a maniac [could] explain the chimera of Rumanian industrialization’.66 Despite these firmly held views, as noted above, Stere agreed with the socialists that capitalism had begun to transform Rumania, especially in the regions where entrepreneurial leaseholders were attempting to maximize profits on the estates of absentee boieri.67 Capitalism’s progress within Rumania, Stere held, was different from that in the West. Capitalist profits quickly flowed out of the country. He implied this situation derived in large part from the importance of Jewishowned banks in Rumania, and the fact that a large share of the entrepreneurial classes were Jewish or otherwise non-Rumanian. Thus for Stere, capitalism in Rumania was a ‘vagabond capitalism’.68 At the international level, capitalism was also a baneful force, because the international economy was divided into exploiting and exploited states. Yet agriculture, continued Stere, despite its partial transformation by capitalist forces, was not subject to Marx’s laws of the concentration and centralization of capital. On this point Stere cited the authority of Karl Kautsky, the most respected Marxist theorist at the turn of the century, as well as that of Werner Sombart.69 Furthermore, in a nation overwhelmingly composed of peasants, cottage industry was necessary to employ peasants during the long winter months. Cooperatives would also be useful adjuncts to agriculture, as would some industrial enterprises to employ surplus labour; yet there was no substitute for a free landowning peasantry. Insofar as largescale industry had a role (and it was beginning to, in oil extraction) state monopoly was advisable.70 Stere was of the opinion that whatever role Marxist analysis had in charting the course of industrial society, it was of little value for the agricultural society of Rumania. There was no single path to development, as the divergent histories of England, France, and Germany illustrated.71 Rumania should follow the examples of successful agricultural modernizers, such as Denmark, where the cooperative movement had made the country prosperous.72 Populists inspired, though they did not legislate, a government-sponsored rural mortgage bank in 1908, the Casa Rurala; likewise, they indirectly influenced measures on rural labour contracts drawn up by a Liberal cabinet anxious to propitiate peas-


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ants after the 1907 revolt. But the reforms fell far short of the needs of the large majority of countrymen. At a theoretical level, Stere and other Populists implicitly interpreted peasant agriculture as an autonomous mode of production, non-capitalist and anti-capitalist. They artificially separated peasant farming from the rest of the economy, and Stere and others denied that the peasantry was internally differentiated. In this manner Rumanian Populists denied the tendency which Lenin had noted in Russia towards the creation of kulak minorities and rural proletarian majorities.73 The Populists’ successor party after the Great War, the National Peasants, continued to deny the differentiation of the peasantry after they came to power in 1928, and favoured the chiaburime, a kulak class.

V The Socialist reaction to Stere’s study of 1907–8 came fast, in the works of Cristian Racovski and Constantin Dobrogeanu-Gherea. Like Stere, both were born outside Rumania. We shall consider the former first, and the latter at greater length, because of his pivotal role in defining the terms of Marxist discourse in Rumania. Yet Racovski was to play the more important role on the world stage. Though born in Kotel, Bulgaria, in 1873, Racovski spent his youth in Rumania and remained a Rumanian citizen until the Bolshevik revolution. Racovski had intimate contacts with socialist leaders in many European countries, and after 1917 he would play a major role in the politics, administration, and diplomacy of the USSR. To Stere’s ‘Social Democracy or Populism?’, Racovski replied in ‘Populism, Socialism, and Reality’, published in 1908.74 Should there be any doubt about it, Racovski first argued that socialists (i.e. the Marxists) were not only concerned with the urban proletariat, but with a new rural proletariat as well.75 The fact that Rumania lacked a large industrial establishment did not mean capitalism did not prevail in the country.76 Capitalist production now existed in Rumania, held Racovski, as the rapid rise in foreign trade over the course of the nineteenth century had proven, and the country was being linked ever more securely to the world market. By 1905 cereal production had risen five times above its level in 1866, the year in which the contract labour system came into existence.77 Racovski went on to argue that the rural masses, contrary to Stere’s assertions, were increasingly proletarianized by this process.78 Immiseration of the peasantry was intensifying, as Rumania had to compete in the world market with more efficient ‘overseas’ producers like Argentina.79 Citing Werner Sombart, on whose scholarly authority Stere had relied extensively in his essay, Racovski observed that as small as Rumania’s industrial proletariat currently was – about 3% of the total population – it nonetheless amounted to a slightly larger share than did the Prussian working class in 1848, relative to Prussia’s total population, when Marx and Engels had

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published The Communist Manifesto. If, at that time, the Prussian proletariat had been significant for its potential growth, would not the same be true of its Rumanian counterpart in the early twentieth century?80 Just as Rumania had borrowed foreign institutions, in a like manner it could accelerate its process of capitalist growth by borrowing technology. Therefore, Racovski implied, while ‘skipping’ capitalism as a mode of production was out of the question, the transition to socialism could be accelerated by assisting capitalism’s advance. Progress in industrial development was highly desirable, since the productivity of industrial workers, he believed, was seven times greater than that of agricultural workers in the country.81 Furthermore, Stere was wrong, argued Racovski, when he implied that Rumania could not develop a large internal market, because new wants would stimulate new production as capitalism developed.82 Finally, a populism which foresaw the Rumania of the future modelled on the village economy was an infelicitous and mechanical copy of Russian narodnichestvo, Racovski held, since the Balkan country had no communitarian socialist tradition like the mir.83 Cristian Racovski had established that Marxism was relevant to the analysis of Rumania’s backwardness. But how much did Marxist social science need to be adapted to fit the circumstances of underdevelopment? The issue was being faced in Russia, but Russia could claim the advantages of a backward yet resource-rich, and rapidly industrializing, Great Power. The questions were these: What is the nature of the local economic system – capitalist or precapitalist? Do unique ‘social formations’ exist which combine features of capitalism and precapitalist modes of production? How do these social formations relate to the laws of motion of capitalism at the international level? If the national economy in question is by some definition precapitalist or semicapitalist, can the local bourgeoisie develop a viable capitalist economy at home? Or if not, can the state do so? And in class terms, can state officials act as an Ersatzklasse, in the absence of a ‘conquering bourgeoisie’? Further, if capitalist economies pass through historical stages, how are these stages to be identified, and do they pertain to states or to larger entities? If stages, can stages be skipped? Should the working class and progressive intellectuals support the development of capitalism?

VI Racovski was not alone in asserting the relevance of Marxism, and therefore adapting it, to conditions in pre-war Rumania. Constantin Dobrogeanu-Gherea (like Racovski and Stere, a foreigner by birth) moved the debate on peasant society to the level of the mode of production. For better or worse, the only mode that Marx and Engels described with precision was capitalism itself, leaving room for inventive speculation about other modes, and providing a legacy of controversy about the ill-defined


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Asiatic mode. Gherea was one of the first theorists to argue, in 1910, that traditional modes of production in backward countries interacted with capitalism to form a unique amalgam – in fact a new mode, and in the event, a monstrous one: his novel proposition can be contrasted with the fact that eleven years earlier, Lenin had characterized Russia’s economy as one in which capitalism, even in agriculture, was inexorably eliminating its feudal predecessor.84 Dobrogeanu-Gherea (born Solomon Katz, 1855–1920) was an active participant in the Second International and corresponded with leading Marxists of his generation – Karl Kautsky, Rosa Luxemburg, Victor Adler, August Bebel, Georgy Plekhanov, and V.I. Lenin.85 Leon Trotsky visited Gherea at his home at Ploesti, and published a sympathetic sketch of the man and his work in The Balkan Wars.86 In his native Ukraine, Gherea had become a militant Narodnik while still a minor, and emigrated to Rumania in 1875. Three years later he was kidnapped by the Okrana and exiled to the White Sea, but he escaped to Norway and returned to Rumania, settling in Ploesti in 1879.87 Coming out of a Narodnik tradition – he was still reading Flerovsky and Chernyshevsky in the 1870s and 1880s – Gherea’s conversion to Marxism was apparently gradual. The full transition was not completed by the time of his study and defence of Marx’s work (1884), as is clear from his pamphlet ‘What the Rumanian Socialists Want’ in 1886.88 Here Gherea argued in this essay that Rumania’s socialist revolution depended on the prior attainment of socialism in the industrialized West, where Marx had foreseen the overthrow of capitalism. Rumania, he contended, had already adopted Western social usages, and would not – because of the coming revolution in the West – pass through all the phases that had occurred in the development of European capitalism.89 He argued, conventionally, that liberalism, the dominant economic ideology of the West, had been the product of changes in the economic and social structure. Gherea then departed from convention in asserting that Rumania had adopted Europe’s superstructural forms – ideology, political institutions, social fashions – without having undergone fundamental changes in its economic base or infrastructure.90 In ‘Role of the Patura Culta [Cultured Stratum] in Social Transformations’, published in 1892, Gherea further developed the thesis that changes in the advanced capitalist countries directly affect backward or underdeveloped countries (tarile inapoiate). Since changes in the behaviour of European stock markets or in the size of American grain harvests affect the whole world, how, he asked, could the great social transformations associated with these economic changes not affect underdeveloped countries?91 Just as the class controlling the means of production rules the other classes within a state and imposes its social form on the others, ‘in a like manner do countries whose means of production are strongly developed . . . hold underdeveloped countries in economic subjugation,

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and even impose on the latter the former’s social forms’.92 As proof of the transmission of superstructures from the West, Gherea cited Rumania’s transformation from a feudal into a (superficially) bourgeois society through the agency of a social group he called the patura culta, not a local bourgeoisie. This group was not bourgeois at all, but rather consisted of the enlightened sons of the old boier class, formally but not in fact denied control of their serfs by reforms of the 1860s. Emancipation itself was a prime example of the formal rather than substantive reform that was taking place in Rumania. In 1908, sixteen years after writing ‘Role of the Patura Culta’, Dobrogeanu-Gherea wrote that Rumania had a legal structure appropriate for a capitalist society, but neither a capitalist class nor a proletariat. Backward countries such as Rumania were becoming satellized as the capitalist world economy expanded. Gherea now borrowed and reinterpreted the notion of forma fara fond (form without substance) from the Junimea school, whose leaders had been trained in Germany and steeped in Hegelianism: in Gherea’s Marxist terms, superstructure (form) had preceded the base in that Rumania had adopted Western institutions without the social and economic conditions requisite for their effective functioning.93 Commenting on the gap between the formal and the real country, Gherea noted that the situation contrasted sharply with absolutist Russia, where the ‘real’ state of development was ahead of that of the legal system. Under the circumstances, Rumanian socialists should strive for the development of an authentic capitalism, which would bring in its train an enforceable modern legal system, instead of the sham which the country then knew.94 In ‘Socialism in Underdeveloped Countries’, an essay written in 1912, Gherea elaborated on the differences between the evolution of the central capitalist countries and their backward dependencies. In the latter, evolution was much faster, and of a different character, since changes in the form or superstructure preceded those in the base. This situation resulted from the fact that the advanced capitalist countries determined the evolution of the whole system.95 Gherea proceeded to formulate a ‘law of backward societies’, i.e. those on the periphery of the capitalist centre: ‘In advanced capitalist countries, social forms follow the social [and economic] base; in underdeveloped countries, the social base comes after the social forms.’96 Therefore, Gherea believed, the transition to socialism would be easier in backward areas, because such nations would adopt socialism as a result of its triumph in the West. The majority of the population in Rumania was already undergoing proletarianization, Gherea averred, and this fact would hasten the transition when the right time came.97 Gherea did not provide answers for two problems immediately consequent on these theses. Why did he not conclude, as the Marxist Li Ta-chao did for China in 1920,98 that the proletarianization of peasants in his


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country made it ripe for revolution? Apparently Gherea thought the process was in its early stages, and was partially blocked by a fusion of precapitalist and capitalist institutions. Nor did he deal with the problem of the potential superficiality of the socialist transformation emanating from the West: Gherea did predict that socialism as a form would precede that of the socioeconomic base in Rumania.99 Yet, given his compelling arguments for the superficiality of bourgeois modernization by the patura culta, at least in the short and middle terms, why should the adoption of socialist forms in backward countries after the revolution in the West affect the local base more than the transformations capitalism had wrought? Gherea did not say. Yet part of his achievement was to envision and analyse underdevelopment as a syndrome, not simply the starting point from which backward countries would follow the trajectory already traced out by the developed countries. His Marxist scheme was contemporaneous with Julius H. Boeke’s earliest work on economic dualism, attempting to explain why the price mechanism did not constitute a sufficient incentive for the development of underdeveloped societies.100 Gherea’s magnum opus, Neoserfdom (‘neoiobagia’ in Rumanian), dealt with Rumanian society in particular, and had appeared in 1910, three years after Rumania’s most important peasant revolt of modern times. The event, in which some 10,000 peasants died in Moldavia and Wallachia, focused the attention of the country’s leading intellectuals, including Gherea, on the peasant problem. Neoserfdom epitomized the proposition that a new and monstrous mode of production had reared its head in Rumania. Put briefly, the mode was a fusion of precapitalist social and economic relations in the countryside and the economic relations and superstructure of an advancing capitalism at the national and international levels. The traditional form of iobagia had had three basic features: the peasant was fixed to the lord’s land; he was forced to provide corvee labour for his master; and he had to pay tribute in kind as well as other forms of feudal dues.101 Neoiobagia was a hybrid form having the following defining characteristics: (1) its relations of production were largely ‘serf-based, feudal’; (2) at the ideological and legal level, it was overlaid with a liberal-bourgeois legal system that had the effect of leaving the peasant at the mercy of the landlord;102 (3) it further included a tutelary legislation which declared the inalienability of peasant land, and which regulated relations between the lord and the workers; (4) at the economic level, the system did not provide the small peasant farmer enough land for subsistence, a fact which forced him to become a vassal of the owner of the land he farmed as labourer and sharecropper.103 The international market in Gherea’s model played a decisive role in initiating the process. A medieval system of social relations, Gherea thought, had still characterized the Rumanian countryside at the beginning of the nineteenth century. Peasants had been largely self-sufficient,

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and the economy largely had been a ‘natural’ one. The ruling boier class, as noted, had received dues in kind and in corvee labour. Towns at the time had only begun to introduce a money economy. Subsequent events, however, especially the signing of the Treaty of Adrianople (1829), which opened Rumania’s Black Sea ports for commerce with the West, set in train an intensification of the exploitation of peasants by landlords, thought Gherea.104 This process resulted from the fact that boieri saw opportunities to obtain hard currencies, and thereby to secure a flow of Western goods; such wares were especially deemed desirable after the Westernization of the boier class had begun with the Napoleonic Wars. As a result, Rumania had entered the ‘great world division of labor’, and now ‘sends food to the West and receives from it industrial and cultural goods’. Concomitant with Rumania’s growth of trade came a monetized economy, a development which required centuries to consolidate in the West.105 In Rumania, extra-economic compulsion of the labour force and contract were combined to exploit the peasant: Rumania had ‘a double agrarian regime . . . both capitalist and serf-based . . . absurd, hateful . . . a monstrous regime’.106 ‘Neoserfdom’, as Gherea styled Rumania’s system, had the advantage for the boieri of freeing them of all traditional obligations to the peasantry; they could now exploit labour without any hindrance from the state. Further, they did not have to deal with free workers who, in a capitalist regime, at least had legal equality with property owners and could refuse or abandon poorly remunerated employment.107 The system tended to proletarianize the peasantry. The peasants’ inalienable properties were subdivided into smaller and smaller strips as the population grew. But proletarianization did not mean the peasant received a salary for his labour; rather, he had to work the lord’s property in dijma or metayage, offering half his produce while providing his own tools and animals.108 Thus the system concentrated real property in the hands of the landlord class, while still subjecting peasants to an everlengthening number of days of effective, if not formal, corvee labour.109 In neoiobagia, a social system unknown in the West or in Rumania in previous centuries, the peasantry got the worst of both modern and ‘feudal’ worlds. Because of the problem of landlord absenteeism and widespread farming by lessees (arendasi), agriculture, moreover, had become a predatory activity, as leaseholders tried to maximize short-term profits at the expense of the soil and forests. Peasants likewise had no incentive to conserve the soil on land they did not own, and had no guarantee of farming it in subsequent years. The process was producing tragic results. The economic system, Gherea concluded, combined the capitalist prerogative to use and abuse the land with the lords’s prerogative under serfdom to use and abuse the peasant.110 Moreover, intensified latifundization was a result, rather than a cause, of the new regime: Extensive rather than intensive agriculture, semi-servile labour, and the fact that landowners did not have


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to furnish tools and draft animals (thus freeing capital for investment), all favoured the expansion of the latifundium system.111 As mentioned above, Gherea was one of the first to argue that, when capitalism penetrated traditional modes of production in backward countries, a new amalgam, a new, monstrous mode of production emerged. His analysis can be contrasted with Lenin’s analysis of Russia’s economy.112 The significance of Gherea’s achievement is shown by the fact that nearly seventy years after his book appeared, Europeans, Latin Americans, and Africans were still ‘discovering’ modes of production in which capitalism subordinated precapitalist modes in unique patterns. In his later years Gherea remained faithful to a socialist vision of Rumania’s future, calling for the conquest of socialist power through legal – or, in principle, at least – revolutionary means.113 Loyal also to the idea of international proletarian solidarity, Gherea went into exile in Switzerland from 1916, the year Rumania entered the war, until 1919. Upon his return, he shared the conviction of many of his comrades that the socialist movement would triumph in Western Europe; yet he believed, consistent with his earlier thesis, that Rumania would receive socialism from the outside: The country lacked the objective and subjective conditions for revolution.114 Dobrogeanu-Gherea never gave his full support to the Russian Revolution, still clinging to his social democratic convictions. He died in 1920, one year before the socialist movement in Rumania was split by the organization of the Rumanian Communist Party.115 In practice, Dobrogeanu-Gherea’s solutions for Rumania’s economic and social problems, grave as he depicted them, were reformist. He prescribed the division of large estates and the introduction of true capitalist relations of production in agriculture, including the abolition of the (tutelary) inalienability of peasant land. He also championed universal manhood suffrage, seen by many social progressives in Europe as the key to power for the toiling masses, and the industrialization of the country, in part to permit a more intensive and efficient agriculture.116 Both reforms, in land tenure and suffrage, came in the wake of the First World War, to quell peasant discontent and to interdict the spread of Bolshevism.117 But the two progressive measures, long advocated by Gherea, had the effect of strengthening a new Peasant Party – joining with the National Party to found the National Peasant Party in 1926 – in which Stere played an important role, rather than benefiting the Socialists.

VII To sum up the theoretical and practical results of anti-liberal currents of Rumanian economic thought: classical liberalism was already moribund by the mid-1880s and the ‘statist liberalism’ of the dominant Liberal Party found an ‘organic intellectual’ in Alexandru Xenopol, whose sus in jos perspective (from above to below) allowed him to make a passionate case

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for a ‘big push’ form of state intervention. His crude thesis of unequal exchange may also have influenced Mihail Manoilescu, whose more sophisticated theory had some resonance in Latin America in the 1930s and 1940s.118 More importantly, Xenopol and other Liberal Party ideologues helped secure legislation in 1886–7 and 1904–6 for state support of manufacturing industry. The Liberal-dominated state in 1886 raised tariff barriers on a broad range of manufactures, and in 1887 it subsidized railroad rates for industrial enterprises. By 1904 the state was providing direct subsidies to firms in the paper, sugar, and metallurgical industries, and both the 1904 and 1906 laws minimized tariffs on machinery imported for manufacturing. Still another source of protectionism, though perhaps not altogether intentional, was the overvaluation of Rumania’s currency through the country’s pre-war adherence to the gold standard.119 Constantin Stere and his fellow Populists inspired in part the propeasant policies of the Liberal Government after the revolt of 1907, but the Casa Rurala and a mitigation of the terms of rural labour contracts probably would have come about without the Populist stimulus. Stere’s more important and longer-term influence came after the institution of universal male suffrage and the rise to power of the National Peasant Party, which ruled the country almost uninterruptedly between 1928 and 1933. Under Iuliu Maniu and his successors, the National Peasant government sponsored the cooperative movement and expanded agricultural credit. But by terminating the inalienability of certain peasant holdings, the National Peasants implicitly aided the large peasants, and following Stere, refused to admit that the Rumanian peasantry was not a single class. Of the several theorists considered, Constantin Dobrogeanu-Gherea was the most original, foreshadowing important elements of post-1945 centre–periphery thought, dependency theory, and modes of production debates in Third World forums and academies. His reformist policy prescriptions of universal suffrage, industrialization and land reform, however, differed little from those of other progressive groups. Once instituted, the reforms redounded to the benefit of parties other than Gherea’s Socialists, notably the Peasant Party, heirs of the Populists.

Notes 1 Transylvania, the third major region of contemporary Rumania, remained under Hapsburg rule until the end of the First World War. 2 e.g. in the work of Alexandru Moruzi. See Demetrescu ([1940]): 264–8. 3 Demetrescu, pp. 270, 274 (quotation). The Paris peace conference of 1856, ending the Crimean War, had begun the process of uniting the two principalities. 4 Named for the Greek district of Phanar in Constantinople, whence the overlords originated. 5 Berend and Ranki, European Periphery, 1982: 42. Such lands were distributed to


6

7 8 9 10 11 12 13 14 15 16 17 18

19 20 21 22 23 24 25 26

27 28

29

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peasants under the agrarian reform of 1864. See a description of the law and its implementation in Hitchins, Romanians, pp. 309–11. Stahl, Traditional Romanian Village Communities, p. 83. Meanwhile in 1830 the boieri had become hereditary nobles under the Organic Regulation, but this legal status was to last only until the Convention of Paris in 1858. The Rumanian constitution of 1866 reaffirmed the abolition of their special legal standing and privileges. According to Marcu, 1979: 148, 3.8 million hectares went to the boier group and 3.1 million were retained by the peasants. Ibid.: 149. Marcu and Puia, ‘Evolutia’, 1979: 264. Murgescu, Mersul, 1987; 1: 272–6; Chirot, Social Change, 1976: 94–103. Murgescu, 1: 277; Soutzo, 1840: 78. Soutzo cites Ricardo in ibid.: 122. The phrase, which he applies in a Latin American context, is Tulio Halperin’s. Personal communication. Lampe and Jackson, 1982: 265. Zeletin, Burghezia, 1925: 95. On the Junimea, see note 26 below. For a brief biography and critical study of Xenopol’s works, see Veverca, pp. 7–71. The tradition had deep roots: As early as the 1820s Dinicu Golescu [Constantin Radovici din Golesti] had condemned the practice of selling raw materials abroad cheaply, and buying them back at a price ‘thirty times greater’. Murgescu, Mersul, 1987; 1: 269. Xenopol, pp. 79–80; Veverca, p. 49. Demetrescu ([1940]): 264. Iota, p. 154. Bogdan Petriceicu Hasdeu also associated industrialization with civilization, progress and national independence. Hasdeu, pp. 271–82. Xenopol, pp. 85, 189. Iota, p. 238; Xenopol, pp. 189, 193. ‘The political economy [i.e. economic theory] of France and England does not deserve the name of science; it is theory at the service of a practice [which is profitable for those countries]’, wrote Xenopol, p. 95. Ibid.: 97–8, 177. The Junimea was a cultural and political society founded at Iasi in 1863 by Titu Maiorescu and others who had studied abroad, principally in Germany. Junimists argued that Rumania had not attained a state of development corresponding to the adoption of institutions associated with the economically advanced West, and that the (failed) revolution of 1848 against the Ottoman Empire had not been the result of real aspirations of the country. Maiorescu was deeply influenced by Hegel on the evolution of culture, and like the German philosopher believed that institutions, such as the state, could not change the organic ‘base’, i.e. society; rather, change had to flow from the latter. See ‘Junimea’, 1964; 2: 935–6; and ‘Maiorescu, Titu’, 1972; 1: 353–96. Iota, p. 174; Xenopol, p. 178. Xenopol, p. 180. The Rumanian phrase is industria mare, which means both ‘heavy’ and ‘large-scale’ industry, but by the examples he gave, it seems Xenopol had in mind highly capitalized firms with large numbers of workers, rather than capital goods industries. He cites the textile, leather and paper industries, all of which the state could easily subsidize through purchases for the army and the bureaucracy. In the 1890s, Xenopol retreated from this position and argued that Rumania could only feasibly develop light industries, such as brewing, and, in general,

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30 31 32 33 34 35 36 37 38 39

40 41

42 43

44 45 46 47 48

49 50 51 52 53 54 55

Joseph L. Love those without huge capital investments and the most advanced technology. Iota, p. 111. Ibid.: 151. Ibid.: 148; Xenopol, p. 181. Within Rumania, Xenopol added, foreigners had taken over commerce and industry, leaving only the bureaucracy and agriculture for Rumanian nationals. Iota, p. 161. Veverca, p. 11. Xenopol, pp. 192–3. Thery, 1904: 68. Jackson, 1986; 1: 61. Cf. John Montias’s opinion that ‘There can be little doubt . . . that the 1886 tariff stimulated the growth of domestic industry’ (Montias, 1978: 63, n. 26). On Rumania’s growth, see Good, ‘Economic Growth’, 1996; table 4.1: 67. Relatively inefficient compared to ‘overseas’ grain exporters, Rumania could not compete in the British market with Argentina and the Dominions, but it could still sell grain on the Continent. Berend and Ranki, European Periphery, 1982: 83, 115, 123, 156. The authors define the Periphery as countries in Eastern Europe, Scandinavia, and the Mediterranean region (excluding France), all of which were relatively backward at the beginning of the period. ‘Populism’, defined below, is used in the European or ‘Russian’ sense. On the penetration of capitalism, see Racovski, ‘Poporanism’, 1908: 331 (‘vortex’); and Stere, ‘Fischerland’, 1976 [1909]: 365–6. A decade earlier, Lenin had referred to precapitalist economies as being drawn into ‘the whirlpool of international economy’. Development of Capitalism in Russia, 2nd edn, 1956 [Russ. orig. 1899]: 652. On the exploitation of peasants, see Racovski, Roumanie, 1909: 17, 60; and Stere, ibid.: 369–70. Racovski, Roumanie, pp. 8–9. Stere, ‘Tara’, 1979 [1906]: 379, 387; ‘Fischerland’, p. 369. Racovski wrote that rents doubled on 70% of the lands where cereal crops were grown in Rumania between 1870 and 1907, and rose four times on 6% of these properties (Roumanie, p. 170.) A new form of calculating corvee requirements substantially increased the number of days per year the peasant owed to the lord, rising under the Organic Regulation to about 56 days per year at mid-century. De facto corvee requirements continued to mount after corvee’s formal abolition. Chirot, Social Change, 1976: 97, 133. See Kitching, 1982. Gerschenkron, ‘Economic Development’, 1966: 190; Walicki, 1969: 132. Not to be confused with the Rumanian region Moldavia, as used in this study. The issue was not inescapably posed until the October Revolution, when Cristian Racovski joined the Bolsheviks, and Constantine Dobrogeanu-Gherea remained a reformist. See below on Racovski. There were communal properties in Rumanian agriculture, but most peasant communes were divided up after the agrarian reform of 1864; some, despite government intentions, still remained communal. Stahl, Traditional Romanian Village Communities, 1980 [Fr. orig. 1969]: 85, 90. Hurezeanu, ‘Revue’, 1986: 331, 337. ‘Poporanism’, Dictionar enciclopedic romin, 3: 823–4. Stere, ‘Tara’, p. 379. Ibid.: 387. But in ‘Fischerland’ Stere says it controlled 90,000 ha. (pp. 365–6.) Stere, ‘Fischerland’, pp. 369, 371. Stere, ‘Causele’, 1907: 435; ‘Miseria’, 1908: 464. Stere, ‘Miseria’, pp. 454–5, 459.


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56 Stere, ‘Fischerland’, p. 371. Stere relied on data furnished by the Chamber of Commerce of Botosani in 1906, and it was in Botosani county that the peasant uprising began in February 1907. 57 Hurezeanu, ‘Revue’, p. 337. 58 20% of the factories in this group had fewer than 10 workers. Stere, ‘Socialdemocratism’, 1907–8; 2(9): 320–1. 59 Ibid. 60 Ibid.: 323. 61 But retrospective data cited on p. 10 above show that Stere was wrong in this judgement. 62 Stere, ‘Socialdemocratism’, 2(10): 32. 63 Ibid., pp. 17–19. On the necessity of foreign markets, Stere cites Gherea, ‘Din ideile’, pp. 21–3, in ‘Socialdemocratism’, 2(10): 19. 64 Ibid.; 2(10): 25–7. 65 Ibid.: 30–1. 66 Ibid.: 31. 67 For example, on the estates he called Fischerland. See Stere, ‘Fischerland’, pp. 366, 370. 68 Stere, ‘Socialdemocratism’, 2(11): 199, 202; 3(1): 69–70 (quotation). Jews could not own land and were not full citizens until after the First World War. 69 Stere, ‘Socialdemocratism’, 2(8): 188–9; 2(9): 313; 3(1): 72–3. Stere did not mention, however, that Kautsky remained an orthodox Marxist and showed in Die Agrarfrage (The Agrarian Question, 1899) how capitalism had revolutionized agriculture, albeit in more complex ways than industry. 70 Stere, ‘Socialdemocratism’, 3(4): 60, 62–3, 68. 71 Ibid.; 2(10): 15, 36. 72 Stere, ibid.; 2(9): 330; 3(4): 61. 73 Ornea, Poporanismul, 1972: 512; Stere, ‘Socialdemocratism’, 2(9): 338; Lenin, Development, pp. 174, 182. 74 Racovski, ‘Poporanism’. 75 Ibid.: 340. 76 Ibid.: 336. 77 Ibid.: 339. 78 Ibid.: 331. 79 Ibid.: 332. 80 Ibid.: 333–4. The same point had been made without the benefit of Sombart’s researches by Panait Musoiu in 1892. See Stoica, 1972: 6. 81 Racovski, ‘Poporanism’, pp. 337–8, 350. 82 Stere, ‘Socialdemocratism’, 2(10): 17–18, 32, 36; Racovski, ‘Poporanism’, pp. 355–6. 83 Racovski, ‘Poporanism’, p. 363. Racovski was not entirely accurate on this point. See note 48 above. 84 Lenin, Development, pp. 151, 172–4, 182, 250, 347, 555. 85 Hurezeanu, Constantin Dobrogeanu-Gherea, 1973: 11; ‘Dobrogeanu-Gherea, Constantin’, 1972: 588–93. 86 Trotsky, Balkan Wars, 1980 [1913]: 404–12. 87 Hurezeanu, 26–7, 37–42. 88 Dobrogeanu-Gherea, ‘Karl Marx’, 1976 [1884]: 40–164; and ‘Ce vor’, 1976 [1886]. In Neoiobagia, 1977 [1910]: 175, Gherea admitted the influence of Russian populism when writing ‘What the Rumanian Socialists want.’ 89 Dobrogeanu-Gherea, ‘Ce vor’, pp. 63–4. 90 Ibid.: 75, 101–2. 91 Dobrogeanu-Gherea, ‘Rolul’, 1976 [1892]: 431–2. 92 Ibid.: 432.

126 93 94 95 96 97 98 99 100

101 102

103

104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119

Joseph L. Love Dobrogeanu-Gherea, ‘Post-scriptum’, 1977 [1908]: 478–82. Ibid.: 498–9, 503. Dobrogeanu-Gherea, ‘Socialismul’, 1945 [1912]: 8–9. Ibid.: 9. An excellent introduction to Gherea’s thesis is Stahl, ‘Théories’, 1978. Ibid.: 10, 17. Meisner, 1967: 144. Dobrogeanu-Gherea, ‘Socialismul’, p. 10. Boeke, Tropisch-koloniale Staathuishoudkunde [Tropical Colonial Economic Policy], 1910. Boeke’s thesis, elaborated over the next forty years, was that workers over a certain range of wages would prefer increased leisure to higher income; i.e. that the price mechanism was not an adequate allocator of resources. Dobrogeanu-Gherea, Neoiobagia, p. 64. As Cristian Racovski noted in 1909, peasants had to sign formal contracts, a characteristic feature of capitalist labour relations, but these contracts contained stipulations for the payment of feudal dues, such as the dijma (forced payment in kind on a basis of shares). Racovski, Roumanie, pp. 10–11. Dobrogeanu-Gherea, Neoiobagia, p. 28l. Nicolae Stoica points out that Gherea is inconsistent in defining relations of production in neoiobagia. Are they ‘semifeudal’ (p. 68), ‘feudal in fond and bourgeois in forma’ (no p. given) or ‘in both fond and forma the same as before’ (p. 92)? Page nos. refer to original Socec 1910 edition. See Stoica, p. 119. Dobrogeanu-Gherea, Neoiobagia, pp. 31, 35. Ibid.: 34. Ibid.: 82. Cf. the similar analysis of Racovski in ‘Chestia’, 1907: 40–1. Dobrogeanu-Gherea, Neoiobagia, 82. Ibid.: 91, 95. See Stahl, Traditional Romanian Village Communities, 1980: 89, on the one-half share. Because of de facto corvee requirements and other arrangements, by the 1880s peasants often spent two-thirds of the week on the landlord’s crops. Chirot, Social Change, 1976: 133. Dobrogeanu-Gherea, Neoiobagia, pp. 100–2. Ibid.: 188–9. Lenin, Development, pp. 151, 172–4, 182, 250, 347, 555. Hurezeanu, Constantin Dobrogeanu-Gherea: 302. Ornea, ‘Sociologia’, pp. 54–5. Gherea’s son became a communist, and like Racovski later died in a Soviet prison camp. Dobrogeanu-Gherea, Neoiobagia, pp. 282, 295, 308, 360. Gherea’s reform programme was similar to that of progressive liberals. See Ionescu, Istoria, 1996: 58. Compulsory universal male suffrage was first implemented under the chaotic conditions of the war-torn but greatly enlarged country of 1919, the year before Gherea died. See Manoilescu, Theorie, 1929. Lampe and Jackson, p. 270; Hitchins, Rumania, pp. 190–1.

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Chirot, D. (1976) Social Change in a Peripheral Society: The Creation of a Balkan Colony. New York: Academic Press. Demetrescu, E. (1940) ‘Liberalismul economic in dezvoltarea Romaniei moderne’, Enciclopedia Romaniei, 3: 261–74. Bucharest: Imprimeria Nationale. Dictionar enciclopedic romin (1962) ‘Poporanism’, 3: 823–4. Bucharest. —— ‘Junimea’, 2: 935–6. Bucharest: Politica. Dobrogeanu-Gherea, C. [1886] (1976) ‘Ce vor socialistii romani: Expunerea socialismului stiintific si programul socialist’, Opere complete, 2: 7–126. Bucharest: Politica. —— [1906] (1977) ‘Din ideile fundamentale ale socialismului stiintific’, Opere complete, 3: 408–38. Bucharest: Politica. —— [1884] (1976) ‘Karl Marx si economistii nostri’, Opere complete, 1: 40–164. Bucharest: Politica. —— [1910] (1977) ‘Neoiobagia’, Opere complete, 4. Bucharest: Politica. —— [1908] (1977) ‘Post-scriptum sau cuvinte uitate’, Opere complete, 3: 476–504, Bucharest: Politica. —— [1892] (1976) ‘Rolul paturii culte in transformarile sociale’, Opere complete, 2: 426–46, Bucharest.: Politica —— [1912] (1945) Socialismul in tarile inapoiate, Bucharest: Editura Partidului Social-Democrat. Gerschenkron, A. (1966) ‘Economic development in Russian intellectual history of the nineteenth century’, Economic Backwardness in Historical Perspective, 152–87. Cambridge, Mass.: Belknap. Gogoneata, N. et al. (eds) (1972) Istoria filozofiei romanesti, 1, ‘Maiorescu, Titu’: 353–96. Bucharest: Institutul de Stiinte Sociale. Gogoneata, N. et al. (eds) (1972) Istoria filozofiei romanesti, 1, ‘Dobrogeanu-Gherea, C.’, 588–604. Bucharest: Institutul de Stiinte Sociale. Good, D.F. (1996) ‘Economic growth in Europe’s Third World: Central and Eastern Europe, 1870–1989’, in D.H. Aldcroft and R.E. Catterall (eds), Rich Nations – Poor Nations: The Long-Run Perspective, 65–82, Cheltenham: Edward Elgar. Hasdeu, B.P. (1960) ‘Agricultura si manufactura (1869–1870)’, in Texte din literatura economica in Romania, 1:271–5. Bucharest: Academia Republicii. Hitchins, K. (1996) The Romanians: 1774–1866. Oxford: Oxford University Press. —— (1994) Rumania: 1866–1947. Oxford: Oxford University Press. Hurezeanu, D. (1973) Constantin Dobrogeanu-Gherea: Studiu social-istoric. Bucharest: Politica. —— (1986) ‘La revue “Viata Romaneasca” et les traditions radicalesdemocratiques de Roumanie’, Revue Roumaine d’Histoire 25: 331–41. Ionescu, T. (1996) Istoria gandirii economice din Romania (1900–1944) : Economica. Iota, V. (1968) Doctrina economica a lui A. Xenopol, Ph.D. diss., Bucharest: Academia de Studii Economice: unpublished dissertation. Jackson, M. (1964) ‘Industrial output in Rumania and its historical regions, 1880 to 1930: Part I – 1880 to 1915’, Journal of European Economic History 15: 59–111. Kitching, G. (1982) Development and Underdevelopment in Historical Perspective: Populism, Nationalism, and Industrialization. London: Methuen. Lampe, J. and Jackson, M. (1982) Balkan Economic History, 1550–1950: From Imperial Borderlands to Developing Nations. Bloomington: Indiana University Press. Lenin, V.I. [Russ. orig. 1899] (1956) The Development of Capitalism in Russia: The

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Process of the Formation of a Home Market for Large-Scale Industry, 2nd edn. Moscow: Foreign Languages Publishing House. Manoilescu, M. (1929) La theorie du protectionnisme et de l’echange international. Paris: Felix Alcan. Marcu, N. (1979) ‘Dezvoltarea capitalismului in agricultura Romaniei dupa reformele agrare de la mijlocul secolului al XIX-lea si pina la primul razboi mondial’, Istorie economica, 142–78. Bucharest: Didactica. Marcu, N. and Puia, I. (1979) ‘Evolutia economiei mondiale interbelice (1919–1939)’, in N. Marcu (ed.), Istorie economica, 262–78. Bucharest: Didactica. Meisner, M. (1967) Li Ta-chao and the Origins of Chinese Marxism. Cambridge, Mass.: Harvard University Press. Montias, J. (1978) ‘Notes on the Romanian debate on sheltered industrialization: 1860–1906’, in K. Jowitt (ed.), Social Change in Romania, 1860–1940: A Debate on Development in a European Nation, 53–71. Berkeley: Institute of International Studies, University of California. Murgescu, C. (1987) Mersul ideilor economice la romani: Epoca moderna, 1. Bucharest: Stiintifica. Ornea, Z. (1972) Poporanismul. Bucharest: Minerva. —— (1981) ‘Sociologia lui Gherea in ultimul deceniu de viata’, Comentarii, 39–56. Bucharest: Minerva. Racovski, C. (1907) ‘Chestia agrara: Probleme si solutii’, Viitorul Social, 27–43. —— ‘Poporanism, socialism si realitate’, Viitorul Social, 329–67. —— (1909) La Roumanie des boyards (Contribution a l’histoire d’une oligarchie). Bucharest: Socialista. Soutzo [Sutu], [Prince] Nicolas (1840) Notions statistiques sur la Moldavie, Iasi. Stahl, H.H. (1978) ‘Theories de C.D. Gherea sur les lois de la penetration du capitalisme dans les pays retardataires’, Review [of the Fernand Braudel Center], 2: 101–14. —— (1980) Traditional Rumanian Village Communities: The Transition from the Communal to the Capitalist Mode of Production. Cambridge: Cambridge University Press. Stere, C. (1906) ‘Tara de latifundii’, Scrieri, 373–90. Bucharest: Minerva. —— (1907) ‘Cauzele miscarilor agrare’, Scrieri, 434–37. Bucharest: Minerva. —— (1907–8) ‘Socialdemocratism sau poporanism?’, Viata Romaneasca, 2–3: 170–93, 313–41, 15–48, 173–208, 49–75, 59–80. Bucharest: Minerva. —— (1908) ‘Mizeria taranimii si repartizarea proprietatii’, Scrieri, 454–68. Bucharest: Minerva. —— (1909) ‘Fischerland’, Scrieri, 365–72. Bucharest: Minerva. —— (1979) Scrieri [ed. by Zigu Ornea]. Bucharest: Minerva. Stoica, N. (1972) ‘Problema agrar-taraneasca in gindirea economica a socialistilor romani (1900–1916)’, Ph.D. diss., Academia Stefan Gheorghiu, Bucharest: unpublished dissertation. Thery, E. (1904) La situation economique et financiere de la Roumanie. Paris: Economiste Europeen. Trotsky, L. [1913] (1980) The Balkan Wars. New York: Pioneer. Veverca, I. (1967) ‘Alexandru D. Xenopol si problemele dezvoltarii economice a Romaniei’, A.D. Xenopol, Opere economice, 7–71. Xenopol, A.D. [1882] (1967) ‘Studii economice’, Opere economice. Bucharest: Editura Academiei. Zeletin, S. (1925) Burghezia romana: Originea si rolul ei istoric. Bucharest: Cultura Nationala.

8

Ottoman economic thought and economic policy in transition Rethinking the nineteenth century 1 Eyüp Özveren

Why was there no physiocracy in the Ottoman Empire? Any unconventional overview of the economic thought2 and policy in the late Ottoman Empire ought to proceed by way of a detour that pays tribute to the heritage of the classical period running up to the sixteenth century after which the economic fortunes of the Empire were slowly reversed. During the classical period of the Ottoman Empire, economic life was conceived as the inextricable part of a greater whole that also encompassed the political and military realms. Precisely because the ‘economic’ was embedded in the ‘social’ (Polanyi, 1944) in Polanyi-esque terminology, a circular notion of social life that linked the fortunes of producers, middlemen and the military survived until the advent of modernity. This notion was far from being exclusively an Ottoman originality nor was it attributable to Islamic philosophy. Quite the contrary, it had emerged as a response to the pressing needs of a worldly imperial state tradition. As such, it was just another example of the multiple state traditions (I˙nalcık, 1993) the antecedents of which abounded in the history of a vast geography stretching from the Orient well into the southern parts of the Occident. The Ottoman circle of justice found its expression time and again in Tursun Bey, Koçi Bey, Kınalızade Ali Effendi, and eventually Naima, the historian (Divitçiog˘lu, 1981: 93). It meant that land, when brought under the effective rule of law and order as maintained by a political authority, implied revenues and soldiers for a state that could in turn mobilize these resources for further territorial expansion. The logic was that an active military class could conquer new lands and raise the taxable population, thereby giving rise to higher gross output out of which the state revenue was collected. It should be noted that precisely because the expansionary momentum of the state is assumed, what is at issue here is extensive accumulation. Territorial expansion brings about greater population and thereby greater output. This conception overlaps with European mercantilism only insofar as the causality between higher population and higher output holds.

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Let it be noted once again that the Ottoman ‘circle of justice’ assumed a process of extensive accumulation contingent upon the territorial expansion of the state. Once limits to territorial conquest became too obvious to ignore, as they did by the time of the aborted siege of Vienna (1683), this virtuous circle could no longer operate. Hence, as of the classical period, wars became too costly for the state, and the prospective gains too small, if not entirely unlikely. In this context, the Ottoman Empire found itself in an impasse where fighting wars contributed more to the expenditure than to the revenue of the state, thereby giving rise to a mounting fiscal crisis. In order to come to terms with this crisis, the state was forced to create new sources of revenue and to toy with monetary policy (Genç, 1984). Up until the late eighteenth century, the Ottomans sought to restore the traditional equilibrium of the circle of justice as a response to the deepening crisis in which they found themselves. During the late-eighteenth century reforms of Sultan Selim III, caught between the old and the new (Shaw, 1971), Süleyman Penah Effendi envisaged to restore the order by accommodating the idea of development within the framework of the classical model whereas Tatarcük Abdullah Molla and Mehmed S¸erif Effendi deliberated on the fiscal crisis and budgetary processes of the state in their writings (Cezar, 1986: 142–8).3 The political ruling-class was bound to realize that in order to survive politically in a rapidly changing world as caught in the turmoil of the industrial and French revolutions, it had to change everything else but its hold on the state. The nineteenth-century world economic conjuncture heralded an upswing after the long seventeenth-century crisis that lasted well into the eighteenth, particularly in the Mediterranean world. The Ottoman economy would also benefit from this general upswing. However, the economic restructuring at work in tune with the new world economic trends required that the benefits of this upswing be shared unequally among the various countries and differently than in the past within each country. Hence a prolonged fiscal crisis of the Ottoman state should not obscure the fact that the economy would continue to grow during the coming nineteenth century (Keyder, 1979; Pamuk, 1987). Only this time, the beneficiaries of this growth would be the constituent members of an ethnically and/or confession-wise differentiated merchant class (Keyder, Özveren, and Quataert, 1993). Hence the Ottoman statesmen tried to generate a framework within which a working-relationship could be established among the state and merchants, and that the gains of the latter could to some effect be tapped in order to offset the deficits of the state. Therefore, implicit in the reform proposals that gained greater circulation was the desire to accommodate a changing economy within the context of the Ottoman ancien règime. As such, the reflexive reaction we observe in the Ottoman Empire was substantially no different than the enthusiasm of the other peripheral imperial states ranging from Portugal to Russia in reinterpreting conveniently the underlying message of Adam

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Smith’s Wealth of Nations that carried the day as one of political conservatism amidst an otherwise liberalizing economy. The first intriguing question that a historian of Ottoman economic thought has to confront concerns the implication of the bottleneck to the extensive accumulation described above. Once the limits of territorial expansion have been reached one would have to resort to an intellectual formulation of the circular mechanism of an intensive – instead of an extensive – accumulation. The French Physiocratic conception that developed into Quesnay’s Tableau économique is essentially one such formulation. According to this variant, we encounter a situation where extensive accumulation is ruled out, as manifest in the notion of a sterile military class of once-conquerors of land. The focus turns to the intensive exploitation of land to give rise to an expanding produit net that circulates as income among the major sectors of the economy. Within this intensive accumulation-oriented model, net product replaces gross product, and confidence in the causality between high population and high output gives way to a preference for productivity concerns. Two points should be made: first, the formulation of the Physiocratic model in France identified with the strongest state tradition in Europe rather than elsewhere supports our earlier claim on the universality of circular notions. Second, the fundamental question confronting the historian of classical Ottoman thought is why such a novel formulation was not put forward once the limits to territorial expansion, a must for extensive accumulation, were reached. Had this been actually achieved, then one could speak of a gap in existing Eurocentric histories of economic analysis as once suspected by Joseph A. Schumpeter, the antiquarian of lost knowledge (Schumpeter, 1954). The way to proceed in order to find an answer to the above problem is as follows: Physiocracy was essentially a response to Colbertian mercantilism and succeeded in displacing mercantilism in France if not entirely in Europe. We have noted above a point of convergence between the Ottoman and mercantilist views of the relationship of population to output. However, the Ottoman classical system never developed into mercantilism. Far from being so, it has been coined as ‘anti-mercantilist’, offering the extreme opposite of its European counterpart precisely because the classical Ottoman policy seemingly encouraged imports and discouraged exports: The Ottomans, in their commercial regulations, adopted the extreme reverse of the Spanish fallacies for enriching and aggrandizing a nation. If Spain [was] determined to admit nothing produced by any other country than her own colonies, Turkey seized upon the fanciful idea of becoming rich, prosperous and mighty, by letting nothing go out of, and to let everything come freely into, her dominions: a very acquisitive legislation, truly . . . On the other hand, the Turkish

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Eyüp Özveren Government, in tolerance and hospitality, opened her ports and dominions to the people and merchandise of all countries. (MacGregor, 1844; 2: 13, quoted in Issawi, 1982: 17)

Because Physiocracy emerged as a theoretical response to the legacy of mercantilism, and because the Ottoman Empire did not have a mercantilist experience in its past, it would be improper to expect the indigenous genesis of a Physiocratic approach. Furthermore, both mercantilism and Physiocracy in the European past entailed a peculiar combination of productionist objectives channelled towards the provisioning of a nascent market system. Physiocracy was in effect a doctrine to encourage agricultural production under the stimulus of market incentives. It came about as a reaction in countries where mercantilism had failed to bring about a higher level of manufacturing activity and therefore output as it had done so in the exemplary England and the United Provinces. In the Ottoman Empire, on the other hand, concern with trade – as reflected in the priority and social esteem accorded to the merchants – came first, and a productionist focus had slipped easily to the backdrop. Had either mercantilism or an archaic productionist metaphysics favouring labour prevailed in the Ottoman Empire, it may have been reasonable to look for the flourishing of a native Physiocratic tradition.4 While the Ottoman policy preference may have appeared as irrational to a mercantilist or a free-tradist, it was rational from within the Ottoman viewpoint. The Ottoman statesmen sought to capture as much foreign trade as possible within their ports so as to maximize their revenue by way of customs receipts, a policy not unknown, for example, to the pre-1789 French monarchy. Furthermore, the Ottoman philosophy of the ‘circle of justice’ was translated into a set of policy instruments by means of three principles, namely, traditionalism, fiscalism and provisionism (Genç, 1994). Traditionalism required the maintenance of manufactures as they were, fiscalism necessitated the collection of customs as a top priority, and provisionism brought to the foreground the urge to secure supplies for the urban population. Traditionalism was by definition hostile to the idea of innovation in manufacturing activities. The only way manufacturers could have gained social recognition was by way of entrepreneurial distinction. But because the economic mentality disdained uncertain experimentation with techniques, the route to innovation, a must for entrepreneurial success in the Schumpeterian sense was blocked from the beginning. Consequently, traditionalism served to perpetuate the inferior status of production, especially in the manufacturing sector. Of the three, provisionism required the exclusive channelling of food supplies to major cities at the expense of exports, whereas the imports that abounded in Ottoman ports were directed to the same consumer population.5 This traditional formulation of a ‘circle of justice’ came under pressure as the circle was violated by the intrusion of factors hitherto unknown and


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the subsequent leakages that undermined the tendential equilibrium of the system in question. Because the Ottomans held a conception of output as revenue and remained alien to the Physiocratic conception of a net product or surplus they toyed with artificial ways of raising revenue such as tax-farming and monetary denomination that did not impact positively upon productivity. With the nineteenth century, the three constituent elements of Ottoman economic thought and policy, each a derivative of the ‘circle of justice’, namely the principles of traditionalism, provisionism and fiscalism, came under further pressure and could no longer resist change. On the one side, there was a practical urge on the part of the Ottoman statesmen to improvise with the former postulates in order to accommodate them to the exigencies of the new age. Because the state caught in a cycle of expensive war efforts was in desperate need of new revenues, fiscalism had to be reinterpreted in a new light. In a similar vein, because the conventional policies of provisioning Istanbul by means of price restrictions faltered as distant supply zones in the Balkans entered increasingly into the orbit of price-making markets, new mechanisms of provisioning that implicitly assumed shadow-prices of these nascent markets were installed (Sayar, 1986: 189). These policy improvisations were nevertheless still legitimated conveniently within the confines of the traditional discourse. As such, policies changed more profoundly than that which had existed as authentic economic thought within the confines of an all inclusive social philosophy. In summary, economic processes changed first, policy-makers responded by trial and error within the general framework of the traditional theoretical knowhow, and a specialized field of modern economic thought was yet to emerge on the scene.6

The Classical approach makes its debut After decades of gradualist adaptation to changing environmental conditions of the world economy a breaking-point was reached. A major policy-shift came with the 1838 Anglo-Ottoman Commercial Treaty that imposed upon the Ottoman Empire an irreversible liberalization of foreign trade. It has been noted above that the traditional Ottoman economic policy was already conducive to trade as far as the Ottoman ports of trade were concerned, and not necessarily protectionist of domestic manufactures. However, the 1838 Anglo-Ottoman Commercial Treaty standardized trade practices such as customs procedures, and more importantly, removed multiple interior taxes and customs collection, as well as abolishing trading monopolies and export prohibitions for certain strategic goods. The British obtained privileges that would allow foreign merchants to participate as equals with the Ottoman merchants in the interior trade of the Ottoman Empire. Hence, as of 1838, first the British and soon after the French and eventually other foreign merchants

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enjoyed the right to purchase and sell within the domestic market (Gürsel, 1985).7 With the 1838 Treaty, at a time when Corn Laws remained in effect in Britain, the British hegemons of the world economy forced the Ottoman Empire to open up its economy to their manufactures and to remove restrictions from the export of raw materials including grain. Coupled with the pressure of costly military modernization, imports soared while exports tended to increase albeit at a lower rate. Growing trade deficit matched with a chronic fiscal deficit forced the Ottoman statesmen to turn to foreign borrowing and monetary devaluations as the means of coping with this crisis. As such, the Ottoman economy, once conceived in terms of semi-static circular flows, now came to be characterized as being in a state of permanent disequilibrium. It would, however, be absurd to expect the Ottoman intelligentsia to develop a modern theory of disequilibrium at a time when the equilibrium theory was far from being fully articulated in Europe. The Anglo-Ottoman Commercial Treaty of 1838 paved the way to the penetration of the Classical approach in political economy into the Ottoman Empire. As early as in 1785 Jeremy Bentham the utilitarian philosopher, well versed in the Classical approach then in the making, had travelled in Ottoman lands, met literate foreign resident merchants such as William Eaton (Christie, 1971: 391) and written his impressions of economic matters such as security of property, production and marketing, as well as taxes, but had left virtually no impact behind him. In contrast, by the time Nassau William Senior visited the Ottoman Empire in 1858, he found an attentive audience before him extending from Ahmet Vefik Pasha sympathetic to his liberal economic views to Ismail Pasha, the then Minister of Commerce critical of Classical policies: ‘As respects your import duties,’ I said, ‘you have nothing to learn. You are the best free traders in the world. I wish that you could give some lessons to France.’ ‘I cannot blame the French,’ he said. ‘If they let in your cottons their own would be ruined. The French manufacturer pays twice as much for his steam-engine as you do.’ ‘That,’ I said, ‘is because France prohibits English iron.’ ‘And he pays,’ said the Pasha, ‘three times as much for his coal.’ ‘That,’ I said, ‘is because France prohibits English coal.’ ‘Of course she does,’ replied the Pasha; ‘she must do so. Her own iron works and coal mines could not compete with yours.’ The nature of his political economy did not induce me to prolong the discussion. (Senior, 1859: 108–9) By rejecting the Pasha’s protectionist political economy, Senior acknowledges only indirectly that he subscribes to a different version of political economy, namely, one of free trade. This particular political economy is


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implicit as the modus vivendi of his handling of the economic development and finances of the Ottoman Empire. However, laissez-faire views so dear to him are in fact expressed via the numerous informants’ responses to Senior’s carefully framed questions which are derivative of his interests in political economy. Such discussions on essentially economic phenomena surround four major themes, namely, first, the overwhelming presence of state and state functionaries within the realm of economy and the deplorable condition of the finances of the state; second, trade practices with specific reference to monopolies; third, transportation networks in conjunction with subsistence agriculture as well as colonization of land; and fourth, the seeming paradox of a declining population in proportion to the improvements under way. What accounted for the massive change between Bentham’s and Senior’s audiences was the infiltration of the Classical paradigm in conjunction with the 1838 Treaty in the Ottoman Empire. Europeans with a vested interest in commerce, such as Alexander Blacque but especially David Urquhart, author of Turkey and Its Resources (1833), helped diffuse optimistically the Smithian ideas of liberalism and free-trade by way of press and their publications as of the 1830s. Naturally, the Classical approach offered a logically sound justification for the free-tradist provisions of the 1838 Anglo-Ottoman Commercial Treaty. The earliest items on the agenda of the pro-European lobby were to institute liberal property rights to all irrespectively of nationality, and to institute commercial courts with jurisdiction over business transactions. The Land Code of 1858, with further amendments to it within a decade, opened the way to some extent for the treatment of land, the one-time foundation of political power in the Ottoman Empire, as an alienable factor of production in tune with the requirements of liberal economic policy. Interestingly enough, liberals who sought to destroy the fetters of mercantilism in order to allow ‘the natural system of liberty’ to work itself out in Europe, had thus become vociferous advocates in institution-building in the Ottoman Empire! As a matter of fact, Adam Smith, much to the ignorance of the self-proclaimed Smithians, had noted the discord between the Ottoman institutional setup and the minimal needs of a commercial society: In those unfortunate countries, indeed, where men are continually afraid of the violence of their superiors, they frequently bury and conceal a great part of their stock, in order to have it always at hand to carry with them to some place of safety, in case of their being threatened with any of those disasters to which they consider themselves as at all times exposed. This is said to be a common practice in Turkey, in Indostan, and, I believe, in most governments of Asia. It seems to have been a common practice among our ancestors during the violence of the feudal government. (Smith, 1976: 301)

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After all, no market-economy could function without a minimal amount of institutional governance.8 On the other hand, for Smith, at least, there existed no insurmountable difference between the Ottoman institutions and those of the European past. What was essential was a modification of existing institutions so that they could accommodate a nascent commercial system. Another consequence of the 1838 Treaty deserves as much, if not more attention. The free-tradist implications of the Treaty led to an influx of British manufactures that competed out some Ottoman manufactures from their very own hitherto privileged domain. At the same time, the same Treaty stimulated the exportation of raw materials, thereby depriving whatever could survive of the same traditional manufactures of easy access to inputs. As such, the impact of new trade policy on production, was bound to bring about by default a revival of interest in production which had long been disguised behind the primacy given to commerce. In fact, the first indigenous responses to the destructive effects on the manufactures of the Treaty came from Kostaki Bey, soon to be followed by a chain of critics ranging from Ahmed Cevdet Pasha, to Namık Kemal, and to Ziya Pasha. A former ambassador to Vienna, London, and Paris, Ahmed Fethi Pasha’s insistent plea for Ottoman industrialization is noted to have angered Churchill, an Englishman, who put out a newspaper to influence public opinion in favour of free-trade and liberal principles (Mardin, 1985: 621). It was Sadik Rifat Pasha who had first deviated sharply from the traditional framework of restoration-minded Ottoman intellectuals by bringing to the foreground the role of production and the necessity of development by way of policy improvisation (Sayar, 1986: 221). A productionist focus was hence in the making as a spontaneous response to the way in which the economy was being radically transformed. The dominant liberal current of the Classical approach developed in the hands of non-Muslim,9 especially Armenian scholars such as Sakızlı Ohannes Pasha, Vahan Effendi and Portakal Mikael Effendi.10 The ideas of private initiative and economic liberty fitted well with the interests of non-Muslim communities specialized in trade and money-lending. Precisely because the Ottoman Empire suffered from chronic capital shortage during the nineteenth century, in order to preserve the European confidence necessary for raising funds abroad, it was wise not to fiddle with monetary policy. As such, the worldwide monetary orthodoxy of the times could best be supported by relying on the communities that were most experienced in monetary affairs. Furthermore, their linguistic skills and affinity to Europeans led the state to employ them in the official translation bureau of the Foreign Office. The primarily English Classical paradigm was thus introduced into the Ottoman reading public by way of non-Muslim translators of the French works by Say and Rossi. The French mediation of the acquisition of the Classical paradigm has so far been attributed to the overwhelming French


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cultural and linguistic influence in the nineteenth century. It should be noted that British political economy, particularly in its heavily Ricardian formulation, had remained an insulated British specificity – within the European world – that belonged to the particular context of the English self-regulating market experience at a time when labour had not been fully converted into a fictitious commodity subject to market valuation (Polanyi, 1944: 111–29). J.B. Say was instrumental in purging the conflictridden Ricardian aspects of the Smithian approach in tune with the reality of the Continent that could slowly develop into marginalism (Screpanti and Zamagni, 1995). This factor must have been equally responsible for the choice of French and not the British Ricardian versions for the purposes of translation. The intellectual hegemony of this liberal perspective lasted right into the 1870s when a new group of Ottomans, such as Mehmet S¸erif Effendi, Hayreddin Pasha – who reintroduced the name of mercantilist Colbert as a source of inspiration (Sayar, 1986: 341) – interested in economic affairs appeared on the scene. These new names were committed to the necessity of industrialization and therefore intellectually linked with their productionist antecedents mentioned above. Namık Kemal, the renowned Ottoman patriot, came to be instructed in the thoughts of John Stuart Mill in the wake of the 1870s while he was in London at a time when Jevons was putting forward his version of the Marginalist Revolution (Sayar, 1986: 347–50). Leading Ottoman scholarly minds who helped spread ideas in tune with the Classics placed an original emphasis on the texts that they discussed which reflects their genuine attempt to adapt the imported theory to the Ottoman reality. As such, the cross-cultural transplantation of the Classics took the form of transliteration rather than translation. First and foremost, the prolonged search for equivalents of scientific terminology attests to the growing professionalization of the interested figures. The protracted deliberations on the industry-versus-agriculture debate, an offshoot of the Ricardo–Malthus controversy, reflect the policy-oriented outlook of the interested parties. Ricardian free-tradist position dictated industrialization for Britain and specialization in agriculture for the Ottoman Empire, whereas the Malthusian reaction insisted on the protection of domestic agriculture in order to keep up effective demand in Britain. For the Ottomans, however, this essentially British intellectual controversy became a real matter of life or death. In a similar vein, the questioning of the Malthusian population theory deserves attention as a number of economically minded observers ranging from Senior (1859) to Namık Kemal (Özön, 1997: 72–85) noted with interest the ongoing decline of the Muslim Ottoman population especially in Western Anatolia (Karpat, 1985: 47) in contradistinction to the Malthusian hypothesis that economic improvement should go hand in hand with a demographic expansion. Finally, the emphasis put on the Machinery Question, a minor issue of Classical political economy up until the third edition of Ricardo’s

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Principles of Political Economy and Taxation, where Ricardo revised his position and introduced a new chapter entitled ‘On Machinery’ (Sraffa, 1981: lvii), struck a chord in the Ottoman mind of Sakızlı Ohannes Pasha, where the destructive consequences on domestic manufactures of the 1838 Treaty had left its haunting imprint (Çavdar, 1992: 59). The combined effect of all these evidences is to reflect the genuine effort to adjust – albeit in a piecemeal fashion – allegedly universal theory to Ottoman reality. If the Ottoman mind remained closed to the Marginalist Revolution, this may only in part have been because of ignorance as already suggested by some scholars (Sayar, 1986), but the greater critical role of the irrelevance of the highly abstract marginalist theory to the pressing real problems of the Ottoman economy should not be ruled out. The above evidence suggests that the Ottoman scholars had to some extent selectively picked up what seemed of immediate relevance to their very own world.

Re-inventing the alternative: historical school alla turca Instead of being carried away by the Marginalist Revolution focusing on micro behaviour of choice-making agents operating under constraints, Ottoman intellectuals insisted on preserving for some time the macroeconomic perspective of the Classical approach. Within its scope, policy problems were persistently debated time and again until some Ottoman scholars departed from the free-tradist liberal policy conclusions inherent in the imported theory. As time went by, there emerged a group of intellectuals who were critical of the Classical theory and who believed in the necessity of state support and protection for the development of a native industry. Namık Kemal demonstrates very well the case of the Ottoman intellectual who rejected the Classical approach while developing by trial and error a neo-mercantilistic alternative to it. However, Namık Kemal took the constituent elements of his alternative from mercantilism as it had been critically represented in the Wealth of Nations and the subsequent Smithian literature, as well as possibly from Physiocracy and Malthus. By combining such elements in a constructive way, he reached independently at conclusions (Sayar, 1986: 357–68) reminiscent of the German perspective that had been developed along the lines of Friedrich List and the Historical School. As of the last quarter of the nineteenth century, on the one side, the Classical approach took its most mature and logically consistent form in the writings of Sakızlı Ohannes Pasha and Cavit Bey who later served as the influential Minister of Finance under the Committee of Union and Progress governments. Even so, this approach remained virtually untouched by the Marginalist Revolution precisely because it was obliged to remain as policy-oriented as it had been before. On the opposite side, the seeds of revolt were further cultivated by dissidents who followed the


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same path with Namık Kemal. First and foremost in terms of popular influence among them was Ahmed Midhat Effendi, the popular and prolific writer of the era. Not only did he resurrect Colbert as an alternative to the Classical approach, but also insisted on the characterization of a homo ottomanicus that deviated sharply from the homo economicus underlying the Classical approach. In his Ekonomi Politik he continued to attack the Classical approach. Among his references were economists such as Brusker, Sismondi, Droz, Setrock, Say, Rossi, but also Sully, Colbert, Quesnay, Forbonnais, Smith, and Bastiat (Sayar, 1986: 402–3). Once again, German scholars with a similar bent of mind were conspicuously missing from his reference list. Especially given his methodological point that the science of economics lacked certainty and was conditional upon the context and prevailing circumstances at a time when values and relativity were being purged from the dominant paradigm under the rubric of positive science, his unconscious convergence with the Historical School deserves further emphasis. In discussing the effects of free-trade on economies, Ahmed Midhat insisted that while it was appropriate for Britain it remained inappropriate for the Ottoman Empire which had not yet reached a stage where it could benefit from the opportunities of international exchange (Berkes, 1972: 51), a conclusion resonant of Friedrich List. His protectionist and developmentalist policy proposals struck a chord with the dissidents. Furthermore he launched an attack, the first of its kind, on the cosmopolitan liberalism of Professors of the Chair such as Sakızlı Ohannes and Portakal Mikael. In the light of the above discussion, it should be underscored that Ottoman dissidents arrived at an alternative perspective independently of, yet parallel with, the German scholarship of the second half of the nineteenth century. It goes without saying that theirs was a naïve version of the German Historical School viewpoint. This had much to do with the dictates of the circumstances. As they could not be expected to develop a sophisticated disequilibrium economics far ahead of their time, they shifted to a second-best solution. By bringing to the foreground, the historical and institutional differences of the Ottoman case, they challenged the implicit assumptions of the Classical approach. In spite of all the differences of opinion among Ottoman economists of different eras and persuasions, there remained one constant common denominator that linked them across time and space. Virtually all insisted on the necessity for monetary stability. At a time when the Ottoman statesmen had to rely on monetary denominations and devaluations continuously, this may seem meaningful.11 However, part of this meaning may be attributed to the attempt to bring the Ottoman economy into line with the theoretical models of the Classical era where money was assumed to be a veil. Growing discontent with liberal economic policies that persisted throughout the Hamidian era (1876–1908) encouraged a deeper intellectual interest in the alternative approach. Akyig˘ itzade Musa Bey, who

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taught at the Military Academy, published two books around the turn of the century that gave a definitive form to the protectionist perspective by squaring it off with the German scholarship hitherto neglected. Musa Bey was originally from Kazan in Russia and, as such, he was affiliated with a different scholarly background (Berkes, 1972: 52–3). Not only did he advocate protection for nascent industries, but also he insisted on its temporary character, by putting forward a case in favour of the ‘infantindustry’ argument (Çavdar, 1992: 131). The First World War as the closing instance of the ‘long nineteenth century’ paved the way to the translation of these ideas into policies within the framework of a war economy. The war circumstances dictated a renewed concern with provisioning and self-sufficiency, and provided the preconditions for the institution of a command economy. The concern with the theme of a ‘national economy’ as the developmentalist alternative to a ‘cosmopolitan’ liberalism (Toprak, 1982: 25–33), when put into effect, was bound to have vast consequences in the Ottoman Empire noted for its multi-ethnic demographical composition overlapping with a particular social division of labour. Corporatist policies in tune with the objective of promoting a ‘national’ bourgeoisie helped shift the balance of forces within the economic realm in favour of the Turks. Hence, both the social and demographic composition and the power configuration within the Ottoman Empire were drastically altered within a few years. Ziya Gökalp, a leading ideologue of the Committee for the Union and Progress that had governed the Ottoman Empire during the war years, summed up the new orthodoxy in his nationalist manifesto that came out in 1923. Himself a sociologist much influenced by Durkheim, Gökalp noted that scholars of stature such as John Rae and Friedrich List had definitively established the falsehood of the allegedly universalist doctrines of the Manchester school, thereby opening new vistas for the developing countries (Gökalp, 1958: 133). By the end of the war, therefore, the contributions of German and American scholars to the formulation of an alternative to liberal orthodoxy had already gained wide recognition within the Ottoman intellectual circles. What had started off as an indigenous naïve experimentation with an alternative approach was as such consciously anchored to the domain of European scholarship.

The threshold of originality: a foray into the dependency approach The end of the First World War paved the way to the dismemberment of the Ottoman Empire. However, the kind of Ottoman economic thought that had developed up until the outbreak of the war survived the dismemberment of the Empire and continued to flourish as an intellectual tradition well into the Great Depression. In fact, the Great Depression as the termination of the nineteenth-century global economic system offers a


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more meaningful endpoint to the study of the nineteenth-century Ottoman economic thought in all its richness and diversity. It should be noted that a critic of the Listian economics of the Second World War era chose to emphasize a paradoxical situation inherent in List’s thinking (Zaimog˘ lu, 1943). Whereas List had mocked the 1838 Anglo-Ottoman Commercial Treaty in congruity with his protectionist and developmentalist approach, he had also been a prophetic foreseer and an advocate of Germany’s future Drang nach Osten that would envisage the German colonization of the Ottoman Empire (List, 1885: 433). Whereas List advocated a ‘national system of political economy’, he noted the intrinsic unlikelihood of Asian nations to survive the challenge of economic development: Wherever the mouldering civilisation of Asia comes into contact with the fresh atmosphere of Europe, it falls to atoms; and Europe will sooner or later find herself under the necessity of taking the whole of Asia under her care and tutelage, as already India had been so taken in charge by England. In this utter chaos of countries and peoples there exists no single nationality which is either worthy or capable of maintenance and regeneration. Hence the entire dissolution of the Asiatic nationalities appears to be inevitable, and a regeneration of Asia only possible by means of an infusion of European vital power, by the general introduction of the Christian religion and of European moral laws and order, by European immigration, and the introduction of European systems of government. (List, 1885: 419) The above paradox must have forced the Left-leaning Ottoman/Turkish intellectuals to approach List with caution and rather selectively, and to diversify their intellectual origins in the imported European traditions. Fortunately, they discovered another underground tradition in the Ottoman Empire that had spread outside the strictly academic domain. Various offshoots of Marxism had already penetrated into the Ottoman Empire. First and foremost among the Marxists in the Ottoman scene was Alexander Israel Helphand, a Russian Jew and a revolutionary, who had obtained a doctorate degree in economics and finance, and meanwhile developed ties with German and Russian Marxists in exile. Having later sought refuge in the Ottoman Empire, he wrote under the pen name of Parvus. He explored the penetration of imperialism into the Ottoman Empire and the Empire’s financial captivity in the hands of foreign lenders in a book first published in 1914 (Parvus Efendi, 1977). The above kind of literature on imperialism and eventually on underdevelopment would gain further ground in the hands of a group of allegedly renegade Marxists during the early Republican era. In response to the challenge of the Great Depression, they would synthesize this dependency-like approach with List-type developmentalism only to

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formulate the most articulate and authentic Turkish school of political economy around a journal of the name Kadro (1932–5) that prefigured post-Second World War dependency approaches (Özveren, 1996). With the Kadro, finally, the alternative to the cosmopolitan Classical paradigm became as logically consistent and comprehensive as its long-time rival. It should be noted that the same Kadro represented the first and outright rupture with the ever-present monetary orthodoxy of the Ottoman economic thought, by bringing to the foreground the necessity to stimulate investment by way of unorthodox monetary measures. For these authors, monetary policy was a means of securing economic development amidst the policy parameters prevalent in a peripheral economy caught in the spell of the Great Depression. As such, this would indeed offer a good point to terminate the history of the first phase of modern economic thought in the Ottoman Empire extending into one of its several successors, namely, Turkey.

Notes 1 I would like to thank Prof. Oktar Türel of the Department of Economics, Middle East Technical University for his kind encouragement as well as extensive comments on an earlier version of this chapter. As usual, I assume full responsibility for any remaining errors or shortcomings. 2 The first and foremost problem that lies in the way of the historian of Ottoman economic thought is that virtually all material waits to be transcribed into the Latin alphabet and printed, not to mention the fact that translation is also much required as a virtual landslide has taken place within the vocabulary of Turkish language in the course of time. 3 Irrespective of such reform-oriented improvisations, the tradition of writing exclusively on the state finances in general, and on taxation in particular, lasted to the end of the nineteenth century. Otherwise a delegate to the Berlin Conference and a one-time employee of the European-owned Ottoman Bank, Süleyman Sudi wrote as late as in the last quarter of the century a compendium of the various taxes without probing into the broader questions of economic interest (Sudi, 1996). 4 It should be noted here that land/labour ratios in the Ottoman Empire were relatively high in comparison with France to press for an urgent leap in agricultural productivity. 5. Because the major Ottoman cities, but especially Istanbul (Mantran, 1965), were far more populated than their European counterparts, the distorting effect of provisioning policy was far greater and lasting than elsewhere in Europe. 6 This sequence is inevitably linked with the broader question of economic mentality – in the Annales School sense – that prevailed in the Ottoman Empire. The flexibility of this mentality was obviously limited. Even so, it could accommodate a significant amount of gradual change over time before it broke down to give way to a new homo economicus (Ülgener, 1981). 7 The Ottoman statesmen attempted to resist the encroachment of the foreign merchants into the domain of domestic trade. However, they had to yield to foreign pressure because they needed Britain’s strategic support in order to protect the territorial integrity of the Ottoman Empire.


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8 It took more than a century for neoclassical economists to venture into the domain of the so-called New Institutional Economics in order to come to realize the necessity of institutions for the functioning of the market mechanism. European liberals in the Ottoman Empire were forced to realize this commonplace truth by the pressure of the environment within which they found themselves. Whereas their theoretical counterparts in Europe could take such institutions for granted, they had to help deliberately build them up on the Ottoman soil. 9 Originally, the Ottoman Empire relied heavily on Greek intermediaries for conducting its relations with the Europeans. Besides the Armenians, Greeks were also active in translation. However, the loss of confidence in the Greek community in the aftermath of the Greek insurrection and independence (1821) led the Ottomans to purge the Greeks out of civil service in the foreign affairs department. 10 During the first decade of the twentieth century, an Armenian deputy for Istanbul of the Ottoman Parliament, Kirkor Zohrap Effendi, was to raise strong objections to the liberal policies of Cavit Bey (Toprak, 1985: 637) of which more will be said later. 11 The Ottoman statesmen were forced to fiddle with the value of money by the dire circumstances they found themselves in. They even had to experiment with paper-money. However, they knew this was undesirable as far as their international credibility was concerned. The monetary orthodoxy of the international order operating around the Gold Standard punished heavily all deviant behaviour. As we have seen above, the primacy of non-Muslims in economic matters was largely due to their experience in this respect. Muslim Ottomans made their debut to the extent that they subscribed to monetary orthodoxy.

References Berkes, N. (1972) ‘Ekonomik Tarih ile Teori I˙ lis¸kileri Açısından Türkiye’de Ekonomik Düs¸ünün Evrimi’, in F. Görün (ed.), Türkiye’de Üniversitelerde Okutulan Iktisat Üzerine, 39–55. Ankara: Orta Dog˘ u Teknik Üniversitesi. Cezar, Y. (1986) Osmanlı Maliyesinde Bunalım ve Deg˘ is¸im Dönemi. Istanbul: Alan Yayıncılık. Christie, I.R. (ed.) (1971) The Correspondence of Jeremy Bentham, 3. London: The Athlone Press. Çavdar, T. (1992) Türkiye’de Liberalizm (1860–1990). Ankara: I˙ mge. Divitçiog˘ lu, Sencer (1981) Asya Üretim Tarzı ve Osmanlı Toplumu. Kırklareli: Sermet Matbaası. Genç, M. (1984) ‘XVIII. Yüzyılda Osmanlı Ekonomisi ve Savas¸’, Yapıt 49(4): 52–61. —— (1994) ‘Ottoman industry in the eighteenth century: general framework and characteristics’, in D. Quataert (ed.), Manufacturing in the Ottoman Empire and Turkey, 1500–1950. Albany, New York: State University of New York Press. Gökalp, Z. (1958) Türkçülüg˘ ün Esasları. I˙ stanbul: Varlık Yayınevi. Gürsel, S. (1985) ‘1838 Osmanlı-I˙ ngiliz Ticaret Antlas¸ması’, Tanzimat’tan Cumhuriyet’e Türkiye Ansiklopedisi III: 688–90. I˙ nalcık, H. (1993) The Middle East and the Balkans under the Ottoman Empire: Essays on Economy and Society. Bloomington: Indiana University Turkish Studies and Turkish Ministry of Culture Joint Series. Issawi, C. (1982) An Economic History of the Middle East and North Africa. New York: Columbia University Press.

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Karpat, K.H. (1985) Ottoman Population, 1830–1914. Madison: The University of Wisconsin Press. Keyder, Ç. (1979) ‘Osmanlı Ekonomisi ve Osmanlı Maliyesi (1881–1914)’, Toplum ve Bilim 8. Keyder, Ç., Özveren, E. and Quataert, D. (eds), ‘Port cities of the Eastern Mediterranean, 1800–1914’, Special Issue, Review, Fernand Braudel Center, 16(4). List, F. (1885) The National System of Political Economy. London: Longmans, Green & Co. Mantran, R. (1965) La Vie quotidienne à Constantinople au Temps de Soliman le Magnifique et des ses successeurs XVIe et XVIIe siècles. Paris: Hachette. Mardin, S¸. (1985) ‘Tanzimat’tan Cumhuriyet’e I˙ ktisadi Düs¸üncenin Gelis¸mesi (1838–1918)’, Tanzimat’tan Cumhuriyet’e Türkiye Ansiklopedisi III: 618–34. Özön, M.N. (1997) Namık Kemal ve I˙ bret Gazetesi. Istanbul: Yapı Kredi Yayınları. Özveren, E. (1996) ‘The intellectual legacy of the Kadro movement in retrospect’, METU Studies in Development 23(4): 565–76. Parvus, E. (1977) Türkiye’nin Mali Tutsaklıg˘ ı. I˙ stanbul: May Yayınları. Sayar, A.G. (1986) Osmanlı I˙ ktisat Düs¸üncesinin Çag˘ das¸las¸ması. I˙ stanbul: Der Yayınları. Schumpeter, J.A. (1954) History of Economic Analysis. New York: Oxford University Press. Screpanti, E. and Zamagni, S. (1995) An Outline of the History of Economic Thought. Oxford: Clarendon Press. Senior, N.W. (1859) A Journal Kept in Turkey and Greece in the Autumn of 1857 and the Beginning of 1858. London: Longman. Shaw, S. (1971) Between Old and New: the Ottoman Empire under Sultan Selim III (1789–1807). Cambridge: Harvard University Press. Smith, A. (1976) An Inquiry into the Nature and Causes of the Wealth of Nations. Chicago: University of Chicago Press. Sraffa, P. (1981) ‘Introduction’ to David Ricardo’s On the Principles of Political Economy and Taxation. Cambridge: Cambridge University Press. Sudi, S. (1996) Osmanlı Vergi Düzeni: Defter-i Muktesid. I˙ sparta. Pamuk, S¸. (1987) The Ottoman Empire and European Capitalism, 1820–1913: Trade, Investment and Production. Cambridge: Cambridge University Press. Polanyi, K. (1944) The Great Transformation. Boston: Beacon Press. Toprak, Z. (1982) Türkiye’de ‘Milli I˙ ktisat’ (1908–1918). Ankara: Yurt Yayınları. —— (1985) ‘I˙kinci Mes¸rutiyet Döneminde I˙ ktisadi Düs¸ünce’, Tanzimat’tan Cumhuriyet’e Türkiye Ansiklopedisi III: 635–40. Ülgener, S.F. (1981) I˙ ktisadi Çözülmenin Ahlak ve Zihniyet Dünyası. I˙ stanbul: Der Yayınları. Zaimog˘ lu, Y.N. (1943) ‘Memleketimizde F. List Hayranlıg˘ ı’, Adımlar 5: 156–60.

9

Aspects of economic thought and policy in Serbia, 1850–19001 Kosta Josifidis

Historical background Two key reasons have determined the choice of the second half of the nineteenth century, as a period of study of the evolution of economic thought and policy in Serbia. First, this historical period is certainly one of the most important for the country, bearing in mind that Serbia gained its freedom and attained international recognition and independence – after several centuries of slavery under the Ottoman Empire. Independence marked the overcoming of feudal relations and the entry into capitalist social and economic relations. Second, papers on economic theory and economic policy appeared in that period (whereas one must not forget that many elements of economic thought can be found in various sources and the cultural heritage of medieval Serbia). In the political-historical sense, the second half of the nineteenth century in Serbia was one of its most dynamic periods: very unstable political conditions related to the change of ruling dynasty (Obrenovic´ versus Karod¯ord¯evic´), were followed by the country’s transformation from principality to kingdom, two regencies, several constitutional changes, wars with Bulgaria and Turkey, the gaining of state independence, and the formation of a number of political parties (Blagojevic´, 1980: 88–102).2 In the economic-historical sense, Europe witnessed a remarkable period of progressive development, as a result of major inventions, urban developments, trade and industry, private entrepreneurship, political-economic liberalism, flourishing of science and institutions. Serbia also saw the beginning of a similar process of fast economic development, under new and more favourable political conditions. This was particularly marked by a demographic explosion (the population rose from only 960,000 in the mid 1850s to 2,500,000 by the end of the century). The economic structure was however still dominated by agricultural production (by the 1900s almost 85% of the population was engaged in agriculture, only 7% worked in industry, around 5% in trade and the same percentage was affiliated with the government or working freelance). The major international trading partner was the Austro-Hungarian Empire (almost four-fifths of

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entire exports, the majority of which was livestock and later agricultural products). Serbia at first did not issue its own money and the circulation was based on foreign currencies, above all Turkish and Austrian moneys (coins – gold, silver, copper, in the forms of ducats, forints). The first (copper) money was coined in 1868, the principles of the Latin Monetary Union were adopted in 1878, the first issuing institution in Serbia was established in 1883 – its National Bank, as a private, share company. On the other hand, the literacy rate was improving rather slowly and at the turn of the century around 77% of the population was illiterate (85% of peasants fell into this category), 93% of women were illiterate, while only every second urban inhabitant was literate. This fact gives a clear picture of socio-economic conditions in the second half of the nineteenth century in Serbia – as a basis for the scientific development in general and economic thought in particular. In the economic-theoretical historical context, it is interesting to point out the crucial impact of economic thought of developed Europe on the thought in Serbia. The latter was mainly reduced to reworking and adapting economic ideas from various European countries, in accordance with Serbian conditions. Such a transmission was conducted through academics who were sent from Serbia to continue their studies abroad, most often to Austria and Germany and to a lesser extent to France, England and Russia. Therefore, the greatest impact on the economic thought in Serbia came from the older German historic school, English-French classical liberal economics, French, German and Russian non-Marxist socialism and Marxist thought. The first two streams, historicism and classicism influenced Kosta Cukic, Cedomilj Mijatovic and Mihailo Vujic, the leading economists of the time. Within such a context, their work and contribution to the development of economic thought and policy in Serbia, in the second half of the nineteenth century, are the focus of this chapter. It has, however, to be underlined that this influence was not one-dimensional and of an exclusive character, in the sense that these authors followed and/or imitated a single theoretical matrix. Their work features an eclecticism, the influence of different schools of thought, that makes classification difficult. As O. Blagojevic put it, ‘any division of the Serbian bourgeois economists into specific economic schools should be forced to a great extent and therefore highly groundless’ (Blagojevic, 1980: 98).3 In accordance with the outlined approach, the rest of this chapter focuses on the discourse of Cukic, Mijatovic and Vujic. The schematic structure is centred to cover the work in the following areas: political economy, economic doctrines, economic policy, finance and general assessment of each of the mentioned economists.

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Kosta Cukic The name of Kosta Cukic4 is important in the history of ninetenth-century Serbia not only because he was a great reformer in public finance. He was the founder of the first state bank, the so-called Fund Management, his ideas led to the coining of the first copper money, he made all the preparations for the creation of the Central Bank, and was an innovator in the field of education (there were 299 schools when he took a position with the Ministry of Education, in contrast to 418 schools and double the number of pupils when he left the post). In addition, he was professor of so-called state sciences (including economics and finance) and in 1851 published the first part of his State Economics, entitled National Economics. This work actually marks the beginning of a serious and systematic research into economic science in the last century’s Serbian state. Speaking in relative terms, it was generally the first research of the kind. Two years after he published the third part (sic) entitled Finance and even nine years after that the second part Economical police 5 (sic). As the author himself mentioned in the foreword to Part One, he studied two and a half years in Heidelberg, with ‘the eminent professor Karl Heinrich Rau who was largely praised by critiques of educated European world’ (p. v), and this enabled him to produce that work. Cukic managed to complete his book State Economics in three volumes by using, above all, Rau, but also: Smith, Say, McCulloch, Lotz, Kudler, Schmalz, Droz, Rossi, Blaqui, Riedel, Canard, Nisas, Stein and ‘some statisticians’. Moreover, Cukic further divided the first volume into ‘two parts’, in order to ‘facilitate the burden for students at the Lycée, for they had to carry less books’ (p. vi) – though they were later published in a single volume. The first part of Volume One was presented as state economics in the sense of economic theory, while the second part was divided in three chapters: production of possessions, allotment of possessions and consumption of possessions (production, distribution and consumption as recognized today). The first part covers basic notions of economics, the subject of state economics, the notion of value, the history of economics with references of 25 pages. In the field of political economy (it is actually his national economics), Cukic follows the textbook forms of his time and particularly Rau’s. For that reason, Cukic begins explaining economic problems by using the notions of needs and goods. So, needs are formulated as follows: Human dependence on external nature is his need. A need records certain shortage, imperfection, which has to be filled, done, and that comes when needs are met. Needs are as multiple as sides of human life, during which they are developed and met. (Cukic, 1851: 1) Needs can be measured by intensity and extent, in the sense that intensity of needs means internal human impetus to satisfy his subjective need,

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while the extent of need includes totality, generality of needs in comparison to a number of people. Cukic considers goods as phenomena ‘of this world which are capable of responding to a goal of man’, and he divides them into real, spiritual and social goods. An estate is a group of goods under someone’s rule and it can be private, governmental or national. On the basis of these notions, as well as the ones of home-making, mastership, i.e. economizing (‘an activity related to multiplying, keeping and consuming of an estate’, p. 8), Cukic gradually and methodologically develops an approach to economic science. Through the classifying of mastership into private and public, national and governmental, Cukic comes to the following definition of economics: A group of economical laws and rules (on household) forms a science which we call a science of mastership, household or in a word economics. (Cukic, 1851: 11) It is evident that Cukic defines economics in a very broad sense. He later separates the economic science in political (or public, state) and private economics. Political economy is further divided on national and governmental economics and economical police. The private economy consists of as many parts as ‘there are types of private households in the people, the most important ones being: agriculture, cattle-breeding, forestry, mining, handicrafts, factories, trade’ (p. 11). Governmental economics is often called finance, which is together with economical police termed ‘economical policy’. Cukic’s understanding of political economy is very broad because it includes, besides the usual consideration of political economy, also economic policy, industrial economics and finance. The term national economics is used for the notion of political economy in the contemporary sense of a general theory of economic science (Blagojevic, 1980: 107). The object of state economics is a state realty consisting of private estates of all citizens and governmental estates. Estates are made up of an adequate quantity of economic goods, which are either directly useful (pleasure) or indirectly useful (current or production goods). Products of land which can augment the owner’s estate with new, real goods are called capitals (pp. 22–5). In the field of value, we face Cukic’s subjectivistic attitude which points to the fact that he had underscored the basis of subjectivist economic theory (two decades before Menger, Jevons and Walras) as a result of the influence of his German teachers. The feature of a good which can meet human purpose can be called utility. A degree of utility of one good for different purposes, or a number of goods for one or more purposes, is the value of goods. The value represents the degree of utility of a good for man and it


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increases in accordance with scope of the need it meets. The value is lower if the corresponding need is of a less importance. The price, contrary to the value which represents usefulness of consuming, reflects only the fact that two quantities of goods on the market are equal . . . Costs are, finally, a sum of all those goods which had to be given in order to acquire another good. (Cukic, 1851: 27–8) Concerning the problem of prices, Cukic emphasizes three crucial rules: (1) the price of a good cannot be higher than the value it has for a buyer, (2) the lowest price of a good cannot be under the level of costs, and (3) the price of a good cannot be higher than the costs the buyer would incur in order to acquire the good in an alternative way (pp. 41–3). As the important factor influencing prices, Cukic formulates competition, as ‘a wish of a number of people to buy or sell a certain good’ (p. 45). In addition, he writes about extensive (scope) competition (quantity of goods on the market) and intensive (strength) competition (efforts and commitments of buyers or sellers to trade). Related to that, he stresses price as a consequence of competition, the price sometimes called trade price, market-place price, common or real price, contrary to natural price, real price, necessary or cost price, ‘which is not actually price but a sum of costs and therefore presents only a part of a price’ (pp. 46–7). In the second part of National Economics (entitled Production, Distribution and Consumption of a National Estate), Cukic defines national economics as a science of laws that regulate production, distribution and consumption of a national estate (p. 1). Moreover, before explaining the etymological meaning of oikos and nomos, he also quotes Aristotle’s division of economy into private, urban, provincial and state economy. He also points to the fact that the national economy has developed through experience and therefore a small number of its laws have been developed rationally (p. 4). The well-known trichotomy – production, distribution and consumption – is recognized in his definition of the national economics. Each product requires four sources: work (action), natural forces, land and capitals. Work and natural forces are forces, while the other two sources are parts of an estate. A special class, called production entrepreneurs, links these factors into a purposeful combination (p. 9). On the basis of functional determination6 of production factors, Cukic perceives the foundations of political economy where all production factors are sources of value – not only work. The theory of capital productivity is also evident, as well as a particular importance of entrepreneurs – as agents of the organization of the production process. The existence of land rent and other non-work incomes is also justified. Finally, there is an implicit evidence of a harmonious cooperation of all social classes. In other words (Blagojevic, p. 109), all major theories of postclassical vulgar economics in the Marxian meaning of the term are represented.

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As far as distribution is concerned, Cukic distinguishes between distribution of estate (‘major’) – being the result of historical development of a nation, and distribution of revenue (‘what has been added to the major during a year’), i.e. the difference between gross revenue or total revenue unfolds. The following classes participate in the division of total revenue: (1) land masters, (2) masters of real national capital and indulgence resources rented, (3) entrepreneurs of production manufactures or services, (4) wage-earners which are employed in production manufactures or some services, (5) people who consume national estate for free or unlawfully. Income is divided in the form of work price (wage), price of used land (rent), price for capital use (interest and rent), and entrepreneur price related to efforts and risks (manufacture services) (pp. 94–6). Cukic presents the category of wage in an ordinary sense of work price, conditioned by three factors: value of work, costs and competition. Value of work is determined by a degree of skills and hardworking, as well as by goals of working (p. 98). Costs cover workers’ living needs and the needs related to acquiring skills – for intellectual workers (p. 99). As the crucial factor to influence wage, competition is determined by the relation of work supply and demand. The price of land use is the essence of land rent and its amount is calculated by deducting production costs, capital interest and profit (i.e. manufacture service) from gross revenue. Cukic does not make a difference between absolute and differential rent, although he points out that even the worst and most distant pieces of land can make certain net revenue (p. 114). A special chapter of the second part of the National Economics is devoted to capital rent (interest) and is considered as the price of capital use: ‘capital rent is a revenue of capital itself, without any impact of other production sources’ (p. 116). Profit or entrepreneurship gain is called manufacture service and on this basis Cukic underscores a distinction between previous types of income and this one – the latter cannot be subject of contract. He also emphasizes a difference between profit and capital rent – the latter is actually net revenue while the former is calculated by deducting adequate expenses. Cukic distinguishes profit from wage, not only because profit cannot be a subject of contract but also because it depends on the nature of the firm and of the level of invested capital. Concerning the methods of establishing national income, Cukic shows that he is familiar with two methods. According ‘to the first method of calculation, total revenue of the whole nation is summed up, i.e. value of all newly-made raw material, augmentation of their value through processing and all imports of goods from foreign countries’ (pp. 128–9). Upon that, one has to deduct costs in the form of maintenance of production workers, entrepreneurs and their families, value of material used in production, permanent capital write-offs and value of exports. The residual


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amount is net national income. The second method requires determining and summing up net revenue of all national classes: workers, entrepreneurs, rent-collectors and lenders (p. 131). In this part of the book, Cukic looks also upon theory, policy and to some extent techniques of money and credit (heading 3, pp. 134–74). Within that context, money is formulated as ‘a general mean of circulation representing all other goods in trade’ (p. 137). Similarly, adequate attention is devoted to mechanisms which surround the phenomenon of money, such as quantity of money in circulation, changes of value of money, banknotes, history of money. Related to the field of credit, he describes issues of assignation, drafts, bank house, credit papers, accounting forms etc. Finally, in the last part of the National Economics (the shortest one – only nine pages), Cukic discusses consumption: the notions of productive and non-productive consumption, as well as luxurious consumption. At the end of this rather lengthy analysis of Cukic’s work in the field of economic theory (there are two reasons for that: first, politico-economic ideas are definitely the basis for research of economic thought in general; second, Cukic’s National Economics is literally the first systematic work in this field in Serbia and so it deserves such a treatment), we can conclude that it resembles economic-theoretical conditions in Europe, and Serbia, of that time. Namely (Blagojevic insists on that, p. 112), Cukic’s work is mainly a reflection of the economic system of German economics of that time – particularly concerning its well-known representative Rau, as pointed out by Cukic himself. German economics is a certain mix of classical and subjectivist, somewhat also mercantilist concepts. Therefore, its main characteristic is a systematic description of manifestations of economic way of life, without finding a reason for determining and explaining its internal laws. However, despite this shortcoming, economically underdeveloped Serbia of the second half of the nineteenth century gained a capital work in political economy. With its wide scope and clarity, this work made a contribution to the education of the intellectual part of the Serbian people in the last century. Although it is actually a modified version of Rau’s textbook, National Economics played a crucial scientific role in a small country, which is more or less reduced (in accordance with its own particularities) to the position of a receiver of scientific achievements of the developed world. In this way, a process of education of nations and economies is actually shortened. Taken in such a context, Cukic’s work served the purpose of being the crucial economic-theoretical basis for economic textbooks that followed. Cukic also presents the history of economics, though at modest lengths. Following the custom of the time, economic doctrines were a part of political economy textbooks. Cukic emphasizes the fact that a subject is better understood if presented in contemporary and historical context and adds that ‘the history of state economy has started recently’.7 He then contributes a history of economic thought development covering: ancient

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and medieval thought, mercantilism, physiocracy, liberal, socialist and communist thought. Ancient economic thought is represented by authors as Xenophon, Plato, Aristotle, Pliny and Cicero. Cukic makes a general remark that one cannot talk of an economic science at those times – meditations on economic topics were mainly from the ethical standpoint. Concerning mercantilism Cukic writes: As a private man is richer the more money he has, for the money he can acquire all other necessary goods, so as any nation can get richer if it puts efforts to acquire enough money. There are two roads for getting rich: either local production of precious metals or import other countries’ moneys. A country which does not produce precious metals by itself can become richer only by importing money from other countries. Money from abroad can be imported only through trade, so it is most necessary to make a decision which goods to trade in order to import money from foreign countries. (Cukic, 1851: 85) Cukic nevertheless does not mention the most popular representatives of mercantilism (Serra, Mun, Montchretien) but makes reference to authors like Hume, Genovesi and Sonnenfels. On the other hand, he examines to a certain extent the work of Steuart, Bodin, Davenant, Sully (as an opponent of mercantilism, who ‘takes side with a particularly backward and exploited agricultural class, acknowledging agriculture as the only basis for state welfare’, p. 84) and Colbert (considering him the founder of mercantilism: ‘Colbert, French minister in 1661, had contributed the most towards formation of such ideas in France and other states, ideas that only money, trade and handicrafts serve the people’s happiness’, pp. 84–5). He adds seven key principles of mercantilism and the most attention is devoted to tariffs (the seventh point: tariffs are the best means to achieve meeting all the government’s orders) and bills-of-exchange, bearing in mind their importance in Serbia of the time. Concerning the physiocrats, he writes about Sully, as a predecessor, and Quesnay, as a founder, in addition to Mirabeau, de la Rivière, Turgot, LeTrosne. Mably, Galiani, Verri, Dohm and Pfeiffer are cited as opponents. Cukic calls this school the natural school, the economic or the French one and explains its basic principles agriculture as the most significant part of economy which produces net yield, a tax paid by land owners, and definitely the most popular physiocratic principle laissez-faire et laissez-passer. Industrial or Smis’s (not Smith’s) system is Cukic’s term for the classical school of political economy, by which he expressed the crucial characteristic and main actor: Smis was the first one clearly to prove, and to bring the proven into a scientific mechanism, that production sources are not only land or


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trade but also capital and action [work, remark by KJ], as there is not a single real good which can be used with utility if there has not been certain amount of work previously applied to it. Many truths of the Smis’s system had been realized before him by physiocrats and other British and Italian scientists. So, he has to be taken as a true founder of economic science [emphasis KJ], on today’s principles. (Cukic, 1851: 97) Although the classical school is analysed on only two pages, Cukic does not omit to mention ‘major thoughts of the industrial system’: (1) real goods are produced by human work, land and capital, and the amount of work determines the value of goods; (2) productive work is not only in agriculture, but also in industry and trade; (3) the most important means of increasing work efficiency in production is purposeful division of labour and the use of capital; (4) government should equally support all activities; (5) the principle of free competition; (6) government interferes in the economy only to remove obstacles for development; and (7) government revenues are procured through taxes. The references give a large number of authors from various countries who advocate or oppose Smith’s thought (pp. 124–35). It is interesting that after Smith’s work, Cukic makes a reference to Ricardo’s On the Principles of Political Economy and Taxation although this author and work are neither mentioned nor analysed. The following authors from England are also included: Malthus, Mill, Torrens, MacCulloch, Whately etc.; from France, Canard, Say, Sismondi, A. Walras, Blanqui; from Germany, Sartorious, von Jacob, Lueder, in addition to Smith’s supporters from other countries, as well as his opponents (List, Hamilton, Pownall). The list is impressive but, as mentioned, only two pages are devoted to Smith’s work. On the other hand, Cukic pays more attention to the system of socialism (‘cooperativeness’) and communism (‘collectiveness, generality’). He starts from ancient times and quotes the names of Plato, Campanela, Bakon, Saint-Simon, Fourier, Owen (quoted only in a footnote), Proudhon, etc. Separate chapters are devoted to Saint-Simon and Fourier, considering the first one as a founder of socialism and the latter as a founder of communism. Blagojevic (p. 114) points out that Cukic includes them despite the fact that two or three decades have passed since their main books were published. Marx and Engels and their work are not mentioned at all although their most early work was published in 1851. Cukic emphasizes how working classes easily accept communist ideas because they are actually about contradictions and the fight of labour against capital, poverty against riches. According to him, capital is the idol of the time praised by many and to which in the form of sacrifices physical and mental powers of men are given, and which opens an ever widening gap ‘between rich and poor, industrialist and worker, as wider as they are more committed and hard-working’ (p. 102).

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Concerning economic policy, we have already mentioned that Cukic published the second part of his State Economics in 1862, at the time when he was a minister, not a professor and that was the reason for such a time lag. As he mentioned in the foreword (Cukic, 1862: v), that lag had its good side because in the meantime he got the latest, fourth edition of Rau’s work,8 which had been adjusted and amended ‘in accordance with the most recent development of national-economic life and in line with the corresponding economic policy of states’. One can conclude that Cukic has no dilemma in a continuous support of the work of his Professor Rau. Economical police, a term and meaning Cukic took over from German literature of the time,9 is treated in three books: first, improvement of material production of the nation; second, improvement of estate distribution; third, government measures on goods spending. Taking over 600 pages, Cukic explains the principles of economic policy, on the one hand, and specific industries’ economic policies: agriculture, mining, manufactures, transport, trade, credit and consumption policy, on the other. Economic policy can be of two types (p. 4): the policy of either national or governmental economizing. The first is called national-economic policy or economical police while the latter is finance. The two, together with national economics, Cukic terms state economics. Political actions of government are threefold: (a) in the narrow sense, police of security (personal and estate), (b) intellectual, legal, aesthetical, and moral actions on nation’s development or policy of representation, and (c) economical police, which takes care of economic conditions and nation’s actions (p. 10). Cukic also provides examples from different countries, of bodies which are entrusted with ultimate economic-police care: in France, there is a ministry of agriculture and trade (including a ministry of public affairs – construction); in Holland, there are ministries of education, national industry and colonies; in Belgium – ministry of public affairs (including post office, mines and education); in England, there is an independent board for trade etc. (pp. 14–15). The basic principle of state economic policy is government’s duty to help the nation in conducting business, under the condition of not interfering too much in business and hence endangering economic freedom of citizens. State laws, orders and other regulations are the main governmental instruments. Concerning the basic principles of economic policy, Cukic pays the greatest attention to the care of workers. Therefore, he discusses Malthus’s population theory and with ample evidence he presents his own views on demographic policy, as well as the policy of emigration and immigration. Adequate space is devoted to the questions of capabilities and hard-working attitudes of workers and producers, improvement of work conditions and increase of work productivity. In the field of sectoral economic policies, Cukic discusses agricultural policy at the greatest length (‘care of farm economizing’, pp. 65–218), but also discusses manufactures and factories. He presents a plurality of


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various regimes of land ownership and the corresponding production in agriculture, supplying examples from particular countries. Related to the measures and instruments of agricultural policy, he especially discusses melioration, insurance in agriculture, credits, import, export, education of agricultural workers etc. In the chapter devoted to manufacturing policy (which actually dominated in Serbia at that time; having in mind the level of development which could not include certain industrial development, one can understand the omission of industrial policy), Cukic points out to the legal conditions of productive manufacturing, types of preferences for inventions, enforced rights, the organization of imports etc. He also presents the policy for ensuring the quality of products, i.e. prevention of poor characteristics of goods, measures to improve the educational level of manufacturers, the impact of exhibitions and fairs on the production of manufactures etc. The second book discusses improvements in distribution and exchange policy, including monetary policy, credit, transport policy, trade and social policy. Regarding all of the mentioned policies, he analyses business and technical sides of very different questions.10 The last, third book considers government measures in the area of consumption, wherein ‘government can and should take little care’ (p. 576) but where it is responsible to keep non-productive consumption proportionate to productive consumption (‘as the latter would meet the most important needs and bring most benefits to state society’). Cukic mostly elaborates on savings banks and life insurance because the issues of consumption were not treated as important at those times. Issues of such a character were not raised in the dominantly peasant, natural and autarchic economy of Serbia. Despite the unavoidable influence of Rau, it is evident that Cukic’s understanding and consideration of economic-political questions were more adapted to the economic situation in Serbia than economic theory or political economy. Namely, theoretical thought by its nature strives for universality and less for practicality. Cukic wrote his Political Economy when he was a professor and his Economic Policy when he was a minister. However, the highest quality of both books lies in their educational function as both of them were the first books of their kind in Serbia. Hence they were inevitable literature in the academic, professional and public context. Blagojevic (p. 188) adds other positive features: comprehensive coverage, simplicity for readers of the time, comparative presentations including some countries and Serbia itself, particular orientation to research in issues and problems of different sector policies in Serbia. Concerning public finance it is defined as ‘a science on laws and rules under which multiplication, keeping and spending of state holdings are managed’ (Cukic, 1853: 1). The book structure is as follows: I State expenses, II State revenues, III Relation of state expenses to revenues,

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IV External organization of finance administration, presented in two parts (with 256 and 254 pages respectively). State expenses are formulated as regular state disbursements over a determined period for particular public needs (p. 12). From the aspect of purpose, expenses are divided on direct ones (workers’ wages in stateowned mines and forests), indirectly productive ones (support assets) and completely non-productive expenses (‘which have no connection to nation’s real welfare’). Concerning their form, expenses are natural and pecuniary (p. 13), while with respect to their nature they can be regular and special (p. 19). Regular expenses are, concerning their level, permanent and variable. According to the legal criterion, expenses in Serbia are categorized as (p. 20) constitutional (the prince’s civil list, levies paid to the Church, financial assistance to the patriarch in Constantinople, expenses for the national assembly and the state council), and administrative (disbursements for state pensions – general expenses, and expenses for departments of state administration – occupational expenses). Cukic makes a comparison of the expenses in Europe to the ones in Serbia. So he points out that it is best if a ruler has a constitutionally defined salary. Concerning general expenses he emphasizes the pensions of state workers and justifies them because otherwise they would be inclined to receiving bribes during their work life (although he also recommends private funds for these purposes). Pensions of state clerks in Serbia of that time were graded as follows: after 10 years of employment 25% of the last salary, for each additional year it grows by 2.5%; so, after 20 years it becomes 50% of the last salary, after 30 years it is 75% while after 40 years of employment the pension is equal to the last salary (p. 48). Cukic distinguishes state revenues, as pecuniary and natural, regular and special, permanent and variable, customary and unintentional. According to the criterion of appropriation, Cukic also analyses three groups of revenues: state domains11 (purely private business of government), regales12 (by restricting free competition), and levies in the form of taxes (through state enforcement). Cukic devotes almost one-third of its Finance to the third type of state revenues – levies, including there taxes and tolls in a wide sense. Taxes are certainly the key form of levies, and they are divided on revenue taxes and estate taxes. Revenue tax is considered as a tax on specific industries (land tax, tax on buildings, on capital gain and tax on work, i.e. wages). The third part of this book discusses the state budget and credit policy. Cukic especially emphasizes the need of balancing revenues and expenses because neither deficit nor surplus is good for operation of national economy. Finally, the fourth part is about administration and organization of public finance. At the end of the presentation of these pioneering works of Kosta Cukic, in the context of future development of economic theory and


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thought in Serbia, we can give a short general assessment. We can state that they are systematic, comprehensive and detailed presentations of the sciences of political economy, economic policy and finance in a small, backward (also by the level of general and economic knowledge) state – the principality of Serbia. If one criticizes him with lack of originality, this must be seen in relative terms because such a lack logically derived from his educational heritage. On the other hand, one must acknowledge that, outside the areas of economic theory/political economy, Cukic was led by needs of adjusting to the situation in Serbia itself and in that way he increased the level of his work’s actuality and attractiveness.

Mijatovic The next unavoidable economic name in nineteenth-century Serbia is Cedomilj Mijatovic.13 In the area of political economy, Mijatovic published a book in 1867 entitled An Excerpt from Political Economy. The book definitely surpasses the character of an ‘Excerpt’, from which one can conclude how intellectually modest this Serbian economist was. Moreover, he stresses in the foreword: Those who want to work on political economy can take two possibilities. They will either work in order to understand the development level of the science and present it how it is at a given period of time, or they will try to make an advancement of the science with their own original research. The first work is not always the easiest, the second is not always the luckiest. This work of ours is done following the first way. (Mijatovic, 1867: 2) In Serbia of the time, there were only two books on political economy in use: Cukic’s National Economics and Basis of National Economics by W. Roscher,14 but Mijatovic stresses that the second one is not aimed for practical use in schools but more for a wider readers’ audience. His own attempt, Mijatovic comments, is an approach primarily intended for pupils but also as one which would not be refused by a ‘self-educated or general public’. In addition to the foreword (which is about subject, method, characteristics and importance political economy) and a part on the history of political economy (starting with ancient philosophers, over the Middle Ages, mercantilists, physiocrats, Smith and his opponents), the textbook is structured in five parts: I General notions (needs, value, use-value, goods, wealth, labour, capital, resources, turnover etc.), II On the production of goods (production of goods, labour and its characteristics, labour productivity, division of labour, capital and its features, machinery, division of capital in ‘fixed’/permanent and ‘fluid’/circulating, entrepreneur and

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enterprise, social conditions of production development – personal freedom, free competition, property rights, bad and good sides of the rights), III On trade of goods (the notion of exchange process, money, credit, relation of goods in exchange – price, laws on supply and demand, laws on the price of coins, bill of exchange relations and international exchange), IV On distribution of goods (about distribution in general, national income and types of income, wage, interest, entrepreneurship, profit, rent), V On consumption of goods (the notion and types of consumption, paths of consumption development, non-productive consumption). The literature quotes only 14 reference sources most frequently used in the book. We have presented the book content in order to prove that it is not the case of ‘Excerpt’ but it is more an ambitious work (regarding its scope) in the field of political economy. On the other hand, we have seen that the textbook composition correctly corresponds to the usual matrix of phenomena, laws and mutual conditioning and connections of politico-economic categories and relations. Mijatovic defines political economy as follows: ‘it studies commercial or economic life of man as a member of a political whole – of state or nation; and the economic life of society or nation as a whole constituting of people – political individuals’ (p. 5). It is obvious that Mijatovic ‘puts’ all economic sciences into political economy and neglects its crucial features: the historical and theoretical character (Blagojevic, 1980: 130). It is evident, that Mijatovic tries to authentically present attitudes of subjectivists concerning needs (‘a special feeling of emptiness, incompleteness and unpleasantness is called having needs. Each expression of this feeling is called a need . . . The notion of need is by itself subjective because it is an expression of feeling which is personal’ (pp. 32–3). Concerning the division of labour he points out Smith’s division as the important one. In the area of value production, Mijatovic emphasizes the fact that ‘human labour is not the only fact(or) of production’, i.e. that each product comes as a result of the joint working of all three factors: ‘external nature, human labour and capital’ (pp. 100–1). Mijatovic also pays special attention to the social conditions of production within which he explicates and criticizes socialists and communists, with a general view that their ideas (those of social reformers) are not possible by themselves.15 With regard to money, he recognizes only two functions – means of exchange and measure of value (p. 139). He explains the role and function of credit and banks. Price is formed on the basis of the laws of demand and supply. Accordingly, Mijatovic distinguishes trade or market price (a price at a given moment, as a result of a demand and supply relation) and normal price as a market price resulting from the perfect matching of demand and supply (‘i.e. quantities of supply and demand are exactly the same’), (pp. 174–5). In the area of distribution (Mijatovic calls it division, while we saw that Cukic speaks of partition), he con-


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sequently determines sizes of total yield, net yield, income. National income can be calculated in two ways – by deducting (certain items) from total yield or adding household income. The theory of distribution is based on Senior’s theory of abstinence, and in the given context Mijatovic classifies (‘The size and character of income depend on the size and character of sacrifice’ – p. 228) entrepreneurial profit, interest and wage rate. He does not specifically mention land rent as a form of income, maybe because (Blagojevic: 137) he thinks that under certain conditions rent can be received by all parts: entrepreneurs, capitalists (lenders) and workers. Therefore he speaks of ‘interest, wage and entrepreneurial rent. Rent is no compensation for a sacrifice but it simply comes as a result of scarcity of all or some production factors’ (p. 263). Mijatovic stresses that economists have divided themselves in relation to theory of rent: some are in favour of Ricardo’s theory and the others are against it, and he mentions: Bastiat, Carey and MacLeod etc. (p. 272). Similarly to Cukic, Mijatovic also pays very little attention to consumption and considers it as intentional (economical, which can be reproductive and non-reproductive) and unintentional (p. 280). A general assessment of Mijatovic’s contribution to the presentation and development of political economy is that, as with Cukic, it is the case of a complete system of political economy – in the sense of taking into account production, exchange, distribution and consumption. In Mijatovic we find a correct compilation of teachings of some German authors, plus one American, Carey), combined with a critique of socialism.16 As already mentioned, Mijatovic includes the history of political economy, i.e. economic doctrines, in the theory of political economy itself – a text of some twenty pages. This part closely follows Cukic’s approach, even making a reference to Cukic’s textbook related to issues of particular schools. He concisely reviews the ancient thought (Thoukidides’s separation of an agricultural from industrial and trade state, Xenophon’s analysis of bright and dark sides of wealth, Plato’s good theories of labour, Aristotle’s good theory of money, or ‘goods beliefs on the natural or normal price and the market price’, Roman literature etc. pp. 14–15). Mijatovic stresses that the whole period of the Middle Ages was fruitless ‘for the literature of political economy’. By the end of that period, two reasons led to the need of research into economic phenomena: high levies people had to pay to crown, landowners and Church, on one hand, and the welfare that emerged in the republics of Northern Italy on the other. In that sense, he mentions Bodin, Serra, Mun, Colbert i.e. Colbertism. He points out the emergence and views of the physiocrats and of Smith – the first one who ‘puts himself on the viewpoint of national whole’ – and the structure of Smith’s work which he also calls industrial. Similarly to Cukic, Mijatovic also quotes names of Smith’s followers (again, Ricardo is just listed, behind Malthus and in front of MacCulloch) and his opponents, Hamilton, List, Carey and socialists Saint-Simon,

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Fourier, Proudhon, a ‘communist’, Owen etc. Marx and Engels are not mentioned anywhere. Though short, Mijatovic’s history of political economy satisfies the reader to a certain extent having in mind his endeavour to comprise major routes of economic thought, with the exception of early socialism and Marxism. He, however, makes two significant mistakes. He classifies Ricardo as Smith’s vulgar interpreter and not among the founders of the classical school. Then, he considers representatives of the German historical school, Roscher, Hildebrandt, Knies as the authors who continued Smith’s work (Blagojevic: 144). Mijatovic also wrote a major economic history work, History of Trade, in 1893.17 This book of 300 pages, in addition to the introduction, has three parts: the first covers the period from 1000 BC to AD 476 (to the fall of the Western Roman Empire), the second comprises the period of the Middle Ages (from the end of the fifth to the end of the fifteenth century), while the third part is devoted to the New Age and contains two subperiods – one from the beginning of the sixteenth century (Reformation) to the French Revolution, and one from the French Revolution to the end of the nineteenth century. He discusses developments in a large number of countries and regions, although in the foreword he emphasizes that ‘the work . . . is largely a compilation from recent European work on the subject. But the parts on our regions are mostly original’ because there are no traces of them even in the best works of English, German and French authors. Mijatovic points out that the first traders in general were of Semitic origin – Phoenicians, Jews, Arabs, stressing that there were a very few of them but they were the most educated ones and the richest. Their achievements include a discovery of the alphabet and of different measures. He points out the difference between ancient Greeks and Romans in that the first were capable and inclined in establishing and developing colonies, while the latter were conquerors, law-makers, constructors but not traders (p. 49). Therefore, Mijatovic calls them (in an affirmative context) the first world colonizers.18 Globally, Mijatovic reduces the features of trade and civilization of the old world to Phoenician–Egyptian and Greek–Roman influences. The latter is important for coins, trade colonies, banks, the emergence of trade laws. The trade of the Middle Ages is linked to Byzantium, the Arabs, Italian cities, German cities, Russia, England, Holland, and for the first time he writes about the Serbian lands. Almost one half of the History of Trade Mijatovic devotes to the New Age, covering all European countries, especially the Balkan Peninsula, and other continents and more important states (USA, China, Japan, Mexico, Australia). All in all, it is an attempt to make a comprehensive presentation of the history of trade and it is worthwhile in information and in an educational sense. In Studies for the History of Serbian Trade (1872), Mijatovic tries to present the feudal regime of medieval Serbia, as a class monarchy. The


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geostrategic position of Serbia is evident by its importance for transport connecting West and East. He considers Dubrovnik as the main ‘commissioner and agent’ for the Serbian trade. Regarding the development level of economy and trade in Serbia of the time, Mijatovic concludes that at the time of surrender to the Ottoman rule it had not been behind other European countries.19 Taken as a whole, Mijatovic’s work in the area of economic history (especially the part on Serbia) is a valuable literary attempt, a scientific contribution based on ample and different trustworthy sources. In the area of finance, Mijatovic published a lengthy work A Science of State Economizing or Science of Finance (1869). In the foreword to the shorter version (Short Science of State Economizing or Science of Finance, published as a popular reading for a wider audience), Mijatovic emphasizes that when the principles and rules according to which state needs are met, are presented in a reasonable order – that is called the science of state economizing or the finance science (p. 10). The contents of the book, presented in four parts (finance administration, state expenses, state revenues, and the balance between state expenses and revenues, and state credits), coincide with the structure of Cukic’s Finance. Here, Mijatovic is proven ‘captive’ to Lorenz von Stein (Lehrbuch der Finanzwissenschaft, 1860) and, like Cukic, to Rau (Grundsatze der Finanzwissenschaft, 1843–6). Without going into details on particular issues in this area, we should only stress Mijatovic’s contribution to the development of the science of finance in Serbia (Blagojevic: 155). In the area of the financial history of medieval Serbian state, his pioneering attempt has not yet been surpassed. With regard to a general assessment of Mijatovic’s place in the development of economic science in Serbia, one can positively conclude that he is of great importance. His highest achievements were in the field of economic history. In spite of his highest appreciation for political economy, he did not make a significant advance in comparison to Cukic. Moreover, within the history of political economy he took the position of the typical representative of the then emerging Serbian bourgeois class. Blagojevic (p. 157) also stresses that, although an economist by education, Mijatovic also did work in politics, diplomacy, history, literature and even spiritualism. He left traces everywhere but the most remarkable ones are in the economic science, which was the least developed.

Vujic The heights of economic thought in the nineteenth century’s Serbia are linked to the name of Mihailo Vujic.20 He was the author of numerous books in the field of economic sciences, above all theoretical and then economic-political, financial and economic-theoretical. His most important book is The Principles of National Economics, in three volumes: I Basic Preliminary Issues and Historical Development of the Science of National Economics

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(1895), II Economic Theory (1896) and III Economic Policy (part I 1898, as the second part entitled Finance was not published except as unauthorized students’ notes). His other works include: Theory and Practice of Issuing Banks (1886), Our Economic Policy (1883), The Most Recent Turn in Trade Policy (1903, this was in his inaugural address to the Academy of Sciences). The philosophical-methodological basis of Vujic’s opus in the field of economic thought can be found in the empiricism of Locke, the positivism of Comte and particularly in the idealism of Kant. In the second volume of The Principles, Vujic presents his economictheoretical views. For him political economy is a young science which started with the work of A. Smith. Its raison d’être lies in the economic side of human life. Such a late emancipation of political economy as a science, is explained by the fact that the national economy, as an organic whole, emerged in recent times with the formation of modern nation states. The second reason lies in the very nature of the subject of political economy which is highly complex and requires higher intellectual activity, which could have been possible at higher levels of socio-historical thought (Blagojevic: 163). When it comes to making a choice between the terms political economy and national economics, Vujic chooses the latter. Namely, economics is a science of social economics, of the economics of a nation as a social organism and therefore the term National or State economics is the most suitable one. Political economy is a very broad notion because we can never comprehend economic interests of the entire mankind in an organic whole. (Vujic, 1895: 37) Vujic as his predecessors is also under the influence of German authors. This is exemplified by the fact that he includes in the notion of political economy the following: economic theory, economic policy and finance. Accordingly, Vujic studies the problems of political economy in three dimensions: production, exchange and distribution with consumption (actually, it was J.B. Say who included consumption as a separate field in political economy, besides production and distribution – in his major work Traite d’economie politique, published in 1803), which is a typical textbook matrix. For that reason we will not consider here phenomenologicalcategorical aspects of political economy in Vujic’s work. A general impression is that, from the aspect of scope, Vujic surpasses his predecessors on some questions. For example, concerning the problem of value he cites the views of Smith, Ricardo, Carey, Marx’s theory of socially necessary labour-time, views of subjectivists and marginalists like Gossen, Walras, Menger and Böhm-Bawerk. Vujic however does not express his attitudes consistently; at some places value depends on hours worked, in others it depends on supply and demand, production costs, utility, scarcity etc. One


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can draw the conclusion that this is his weakest point, i.e. that his understanding of value is confused due to inclusion of the elements of RicardoMarx’s labour theory of value, Mill’s production costs, supply and demand, Carey’s overcoming of natural obstacles and Wieser’s scarcity (Blagojevic: 169). Vujic pays great attention to the problems of money and credit, not only in National Economics but also in Theory and Practice of Monetary Banks. He specially writes about the historical development of money, ending with the banknote which he defines as: in one word, money order . . . Banknote is therefore pure credit money. It is like a fire which can be used very well, but if overused, it burns down and destroys human achievements. Modern Prometheus, and that is the development of public credit, took it from the sky and brought it in civilized societies to move industry and culture, but always within the limits of sound and careful use. As soon as the limit is passed, it leaves desert and troubles behind it. (Vujic, 1886: 33–4) In the field of distribution, Vujic engages himself with various theories of rent, starting with the classical ones, mostly those of Ricardo, Thünen and Mill. As far as the wage is concerned, he presents and critically evaluates theories of Smith, Mill, Lasalle, Jevons, Marx etc. He also gives his personal opinion on this question: the level of wages fluctuates between the minimal level of an ordinary worker’s maintenance and the maximal limit of economic utility of his work. With regard to consumption and contrary to Cukic and Mijatovic, Vujic does not positively assess luxurious consumption. All in all, Vujic’s political economy does not differ from mainstream anticlassical theories of the time, mainly of a subjectivist direction. The end of the nineteenth century saw, however, a largely advanced level of European literature on economic theory and this made an impact on the work of Vujic because he was not slave to a single author. Moreover, it seems that by avoiding following only one author, Vujic chose attitudes which appeared to him as most suitable for particular issues. His work represents a wide spectrum of various economic and philosophical schools of thought and other knowledge and opinions. The positive aspect of Vujic’s political economy is the linking of economic theory with economic policy and practice. Nevertheless, his indeterminacy, inconsistency and his lack of originality in the theoretical sense (particularly his eclecticism on value theory), somewhat diminish a general conclusion that Vujic is one of the most comprehensive and universal authors within the system of bourgeois economic-theoretical thought in Serbia (Blagojevic: 175). Contrary to his predecessors, Vujic pays much greater attention to economic doctrines (the complete first book of Principles of National Economics,

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220 pages). He seriously and correctly discusses particular issues from various aspects of older and newer economic thought. In a comprehensive review of the evolution of economic thought development, from the ancient to his times, there is not a single author omitted, either in a narrow or a wider context. Ancient thought is presented through the canonical sequence from the Greeks to the Romans. The Middle Ages are discussed by Aquinas and his comments of Aristotle’s principles. Mercantilists are represented by their main authors: Serra, Mun, Montchretien. The physiocrats are also presented in details. He calls Quesney ‘a silent philosopher’ and presents all of Quesney’s major attitudes on natural order, the importance of agriculture as the major economic sector, the three-dimensional class structure of society etc. Vujic explains the English classical school starting with Hume and then he devotes the attention to Smith. He does not hide his distance to the whole classical school and Smith, but he nevertheless acknowledges that ‘despite of his mistakes, Smith is a true founder of economic science . . . and the influence of his ideas was immense’ (Vujic, 1895: 112). Vujic’s strongest objection to Smith is related to his inconsistency within the theory of value because first, his basic principle says that only labour is both a measure and a source of each value, and further when it comes to distribution of goods, in addition to labour, the majority goes to land-owners and capital-owners. So, Smith does not give a precise definition of the notion of value and this gave rise to a much later misconception and contradiction. (Ibid.: 115) Vujic differentiates the economic science after Smith in three main directions:21 (1) an individualist, cosmopolitan or liberal (Malthus, Ricardo, Mill) school, with the basic attitude that the modern social order is founded on natural laws and therefore the state ought to be minimal in the economy; (2) a critical, historical or realistic school (List, Carey, Dühring, Wagner), with a main view that social conditions result from social development which can be influenced by state reforms; and (3) a socialist or communist school (Blanc, Lassalle, Marx, Engels). Marx is presented on the basis of Volume 1 of Capital (although the other two volumes ‘also feature a large number of valuable and interesting details but there are neither solutions of the intrigues left nor anything new in the old theory of Marx’, p. 238). Under the influence of Marx’s critics, Vujic also emphasizes the so-called contradiction between the theory of value from Volume 1 and the theory of production price from Volume 3. Vujic presents Engels as a man who ‘was among the first ones to enter the field of theoretical scientific socialism’ (p. 251). He nevertheless criticizes Engels’s The Origins of Family, Private Property and State, as a consequence of ‘passion and rage of political rivalry’ (p. 253). Vujic’s contribution is also


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evident by the fact that he studied the history of economic thought of Yugoslav nations.22 At the end of the first book of Principles, Vujic gives a complex overview of recent economico-theoretical literature from more significant linguistic areas, with a special part covering economist authors of Slavic nations and the Serbian economic literature. Considering his comprehensiveness, Vujic can be taken as a founder of the history of economic thought in Serbia. This is due to the fact that there was no Serbian economist before him and maybe even after him (except for V. Jovanovic), who undertook such a serious review of the development of economic thought. Blagojevic, however (p. 188), points out that Vujic does not have a special classification of nineteenth-century economic thought as he does not distinguish subjectivism, i.e. marginalism (and the related schools) within the bourgeois thought – although it was almost a quarter of a century after the publication of the work of Jevons, Menger, Walras. He neither characterizes the German historical school nor the division on the old and new school’s tradition. The situation is similar in the area of socialist thought wherein he does not make a difference between utopian and scientific socialism. Instead, he presents the whole development as a unique and homogenous process. Vujic exposes his economic policy (the third book of Principles, 440 pages) in three key chapters discussing agriculture, industry and trade, respectively. He points out to limited attempts (Rau’s third book of State Economy) to have economic policy ‘worked out separately and as a whole as this field still expects, to be taken in a single scientific system and then elaborated’ (Vujic, 1898: 26). Consequently, he defines the task of economic policy in the sense of providing, in a scientific form, rules and measures through which the state administration can and should usefully influence regular and rapid economic development. Within each chapter/economic sector, Vujic particularly emphasizes agricultural policy (measures to improve natural conditions, cultural measures to improve agriculture, socio-political measures), industrial policy (protectionist policy, legislation etc.), exchange policy (markets, monetary and banking system, crises), transport policy (land and water roads, post and telegraph, rail) and trade policy (prohibition, mercantilism, protection and freedom of trade, protection tariffs, trade contracts, the trade policy in Serbia). Similar to attitudes of many economists of the time, Vujic also thinks that capital and machinery in agriculture do not have the same importance as in industry. Concerning the future development, he sees the solution in introducing more intensive forms of economizing with the maintenance of smaller and medium estates (‘every partitioning has its own limits’, Vujic, 1898: 57–8). He strongly advocates the peasant ownership of land, and especially analyses the situation in Serbia where he proposes many legislative measures in accordance with existing needs. The means of industrial policy are categorized as the original social means (p. 185), (shareholding companies, cooperatives, joining of workers

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and their participation) and the measures of state economic policy, wherein he distinguishes three main directions: liberal (‘the policy of notinterfering and self-help, as the best and most purposeful economic policy’), socialist-communist (‘which ends in collectivism’) and the third, reformist (‘an approach which believes in an unlimited power of the gradual but steady advancement and perfection of human mankind’) (pp. 231–5). With regard to trade/exchange policy, Vujic particularly elaborates on monetary policy and strongly opposes bimetallism, i.e. he advocates the gold standard, which ‘has gained the role of international money as it is still relatively most consistent in value (especially in comparison to silver . . . which has . . . declined to the role of complementary money)’ (p. 334). Vujic considers trade policy in his other books as well. For instance, in Our Economic Policy he stresses that Serbia has, through low custom duties, largely contributed to a halting of the local industry development and in favour of cheap imports of Austrian industrial goods (‘Our economic relation with Austria was the greatest concern’, p. 31): If we proceed in this way, we will maybe finally get a few industries in the country but they would be established and maintained by rich foreign entrepreneurs, capitalists, which will be served by our people as workers, wage-earners for a piece of bread. That would be a foreign and not a national industry in Serbia. (Vujic, 1883: 36–7) This is the topic of his inaugural academic speech, entitled The Most Recent Turn in Trade Policy. At that time, a ten-year trade contract with AustroHungary expired and Serbia had reached a turning point of economic and political development. He points out that Rumania (in the years before its economic war against the Empire, 1876–86) was directing only one-third of its exports to Austro-Hungarian markets, while Serbia was sending nine-tenths of its exports to Austro-Hungary. In spite of that, Vujic insists on tariff protection considering that the outcome of an economic war with Austro-Hungary would eventually bring Serbia ‘economic emancipation from Austro-Hungary, despite temporary losses, while the latter would lose the Serbian market’ (Vujic, 1903: 187). In line with the above research areas, Vujic’s contribution to the field of economic policy also presents a complete and systematic work. This work is highly original as he did research in the economic history of Europe and America from where he took precious experience and made research parallels. He believes that there are no economic policy rules for all conditions and circumstances but they have to be adaptable and flexible in accordance with each country’s environment. He sees the future of Serbia in industrialization, as a phase of development with the best perspectives for total social and economic development. Though not in separate books, Vujic also concerned himself with eco-


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nomic history while he was planning to write a book on finance but this remained only in the form of lecture notes. Contrary to Cukic and Mijatovic, Vujic was predominantly interested in the principles of budget policy and monetary policy (as being both a scholar and minister). As a general assessment, the economic science of the second half of the nineteenth century in Serbia owes much to Mihailo Vujic, for the exceptional presentation of his own economic system. His research included in a very systematic and impregnated form vast areas of political economy – with its history, economic policy, economic development and all areas of public finance. Vujic is considered as the most educated Serbian economist. Blagojevic even stresses that no one, before or after him, has brought into Serbia such a fund of economic knowledge. This is supported by the fact that the author did not neglect any of the famous world economists. As to the location of Vujic’s economic thought, it has already been said that he belongs to the direction (Blagojevic; 1980: 206) which led – over Smith’s theoretical dualism, List and Carey – to the so-called realistic, critical-historical and even positivist and subjectivist economy of Roscher, Wagner and other economists from European universities of that time.

Concluding remarks This closes but certainly does not end the presentation of aspects of economic thought in the second half of the nineteenth century in Serbia. The chosen approach definitely has its advantages and deficiencies. Good sides are related to the respect of chronological and pioneering importance, as well as the completeness and seriousness of the authors’s contribution. Shortcomings arise from space being too limited for a more adequate comparative review of the authors, for a deeper analysis of their views on certain issues, for a more detailed presentation of their times, for a more precise qualification of the level of eclecticism versus original contribution, and for the inclusion of other authors who have also added to the economic science in Serbia. A logical conclusion is reduced to a general assessment that the analysed authors have made an exceptional contribution to the development of Serbian economic science (not only of those times). Moreover, with their work they have secured a continual following and communicated with the achieved level of development of economic science internationally. Regardless of its profile and depth, the adequate level of originality has to be considered within the historic circumstances of the then-backward Serbia and respected as such. With no need to justify or not justify high levels of eclecticism, they come as a consequence of the given historical framework that heavily determined the opus of the analysed Serbian economists. Moreover, regarded in a contemporary sense, similar assessments (although on a higher scientific and scholarly level) can be made for other less and/or medium developed countries.

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Notes 1 I would like to thank Michalis Psalidopoulos for inspiring me to write this chapter and his comments on an earlier draft. I am also grateful to Miroslava Filipovic for assistance on the chapter, as well as to Miro Vuksanovic and Nada Vujic from Matica Srpska for supplying me with original references. 2 This is a large study of one of the most renowned Serbian historians of economic thought, by academician Obren Blagojevic, entitled Economic Thought in Serbia to the Second World War, published by SANU, special editions, volume DXXV, Department of Social Science, book 84, Belgrade, 1980. In addition to the original sources, it was of great assistance in writing this chapter. 3 Blagojevic points out that the influence of the founders of classical economic thought was not great. Political and economic conditions were not favourable for liberalism, bearing in mind the autocratic, anti-liberal regime in Serbia and the need for large government intervention and tariff protection. If one takes into account the fact that classical economy had already been criticized in German universities, where Serbian scholars studied, and also the fact that Ricardo’s economic thought could be interpreted as leading to the destruction of civil order and passing to socialism, it is clear why the impact of the classicals was not dominant. The influence of classical, i.e. liberal politico-economic, thought in Serbia was most remarkable during the third quarter of the nineteenth century, at a time when the German historic school had not yet become crystallized and when Serbian liberalism had been a serious factor. On the other hand, historical conditions in Germany (slow industrial and capitalist development, nationally non-united and parcelled) required ‘state interventionism and economic protectionism instead of liberalism; national historic economics instead of a cosmopolitan and abstract one, ethical instead of utilitaristic and hedonistic; idealism instead of materialism’ (p. 100). 4 Kosta Cukic (1826–79) is considered as the first important economist who succeeded in the creation of an integral economic system. He led an honest life and ended it in poverty, despite the significant functions he was holding; inter alia, he was the finance minister for seven years, representative in the Ministry of Education, professor of state science at the Belgrade Lycée, even acted as the chancellor for a year. He studied state science at German universities and did his PhD with Karl H. Rau (1792–1870), the Heidelberg professor of political economy. 5 K. Cukic, State Economics, Part I, National Economics, Belgrade, 1851: 340, State Economics, Part III, Finance, Belgrade, 1853: 509, and State Economics, Part II, Economical Police, p. 638. In the foreword to Part III, the author pointed out that the main reason for publishing the third part before the second one had been the needs ‘of my lectures so I completed it first’ (K. Cukic, 1853: V). 6 ‘These four classes of people, which are considered as taking part in national production, differ on the following attributes: • Workers as masters of operation produce with their physical (and through mental) forces, upon which they give the operation to the entrepreneur (if they are not entrepreneurs themselves) for a fee – wage. • Capitalists give their capitals (if they are not entrepreneurs themselves) for a fee – rent (interest, capital rent). • Landowners seek a fee from entrepreneurs – land rent (rental) for the land in use. • Entrepreneurs seek from buyers, in addition to costs for efforts and risk involved in the production, a fee – manufactural service. An entrepreneur differs from other producers because he is the sole bearer of any damage or


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profit. Other production classes cannot take more profit than the contracted level, they can neither participate in the damage but they always receive their fees contracted with the entrepreneur.’ ‘Ancient states understood something of national economic laws, as we can conclude from their state orders and the relevant books, but all the fruits of their mind in relation to the economic subject [emphasis, KJ] were as poorer and more superficial as they were more advanced and perfect in other sciences’ (Cukic, 1851: 80). Grundsätze der Volkswirthschaftspolitik – von Dr Karl Heinrich Rau – 4th edn, Heidelberg, first part 1854, second part 1858 (footnote in the foreword to Cukic’s Economical Police). ‘The word police does not completely correspond to the usually-taken meaning, as citizens are forced to obey certain economic rules issued by the government; [to the contrary] the government more likely advises on the basis of a nationaleconomic policy and extends support than giving threats and prosecuting’ (p. 4). These are: coins and paper money, issurance, value and flow of money, monetary systems in different countries (monetary policy), the role and types of credit and banks, stock companies (credit policy), government care of roads, rail (there had not been rail in Serbia of the time but it did not matter writing about it), bridges and water roads (transport policy), then trade policy and measures to improve local and foreign trade, import and export trade, transit trade, concerning goods but also securities; finally, in the area of the social policy, Cukic discusses the prevention and protection, in general and in relation to types: children, those incapable of working etc. (Blagojevic, 1980: 117). According to Cukic, it is better if states sell their domains (except for ore melting or factories of war material) because in Serbia they were bringing only 1.5% of all revenues, while in German states that amounted to 35% (p. 92 and p. 98, first part). Regales were imposed by Cukic himself, as the finance minister (upon salt and tobacco) in order to eliminate or restrict foreign competition (p. 107, first part). Similarly to K. Cukic, Mijatovic (1842–1932) was the professor of economic sciences at the High School in Belgrade and the finance minister under different governments in the Principality of Serbia. He graduated in legal sciences at High School in Belgrade and then he became a state fellow. He studied economic-financial sciences in Munich, Leipzig, Zürich and Vienna. He was a member of the Serbian educated society and a correspondent member of the Yugoslav Academy of Science and Arts in Zagreb (as he lived for a long time he also witnessed the Kingdom of Yugoslavia), a member and the president of the Serbian Royal Academy. He was a particularly productive writer in various fields: publications, literature, politics and economic sciences. W. Rocher, Die Grundlagen der National-Oekonomie, 5th edn, 1864, translated to Serbian by V. Jovanovic, according to the 2nd edn: Basis of National Economy, 1863. Similarly, Mijatovic points out to the work of H.C. Carey, Principles of Social Science, 1859, as a work that may present a turning point in economic science. Mijatovic writes how recent social reformers are against property rights and claim changes in social conditions (socialists) and those socialists who are extreme in their claim he calls communists. Socialists require that supplies are distributed in accordance with human needs (as much as they need) while communists demand that each member of society ‘has as much as anybody else, wish that everything belongs to everybody and nothing to nobody, even if in order to achieve this aim – absolute equality in distribution of supplies to human needs – one has to sacrifice both family and personal freedom’ (pp. 122–33).

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16 Moreover, in order to defend ‘the honour’ of political economy from the attacks of a socialist Z. Zujovic, he wrote an article entitled ‘Scientifics of Political Economy’, 1870, and published it in the Journal of the Serbian Educated Society, volume XI, book XXVII, Belgrade, pp. 299–332. Socialists had attacked political economy on the grounds that it was not a science because there was no formula which could be applied to the conflict between proletariat and capitalists. Mijatovic insists that political economy is a science, in the sense that it has a formula because those two interests are harmonious (pp. 307–8). 17 In this area, Mijatovic also published Letters on Old Trade (Belgrade, 1865), Finance in the Kingdom of Serbia, I and II (Belgrade, 1869), Studies for the History of Old Serbian Trade in 13th and 14th Century (Belgrade, 1872–3), Trade Policy of Serbian Kings and Emperors (Belgrade, 1875). 18 ‘What Phoenicians had only to a little extent, and what Jews, Assyrians, Babylonians and Egyptians did not have at all, that is a preference for colonizing and capability for establishing and developing colonies, that is what Greeks had to a great extent’ (p. 39). 19 ‘Studies for the History of Serbian Trade’, Journal of the Serbian Educated Society, 1872: 226, in Blagojevic, 1980: 147. 20 He was born and studied in Belgrade (1853–1913) where he graduated at the Faculty of Philosophy, at the High School (1871). Upon graduation, as a state fellow, he studied philosophy and political economy in Munich, Vienna, Berlin, Paris (for his PhD dissertation which was interrupted due to the Serbian–Turkish war), Leipzig (with the popular professor and philosopher Wundt and the economist Roscher). From 1879 to 1887 he was a professor at High School and after that he became the finance minister, starting a rough road as a politician and statesman (Blagojevic, 1980: 157–9). 21 V. Jovanovic, a famous liberal economist from Serbia (1833–1922), gives a similar division, in Jovanovic, 1890: 158–217, citations 191–200. 22 Studies on the Croatian economists of the fifteenth to seventeenth century: Krizanic’s politics (1895), Economico-political views of Nikola Vid Gucetic, from Dubrovnik, second half of the sixteenth century (1900), and the first scientific work on trade, by Benko Kotrulic from Dubrovnik (1909).

References (All works cited are in Serbian.) Blagojevic, O. (1980) ‘Economic thought in Serbia to the Second World War’, SANU, special editions, Vol. DXXV, Department of Social Science, book 84. Cukic, K. (1851–62) State Economy I–III. Belgrade: The Serbian princedom printing company. —— (1851) National Economy. Belgrade. —— (1853) Finance. Belgrade. —— (1862) Economical Policy. Belgrade. Jovanovic, V. (1890) ‘Economic order and movement in social and international life’, Journal of the Serbian Educated Society 71. Belgrade: The Serbian Kingdom printing company. Mijatovic, C. (1867) Excerpt from Political Economy. Belgrade: The State printing company. —— (1869) The Science of State Holdings or Science of Finance (acc. to Lorenz Stein). Belgrade: The State printing company. —— (1870) ‘The scientifics of political economy’, Journal of the Serbian Educated Society XI, book XXVIII. Belgrade.


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—— (1893) History of Trade. Belgrade. Vujic, M. (1883) Our Economic Policy. Belgrade: The Kingdom printing company. —— (1886) Theory and Practice of Issuing Banks. Belgrade: The Royal Serbian printing company. —— (1895–6) Principles of National Economy I–III. Belgrade. —— (1895) Basic Preliminary Issues on the Development of the Science of National Economy. Belgrade: The State printing company of the Serbian Kingdom. —— (1896) Economic Theory. Belgrade. —— (1898) Economic Policy. Belgrade. —— (1890) Finance. Belgrade: The State printing company of the Serbian Kingdom. —— (1903) The Most Recent Turn in Trade Policy, inaugural academic speech. Belgrade: Voice of Serbian Academy of Science.

10 Economic thought and monetary policy in nineteenth-century Greece Yiorgos Stassinopoulos

Introduction The study of monetary issues, especially those raised during the nineteenth century, has been flourishing in the last few years. Modern scholars of this subject attempt to draw conclusions for contemporary monetary problems, identify and explain how historians of economic thought approach these issues. Many consider the nineteenth century as the period during which the foundation of monetary science occurred (Schumpeter, 1954: 688). A significant quantity of books, pamphlets, articles etc. was published – almost exclusively – in one country, Great Britain, the leading and most dynamic industrial state of the time. Britain’s serious problems in its monetary system from the beginning of the century up to the 1850s, triggered long and controversial debates. The British controversies led to the formulation of the so-called ‘monetary orthodoxy’ (Fetter, 1978), which coincided and influenced the creation and the course of significant credit institutions in Continental Europe (Kindleberger, 1987: 100–51). Although there is a vast bibliography on monetary thought in Great Britain, the dissemination of these ideas has not been studied thoroughly in Continental Europe, especially in less developed countries. The repercussion of monetary controversies reached Greece, a newly established and small country at the time. The Greek intelligentsia used these controversies while trying to analyse the monetary problems of the country. The transmission of economic ideas to Greece took place through various channels (e.g. translations of relevant literature, articles in newspapers etc.). The most important input came, however, from the work of the Greek economists who incorporated European ideas into their work. It is now widely acknowledged that this transmission is not only a simple transfer of ideological schemes; it also comprises social, cultural and other elements. Especially in Greece, the arrival of political economy marched alongside liberal political ideas (Kitromilides, 1988) and many of its doctrines were used for the rationalization of the political and economic procedures during the formative years (Petropulos, 1968).

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This chapter outlines aspects of Greek economic thought during the nineteenth century, as a contribution to a comparative history of the evolution of monetary policy and the diffusion of economic ideas across Europe throughout the nineteenth century. It focuses especially on the policy followed by the National Bank of Greece, which was the issuing bank and the most powerful economic institution in Greece during that period.

Origins of the Greek banking system The Greek state faced serious problems concerning its economic organization from the very first moment of its formation. The long revolt against Ottoman rule (1821–7) and political conflicts between the local leaders for the leadership’s take-over obstructed the growth of the Greek economy (Petropulos, op. cit.). Loans that Protecting Powers provided to the Greek government (1824–5) (that reached Greece truncated) were not sufficient to cover the needs of the Greek economy in money. The production was agricultural and the rudimentary exchanges were made mainly through barter. The existence of usury as a result of the scarcity of capital, and an old-fashioned taxation, delayed the development of agriculture. Ioannis Kapodistrias, the first state Governor, tried to face that scarcity through the foundation of a state-bank, which would issue inconvertible notes and have the responsibility of public finance. It was only a few years later when the Bank collapsed leaving behind social scepticism for paper money. The new leadership under the kingship of the young Otto von Wittelsbach from Bavaria dissociated the new attempts for the foundation of banks from public finance administration. The new government concept was fourfold. (1) The new bank should belong to private interests and follow the widely accepted sound banking principles. (2) The state should avoid issuing paper money. (3) The paper money issuing activity would be undertaken by a private bank. To this end the state would grant a singleissue privilege to the Bank. (4) The state would set restrictions upon the Bank, in order to avoid the danger of over-issue. The cautiousness was obvious and expressed in the rules that governed the new bank and the appointment of a Royal Commissioner on its Board of Directors. The new bank named National Bank of Greece, was founded in 1841 and was the result of combined actions by J.G. Eynard, a banker with close connections with French banking interests and the wealthy Greek Diaspora. The presence and participation in the Board of Directors of Louis Lemaitre, a French banker, further substantiates the French influence on the establishment and operation of the Bank. Lemaitre assisted the organization of the Bank and transmitted the Continental banking spirit to the Board (Vacalopoulos, 1979: 92–7). Although the state was a major contributor to the Bank’s capital, it did

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not have any voice in its management and merely confined itself as a supervisor. The transactions between the Bank and the state were limited since the austerity fiscal policy of King Otto left no room for government loans from the Bank (Petrakis, 1985: 39–43). Nevertheless, the Bank was restricted by statute to grant two-thirds of its capital to long-term mortgage loans and only one-third to other kinds of loans (Valaoritis, 1902: 10). The issuing operation of the Bank was subjected to a binding constraint. The state allowed the Bank to issue notes in return for providing capital to the agricultural sector of the economy. To facilitate the diffusion of its notes, the government changed the single-issue privilege to an exclusive one and made the notes acceptable as legal tender. The concession of issue privilege to the Bank provided an exchange medium to the economy since there was nothing else but worn foreign coins. The increasing money needs from the peasantry and the merchants as well were never fully met by the Bank. The state set an upper limit in the Bank’s interest rate (which was far lower than the market rate) in order to constrain usury. The restriction of the Bank to fluctuate its interest rate was an intrinsic impediment, since the demand for discount and mortgage loans was large and pressing and the Bank could not respond accordingly. To confront the extensive demand, the Bank followed a conservative credit policy, lending mainly solvent merchants by discounting bills of exchange with maturities not exceeding sixty days and bearing at least three signatures by reliable guarantors. Moreover, the agricultural sector did not enjoy a significant capital flow. This could be attributed, inter alia, to two reasons: first, the shortterm loans were favoured by the Bank’s issuing operation and that operation determined, grosso modo, the morphology of its grants to the private sector. There was a firm belief in the Board of Directors that if the Bank allowed mortgage loans on a large scale, liquidity pressure would possibly incur on its assets holdings. Second, because of the vagueness of the property rights and property registration, the Bank was unwilling to satisfy the extensive demand for mortgage loans. As the Ottomans withdrew from Greek territory, the newly established Greek state was left with substantial new land. The state granted only a small part of this new land to the landless peasantry. Consequently a large-scale land grabbing occurred, which was further aggravated by the lack of a cadastre. Thus, the Bank was unwilling to dispose an extensive part of its capital to mortgage loans, since they were neither secured nor could the assignment of the mortgages be checked. As explained by an executive member of the Bank in a parliamentary session, investigating that issue, ‘the Bank could not find the proper securities for the mortgage loans, which are the most wanted from the public’.1


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The issuing policy of the National Bank of Greece As mentioned earlier the National Bank of Greece was operating mainly as a discount rather than as a mortgage bank. Its main object was the monetization of economic exchanges and the penetration of its notes in traditional economic activities. The Bank faced hostility in this attempt from the local moneylenders, who feared that they would lose the predominance they enjoyed, before its foundation, in the political and economical sphere. They antagonized the Bank hard, forcing it to incorporate them in the Board of Directors. Furthermore, the Bank tried (and finally succeeded in) using the usurers as intermediaries in order to expand the circulation of its notes. The spreading of its notes gave the Bank the chance to collect the various coins in its vaults, which were either circularized or hoarded, and to employ them as a metal reserve. The maintenance of convertibility and the sound management made the use of notes attractive and lent them credibility. In order to assist the spreading of its notes the bank created overdrafts, a ‘novel’ short-term credit instrument (Thomadakis, 1985: 59–60). That policy was the vehicle used by the Bank to maximize the volume of its outstanding notes. The issuing activity, in turn, constituted the most profitable source of its operations and it was this activity that gave high dividends to shareholders and made the Bank’s shares attractive to the public eye. Moreover, it created the conditions to augment its capital and consequently its social power. The Bank’s issue policy resembled those of the eighteenth-century country banks in England and nineteenth-century provincial banks in France (Niebyl, 1946: 22 et seq.; Nishimura, 1995: 537–43), a practice that was theoretically backed by the supporters of the Banking School. The main exponent of that policy was Efthimios Kehayias (1819–85), a practising banker and a gifted orator who succeeded in becoming Deputy Governor of the Bank, member of the Parliament and responsible for the Exchequer (1862–3 and 1866–7). According to Kehayias, the quantity of circulating notes was determined by the public demand or, viewed from a different angle, it was the level of economic activity that set the demand for notes. The Bank lacked the power to influence the quantity of notes in circulation. Its role was confined to maintaining and monitoring a balanced relation between notes and metal reserve; thus minimizing the likelihood of upsetting their convertibility. Even if the Bank issued more notes than needed (by the public), the unwanted amount would return to its coffer resulting in a demand for coins. Thus the law of the market prevented the Bank from depreciating its notes by issuing them to excess: The Bank issues more notes than enough, but they remain in circulation only as long as the needs and the volume of exchange allow; those in excess return to the Bank’s vaults . . . No matter how many

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It is clear, that the above-mentioned approach contains a version of the socalled Law of Reflux.2 The dominant conception of the Bank’s Board of Directors was that the retaining mechanism of notes by the public was responsible for the volume of the outstanding notes, rather than the discount of the short-term bills by the Bank.3 The Bank’s preference in maintaining short-term assets in its portfolio was based on the perception that these securities were more flexible in cases of market’s panic, when the public wants to hold specie instead of notes. In such cases the pressure on its metal reserve would be more limited if the Bank retained short-term securities, which could be easier to liquidate and assist the contraction of the currency. In other words, the volume of the discounted bills was not, in the Directors’ perception, the criterion, which allowed the Bank to avoid over-issuing its liabilities, as the Smithian analysis implied (Smith, 1976: 304). In a borderline case, a contractive policy could reduce danger by the tightening of grants and by demanding its claims to be paid. The short-term grants helped the Bank to influence the liquidity of the market, in contrast with long-term mortgage loans, which were not easily liquidable. A necessary condition for the operation of that mechanism was the existence of a large metal reserve by the Bank, which could maintain the convertibility. That’s why the Bank never tempted to issue notes without keeping a sufficient quantity of specie to answer for payments. An explicit rule of thumb of the Directors of the Bank was to contract loans in periods of crisis and keep a large metal reserve. This was considered as an adequate safeguard against over-issuing. The Bank’s administration therefore regarded the restrictions set by the Bank Charter Act as unnecessary.

The bank as lender of last resort The term lender of last resort belongs to the nineteenth-century economic literature, and means the willingness of a bank ‘to give assurance that it would lend in time of crisis’ (Fetter, 1978: 262). The first time the National Bank was asked to play a similar role was during the 1848 crisis. The origins of this crisis can be traced in the 1847 English crisis and the political events taking place in Continental Europe at the beginning of 1848. The Greek merchants were in great need of sending specie abroad, because of the contraction of foreign mercantile credit. At the same time, the Bank suffered a large run on its reserve, which was reduced to 60% in one month. The situation was extremely dangerous and the Bank appointed a Committee to investigate the causes and find appropriate solutions. The Governor of the Bank was eager for suspension of pay-


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ments in order to protect its bullion. On the other hand, the press tried to force the Bank to buy gold at a premium to meet the demands and to redeem its notes in terms of gold. Finally the committee agreed with the Governor’s propositions and the Bank asked the government to suspend the convertibility of its notes. The government allowed the Bank to postpone redemption, regarding its notes as six-month 10% interest bearing bills. This measure was burdensome to the Bank and as a response it led to a dramatic contraction of loans to the private sector (Palamas, 1930: 22–4). During the suspension the main issue was the policy of the National Bank and its responsibility towards merchants. Two opposing arguments for the proper banking policy appeared during that period. On the one side we find the merchants–shareholders, who argued that while credit collapsed, the Bank ought to act as lender of last resort. Loukas Rallis, a wealthy merchant, asked that liquidity be increased to relieve the market from pressure and to help the healthy part of commerce. He also believed that the Bank should overcome the crisis along with commerce rather than move the effects of the crisis on the merchants. Another merchant, Michalis Iatros, supported the idea that the Bank should follow open market operations in an effort to dampen the amplitude of the market crisis.4 On the other side were the leading members of the Board of Directors, most prominent were Kehayias and Ioannes Soutsos. Soutsos (1804–90) was the first academic economist who taught classical political economy from the podium of Athens University for nearly half a century. He was also a shareholder of the Bank and served as an influential advisor for many years. He is considered as the patriarch of Greek economists and was respected by both scientists and politicians. His primary concern was to minimize the effect the crisis had on the Bank, since a liquidity shortage could lead to a credit distortion. That’s why he argued for the contraction of the grants in order to avoid credit expansion, which could make the return to convertibility impossible. This view was dominant within the Bank and subsequently this policy was adopted for six months.5 The choice of the Bank was also based on its wish to reduce the extent of speculative activity upon its notes. The Bank not only refused to accept the responsibility of the lender of last resort in 1848, but also never did so until the end of the century. Given the restrictions on the interest rate, the Bank was unable to exert an effective influence on paper circulation unless through contraction in discounting. The maintenance of banknotes’ parity contradicted with the role of lender of last resort, even if the Bank had the potential to smoothen the consequences of the crisis. The liquidity could only be safeguarded by holding a sufficient amount of specie and by reducing advances to its customers (bill discounting and overdrafts). For example, during the 1858 crisis (which was the echo of the 1857 world crisis)

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assistance to the merchants was limited, because, as the Bank claimed, it would violate the ceiling on maximum circulation set forth by the government (Valaoritis, 1902: 30). Another striking example of its stance was the closure of the overdrafts in 1875, for minimizing the pressure on its notes during that year’s crisis. A later (and most eminent) exponent of the Bank’s responsibility towards the productive sector of the economy was I. Zografos (1844–1927), a student of K.H. Rau and professor of public finance at the University of Athens for a short period of time. Zografos was of the opinion that the Bank systematically overlooked the dual role which had been entrusted on it by the state, as supplier of loanable funds and currency as well. It also held a central position in the economy and ought to undertake the responsibility implied by its institutional role in the financial system. That is why he opposed the policy of liquidity shortage during a crisis, because that policy resulted in market suffocation and the ruin of entrepreneurs. In addition, Zografos claimed, the Bank lacked incentives for the encouragement of the productive forces as it could rest on gains from the issue privilege. For that reason he put forward the idea of the Bank separating its activities to banking and issuing departments, following the example of the Bank of England (Zografos, 1925: I, 114). That idea however, was never seriously considered from the political leadership during the nineteenth century. Zografos should not be considered as an adherent of the Currency School. On the contrary (following the spirit of the German historical school) he was a firm believer of the ‘productive credit’ and the Bank’s responsiveness to the needs of trade and industry. He believed in the power of the banking sector to vitalize the productive activity, without any inflationary pressure in the monetary side of the economy.

The state interference in monetary policy The ascension to the throne of young King George I, as well as the political changeover of 1864, cultivated new hopes for the development of the Greek economy. These expectations were partly verified by the facts of the following years. The production recovered while the remarkable, over 50% increase of population in a short span of time, reflected the new dynamic (1,096,810 inhabitants in 1861 to 1,679,470 in 1879 (Andreades, 1939: 185)). At the same time, the first signs of state interventionism came to the fore, such as the modernization of the tariff system and the monetary reform, both in 1867. A broad public discussion concerning the encouragement of infant Greek industry and the role of the state in this procedure was raised (Psalidopoulos, 1994). The inflexible policy of the balanced budget was also abandoned during this period and a more flexible policy was adopted as far as the public debt was concerned. After the expulsion of King Otto, and the


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increasing fiscal deficits during the years 1862–5, led to a new relationship between the state and the Bank. From that moment on, a relation of mutual dependence existed. The Bank kept the issue privilege, and the state could borrow from the Bank to finance its fiscal deficits. Subsequently, whereas in 1858 the state owed nothing to the Bank, in 1867 the public debt to the Bank was raised to huge levels (Valaoritis, 1902: 43–4). That practice became permanent during the following years. The autonomy of the Bank was seriously jeopardized in 1868. The Cretan revolt, which broke out in 1866, was at its peak at the end of 1868. The situation was crucial and Prime Minister D. Voulgaris pressed the Bank to lend the state its total bullion immediately in order to help the Cretan fighters. The Bank refused and the government threatened that it would issue fiat money, repealing de facto the Bank’s issue privilege. The Bank gave in and the government suspended convertibility for the second time (Palamas, 1930: 29–30). The 1868 episode proved to the Bank’s directors that the issue privilege could not be taken for granted any more. In other words if the Bank wished to maintain its preferential position, it should give in more easily to governments’ claims. In the 1870s the Bank increased loans to the public sector by complementary reductions in private borrowing. To be more specific, in the period from 1861 to 1865, private borrowing represented 97% of the total Bank’s loans while in the period from 1876 to 1880 it was reduced to 62% and in the next five years to 52% (Thomadakis, 1981: 111). Moreover from 1874 on, treasury bills could back the banknotes. That potential changed the portfolio composition of the Bank. While in 1871–5, 62% of the portfolio of the Bank consisted of short-term bills of exchange, in the 1880s that proportion decreased to 30% (Thomadakis, 1981: 120). Soutsos criticized the repeated and relatively easy state resorts to the Bank’s funds and argued ‘the Bank’s sacrifices for government should not be unlimited’.6 He opposed the yielding by the Bank’s directors to the state’s demands, fearing that increased public borrowing could lead to a never-ending over-issue. Soutsos reminded the directors that the Bank issues notes against bills of exchange rather than exchequer bills. Thus, the volume of the outstanding amount should be equal to the number of discounted bills existing in the Bank’s portfolio. He also believed that an issuing Bank’s portfolio ought to consist of liquid securities in order to avoid the suspension of convertibility and the lack of public confidence (Soutsos, 1884: I, 459). Moreover, he opposed credit expansionist views, such as those articulated by Stamos Trikaliotis, with the argument that such a policy would end in monetary distortions. Trikaliotis taught as ‘ifigitis’ (reader) political economy for several years at the University of Athens. He relied on Macleod’s theory of banking in order to prove the power of banking to increase the productive capital of the country. Trikaliotis viewed banknotes as credit instruments in themselves that were acceptable by the public because of mutual consent.

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Consequently their value was only determined by the quantity, which was in circulation (Trikaliotis, 1868). If the Bank allowed more advances to farmers and small businessmen, it could heal the scarcity of money and help the efforts of the government to fight the widespread usury. It could also provide the small Greek industries with productive capital and give employment to many labourers who remained inactive in the rural areas. Trikaliotis’s main concern was the promotion of the infant Greek industry and the stimulation of native production. Trikaliotis was an eager supporter of the Scottish banking system and an advocate of the vital role that credit could play in an under-developed country such as Greece. It was not before the mid-1870s that the policy of the Bank was seriously questioned. The significant augmentation of its capital and the tremendous expansion of its assets were obviously in contradiction to the comparative backwardness of the economy. However, it was also apparent that the Bank did not want to act as the ‘locomotive’ for the infant industry and agriculture. On the contrary, as Zografos pointed out, the Bank was willing enough to supply extensive loans to the state instead of the productive agents of the economy. This policy brought, for Zografos, inflationary pressure to the economy and progressively made the state unable to pay off its liabilities to foreign debtors. A clear-cut example was the increasing price of foreign exchange. Zografos was convinced that this increase was directly related to the issue expansion and the imprudent policy of the Bank. The warning sign in the form of premium at foreign exchange would be sufficient to induce the Bank to corrective steps. However, the Bank’s policy was far different (Zografos 1925: I, 100–15). Another economist who castigated the close relationship between the Bank and the state was Aristides Economos (1835–90), editor of the scientific journal Oikonomiki Epitheorissis (Economic Review), and proponent of the classical school (Psalidopoulos, 1996). For Economos and other liberal writers such as Soutsos and A. Vernardakis (1844–1912) the problem was rooted in the monopoly situation created by the granting of the issue privilege from the state to one single bank. Moreover, they considered the growing lending of the Bank’s capital to the state as the main source of the stagnation of Greek economy and the poor development of the native industry; the only alternative was the establishment of a free-banking system. Vernardakis characterized the existence of one single bank of issue as retrogressive and a feudal residue. He also proposed the establishment of a Mortgage Bank (according to the French Credit Foncier), which would issue mortgage-bonds that could operate as money, assisting the landowners to escape from usury (Vernardakis, 1885: 283–95). The cooperative banks were also very popular as an idea among Greek economists, an idea stemming from Prussia, where many such banks had been established as a result of Hermann Schultze-Delitsch’s initiative (Kindleberger, op. cit., p. 129). It was widely believed that these banks would cultivate a saving-habit among the workers and petty merchants and


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thereby provide capital to commerce. The intellectual and politician D. Mavrocordatos saw in the formation of the cooperative banks the remedy to the emerging Social Question, which would result ‘in the increasing depression of the working class’ (1869: 21–2).

The establishment of inconvertibility At the end of the 1870s, a number of upheavals took place in the Balkans. The Eastern Question was at its height. The warlike preparations of the Greek government reflected its agony to take advantage of potential border changes and to liberate the remaining Greeks who were still under the Ottoman rule (Dakin, 1972). The influence of ‘the Megali Idea’ (namely the vision of a big Greek state that could embrace the Greek Diaspora living in the Balkans) was widespread among people and politicians alike. Nevertheless, the state, once more, was unable to finance these expensive preparations. Subsequently, the government not having other options suspended the convertibility of banknotes for a third time in a span of forty years. This time however, it was not for a short period. The government made use of the extensive internal borrowing and the opening of foreign money markets (after a compromise between the Greek state and the debtors upon the loans granted during the War of Independence), to finance public works. These works, such as the making of a railroad net, the opening up of the Corinth Canal etc. improved the infrastructure of the Greek economy and, alongside the inflationist policy in effect at the same time, were used by the Greek government for the mobilization of the dormant potentialities of Greek economy (Vergopoulos, 1994: 142). However, that policy was open to criticism as being responsible for a number of negative phenomena, such as the premium upon the foreign exchange and the surcharge of the foreign-debt amortization. The large majority of Greek economists and the press as a whole claimed for the resumption of the convertibility. At the same time, dissenting arguments in support of the advantages that a forced currency could bring to the Greek economy appeared. One of the proponents of these arguments was Nikolaos Gounarakis (1852–1932), reader (and later professor) at the University of Athens and champion of the weak bimetallism movement in the country. Gounarakis favoured the encouragement of the domestic production and questioned whether the resumption could heal the macroeconomic problems of Greek society or not. He considered that the excess supply of money was offset by a corresponding demand in the real sector of the economy. He claimed that despite the short-term side effects that the money-increase could cause in the monetary circulation, long-term benefits would be more advantageous to the whole economy. At the core of his arguments lay a version of the forced savings doctrine. According to him, the increase in the quantity of money would decrease the labour cost (because of the

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fixed incomes) and entrepreneurs could invest that surplus in additional production. It could also lead to the proportional increase of exports since the Greek products would be cheaper to the foreign markets (Gounarakis, 1913: 227–8). He also believed that only the gradual improvement of public finance alongside with the promotion of industry would lead to the development of the Greek economy. The journalist G.S. Floros, another adherent of Macleod, expressed similar views. Floros was of the opinion that the merits of the suspension could be found in the use of a cheap medium, free from the limitations a convertible banknote was subjected to. The use of an inconvertible banknote, under particular limitations, could induce the economy into growth. Moreover he feared that the resumption of convertibility would be disastrous for the whole economy and depressive for the market, because the withdrawal of a big part of banknotes, along with the lack of specie, could cause a liquidity vacuum. He claimed that an increase in money supply would stimulate the commercial activity and consequently augments the bulk of production (Floros, 1883). The aforementioned arguments had limited influence on the political leaders of that period. The Prime Minister of the 1882–5 period, Harilaos Trikoupis (1832–96), declared that nothing was most desirable than the rapid abolition of the cours forcé. For that purpose, he raised loans in specie from abroad. In addition, he tried to enforce the state to repay the loans to the National Bank of Greece. Trikoupis regarded the lack of specie and the depreciation of banknotes as the two sides of the same coin and he believed that the only way to escape from this vicious circle was the return to convertibility. He adopted the propositions of the liberal economists (such as Soutsos) and regarded as an evil the continuance of government lending through inconvertible banknotes. We can thus identify a strong influence of liberal economists on his policy, as they believed that the redundancy of paper money distorted the economic process. In their view the absence of metal coins was convincing enough of an excessive supply of the inconvertible paper money. These liberals were however sceptic on the reckless restoration of convertibility. The budget was not yet balanced and the repeal of inconvertibility was not a sufficient enough condition to restore the equilibrium and promote economic growth (Soutsos, 1985: II, 691). At the same time, the Bank argued for the postponement of the resumption, at least for two years or so, in order to augment its capital. Under such circumstances, the transaction to a convertibility régime not only would be smoother, but it would also help defuse the pressure on the markets. However, the government did not take heed of that warning and the Bank as a vindictive response moved to restriction on granting credit, creating a liquidity shortage. At the end of 1884, the convertibility was resumed and the Bank faced a massive drain of its bullion by a rapid conversion of its notes to specie. In


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January 1885, the Bank’s reserve stood at 48 million drachmae and after five months it had shrunk to 26 million (Valaoritis, 1902: 94). That fact, alongside the change of government and the new warlike preparations, led the economy to the old régime, i.e. the suspension of convertibility once and for all. However, this time the effects of the cours forcé would be disastrous. The financing of the fiscal deficit through the issuing of notes led to the insolvency of the state and the 1893 crisis, when under the pressure of the culminating debt, the state defaulted on its foreign debt. The most important outcome was the imposition of foreign supervision in 1898, so Greece could meet its obligations to foreign lenders.

Conclusion The aim of this chapter was to sketch out the way the monetary problems of the newly established Greek state were examined by the Greek economists. An attempt was also made to trace influences of other contemporary economists and how these were assimilated in their discourses. On a strict theoretical level, even though the analysis tried to avoid the rather narrow – and sometimes ‘procrustean’ (O’Brien, 1993: 3) schemes of Banking-Currency Schools classification, we should notice the wide acceptance of the Banking School doctrine among Greek economists. At the same time, the total absence of supporters of the Currency School could be regarded as a deviation from the canon of monetary orthodoxy. On the one hand this situation could be attributed to the particularities of the Greek credit system, that resembled the assumptions of the Banking School, and the influences coming from Continental Europe where the Banking School enjoyed a wide acceptance (Rist, 1966: 229–38). On the other hand dissenting theories (such as those of Macleod) in which credit plays a significant role, found eager audience in a society that was starving for capital. The above analysis reveals that the theoretical approach of Greek economists should be examined within the socio-economic context of the times. Attention should also be given to the institutional development of the function of money throughout the century. Thus, while in the first period the banknote constituted the medium for the monetization and modernization of the whole economy, from the early 1870s it was used as a financing source for the fiscal deficits. This transformation on the character of the medium reflects the ever-changing reality of the Greek economy and the goals set by the political leadership. The Greek economists did not remain passive in this process. Much economic literature of this time has focused on policy recommendations since the monetary policy was directly associated with the question of the development of the Greek economy. Generally speaking, we could identify two opposing approaches regarding the monetary action that should have been followed by the National Bank of Greece and the state. The liberal perception alleged that state interference in the money supply

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endangered monetary stability and consequently distorted the market’s operation. The high price of bullion was the result of growing government debt, which was directly associated with war-related financing and extensive investment policy (adopted by the state in the 1880s) based on foreign and internal lending. Moreover, the liberal perception also argued that the close association of the National Bank of Greece with treasury needs deprived a considerable volume of credit from the productive process. Modern scholars underscore the increasing public borrowing and delineate its impact on the economic development of Greek society (Zolotas 1926; Agriantoni, 1986), while others claim that the potentialities at least for industrial enterprises were missing (Hadziiosif, 1993). On the antipode many intellectuals, impressed by the development of the German economy and the contribution of the German banks to this process, considered the unwillingness of the banks to finance industrial clients with investment funds as the main cause of the backwardness of the Greek economy. For them a ‘universal banking policy’, along with state intervention, would strengthen the infrastructure of the Greek economy and help the state escape from the economic and social stagnation. The increasing financial difficulties that the state faced at the end of the century, in connection with the major monetary problems, was the starting-point of a new round of debates upon the establishment of a sound monetary system on the eve of the twentieth century (Katselides, 1902). Parallel to these debates, the National Bank of Greece readjusted its position and progressively accepted a more central role in the Greek economy.

Notes 1 Minutes of parliamentary debates, Period D’, vol. A’, Session 12.1.1856: 211. The executive was E. Kehayias (see below, pp. 175–6). 2 A thorough analysis of this Law is presented by Skaggs (1991: 469–76) and Glasner (1992: 877–90). 3 See also the Report of Bank’s Governor, G. Stavros, in I. Valaoritis (1902: 281–7). 4 Historical Archive of National Bank of Greece, Minutes of shareholders meetings, Sessions 2–7.4.1848 and 5.5.1848, envelopes # 1–3: 87–104. 5 Ibid. 6 Ibid., Session 23.1.1864, envelope # 1: 165.

References Agriantoni, C. (1986) The Origins of Industrialisation in 19th Century Greece. Athens: Commercial Bank of Greece (in Greek). Andreades, A. [1919] (1939) Les progrès économiques de la Grèce depuis quarante ans. Works. Athens: University of Athens, II: 179–227. Dakin, D. (1972) The Unification of Greece 1770–1923. London: Ernst Benn. Fetter, F.W. [1965] (1978) Development of British Monetary Orthodoxy 1797–1875. Fairfield N.J.: A.M. Kelley.


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Floros, G.S. (1883) ‘The forced currency’, Oikonomiki Epitheorissis XI: 265–86, 308–31 (in Greek). Glasner, D. (1992) ‘The real-bills doctrine in the light of the law of reflux’, History of Political Economy 24(4): 867–94. Gounarakis, N. [1895] (1913) Elements of Political Economy. Athens: P.A. Petrakos (in Greek). Hadziiosif, C. (1993) The Aged Moon: The Industry in Greek Economy 1830–1940. Athens: Themelio (in Greek). Katselides, G. (1902) The Currency. Athens: Hestia (in Greek). Kehayias, E. [1895] (1927) On Banks and Banking System (Parliamentary Speech at 6–7 June 1873). Athens: Vlastos (in Greek). Kindleberger, C. (1987) A Financial History of Western Europe. London: George Allen & Unwin (2nd edn). Kitromilides, P. (1988) ‘European political thought in the making of Greek liberalism: The Second National Assembly of 1862–1864 and the reception of John Stuart Mill’s ideas in Greece’, Parliaments, Estates and Representation 8.1: 11–21. Mavrokordatos, D. (1869) On Popular Credit Banks. Leipzig: O. Vigandos (in Greek). Niebyl, K.H. (1946) Studies in the Classical Theories of Money. New York: Columbia University Press. Nishimura, S. (1995) ‘The French provincial banks, the Banque de France, and bill finance, 1890–1913’, Economic History Review XLVIII.3: 536–54. O’Brien, D.P. (1993) Thomas Joplin and Classical Macroeconomics: A Reappraisal of Classical Monetary Thought. Aldershot: Edward Elgar. Palamas, L.C. (1930) History of Monetary Enactments in Greece, 1. Part (1828–1885). Athens: Hestia. Petrakis, P. (1985) ‘The borrowing requirements of the Greek public sector: 1844–1869’, Journal of the Hellenic Diaspora XII.4: 35–46. Petropulos, J. (1968) Politics and Statecraft in the Kingdom of Greece 1833–1843. Princeton, N.J.: Princeton University Press. Psalidopoulos, M. (1994) ‘Encouragement of industry and economic liberalism in 19th century Greece’, in Essays on Greek Industry in the 19th Century, 11–26. Athens: ETBA (in Greek). —— (1996) ‘Aristides Economos and the “Oikonomiki Epitheorissis”: the rise and fall of an economic journal in 19th century Greece’, History of Economic Ideas IV.3: 149–67. Rist, C. [1938] (1966) History of Monetary and Credit Theory from John Law to the Present Day. New York: A.M. Kelley. Schumpeter, J. (1954) History of Economic Analysis. New York: Oxford University Press. Skaggs, N. (1991) ‘John Fullarton’s law of reflux and central bank policy’, History of Political Economy 23(3): 457–80. Smith, A. [1776] (1976) An Inquiry into the Nature and Causes of the Wealth of Nations, R.H. Campbell, A.S. Skinner (eds). Oxford: Clarendon Press. Soutsos, I. (1882–5) Ploutology, I–II, 2nd edn. Athens: Passaris (in Greek). Thomadakis, S. (1981) Credit and Monetization of Economy: Discount Finance and National Bank (1860–1900). Athens: National Bank of Greece (in Greek). —— (1985) ‘Monetary arrangements and economic power in nineteenth-century Greece: The National Bank in the period of convertibility (1841–77)’, Journal of the Hellenic Diaspora XII.4: 55–90.

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Trikaliotis, S. (1868) ‘On nature and utility of banknotes’, Pandora XIX: 345–9, 451–7 (in Greek). Vacalopoulos, C. (1979) Lemaître et la Crise Financière de la Gréce (1842–1843). Thessalonique: published by author. Valaoritis, J.A. (1902) History of National Bank of Greece (1842–1902). Athens: A. Konstandinides (in Greek). Vergopoulos, K. (1994) State and Economic Policy in the 19th Century. Athens: Exandas (in Greek). Vernardakis, A. (1885) On Greek Commerce. Athens: Attika Museum Press (in Greek). Viner, J. [1937] (1975) Studies in the Theory of International Trade. Clifton N.J.: A.M. Kelley. Zografos, I. (1925–6) Public Finance Studies, I–III, 2nd edn. Athens: Hestia (in Greek). Zolotas, X. (1926) Griechenland auf dem Wege zur Industrialisierung. Leipzig: Teubner Verlag.

11 Political economy in Italy Competition and civil society in the Milanese school, 1750–1850 Pier Luigi Porta and Roberto Scazzieri

Introduction The canonical study of political economy in Italy currently emphasizes the importance of the Milanese school, particularly through the second half of the eighteenth century.1 On the other hand the first half of the nineteenth century in Italian political economy is commonly described as a barren age.2 In this chapter we shall focus attention on the Milanese school itself, in view of their prominence on the intellectual scenery of Italian language authors, and we shall proceed to show that there is both continuity and progression within that school throughout the century, 1750–1850, as far as the history of political economy is concerned. It is argued that the canonical judgement and bi-partition of that period in the Italian case mainly reflects the prevailing concentration of the attention of historians on selected analytic issues, ranging from the comparative productivity of sectors in the economy to the debates on value and price theory, on money and on international trade.3 No single one of such and similar matters, significant as they are, seems to lie at the core of the analytic interest of the main authors in Italy from the mid-eighteenth to midnineteenth century. It would, therefore, not be possible to seize the specific analytic contribution of those authors to the development of political economy by classifying their contents according to a thematic grid mainly built on some of the traditionally leading issues in the history of economic analysis. A correct specification of the historico-analytic contribution of a particular school is not independent of the discovery of some common basic purpose to the authors of the school itself, as a history of economic analysis is not independent of expectations and intentions on the part of its actors. The Milanese school provides a characteristic example of the construction of what we choose to call the ‘economic theory of civil society’ in this chapter. The latter provides the unifying theme to the Milanese school. Its treatment and the analysis of the specific contents of the issue in the Milanese context lead to stressing the unity of the period concerned from an intellectual standpoint. The outstanding contributions include Cesare

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Beccaria, Pietro Verri, Gianrinaldo Carli in the late eighteenth century and Melchiorre Gioja, Giandomenico Romagnosi and Carlo Cattaneo in the early nineteenth century. The unity of the period revolves around an institutional notion of competition, conceived as a process embedded within civil society. Competition and civil society provide the conceptual guidelines to outline an important stream of thought linking the eighteenth-century literature on the ethical precondition of economic life to the nineteenth-century contribution on the morality and the economics of industrial development. The rise of the idea of a commercial society, establishing itself in the eighteenth century, sheds light on the key notion of incivilimento throughout the nineteenth century in the formation and spread of economic ideas in Italy and in the design of economic policy. In the present exposition we shall mainly concentrate on two typical scientific personalities within the Milanese school during that period, namely Pietro Verri (1728–97) and Carlo Cattaneo (1801–69). If we take, as a starting point, the economic thought of eighteenthcentury Italy, we can observe that it exhibits a complex and fascinating interplay between the analysis of processes leading to economic improvement and the consideration of circumstances by which the progress of wealth may be checked. We could indeed suggest that the above characteristic of Italian economic thought throughout the eighteenth century reflects the peculiar position of Italian economics and Italian culture during that period. For Italy’s heritage was one of both economic and cultural primacy in Europe: still at the end of the sixteenth century the per capita gross domestic product of northern and central Italy was above England’s and roughly similar to that of the Flanders. On the other hand, during the seventeenth and eighteenth centuries, the Italian economy lost ground and was overtaken by ‘latecomers’ such as England and Holland.4 This historical and cultural heritage left a mark upon the reflections of Italian economists, who became acutely aware of the reversibility of economic progress and of the possibility of a civilization process in which cultural development gets entangled in a vicious circle of sophistication and poverty, while the standard of living becomes stationary and eventually enters a declining path.5 Such a general outlook, however, leaves scope for a considerable range of perspectives, which are sometimes associated with the broad regional affiliation of different groups of economists. For example, economic thought in Naples and southern Italy often brings to the fore the theme of social trust and comes to the point of making it an essential prerequisite for the progress of wealth (cf. Doria, Galiani, Genovesi).6 On the other hand economic thought in ‘Lombardy’ (meaning by that a wide geographic region including most of the Po Valley, especially in the eyes of non-Italian observers) is often concerned with a more ‘positive’ view of the economic interdependencies of a market economy and leads to emphasize the critical relationships across different regions and countries

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as are mediated by exchange, money and the division of labour (cf. Montanari, Verri, Beccaria). In spite of the more optimistic outlook of the analyses proposed by the latter group of economists, in their case as well the relationship between civilization and the progress of wealth appears to be relatively openended. In particular both Cesare Beccaria and Pietro Verri appear to be aware that cultural development is not necessarily conducive to economic improvement. Indeed there may be cases in which a given society could slip into ‘barbarity’ precisely because cultural sophistication generates an expansion of needs and desires that is unmatched by the expansion of wealth (barbarity is thus distinguished from the ‘savage’ primitive state in which human desires are bounded and the ‘scarcity’ or penury of means could paradoxically be less acute). In that connection ‘industry’ is considered a most critical linkage between the development of civilization (and artificial needs) on the one hand and the expansion of opportunities on the other hand. The aim of the present chapter is to trace the evolution of the theory of ‘industry’ in the economic thought of the so-called Milanese school.

Pietro Verri: commercial society, civil society and governing the economy The work of Pietro Verri – with specific reference to his Meditazioni sulla economia politica of 1771 – provides perhaps the earliest example of a systematic treatment of political economy on Lombard territory, especially if we consider that Cesare Beccaria’s lectures, which were drafted at the same time as Verri’s own work, would in fact be actually published only several years later, at the beginning of the nineteenth century, in the Custodi Collection. Verri, ten years older than Beccaria, was the real founder and inspirer of the Milanese Accademia dei pugni, the pugnacious academy keen on exposing the prigs of any kind and on spreading progressive knowledge, a genus of which political economy is a most valuable species. Pietro Verri’s book expounds and develops the author’s conception on the nature of commercial society; within that conception the analysis on competition and the analysis on the market occupy a central place. At the same time Verri does not approach political economy in a purist and abstract way. The purist approach, indeed, belongs, as a way of thinking, to a later period in history. It is, therefore, not surprising that Verri’s political economy rests on a fully fledged conception on the nature and the articulation of civil society. Verri is one of the eighteenth-century authors for whom the modern (i.e. particularly seventeenth to eighteenth century) developments of the concept of civil society decidedly provide a cue in the direction of political economy. An economic theory of civil society is thereby developed. It will be easily appreciated how much Verri

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got into that conception from his own practical experience during a time in which both the central Viennese and the local Milanese administration undertook to introduce a number of important reforms. It is of course of the utmost importance to consider the author’s own deep involvement – his famous analysis of foreign trade of the State of Milan, his projects for taxation reform, his activity as a member of the high council for the economy, his intense activity as a publicist and as a promoter of Il Caffè, the Italian Spectator – in the reforming process in order to understand him as a political analyst.7 The foundations of his thought include, besides the Meditazioni sulla economia politica of 1771 which went through several editions during the author’s own lifetime, the Meditazioni sulla felicità of 1763 and his Idee sull’indole del piacere of 1773. Significantly the three works, in revised or expanded editions, were jointly published in 1781 as Discorsi.8 Through the 40 sections of the Meditazioni sulla economia politica, Pietro Verri lays great stress on creativity as the source and origin of the formation of wealth. Section 13, often quoted, ‘Of the value of money and its influence on industry’, focuses on the power of industry in increasing what the author calls ‘annual reproduction’. In a country made rich through industry [Verri writes (English edn, p. 44] machines and tools are perfected to such a degree that the workman in a single day will produce an article which in a less industrious nation would take several days to make; such are the resources available to a country which has grown rich through its industry, resources that are lacking in a country whose riches have come spontaneously from the land. Here, again, (§ I, English edn, p. 4): [n]eed or, in other words, the sensation of pain is the goad used by nature to arouse man from the indolent state of stagnation in which he would otherwise languish. . . . Need [he continues] sometimes leads men to plunder, sometimes to trade. For trade to exist there must be both want and plenty.9 Concerning plenty, the author immediately goes on to explain (§ III, ed. cit., p. 9), outspokenly contentious with the ‘sect of the economists’, that ‘[r]eproduction applies as much to manufacture as it does to work in the fields’, so that we should speak of ‘this highly fruitful sterile class’, on the product of which entire cities and states survive. Pietro Verri’s view on the scope of political economy as a discipline had already been explained in his essay on provisions of 1769, where he had written that all the operations of political economy are based on the assumption that the maximum of annual reproduction is achieved with the least effort and labour. It is a foundation of political economy – or, as


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he often calls it, public economy – that the economy consumes and reproduces. The excess of reproduction above consumption is additional wealth. All the applications of the science consequently ought to take the form of maintaining or increasing that excess; in particular, as far as the policy on provisions is concerned, Verri argued that any prohibitions hampering a vent for surplus towards other economies directly contradicts that fundamental principle.10 This optimizing approach should not be interpreted as a static canon; it corresponds, in fact, to a search in a dynamic sense. It embodies a searching spirit which is in fact at the heart of Verri’s political economy. The essence of political economy is the study of the conditions for the quickening of industry or of searching and productive activity. We may perhaps have recourse here to a famous paper by Alfred Marshall on competition (1890). Competition is not merely rooted in a search for the approbation of others; it contains, together with that and as a distinct root, to a considerable degree the striving ‘to do good for its own sake’: a sort of instinct of the chase or competition for excellence. ‘The art of ruling a people – this is Pietro Verri’s conception [§ XXXV, English edn, p. 106] – is known and defined as that of reviving its prosperity’. It is now easy to show how such aspects and elements of Verri’s theory of price as are better known to historians of economic analysis and thought are indeed an integral part of that conception. We can thus proceed to clarify the nature of commercial society in the author’s view of it and it will be apparent that the argument on that point is a necessary premise to Verri’s vision on civil society. There are two aspects in price theory. A former aspect concerns the absolute level of prices expressed in what Verri calls the ‘universal commodity’. The latter, in turn, involves the theory of the working of the market and the formation of relative prices, where the term ‘price’ must be interpreted to mean what Verri calls the ‘ordinary price’ or prezzo comune (§ IV): this is what other authors call – without entering here subtler disquisitions – natural price or normal price. The former aspect touches on the question if, as a result of the increase of the amount of the universal commodity, ‘the prices of products will gradually rise until other countries cease to buy and look elsewhere for their supplies’.11 The new and original standpoint taken by Pietro Verri on that corner has often been noticed.12 He corrects (loc. cit., § III, Custodi edn, p. 31; see English edn, p. 12) the classic Humean argument and concludes that reproduction will expand: ‘particular commodities will multiply proportionately as the increase in the universal commodity becomes widespread and the number of contracts of sale and purchase will increase as there are more means to implement them’. Thereby will the universal commodity, acquired via industry and divided among a large number of people, compensate for and rectify through its greater celerity the deleterious effects that would otherwise follow from the single large amount.

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Further on the issue, Verri writes even more clearly in § XIII of the same book: Consequently the superabundance of the universal commodity will become noticeable when it enters the country in large amounts, without allowing industry time to accumulate sellers by adding gradually to their number. Money which mounts up imperceptibly in a State is like the dew that revives and invigorates vegetation; but it is like a raging torrent, uprooting, muddying and inducing sterility if it enters the country as accumulated treasure. Wherever unflagging industry and flourishing trade in a nation gradually add to the universal commodity, this will be a new spur to industry and will increase the number of contracts, encourage the flow of internal circulation and lead to the introduction of new comforts and conveniences, to a refinement of the arts and crafts and to the invention of ways of perfecting them and speeding up their production. Everywhere cultivation, good living and prosperity will be diffused. (Custodi edn: 122, 124; English edn: 42) It is, therefore, il moto dell’industria, ‘active industry’, which forms the primum mobile of the virtuous circle. An increase of ‘circulating money, when it is achieved gradually and through industry and is shared generally among the people, leads to a proportionate increase in consumption; . . . and the more sales a commodity finds, the more the sellers of it increase and the livelier its reproduction’ (ibid.: 44). Schumpeter, in a well-known passage of his History, discusses the contrast between two different views: Dearness-and-Plenty on the one side versus Cheapness-and-Plenty on the other. To the two sides belong, respectively, François Quesnay and Adam Smith. Pietro Verri – this is yet another ground for distancing him from the Physiocrats – is a precursor of the Smithian position and takes sides decidedly for Cheapness-and-Plenty. We have just seen this through his criticism on Hume on the effects of increasing the quantity of money and shall go on to see presently that same standpoint reinforced by Verri’s theory of price. It is interesting that, in a perceptive remark deserving notice in the present context, Schumpeter himself finds reason to single out Verri as ‘the most important preSmithian author on Cheapness-and-Plenty’ (ibid., see above, fn. 16). So much for Verri’s macroeconomics. However the author’s position on Cheapness-and-Plenty cannot be fully understood without taking its microeconomic basis into consideration, which coincides with what we have called above the latter aspect of his theory of prices, namely the theory of relative prices. Pietro Verri makes a distinction between price and value. Much in


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the same way as Smith does a few years later, Verri states that the calculation of ‘how many ounces of metal were given in exchange for a certain commodity’ cannot be used to indicate ‘the true value of it, if by the term value is meant the degree of esteem it had in the common view, for the esteem in which the precious metals are held has varied with the passing of time’ (§ XV, English edn, p. 50). It is now the place to consider the implications more closely of the increasing number of sellers and of the general redistribution of the whole mass of the precious metals. Particularly at § IV of this book of Meditazioni, Pietro Verri writes about the prezzo comune as the relative price. As a matter of fact such a prezzo comune can well be – and so it is in ordinary practice – expressed in units of specie; that practice, it should be noted, does not change the fact that the prezzo comune is thus expressed in terms of another commodity, such being the nature of specie itself – ‘universal commodity’ indeed in Verri’s analysis. Price, in this sense, comes to depend – in Verri’s view – on utilità and abbondanza, or – which boils down to the same – on bisogno coupled with rarità. If the number of sellers increases (other things being equal), plenty will increase and the price will fall; if the number of buyers increases (again, other things being equal), so will the want grow and the price increase. Thus the price is deduced from the number of sellers in comparison to the number of buyers. After some more verbal elaboration, Verri comes to the conclusion that ‘the price of things will be in direct proportion to the number of buyers and in inverse proportion to the number of sellers’ (§ IV, English edn, cit., pp. 17–18). He adds in the sixth Livorno edition of 1772 of these Meditazioni (the text of which is given by Custodi13) that ‘there proportions are approximate, because strictly speaking, to satisfy mathematical precision all buyers should purchase equal quantities’. In the same Livorno 1772 edition the famous appendix is also given, in which the mathematician Paolo Frisi, in summarizing General Lloyd’s essay on the theory of money, compared Lloyd and Verri on price.14 What seems relevant in the present context is to recall the purpose, Verri pursued in making use of his formula on price. That formula in fact shows that Pietro Verri had in mind a theory of effective supply, which corresponds to what he terms abbondanza apparente. ‘Abundance of a commodity [Verri argues (§ IV, Engl. edn, 14)] – has a bearing on its price; by the term abundance, however, I do not mean the absolute quantity of it in existence, but rather the amount offered for sale’. Apparent abundance or plenty – as the one which works in determining price – increases and decreases with the number of offers, approximately measured by the number of sellers (see ibid.: 16).15 ‘Increased annual reproduction [Verri states (§ V, Engl. edn, p. 19)] must be the aim of political economy: . . . to achieve this, the proportion of

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sellers to buyers must be as high as possible’. A necessary condition for that to happen – following an argument already sketched in the Meditazioni sulla felicità – is some equality in the distribution of wealth: in his own words, the ‘number of sellers will always be greater in a nation according as wealth is more evenly distributed there among a greater number of people. . . . When a nation’s wealth is concentrated in the hands of a few . . . [n]o abundance and no civil liberty will be found there’. That is an instance in which the resulting ‘careful adherence to permanent uniformity would remove competition’. In conclusion, when ‘there is too much inequality in the distribution of wealth, just as in the opposite case of perfect equality, annual reproduction is restricted to the bare necessities and industry is destroyed’ (§ VI, English edn, cit., pp. 21, 22, 23). In this way we complete the set of the conditions which justify and support a spontaneous order of a peculiar kind to which we shall have to revert: Nature, if left to itself, would be a benevolent mother to all men, correcting excesses and defects wherever they occurred, distributing good and ill according to the wisdom and activities of the peoples, and leaving only sufficient inequality between them to keep desires and industry moving. (§ III, Engl. edn, cit.: 12) In connection with the conceived order of society, Verri has in mind, it is only natural that also some of the most typical items of his experience as a concrete and practical reformer should surface. Let any man be free to practise his business wherever he chooses. Let the legislator permit sellers in every category to multiply, and in a very short time he will see competition and the desire for a better life reawaken creative capacities and quicken the hands of his people; he will witness a refinement of all the arts, a fall in price levels, and the spread of plenty everywhere in the wake of competition its inseparable companion. (§ VII, English edn: 26) The logic of the argument exhibits the close analogy with Smith’s better known ‘local situation’ (Wealth of Nations, e.g. IV.ii.10), which transpires also for example from Verri’s assumption that the ‘buyer’s judgement is always the most dispassionate and balanced’; on that basis it is only natural that, through competition, ‘inexpert or importunate sellers will always be isolated, and will be forced by lack of profit to either improve or quit their occupation’ (ibid.). In order to keep the proportion of sellers to buyers on that high level, which is in fact the object of the policy of effective supply or abbondanza


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apparente – the real aim of Verri’s political economy and the only possible source of wealth and prosperity through increased annual reproduction – there are ‘two means which spring naturally to the mind’. The means are, in Verri’s own words, ‘by increasing the number of sellers, and by reducing the number of buyers’ (§ XI, Engl. edn, p. 36). It is by taking the former that it is possible clearly to progress, while the latter ‘calls for extreme caution’. Whenever then the policy of effective supply ‘is achieved by addition, the State moves towards prosperity; and conversely moves away from it when the attempt is made by subtraction’. ‘[R]emoving constraints on sellers and encouraging their unlimited numbers’ is the sole policy coherent with the view of a commercial society based on liberty and competition (see § 11, English edn, pp. 36, 38, 39). It will be evident that to Verri the concern for supply amounts to a plea against a kind of privilege, namely monopoly or quasi-monopoly which, leading to a restricted supply, would then imply higher prices and counter directly his own cheapness-and-plenty philosophy.

Verri’s contribution to the economic theory of civil society Verri’s contribution to the economic and moral foundations of civil society appears to draw upon extensive and perceptive reading of classical eighteenth-century sources. At the same time, on a number of critical issues, Verri suggests a fresh perspective and identifies ‘conceptual solutions’ of remarkable originality. In particular, Verri’s conception of ‘civil society’ (which is to be identified, to a large extent, with his ‘società colta e legittima’) makes it clear that ‘moral sense’ and legislation may be considered as critical prerequisites for the kind of ‘producers’ competition’ discussed in Meditazioni sulla economia politica (Verri, 1771). In a sense, a comprehensive reading of Verri’s economic and philosophical writings suggests a new perspective in the analysis of the interplay between moral sentiments, legislation and the competitive framework of a market economy which is not irrelevant to the understanding of the same relationship in other eighteenth-century writers, including Adam Smith. For Verri’s Meditazioni are explicitly rooted in a ‘historical’ investigation of moral sentiments, and of the way in which these may influence the pursuit of private or public interest, and the characteristics of legislation. According to Verri, civil society is an essential prerequisite of ‘industry’ and ‘indirect legislation’. However, the evolution of moral sentiments is not always compatible with the formation of a ‘società colta e legittima’. The progress of civilization may indeed be associated with the development of roundabout feelings and the formation of artificial needs that could impair human industry and act as a check upon the growth of wealth. Under the above circumstances, indirect legislation is seldom effective,

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so that laws tend to be ‘particular’ rather than general, and government activity ends up being associated with command more often than incentive. The duality between the ‘barbarous and corrupt’ and the ‘civilized and lawful’ states of society brings to the fore the variety of alternative paths open to human beings in the course of the civilizing process. The same duality also suggests that the ‘structure’ of moral sentiments may be of critical importance in determining the character of legislation and the possible development of ‘industry’ in any given society. Industry is, in Verri’s analysis, closely related with the intertwined activities of production and trade. For it may be argued that, in trade as in production, the most essential (or ‘primitive’) tasks are ‘bringing together and ‘separating’ (Verri, 1986a: 9; 1st edn, 1771), that is, operations associated with the transformation of matter from one state to another (see Verri, ibid.). In this connection, the relational features of wealth formation are highlighted, since it is primarily by means of the ‘free’ interaction of individuals and social groups that material objects (or immaterial ideas) may be brought together or separated from each other. Such a relational dimension of ‘industry’ is rooted in Verri’s own representation of production (and trade), and leads in turn to a characteristic emphasis upon ‘proximity’ as a necessary condition for the development of wealth. Indeed, Verri is clearly distinguishing between physical and ‘economic’ proximity, and suggests that, as interaction between individuals (or groups) gets easier, ‘so will it be easier to accomplish this [proximity] without people having to move their homes’ (Verri, 1986a: 76; 1st edn, 1771). Decreasing ‘costs of interaction’ (that may be associated with decreasing transaction costs) are considered to be at the root of a complex process, in which ‘civilization’ (particularly under the form of developed moral sentiments and artificial needs) is a prerequisite of economic progress. At the end of this investigation into the relationship between civil society, commercial society and ‘government’ (or legislation) in the writings of Pietro Verri, we may attempt a general assessment of Verri’s own contribution to the formation of economic ideas in the course of the eighteenth century. In this connection, as emphasized by Peter Groenewegen in his contribution to the recent Verri bicentennial conference, we meet the apparent paradox of an economic monograph (Verri’s Meditazioni sulla economia politica) widely known across Europe and translated in a number of foreign languages (three French, two German and one Dutch translations appeared between 1773 and 1823),16 and yet seldom explicitly referred to in scholarly writings. The ‘Verri paradox’ may be tackled from a number of different perspectives. For instance, it could be argued that Verri’s influence was limited to the analytical treatment of market demand and supply, or to the intro-


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duction of a concept of ‘income’ explicitly founded upon consideration of the economic system as a circular flow (see, respectively, Schumpeter, 1954: 178, 287; Studenski, 1958). Our investigation has followed a different course, by attempting an assessment of what may be called Verri’s ‘pre-analytical’ framework and discussing the cluster of concepts and formulations by which Verri’s ‘embedding structure’ of economic relationship may be identified. Such an approach has led us to identify the most critical contribution of Verri’s economic writings in the analysis of the relationship between civil society, moral sentiments and ‘legislation’. In this perspective, Verri appears as a leading theorist of the process by which a careful blend of ‘need sophistication’ and ‘moral simplification’ may make human beings responsive to the ‘indirect government’ of civil society.

Italian economic thought in the early nineteenth century: the morality of industry It is the purpose of the present section to introduce a summary treatment of some aspects of Italian economic thought during the nineteenth century. The period 1800–50, treated in this chapter, has been traditionally considered to be a barren age by economists. However, that judgement implies a rather narrow conception of economic analysis, a conception which in particular tends to separate economics from politics. In what follows we shall proceed with a broader conception in mind concerning the business of the historian of economic analysis. As was spelt out at the outset in this chapter, there is an ideal continuity between Carlo Cattaneo, the figure on which we are going to focus attention in this section, and Pietro Verri. The practical inclination of both authors, together with their deep concern for the institutions which constitute civil society, provides not only a clue to specific Milanese and Lombard features, but – more than that – make of the Milanese school an outstanding expression of classical political economy. This is relevant to keep in mind also in view of the general meaning which can be attributed to developments of political economy in less developed Europe. Carlo Cattaneo’s activity as a writer began seriously in 1835 as he retired from teaching and married Anna Woodcock.17 From then onwards Cattaneo seized his chance of becoming one of the most influential figures in Italian positivism. His entire literary production is dominated by a pervasive need to communicate and spread useful knowledge. Thus he turned increasingly away from the cultivation of literary studies per se and also from the more abstract parts of philosophy. To him ‘philosophy is science’; it is the field of studies through which the results and achievements of science in its various forms are compared, connected and synthesized. It is emphatically not an abstract body of knowledge that

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precedes science itself. It will be interesting to see the directions taken by his economic studies under this impetus. Let us first notice here how much was it due to his own kind of scientism that he was led to write in the form of an essayist, pamphleteer and journalist, rather than embarking upon larger projects. A most typical product of his own publicist activity are the two series bearing the meaningful title of Politecnico. Cattaneo also developed a reformist republican ideology, which – according to a generally accepted view – distances him from Verri. He was deeply involved with the insurrectional movement in Milan in March 1848. He had begun by that time to consider the problem of the growth of nationalities within the Austrian Empire and came to develop his own brand of constitutional federalism in that context. Gradually he turned his attention, more and more, to the question of Italian Risorgimento and to the political unification of the country, to which problem he also tried to apply his own federalist outlook. His distaste for monarchy made his political ideals particularly unpalatable to all parties and Cattaneo continued his own scientific mission from a Swiss sanctuary near Lugano, where he had managed to get a post, again, as a high school teacher of philosophy. Scientific spirit and civil passion go hand in hand through the formative years and the major episodes of Cattaneo’s activity. The fact that he constantly refrains from discussing recipes on facing the social question, with all the interventionist implications thereof – which makes him sceptical both of early socialist conjectures and of early German historicism – makes him no less of a significant personality to which Italian intelligentsia would turn time and again through the subsequent years up to the present time. The main question lying at the heart of Cattaneo’s thought is the question of the sources and the effects of the spread of economic progress. In a famous essay on ‘Industry and Morals’18 – from an address of his, delivered to the Society for the Encouragement of Arts and Trades on 15 May 1845 – he emphasized the dynamics of society through the cultivation of science: ‘the true progress does not attempt to knock down the heights of society; it rather aims at redeeming from their mud those who, still deprived of them, are to be raised to the enjoyments of property, of education, of intellectual development’. The means for achieving that kind of general improvement of mankind can be supplied through the moral urge, every generation feels, to improve upon the achievements of their fathers. Unfortunately – he added – there are always those who place human happiness not in the dynamic motion, to which man is naturally inclined, but in some kind of deadly stillness whereby everything is perfectly defined and can be exactly foreseen. The subject of the dynamics of industry through innovation and human activity is perhaps the outstanding economical thread in Cattaneo’s reflections. It certainly finds its culminating expression in the celebrated essay on thought as the principle of public economy, appeared in the second series of the Politecnico in 1861.19 In that essay Cattaneo’s conception of the dynamics of incivilimento


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finds perhaps its greatest expression. As a consistent and conscious offspring of Enlightenment, Cattaneo conceives the ideal of progress, and of economic progress more particularly, not at all deterministically and as the work of an unavoidable fate or of an irresistible and impersonal drift; quite the contrary, progress is a human conquest, the result of the aims pursued and the efforts deployed by men through their individual action. Progress is laborious, slow and gradual; it finds its course by trial and error and is far from being possibly designed in a linear or straightforward fashion. On the economic significance of education, skills and knowledge and their impact on economic progress, Cattaneo finds the tradition of economic thought singularly defective. Not even Adam Smith nor Antonio Genovesi appear to him to give adequate acknowledgement of a factor so essential to the understanding of what he likes to call ‘economia publica’. He indeed gives some credit to Melchiorre Gioja and JeanBaptiste Say on that score, but the heart of the matter has been barely touched by them and remains for the most part to be taken up and developed. We also find a typical reaction of his – which also turns out to be extremely influential in Italian thought at that time – in what he has to say about the early developments of socialist and communist ideals. In France – he argues – that ‘new school’ arises, which professes to rebuild entirely, from its foundations, the economic science on the basis of the principle of just distribution of productions among the components or classes of society. It is that school which gave voice to the hateful dictum: ‘La propriété c’est le vol’. Cattaneo criticizes these views here and elsewhere. In introducing the last volume of the Politecnico (1st series) in 1844, he had already criticized the utopian sides of socialism and communism, ‘which would destroy wealth without relieving poverty’ and by abolishing inheritance and family ‘would condemn workers to the condition of slavery without lineage and without honours’. It is justified to dwell somewhat on those contributions by Carlo Cattaneo, the significance of which goes beyond the study of their author, for they also outline another aspect of the Italian national tradition of political and economic thought. In writing about socialism, in particular, Cattaneo’s reference to Saint-Simonism is not merely implicit; and he takes care to add that, when we take out from Saint-Simon ‘all his dreamings on the abolition of property, inheritance and family, we find in him a thoughtful ideal history’ which follows the design of the ‘course of nations’ as it is outlined and discussed by Giambattista Vico: here Cattaneo’s essay on ‘Vico e l’Italia’ (in Politecnico, 1839) is most telling. Thus the whole intellectual tradition of Italian Enlightenment, including Beccaria and the main thinkers of the eighteenth century, is connected by Cattaneo to a strong current of the history of ideas bearing a distinct national character. Given the importance and influence of Vico this is no secondary point. Again concerning socialism Cattaneo is convinced to have acquired and correctly exploited all that can be of use in the development

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of socialist thought; therefore he often appears to discuss socialism – particularly in its extreme forms – as something that, taken by itself, would soon belong to the past. The sound and anti-metaphysical part of socialist thought was certainly not foreign to his positive view of science and could be summarized to him in the moral principle ‘a chacun selon ses oeuvres’. That certainly contains – as he is keen to observe in his 1861 essay – a justification for inequality based on the acknowledgement of the variety of skills and knowledge among different individuals; still this remains an insufficient recognition of the powers and the influence of knowledge on political and economic life. Knowledge and education are, to a large extent, public goods: ‘there is a far more remote and higher influence, which knowledge spreads on all the productions of the human race’. That particular influence is something the 1861 essay is meant to notice and discuss. Insofar as it came to emphasize that moral principle and thus to justify inequality, socialism could take the right course of reverting to place its main emphasis on the main and proper issue, i.e. production, rather than distribution. This is the stronghold of Cattaneo’s positive economics; and it is evident that economics is to him a theory of production in a much wider sense than any socialist of his age would be prepared to suppose. Other significant contributions by Cattaneo complete his own libertarian and positivistic views. As an outstanding example we can now turn briefly to his famous essay of 1836 on the ‘Interdizioni israelitiche’,20 where, again, he touches on the issue of property, inequality and emulation as the main driving force of progress and incivilimento. The prohibitions to which the Jews had been historically subjected are discussed as a powerful source of a wasteful use of resources. In particular the prohibitions concerning property had deprived the Jews of the only means by which man can be freed from slavery and becomes capable of active contribution to the wellbeing and the improvement of the community. The interdiction of private property forced the Jews into a number of expedients, to the disadvantage of the whole community to which they belong. No wonder therefore that so much of this essay consists of a detailed analysis of the forces of progress and incivilimento. In particular a surfacing argument, otherwise also important to Cattaneo, concerns the role of education as a catalyst of the division of labour, rather than an antidote of its undesirable effects: education is conceived much more as a transmission of useful knowledge rather than of polite learning or the ornament and recreation of the mind. Again he finds reasons to describe the advantages of the positive method in economics, practised by a conspicuous lineage of authors, whom he contrasts to the doctrinairism of colbertists and physiocrats together. Two other subjects deserve brief mention here. One is his critical review article of 1843 on the then recent work by Friedrich List Das


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nationale System der politischen Oekonomie.21 Cattaneo makes at the same time clear the cosmopolitan aspects of his own view of the economic science (in the spirit of Adam Smith) and his own outright aversion to any kind of prohibitions and artificial and authoritarian obstacles to commerce. The essay develops a line of thought already anticipated by Cattaneo in his observations on the German Zollverein in the ‘Annali Universali di Statistica’ for 1834 and on its importance as an example for the case of the Austrian Empire and also of Italy. Finally a hint must be made to Cattaneo’s emphasis on the decentralization of political power as one of the issues to which he notoriously devoted a great deal of attention. Cattaneo’s liberalism is entirely based on a federal principle and more particularly Italian history itself is full to Cattaneo of federalist suggestions, as he shows in an essay that would become famous in 1858 on Italian cities, ‘La città considerata come principio ideale delle istorie italiane’.22

Incivilimento and progress It seems appropriate to trace Cattaneo’s thought to its proper sources and particularly to the ideas of Giandomenico Romagnosi (1761–1835). Romagnosi provides perhaps the most typical kind of philosopher of that age of Italian history, extending over the first half of the century. It is interesting to refer immediately to the notion of incivilimento, discussed at length in his works, as a characteristic peculiar blend of individualism and sociality. Progress and public morals are constantly at the centre of the stage to him. The significance of his system of thought in the present context is mainly the result of the fact that it combines the seeds of both kinds of ideology, incivilimento and industrialism, in the sense already discussed above. Both the libertarian vision, centred upon the powers of the individual, and the ‘social’ perspective, whereby the economic problem is one of administering the allocation and use of resources, appear to have an outstanding place in his writings. No less typical of him is his wide and profound jurisprudential culture. Ettore Albertoni, who discusses Romagnosi as the signal representative and the real father of a positivist lineage in Italian political science, gives full emphasis to his being primarily a public law scholar. One of Romagnosi’s early titles, his introduction to the study of universal public law, of 1805, appears to be meaningful and significant in this sense. Romagnosi’s idea of ‘civile filosofia’ can be traced back to a Neapolitan tradition and particularly to Genovesi’s ‘economia civile’; incivilimento, however, as a word, reveals a significant shade of difference compared to Genovesi’s notion, describing, as it does, the formative stages and thus the dynamics of civil society. Particularly in his later writings of the 1820s and 1830s, published in the Annali Universali di Statistica, in his work on the nature and causes (‘Dell’indole e dei fattori’) of incivilimento, of 1832, and

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elsewhere, Romagnosi develops his own view of the social body as a single person: hence the surfacing attention to education, habits, improvement with an increasingly national flavour.23 Romagnosi is driven by the search for a universal taxonomy, leading to a general unification, under the umbrella of science and of natural necessity, of both the physical and the moral world. The ideal of organic totality is certainly not foreign to his thinking; however, this is, at the same time, counterbalanced by the oftrepeated libertarian principle of negative liberty. His system contains the principle that government should have the least possible amount of business – as he writes in his Genesi del diritto penale – while society develops the maximum of their affairs; an idea – it should be noticed – that touches upon the functions of the state in protecting individual liberty and that soon expands into economic liberalism as an integral part of the condemnation of absolutism of all kinds. In this way we can understand what he would emphasize later on, in his work about incivilimento of 1832,24 namely that ‘economic and moral improvement does not require artificial encouragement, but it only needs the conditions of free competition’. It is to be stressed immediately that the subject of free competition would be one thoroughly discussed by Romagnosi. In his conception, in fact, the notion of free and universal competition becomes an aspect of the more fundamental concept of incivilimento. In this way he succeeds both in emphasizing the dynamic aspects of competition and in combining them with the idea that competition itself cannot be understood in a puristic economic sense, as it has a moral and legal dimension attached to itself. In a letter to his friend Giovanni Valeri of 1826 he rehearses the leitmotives of the ‘Genesi’ in the light of his subsequent thinking. He describes the social state as the only natural state of man, whereby the individual acquires the fullness of his significance and powers. Economic improvement through the division of labour (‘that social value through which each man working for himself procures advantage and reciprocates his own industry to other individuals’) is essentially defined by legal coordinates, being the expression of ‘the development of the body social as a result of continuing incivilimento’. Thus, he writes, I see it as a crime and villainy to impose limits or create obstacles to industry and expectations. But at the same time, he adds, I also see that, where a healthy confrontation of interests cannot take place, each individual will push through his own private ends. ‘Therefore I investigated where and when public authority, without infringing upon the original private possession, can have an influence on the distribution of wealth.’ ‘The policy of the state’, he observes in a note on the practical intent of public authority, ‘aiming at the fulfilment of the laws of natural order, must be considered as a necessary and everlasting part of a process of educating to the public good those moral persons that are called society’. The progress of incivilimento finds its way within the inner individual and


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thereby does not violate personal freedom and independence; nevertheless – as Romagnosi describes in a section on the driving forces of public spirit in his own work on incivilimento of 1832 – that progress results into a newly educated mature individual who has left far behind the extreme anarchy of the Hobbesian state of nature. In describing natural anarchy he observes that ‘in the rude age of society and through the mere morals suggested by the heart it would not be possible to refrain from that egoism. The spirit of civil sociality, through which the individual is melted into the mass, comes about later, slowly and through great difficulties.’ 25 These and other observations find their summary and possibly best expression in a famous essay published in the Annali Universali di Statistica of 1827, bearing the title ‘Of free and universal competition within the social order of wealth’. This is, to a considerable extent, the fruit of a controversy with the French-style anarchism expressed by Charles Dunoyer, both on the specific subject of public authority and its role in tutoring and protecting the environment where competition can grow and flourish, and on the subject of the neutrality of science with respect to policy, an idea that significantly, though certainly not surprisingly, repels to the legal, and therefore administrative, mentality of Romagnosi. As it will be obvious from our exposition, an unjust – meaning unequal – distribution of wealth can only be the result of an ill-conceived functioning of free and universal competition. All inequality must be due to a malfunctioning of this kind. This is particularly clear from his 1827 essay just quoted, an essay that has been rather popular among recent generations of economists and was also reprinted in the volume Economisti Italiani del Risorgimento (already quoted) by Utet in 1933. One can now ask [Romagnosi writes] why competition has been so universally accepted. It is obvious that it was proclaimed, defended and sustained as a fundamental dogma because of the average effect of the action of the free competing forces . . . Every day people go to the market and shops: where the seller demands ten, the buyer offers five and they both agree for seven. By this mutual accommodation individuals advance their well-being, and desired goods are fairly exchanged and distributed [. . .] Let us now reflect on this aspect. When is this equal distribution likely to occur? Only when competition is completely free. And when can it be said to be completely free? – Perhaps when we let the contracting parties do whatever they wish . . . ? (Garino-Canina, 1993) Romagnosi’s answer to this question is in the negative and he adds that we must distinguish ‘the unbridled force of economic actions from the free competition described by the learned writers’. He distinguishes sharply between ‘sbrigliato concorso’ on one side and ‘libera concorrenza’ on the other as between anarchy and liberty.

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Pier Luigi Porta and Roberto Scazzieri I am firmly convinced [he accordingly concludes] that, when Smith, and before him, Bandini in an even more philosophical way, proclaimed the principle of free competition, they were conscious of the obvious distinction we have pointed out. Furthermore, it is worth noting that the concept of free competition is not just a conception of a mere fact, but rather a conception of an economic order; and thus it does not apply to unbridled forces, but only to harnessed ones. For this reason economists must keep in mind that they are dealing with an issue of constitutional politics and not of mere market calculation. (Ibid.)

The point is emphatically not one of hobbles and fetters to achieve any sort of restraint: it is obvious that the whole discussion concerns the nature of a constitutional order. This telling point provides in fact the opening argument of his essay on competition of 1827 and many might undoubtedly be puzzled by this particular, albeit fundamental, standpoint of his. It may in other words be considered to be unclear where exactly he stands on the question of socialism, with all the criticism he pours on Sismondi and Saint-Simon on one side and on Dunoyer on the other. It should however be observed that, far from being puzzling, this is something extremely relevant in making Romagnosi’s thought of almost perpetual interest and influence and certainly one of the greatest expressions of the Italian tradition.

Leading lines in early nineteenth-century Italian economic thought It is our contention here that we can recognize two broad currents within the Italian tradition of economic and political thought through the first half of the nineteenth century. We may name them respectively incivilimento and industrialism. Let us briefly comment on the latter first. We take here as the main representatives of Italian industrialism Francesco Fuoco and Melchiorre Gioja. They both express a strong confidence in the prospects of industry as the driving force of economic and political development and their works are based on the principle that industrial progress can and must be designed, through the careful exploitation of its mechanisms such as they are outlined by the economic science. Methodologically they differ to a considerable extent, Fuoco writing more in defence of the abstract method and the application of mathematics to economic reasoning and Gioja mainly insisting on the significance of empirical studies, paying less attention to the distinction of pure and applied science and largely contributing to the development of economic and social statistics. He is the founder of statistics in Italy and also had an outstanding position in the economic disciplines (when alive, he was respectfully named ‘the prince of Italian economists’ and, after his


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death, less deferentially, ‘the dictator’). The current of incivilimento, on the other hand, although it also stresses the importance of industrial development, is less prone to turn every economic problem into a question of policy. The ideal of incivilimento purports to build from the seeds of the reformist tradition of Italian thought in the eighteenth century; its greatest representatives are the jurist and philosopher Giandomenico Romagnosi and his great pupil Carlo Cattaneo. The doctrine of incivilimento is a fuller and more articulated expression of Italian thought as compared to industrialism in its strictest sense. It still has a great deal to do with an emphasis on problems of administration and policy: this, however, does not stem so much from an outright interventionist attitude and from some kind of faith in social engineering; not so much at least as in the case of industrialism proper where economic theory has a strong inclination to turn entirely into a theory of economic policy. On the contrary the idea of incivilimento turns out to be an evolutionary view of civilization in a broad sense, in which economic factors have a vital role side by side with other fundamentals such as institutional traditions and national characters. It is this peculiar aspect of incivilimento, due also to the dominating influence of this current of thought, that gives a typical broad-minded character to the writings of the period, as is particularly evident in Romagnosi and Cattaneo. This is an aspect that has generally led to consider the works produced in Italy at that time as contributions to political economy only in a very loose sense; it is quite common – Cossa and Schumpeter are examples of this – to speak of the first half of the nineteenth century as a barren age from the standpoint of a historical profile of economic ideas in Italy, at least as far as economic analysis is concerned. That view, however, can only find full justification in the rejection, so popular for a long time, of the peculiar mixture of law and economic reasoning lying at the core of the very idea of incivilimento; a rejection which must, in our opinion, be attributed mainly to the historical dominance of the anti-institutional tradition, at least until recently, in economic theory and analysis. It is only fair to add that, for the sake of conciseness, we shall almost exclusively concentrate on the figures that may be considered as the greatest in the general opinion and therefore quite a number of valuable and interesting contributions will have to go unnoticed. The personality of Carlo Cattaneo stands out as most influential. His extensive works and tireless activities provide perhaps the best melting pot for all the strands of thought of the age, such as appear to be relevant from our perspective. It is curious, albeit typical, to observe how strictly a great figure like Cattaneo has remained confined within the narrow horizon of an entirely national perspective. This must tell us something of the reality and significance of national schools of thought in economics. Cattaneo, who had a complete command of the English language (he was married to an English woman) and certainly had excellent knowledge of

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French and German, would express himself almost exclusively in Italian and in a prose so beautiful that it is probably daunting to any would-be translator: it would certainly be almost impossible in translation to do full justice to his superb literary style. We have chosen here to deal exclusively with Carlo Cattaneo, among the nineteenth-century authors, although further considerations should be produced about other contributors as well as about the period as a whole.

Concluding remarks The main illustration we can draw from Italian continuity in economic thought from the end of the ancien régime to the early to mid nineteenth century is that competition and civil society are indissolubly linked together. Civil society can be conceived quite simply to consist of the set of the institutions, or the formal and informal constraints, which harbour and preserve the reality of trust. In the medieval world the keeping of promises and the concept of trust itself would be directly based on the common Christian faith. In later times, faith came to be confined to the sphere of individual conscience and the language of trust was developed in civil society through the legal treatment of social relations: contractual forms came to be developed. Through that process, in civil society justice came to be maintained through laws defining rights and wrongs and property in an equitable manner, giving people a formal process for the redress of crimes or private wrongs. It is here interesting to recall, by means of two brief quotations, the alternative contrasting conceptions that can develop of the relationship of government to civil society. Gerald de Malynes wrote in 1622 in his Lex Mercatoria that ‘trust in economic dealing was basic to the formation of society’, that the laws of the merchant were consequently ‘older than the moral law of Moses’ and that ‘the customs of trade were spread by right reason and the instinct of nature’. For Thomas Hobbes, on the other hand, the maintenance of obligations in the market place could be guaranteed only by a sovereign with ‘an absolute contracted power of political authority’. Civil society thus comes to be subsumed, as it were, within the State. From these summary remarks and from their remarkable expressions during a century of economic analysis in Italy we may draw a more general lesson. A period of the history of economic analysis is probably approaching its conclusion and it is the period spanning from David Ricardo to Kenneth Arrow, through which the image of an institutional or pure political economy has been dominant. Contemporary neo-institutionalism signals the epoch-making change. Therefore it proves to be necessary to rewrite the history of economic analysis in a new perspective that could be termed ‘classical’. It is in this connection that the Italian school between the eighteenth and the nineteenth century has rich and fruitful perspectives to offer.


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Notes 1 2 3 4 5

6

7

8

9

10 11

12 13

See Schumpeter, 1954. Porta, 1983. For example Schumpeter, 1954; Hutchison, 1988. Cf., for example, Malanima, 1997. Such and related aspects are particularly evident through the work of Pietro Verri. That Verri’s conception of the economy and society bears the signs of a historical experience acutely felt through the Milanese state is also made clear by Verri’s own historical work on the State of Milan from prestige and primacy to decline. In theoretical terms, as we shall see discussing Verri, civilization increases wants, but does not necessarily enlarge the means: hence the need for a ‘civile concorrenza’ (the term will be actually introduced later by Romagnosi, but it translates Verri’s own idea quite well). Cf. also Porta and Scazzieri, 1999. Galiani provides a very considerable example to be contrasted with the reformist faith of the Lombards. He was dubbed the ‘Machiavellino’, only attached to the ‘verità effettuale’ (to use an expression from Machiavelli) and very little concerned with utopian dreams of reform so typical of that enlightened age. Verri himself was proud to emphasize that character of his own amphibious experience in the preface to the seventh edition of his 1771 political economy book published ten years later. See also ‘Notizie di Pietro Verri’ prefaced by Custodi to his volume XV (parte moderna) reprinting the same work. See Verri, 1781, Discorsi sull’indole del piacere e del dolore, sulla felicità e sulla economia politica. Riveduti e accresciuti dall’autore. Milano: Giuseppe Marelli. Ristampa in P. Verri, 1964, Del piacere e del dolore e altri scritti, a cura di R. De Felice, Milano: Feltrinelli, pp. 1–260. Such and similar concepts crop up time and again through Verri’s writings. Particularly noticeable is the unity of three works, all of them originally drafted by him during the 1770s, later to be collected by the author himself under the heading of Discorsi: on happiness, on the nature of pleasure and pain, on political economy. Verri’s argument is pithily applied to the policy of annona, against the laws prohibiting a free corn trade. See his Riflessioni etc. 1796, Custodi edn, p. 45. Meditazioni sulla economia politica, 1771, Livorno, anonymous. Repr. in the Custodi Collection, tome XV of the modern part, from the sixth edition (Livorno, 1772) with annotations by G.R. Carli and additions by the author. English edition, 1986, Reflections on Political Economy, translated by B. McGilvray and P.D. Groenewegen, University of Sydney Reprints of Economic Classics. Cf. § III, English edn, p. 11. Here, as well as elsewhere in same book (see in part. § XIII, English edn, pp. 43–4), Verri clearly, though implicitly, seems to refer to the standpoint taken by David Hume on the issue, particularly in the latter’s Essays of 1741–2. On the precise identification of Verri’s reference on this point, the English edition of Meditazioni has a useful footnote (p. 43, n. 17). It should be recalled that Verri’s Meditazioni do not include the usual set of references and quotations, which would be expected in a fully worked out scientific treatise, which the Meditazioni, by open admission of the author, certainly are not. For example by Schumpeter. See Schumpeter, 1954, II.6.1: 287. It should be noted that the English edition, 1986, is based on the 1964 (De Felice ed.) reprint of the Discorsi, 1781, where the text of Verri’s political economy contains several revisions compared to the 1772 sixth Livorno edition.

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14 A thorough discussion of Verri’s formula and of the debate involving Paolo Frisi, Pietro Ferroni and Augusto Montanari is given by Theocharis, 1961: 27–40. For a more recent reconsideration, deeper on Paolo Frisi in particular, see Luini, 1996. 15 We differ here from the otherwise valuable work by L. Pesante, 1994. Pesante argues (see in particular, p. 62) that the role of demand prevails in Verri’s view on the formation of wealth. 16 See Groenewegen, 1999; cf. also the latter’s introduction to the English edn of Verri’s Meditazioni, 1986: x. 17 Carlo Cattaneo was born in Milan on 15 June 1801, the son of a goldsmith, thus belonging to an artisan bourgeois family. Just under twenty, due to the loss of his father, he had a difficult time and continued his studies privately under Giandomenico Romagnosi. Formally he registered as a student at the University of Pavia, from which he graduated in 1824. He spent several years pursuing passionate studies in various subjects, such as literature, history, geography, economics and ethology, while he earned his living as a high school teacher. Other aspects of his personality and his subsequent political activity and literary production are recalled in the text. 18 ‘Industria e morale’, in Atti della Società d’incoraggiamento d’arti e mestieri, Milano: Tip. Bernardoni, 1845: 3–11 e 1846: 3–12; repr. in Opere scelte, ed. D. Castelnuovo Frigessi, vol. II (1839–46), Torino: Einaudi, 1972: 471–93. 19 First published in Il Politecnico, vol. X, 1861. See also ‘Economisti italiani del Risorgimento’, in Nuova Collana di Economisti Stranieri e Italiani, vol. II, Turin: Utet, 1933. 20 ‘Sulle Interdizioni Israelitiche’, in Memorie di Economia Publica, Milano: Libreria di Francesco Sanvito, 1860: 1–144; rist. anast. realizzata dalla Banca del Monte di Milano con prefazione di M. Talamona e saggio intr. di C.G. Lacaita. 21 See Il Politecnico, 1843; VI: 285–340; this serial has been reprinted recently under the editorship of Luigi Ambrosoli, 2 vols, Turin: Bollati Boringhieri, 1989 (see II: 1219–78). Reprinted under the title ‘Dell’Economia Nazionale di Federico List’, in Memorie ecc., cit., pp. 453–512. 22 ‘La Città’ Considerata Come Principio Ideale delle Istorie Italiane’, first published in Il Crepuscolo, 1858, nn. 42, 44, 50, 52; reprinted in Opere di Giandomenico Romagnosi, Carlo Cattaneo, Giuseppe Ferrari, ed. E. Sestan, Naples: Ricciardi, 1957: 997–1029. 23 Giandomenico Romagnosi was born in Salsomaggiore, near Piacenza, on 11 December 1761, the eldest of the 11 children of the local notary public. His education took place at the Collegio Alberoni, a remarkable open-minded institution established in Piacenza in 1751 by Cardinal Giulio Alberoni. He later graduated in utroque jure at the University of Parma. His inclination was not so much for the work and the functions of a notary public; rather he soon established a number of connections and developed literary and philosophical interests, particularly in the field of the philosophy of law, as is evident from his first significant work, the Genesi del diritto penale, published in Pavia in 1791. Already the Genesi reveals Romagnosi’s character as a writer and as a political thinker, a work which is made difficult to read by the weight of the author’s juridical doctrine and his thoroughly systematic ambition. We shall see presently that the combination of law and economic doctrine is a signal feature of Romagnosi’s teaching. 24 Dell’Indole e dei Fattori dell’Incivilimento con Esempio del suo Risorgimento in Italia, Milan: Società degli editori degli Annali universali delle scienze e dell’industria, 1832; partially in Opere di Romagnosi, Cattaneo, Ferrari, Sestan ed., 1957. 25 Dell’indole e dei fattori ecc., cit., esp. ch. 4 sec. vi and ch. 9 sec. vi. on ‘L’intento pratico dell’autorità pubblica’, from Scritti di diritto filosofico, in Opere, ed. A. De


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Giorgi, Milan, 1842; III, pt. I: 366. Also in Economisti Italiani del Risorgimento, ed. A. Garino-Canina, ‘Nuova Collana di Economisti Stranieri e Italiani’, Turin: Utet, 1933: 1.

References Primary sources Ambrosoli, L. (ed.) (1989) Il Politecnico (1839–44), 2 vols. Torino: Boringhieri. Argelati, F. (1750–9) De monetis Italiæ variorum illustrium virorum dissertationes, quarum pars nunc primum in lucem prodit, Philippus Argelatus Bononiensis collegit, recensuit, auxit necnon indicibus locupletissimis exornavit, Mediolani, prostat in regia Curia in ædibus palatinis (6 vols). Beccaria, C. (1984– ) Edizione Nazionale delle Opere di Cesare Beccaria, diretta da Luigi Firpo, Vols. from 1 to 9, except Vol. 3 (Scritti economici) have so far been published. Milano: Mediobanca. Cattaneo, C. (1972) Opere scelte (ed. by) D. Castelnuovo Frigessi, 4 vols. Torino: Einaudi. —— (1956) Scritti economici (ed. by) A. Bertolino. Firenze: Le Monnier. —— (1860) Memorie di economia publica. Milano. Custodi, P. (1803–15) Scrittori classici italiani di economia politica, L vols. Milano: Destefanis, 1803–16. Francioni, G. and Romagnoli, S. (eds) (1993) Il Caffe (1764–66). Torino: Boringhieri. Garino-Canina, A. (ed.) (1933) Economisti Italiani del Risorgimento, Essays by Giandomenico Romagnosi, Giuseppe Mazzini, Camillo Cavour, Francesco Ferrara, Tullio Martello. Torino: Utet. Montanari, G. Della moneta. Trattato mercantile di Geminiano Montanari modenese, first appeared in Argelati, VI: 5–94; later edn. in Custodi, III: 9–285. Opere di Giandomenico Romagnosi, Cattaneo, C. and Ferrari, G. (1957) (ed. by) E. Sestan. Napoli: Ricciardi. Verri, P. (1763) Meditazioni sulla felicità. Londra (Livorno), anonymous. —— (1771) Meditazioni sulla economia politica, Livorno, anonymous. Repr. in Collezione Custodi, tomo XV parte moderna, from the sixth edn (Livorno, 1772) with annotations by G.R. Carli and additions by the author. An English translation of Verri’s Meditazioni was published in Sydney, 1986, under the title Reflections on Political Economy (ed.) Peter G. Groenewegen. —— (1773) Idee sull’indole del piacere. Discorso, Livorno, anonymous. —— (1781) Discorsi sull’indole del piacere e del dolore, sulla felicità e sulla economia politica. Riveduti e accresciuti dall’autore. Milano: Giuseppe Marelli, reprinted in P. Verri, 1964, Del piacere e del dolore e altri scritti di filosofia ed economia (ed. by) R. De Felice, Milano: Feltrinelli, pp. 1–260. —— (1796) Riflessioni sulle leggi vincolanti principalmente nel commercio de’ grani, scritte l’anno 1769 con applicazione allo Stato di Milano, Milano, Giuseppe Galeazzi. Reprinted in the Collezione Custodi, tome xvi of the modern part, pp. 5–275. Also in P. Verri, Del piacere e del dolore ed altri scritti di filosofia ed economia, a cura di Renzo De Felice, Milano, Feltrinelli, pp. 261–408 (1st edn, 1797).

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Secondary sources Albertone, M. and Masoero, A. (eds) (1994) Political Economy and National Realities. Torino: Fondazione Luigi Einaudi. Capra, C. (1999) (ed.) Pietro Verri e il suo tempo, 2 vols. Milan: Cisalpino. Groenewegen, P.D. (1999) ‘The significance of Verri’s Meditazioni in the history of economic thought’, in C. Capra (ed.), Pietro Verri e il suo tempo, II: 693–708. Hutchison, T.W. (1988) Before Adam Smith. The Emergence of Political Economy 1662–1776. Oxford: Blackwell. Luini, L. (1996) ‘Scienze naturali e scienze sociali: Le chiose matematiche di Frisi a Verri e Lloyd’, in C.A. Quadrio, (ed.) Alle origini del pensiero economico in Italia. Economia e istituzioni: il paradigma lombardo tra i secoli XVIII: 127–46. Bologna: il Mulino. Malanima, P. (1997) ‘La perdita del primato’, Rivista di storia economica, n.s., XIII, 2: 131–72. Pesante, L. (1994) ‘Nation and public happiness in two Italian political economists’, in M. Albertone and A. Masoero (eds), Political Economy and National Realities, 53–66. Porta, P.L. (1983) ‘A note on Italian economics in the early nineteenth century from Restoration to Risorgimento’, History of Economic Ideas I(1): 43–70. Porta, P.L. and Scazzieri, R. (1999) ‘Il contributo di Pietro Verri alla teoria economica. Società commerciale, società civile e governo dell’economia’, in C. Capra (ed.), Pietro Verri e il suo tempo, II: 813–52. —— (forthcoming) ‘Pietro Verri’s political economy: commercial society, civil society and governance of the economy’, History of Political Economy. Quadrio, C.A. (1996) (ed.) Alle origini del pensiero economico in Italia. Economia e istituzioni: il paradigma lombardo tra i secoli XVIII e XIX. Bologna: il Mulino. Quadrio, C.A. and Scazzieri, R. (1992) ‘Dall’economia politica al governo dell’ economia: riflessioni sul contributo di Cesare Beccaria e Pietro Verri sulla teoria e pratica della moneta’, in N. Acocella, G. Rey and M. Tiberi (eds), Scritti in onore di Federico Caff è, 141–81. Milano: Angeli. Schumpeter, J.A. (1954) History of Economic Analysis. Oxford. Theocharis, R.D. (1961) Early Developments in Mathematical Economics. London: Macmillan.

12 How are we to become like them? Political economy as a political agenda in early nineteenthcentury Portugal António Almodovar and Pedro Teixeira Introduction1 The last period of the ancien régime in Portugal (1789–1820) was characterized by a steady claim for increased liberty within economic activity. This trend, already visible in the late eighteenth century, found improved strength in the beginning of the new century. Some of the most prominent authors of that period shared several criticisms of the excessive regulations, economic privileges and monopolist situations that constrained Portuguese economic activity at that time. Moreover, these authors believed that the so-called mercantile system approach was not the most effective way for the state to promote the nation’s wealth. These authors considered that a more liberal approach, i.e. reducing the level of restrictions and regulations within economic activity, could increase the possibilities of the nation’s economic growth. The outline of a reliable economic policy was significantly related to the existence of a theoretical core, namely that of political economy. The discovery of such a core in Portugal, as portrayed both in the writings of François Quesnay and Adam Smith, took place in the early nineteenth century, precisely when the overall framework of Portuguese ancien régime society was overshadowed by various types of threats, ranging from the traditional internal clash among different political sensibilities to the outside menace of the growing Napoleonic Wars. However, despite the severe difficulties encountered, this particular ancien régime society continued to resist many of the proposals for transformation that came about, thus inhibiting their potential for peaceful change and gradual adjustment. As a consequence, it was only after a revolution and a short but nevertheless painful civil war that a liberal elite carried on many of the recommendations put forward by some of the earlier ancien régime reformers. To illustrate the initial projects of economic amendment in the first two decades of the nineteenth century three fundamental writers may be

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picked out: Joaquim José Rodrigues de Brito (1753–1831), José da Silva Lisboa (1756–1835), and José Acúrsio das Neves (1776–1834). All these authors made their studies in the University of Coimbra, the only one existing at that time in the kingdom. Rodrigues de Brito and Acúrsio das Neves studied Civil Law, while Silva Lisboa studied Canonical Law. Rodrigues de Brito was the only one to stay at the University and to develop a full university career until becoming chair professor (1816) and retiring from professional activity (in 1823), whereas Acúrsio das Neves and Silva Lisboa made most of their professional activity as public servants.2

The importance of political economy for the amendment of the ancien régime Their interest upon the problems of the Portuguese economy and the possibilities of improving its wealth by the reduction of regulations and constraints led these three authors to enhance the importance of the study and the diffusion of political economy both as a guide to their analysis of the Portuguese situation and as a kind of scientific knowledge that could give a supplement of credibility to their own proposals. For Rodrigues de Brito political economy was a branch of natural law that dealt with the rules of promoting wealth, including agriculture, trade, and manufactures. According to this author, there was a clear utility in the study, diffusion and application of political economy, which should be privileged for all the other branches of moral law. This was due to the fact that political economy played the dominant role in the path to wealth. His main theoretical inspirations were the writings of the Physiocrats and Adam Smith. Quesnay received a special attention, because he was regarded as the forerunner of the science of wealth. Moreover, the physiocratic government was regarded as the only one that could completely answer society’s needs, insofar as it privileged agriculture as the main building block of wealth. According to Brito, although Smith held some important criticisms against the mercantile system, his further criticisms on the agrarian system revealed a serious lack of understanding of the works of the Physiocrats.3 Silva Lisboa, who alongside Brito played an important role in the diffusion of political economy in the beginning of the century (cf. Almodovar, 1990), also gave a clear importance to the study and application of the political economy doctrines. Nevertheless, he disagreed with Brito about the place of political economy among the other sciences. For Silva Lisboa it was not a branch of natural law, but a section of jurisprudence, i.e. a branch of moral philosophy. The essential part of the dissension between Brito and Silva Lisboa came out of their theoretical affiliations, namely from their different theoretical stances towards Smith and the Physiocrats (cf. Almodovar, 1995).

How are we to become like them?

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For Silva Lisboa, Smith was the fundamental contributor to the science of riches, thus the recommendation of his writings, namely the Wealth of Nations. In Acúrsio das Neves we also find the endorsement of the beneficial character of studying political economy doctrines, especially for those who had a prominent place within the state administration. This author considered that the study of these doctrines seemed more difficult due to its weak diffusion. Therefore, he argued in favour of generalized efforts of teaching and diffusing political economy, either in the University of Coimbra or by the foundation of societies and academies. This position was due to his embedded conviction on the benefits of education, namely helping mankind to avoid the errors of the past. Acúrsio das Neves, as Silva Lisboa, saw Smith as the founding father of political economy, the first to present it in a systematic way. However, and due to the high level of difficulty of Smith’s writings, he did not recommend their adoption to the diffusion of political economy to a general audience, but only to teachers. To a general audience he preferred Say’s Treaty of Political Economy (1814).4 To this diffusion of political economy, Acúrsio excluded all the works dominated by the system of the economists (Physiocrats) or of the mercantilists. Acúrsio was very critical of the errors of the Physiocrats, namely due to their conviction that land was the only source of wealth. He opposed to this false conviction the basic principle of the new science, i.e. that the true source of wealth was labour. His critical stance about the Physiocrats envisaged the negative consequences possibly arising if one thought of land as the source of wealth. This could lead the country to abandon all the projects of promoting manufactures, enduring the country in a state of misery. We observe that the intellectual formation of these authors, in terms of political economy, tended to be based on authors critical of the so-called mercantilist system. Moreover, these readings suggested an amendment of the framework regulating economic activity, especially in what concerned the economic role and intervention of the state.

The critique of the mercantile system and the claims for economic freedom Among the problems revealed by the analysis of the Portuguese economy, the three authors stressed the need to change some of the several constraints of the economic activity. All of them recognized the excessive regulations that pervaded most of the economic sectors, notably the internal trade. Their dissatisfaction envisaged both a theoretical and a political level. The former level impelled them to the authors that made the critique of the so-called mercantile system one of their main purposes, namely the Physiocrats and Smith. The latter level referred to the past

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Portuguese experience, namely to those constraints inherited from the period in which the Marquis of Pombal played a significant role in the definition of Portuguese economic policy (1750–77). This period was viewed as an example of excessive state intervention that constrained wealth potential. The criticisms of these three authors to the mercantile system, with its multiple regulations, were followed by a steady demand for increased liberty in order to encourage the development of economic activity. In particular, private agents should take a stronger role in economic decision-making, with a redefinition and reduction of state direct intervention in economic activity. Moreover, this conviction was strengthened by the influence of their readings on political economy. In the case of Rodrigues de Brito there were some criticisms devoted to the mercantile system, and especially to the excessive protection given by the state to manufactures in the past. His remarks applied also to the case of monopolist situations, which were founded in vested interests. For Brito, monopolist situations constituted an obstacle to the progress of the nation’s wealth. Accordingly, the protection of economic activity was against the interest of the nation, since it led to a biased allocation of resources (namely labour), thus reducing the nation’s wealth potential.5 For Brito, there was a real need for more liberty among economic activity. Moreover, he considered that the liberty requested by several authors was compatible with the tasks of the sovereign, indeed it strengthened the sovereign’s authority. The critique of the mercantile system is present in Silva Lisboa’s main writings. The dominance of monopolist situations produced a situation where some benefited at the expense of the general population’s wealth. This opposition between the particular interests and the general interest was also present in the case of the privileges conceded to some manufactures and some kinds of trade, which also represented the dominance of a minority’s interest over the general interest of the nation. Situations of monopoly also promoted a non-natural division of labour, which was the case of the colonies, namely of Brazil, with negative effects to the wealth of the metropolis (Portugal) and to the colonies (Brazil). Accordingly, he considered that the allocation of resources should be left to the individual judgement, avoiding the interference of the state by the concession of privileges and monopolies to some particular sector.6 In several moments Silva Lisboa emphasized the need of the state to promote an increased level of liberty within the economic activity, in order to foster national wealth, especially in trade affairs. The development of trade activities within a less constrained framework allowed a closer relation with the wealthiest countries, thus increasing the possibility of meeting and emulating more modern and efficient processes of production. Silva Lisboa systematically endorsed the superiority of a less restrained


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economic framework as a path to prosperity, namely by leaving to the selfinterested individual judgement the main decisions of allocating resources. In this framework of increased liberty, competitiveness played a significant role, motivating the individual economic agents to do the best allocation of resources, thus leading to the promotion of the general wealth. The criticisms of Acúrsio das Neves about the restrictions to economic activity were quite frequent, namely in what concerned restrictions over external and internal trade. He shared with Silva Lisboa most of the considerations about the need to increase economic freedom as the right way to prosperity. Accordingly, in his writings there were specific references to the need of improving economic freedom in different areas such as internal trade, the promotion of the circulation of information and intellectual exchange, the corporations of arts, and the allocation of capital resources. In all these examples the nation’s prosperity would be enhanced if the restrictions to economic liberty were reduced. Notwithstanding the important role of self-interest and competition in the promotion of economic progress, he recognized the difficulties and the obstacles in the achievement of the natural and prosperous order through increased economic liberty. These obstacles and difficulties came mainly from the particular interests of those that benefited from economic privileges and monopolies, hence they resisted to adapt to a new, more liberal, and competitive framework. Hence, the achievements through increased liberty required a supplementary role from the state, which would ensure that those vested interests would not block general prosperity.

Economic policy and the path towards wealth In their critique of the main shortcomings affecting Portuguese economy, and guided by the advice of their incursions on the field of political economy, these three authors aimed to define a path to Portuguese economy (including Brazil), that promoted the nation’s wealth and prosperity. In this purpose, they gave particular attention to the role that should be played by the sovereign-legislator. The role of the state had necessarily to change, in this context of enhanced liberty, but its importance would not by any means be diminished. For Rodrigues de Brito the aim of the legislator was the promotion of the wealth of the nation, which we already know that for Brito would be achieved by a special protection to agrarian activities. Although the other activities would receive government’s attention, the need to set priorities placed agriculture first, due to its solid contribution to the nation’s prosperity.7 This protection should not be understood as the award of special favours or the establishment of privileged conditions. Rather, it was the

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definition of a general pattern of incentive and protection to all participants in the economic activity. This stable sheltering and guidance of the economic activity by the sovereign was a condition of social and political progress and stability. However, Brito would not develop this viewpoint further, by specifying how this could be achieved, and his remarks remained at a very general level. In general, Silva Lisboa avowed an impartial and equal protection of the sovereign to all sectors of economic activity, in order to promote their natural development, and thereby the prosperity of the nation. Within the system of liberty, the state promoted equilibrium and order among the economic activity, as well as the aforementioned prosperity, instead of the distortions on the allocation of resources brought about by the system of privileges and preferences. In fact, Silva Lisboa doubted the effectiveness of a mighty powerful state that guided (and constrained) the individual economic decisions, notably in the lagging industrial sector. Moreover, he challenged those that considered the progress of industry strictly based in situations of privilege or monopoly. His criticisms notably envisaged those cases in which the promotion of manufactures was assumed by the state, actively funding or organizing those activities, since he considered that the direct intervention in economic activity was not a state task. The most reasonable way of promoting industry would be through the exemption of export taxes, because it enlarged the market and eased the consumption of these products. Furthermore, the requisites to an enduring prosperity of industry would be the availability of capital, raw materials, and labour resources, a dynamic internal demand, competitiveness in relation with external products, diffusion of knowledge, freedom of economic activity and the promotion of technical advances by the award of prizes and privileges.8 This claim against a protection tainted by partiality was also visible in the terms of trade. Therefore, the role of the sovereign would be the promotion of a fair protection of trade, namely by a good administration of justice, the promotion of security, facilitating internal circulation of products, namely by removing excessive taxes and, among others, by developing good communication networks. The plea for a more neutral state in his protection of national economic activities is perceptible in Silva Lisboa’s exposition of some requisites of a good government to the promotion of the nation’s wealth, which moreover put in evidence the influence of Smith’s work. Accordingly, he indicated the need of a powerful and wise government, good legislation, preservation of social order, protection from external and internal menaces, and an impartial administration of justice. Hence, in his task of promoting general prosperity, the sovereign would attempt to create a clear and simple legal framework discarding excessive regulation, which was largely ineffective. This was not enough


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and had to be complemented by a good administration that promoted social order, itself a driving force of economic activity. Acúrsio also disliked an exclusive promotion of one sector, namely due to the linkage between manufactures and agriculture, with the former potentially playing a dynamic role in the prosperity of the latter. This inter-related character of all sectors of activity was detectable in the importance of low costs of subsistence, in order to be competitive in the production of manufactures. Thus, all sectors should receive equal protection of government, because it was their natural combination and progress that promoted the nation’s prosperity. Nevertheless, Acúrsio presented a cautious perspective on special protection and on the role of the state in some particular economic activities. In fact, he offered a favourable evaluation of the efforts of the Marquis of Pombal, a typical man of the mercantile system. Moreover, Acúrsio enhanced the importance of some stimuli given by the state and their effect in the promotion of the development of industry at an early stage. These stimuli of the government would apply, notably, to the special situation of the technical achievements. When addressing the agricultural activity, he criticized the excessive taxes on account of its negative effect on agricultural prosperity. On the other hand, Acúrsio endorsed the mercantilization of land, though considering it a peculiar commodity. An important way of promoting agricultural prosperity would be the elaboration of an agriculture code, which contained, among others, relevant knowledge, new systems of cultivation and recent improvements. Furthermore, this linked with his claims for a good and stable body of agrarian laws. The industrial and commercial activities had, according to Acúrsio, an important advantage over agriculture, because they did not face other limits but the nation’s behaviour, while agriculture faced the limits imposed by the fertility and extension of the land. Acúrsio often emphasized the crucial importance of industry in the promotion of wealth, requiring for its promotion a less regulated framework and the help of a good government. The essential characteristics of a good government for industry were stability and persistence in its efforts of promoting industry, as well as a simple and knowledgeable administration. Another important condition to the development of industry was the introduction of machinery, since it improved production levels by turning all activities more productive. He therefore blamed the backwardness of the country in the use of machinery.9 As far as trade activities were concerned, Acúrsio required the establishment by the government of a general and clear framework, namely by the introduction of a commercial code. In what concerned external trade, he requested the establishment of a tariff with uniform and clear procedures in the trade with all nations. However, the competitiveness of the nation’s products (especially agricultural ones), should not be promoted by the

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application of taxes on external products, but rather on real improvements that would make the country more productive.

The option by gradualism Despite stressing the need of amending several economic practices which conducted to the release of private economic agents, the three authors presented a careful approach in the implementation of those measures and in the application of political economy principles to Portuguese (and Brazilian) reality. The promotion of the amendments would always be in accordance with the social-political stability. Rodrigues de Brito’s writings presented a clear attachment for the sovereign’s power and authority, without questioning the correctness of the King’s political decisions towards economic prosperity. In fact, the legitimization of the power of an enlightened absolutist sovereign was among the purposes of his writings. For Brito the sovereign, due to his impartiality, would define general interest, by conciliating the different and in some cases contradictory interests. In order to avoid the errors of past administrations and promote general prosperity, the sovereign should not only be aware of the interests and needs of all the people, but he should be knowledgeable in the matters of political economy. According to Brito, the role of the legislator, i.e. the sovereign, was that of guiding human pursuit of prosperity, alongside with the promotion of natural order. The role of the sovereign was crucial notably for the poorest nations in the definition of a stable and clear direction, since that was a significant requirement to the achievement of wealth. Individuals could, nevertheless, contribute to their nation’s prosperity, as a group or through individual representations, by participating or influencing the legislative process. However, this participation should always be pursued under a framework of stability and order required to the achievement of prosperity. For Silva Lisboa, as for Brito, the sovereign had a protective and an agglutinative role (Cardoso, 1989). The sovereign was compared with ‘the chief or head of a large family, thus helping all that enter in it, as his sons, and co-operators of general happiness’ (1804: 31). Addressing the issues of order and stability, Silva Lisboa criticized the revolutionary processes because they disturbed social and economical order. In fact, among the aforementioned main functions of the sovereign were the promotion of security and the protection of the nation from internal and external menaces. The value of stability and order was such that in some cases the ‘state is obliged to sacrifice public and private wealth, in order to preserve tranquillity, order and salvation of the state’ (1819: 96). Thus, the preservation of order and stability could have to be made in detriment of private and general prosperity. Accordingly, Silva Lisboa avowed prudence in the reforms promoted by the legislator, which had always to proceed in a


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gradualist way, avoiding the temptation of reforming all at once. Gradualism resulted from the need to provide time to adapt expectations and opinions, and being the best option even in the cases in which the justness of reforms was evident. Acúrsio also emphasized the crucial role played by the sovereign in the achievement of prosperity. On the other hand, as well as Silva Lisboa, he was very critical of a revolutionary way of pursuing the changes and reforms required, and only in very limited and rare cases he accepted the violation of the law and of the respect due to the sovereign. Therefore, he privileged the respect of a natural order, and preferred a reformist and careful approach in economic activity, namely by avoiding the shocks associated with sudden changes that produced economic and industrial disorder. Despite the difficulties in implementing reforms in a gradual way, he claimed that the best results were achieved normally by conciliatory processes in which the sovereign played a crucial role.10 In the exercise of his legislative ability, the sovereign had to examine carefully the best solutions to be adopted, preferring general decisions and laws to exceptional or particular measures, hence defining a general and stable framework in order to promote prosperity. In their writings these authors mixed the reasons and logic of classical political economy with many of the preoccupations that were typical of a modernized raison d’état, causing their writings at times to assume the form of a type of regal cum governmental pedagogy of the exercise of power. Their aim was to persuade a power which even though they considered to be disorganized, poorly guided and fairly badly applied, they had no wish to engage in a frontal attack; for this reason they did their best to convey a new scientific posture rather than a traditional political one. Their performance was designed to relate economic theory directly to the interests of the state, excluding any mediations of a more emphatically, explicitly political nature, while assuming no connotations with the particular interests of any specific social group. In this way the original discourse of the English economists, with particular reference to the work of Adam Smith, could be displayed in a balanced, level-headed manner, by fundamentally targeting the old mercantilist practices, and assuming a more reforming attitude, that of one who respects tradition but wishes to evolve within its prescribed boundaries: England was regarded as a model par excellence of an evolutionary path, of continuity and progress through opportunely implemented reforms and peaceful readjustments, moving almost directly from the mercantilist political and economic pattern to the liberal one with no intermediate stage of the physiocratic type. The will to change, while maintaining and developing many of the centralizing conquests of the ancien régime – a powerful, but philosopher king, a minister with strong convictions though enlightened, a less interventionist state but, even so, administratively solid, well organized and guided,

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citizens respectful of and dependent on the law, though autonomous and enterprising in the productive sense – pointed to the adoption of a discourse of change which, while necessarily and inevitably political, should not be one of rupture or confrontation, nor should it make explicit use of those categories which were traditionally the subject of political reflection, and had been appropriated and manipulated by physiocratic economic discourse: power, its origin and raison d’être, its organization and distribution, the best ways of exercising it.

The gradualist swansong The three authors analysed are a symbol of an ancien régime stance towards economic liberalism. They combined criticisms to policies that restricted economic activity with the acceptance of the essence of the ancien régime institutional framework, since one of their main purposes was to ensure the survival of the essential part of the ancien régime through the adoption of some amendments. As far as the economic aspects were concerned, these amendments consisted essentially in the promotion of a higher degree of freedom than it was currently practised. These changes implied the recognition of the need to amend or even abandon most of the practices of the mercantilist system of economic policy. Their purposes for amending the economic policy of that period induced them to study political economy doctrines, which they deemed to be quite important to those with a prominent role in the setting of the economic policy, especially the sovereign. Therefore, they instrumentally paraphrased, among others, Smith, Say and the Physiocrats, critical as they were to the excesses of the mercantile system and to express the need for a more liberal framework within economic activity. Accordingly, these readings led the Portuguese authors to produce general statements pleading for a stable and clear framework to economic activity, in which the state-sovereign should avoid any intervention through the award of special privileges. Nonetheless, all three authors recognized the importance of a general protection. This could be less pronounced, as was the case for Rodrigues de Brito or Silva Lisboa, or more prominent in support of national activities, as with Acúrsio das Neves. In fact, the higher degree of specificity in the analysis of the latter, notably when compared with the general statements of Brito, suggested that these claims for increased liberty were partially rhetorical. In fact they questioned the type of intervention of the state, not the existence of intervention as such. They wanted an intervention that promoted general economic interest, not the type of interference that would only benefit a minority. Therefore, alongside the duties of promoting a stable and fair administration of the justice, defence, political and social order, the state should play a decisive role as a driving force of national economic interests. In particular, both Silva Lisboa and


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Acúrsio das Neves enhanced the active promotion of technological progress. These three authors were also very cautious about the deepness and the wideness of the economic amendments. The improvement of state economic practices should not imply the change of the essential part of the political and social structure, because that amendment envisaged the viability and the continuation of that structure and not its substitution. This latter aspect enhanced the limits of a process of amendments centred on the state administration in the context of the ancien régime.11 Moreover, they became extremely careful when, in their economic analysis, they had to face the related socio-political structure. All three authors analysed adopted a similar stance, avoiding the disturbance of order and stability as a consequence of the economic amendments. In fact, for these authors stability and order were crucial requirements to economic prosperity, thus any attempt to change the economic structure ought to be subordinated to the protection of those values. Accordingly, their economic reflections and proposals were not followed by the proposition of changes in the political and social fields. These tended to be restricted to some adjustments. Criticisms to the sovereign as the leading actor in economic policy or to some of his errors in economic policy design were mostly absent. The same was observed in the case of the social structure or political participation. Only some of the most restrictive institutions or rules were criticized. In fact, the essentials of the agrarian system, the basis of the economy of that time, and where the crucial structure of ancien régime was laid, were spared their criticisms.12 The fact that the state’s role in the promotion of wealth was their central issue made even more apparent their commitment to the political and social structure of the ancien régime. The modernization of state structure, by revising its approach to economic intervention, was assumed by these authors as a crucial subject for the viability of the existing political and social structure. The writings on political economy were used by these authors as an instrument of critique of the actual economic policy practices, rather than as a building block to a new framework of relationship between the state and private economic agents. Notably for Brito and Acúrsio, the role of the state was still too close to the image of a coordinator of the system, although providing an increased margin of manoeuvre to private initiatives. These authors wanted to make the ancien régime more flexible and more suitable to private enterprise, although they did not rely significantly on it as the engine of national prosperity, at least clearly not as some other classical political economists did. The liberal revolution of 1820 would be the watershed to their economic gradualism, since it eliminated grosso modo the will (and the very practical) possibilities of amending the ancien régime structure by making it economically viable. From then on, the

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analysis of economic amendments would be placed in a context of political and social improvement. In fact, with the liberal revolution emerged a new framework where the political and social transformation of the ancien régime became a requisite for the promotion of economic amendments, and ultimately, of economic prosperity. This was neither the historical nor the intellectual world where these three authors lived and worked.

Change without restrictions: political economy within political liberalism As a result only in 1820 – when many issues could be raised openly as a revolution was now under way – did the practical question of change clearly and overwhelmingly come to the forefront of political, social and economic reflections.13 Now was the time to put forth all the possible measures that were previously discussed. The past economic reasons and arguments were then joined by a huge amount of petitions and protests, spirited political analyses and downright demands for amendment: apparently the entire country felt free to voice its discontent before the countless vexations it allegedly suffered at the hands of an administration that was now portrayed as being absolutely retrograde, corrupt and inefficient, totally incapable of adopting the measures required to bring about real progress. Once again the idea prevailed that this progress should stem mainly from agriculture, its liberation and subsequent modernization: at least in an initial stage of the revolution there seems to exist a strong conviction that to unleash progress one need only free the farmers of the excessive tax burden and the oppressive political and social ties that suffocated them. These liberated farmers would immediately gain confidence, and become modernized, technically (by adopting the new tilling methods), economically (by producing more and more for the market) and even politically (by joining the liberal cause that would promote an improvement in their lives). It was therefore sustained that, should the feudal obstacles be removed, the security and property of farming people would be assured, and once land was distributed among those who really wanted it and could work, everything would advance. Not only would yields increase on the lands already farmed, but new lands would undoubtedly be employed, leading to a considerable surplus in a short period of time. This surplus would enable the new regime to consolidate the indispensable financial and administrative modernization of the state. Also, the reduction in taxes and the broadening of the taxable population ensuing from this modernization would provide a fresh incentive for agricultural and economic development as a whole, thus helping to produce an even greater surplus. Finally, it was thought that the surplus would be so big that besides serving to cover factory imports, it could also eventually provide a more reliable base for national factories. Once being


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firmly rooted in the tapping of natural resources, these factories would develop in a gradual ‘natural manner’ and, as such, they would prove to be competitive and profitable ventures. In support of these policies reference could be made to several theoretical reasons developed by classical political economy. Such was the case of the ideas on the natural progress of industry to be found in Smith (agriculture, manufactures, external trade), of the implications that could easily be drawn from the theorem of natural endowments, when applied to the factors that Portugal possessed, or even the reasons resulting from a positive utilization of our favourable geographical and climatic conditions. In addition to this, the policies in question were also reinforced by reasons of a political and pragmatic nature. On the one hand, because it was in the rural world that all the cards would have to be played, as there, and there alone could be found the only social base of support that was stable – since it was a majority base – both for the ancien régime as well as the new one. Next, because it was from agrarian reform that the economic impulse could most swiftly materialize. This economic impulse was urgently needed, and would be decisive in altering the attitude of the majority of the population towards the new regime, by making it grasp, as immediately as possible, the benefits to be gained by the consolidation of the new status quo. In other words, the various types of discourse available at the time – political, economic, philosophical and technical – seemed to converge on the support of an agrarian oriented policy. This agromania, this fixation upon agriculture that is ever-present in the economic and political discourse of the 1820s, has little or nothing to do with a latent recurrence of physiocracy: it has nothing to do with the defence of big property and the product net, nor does it have anything to do with the defence of legal despotism and the underlying social structure. This is why the continuity and intensification of agrarian issues following the 1820 Revolution cause us to consider the problem of the permanence of the economic frames of reference employed: from at least the early nineteenth century one may witness the presence of Adam Smith in the sources used for handling economic issues and, what is even more important, one may also find that its use is considerably more consistent than that of any other economic reference. In other words it means that the physiocratic traces to be detected here and there belong more to a Smithian re-reading than to the grassroots produced by Quesnay.

On building up a new agenda The works produced from 1834 on – in particular that of José Ferreira Borges (1786–1838), besides Mouzinho da Silveira (1780–1849) – are to a great extent the mirror of this situation, as their political convictions were now moderated by the experience of a civil war (1832–4): time had come

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for the countryside to be transformed, the political and national awareness of its inhabitants enhanced, the state set up on new foundations, broader, and more fruitful alliances of interest fostered. The most experienced men of the 1820 revolution withdrew before the more audacious, dangerous political features – democracy itself – and placed their hopes in an effective strengthening of liberalism: some codified, others legislated, and all endeavoured to theoretically reflect upon its future. At that time José Ferreira Borges, one of the leading public figures of the liberal revolution, wrote two economic textbooks, one dealing more with the concern for financial amendment and the other related more to the scope of political matters as a whole; others, like the prominent political statesman Mouzinho da Silveira, confined himself to the preambles to his decrees, wittingly or unwittingly leaving in the shade most of his theoretical and ideological reflections. Whatever the case, one cannot mistake the presence and proximity of classical political economy in relation to the new liberal power, even though one must admit that its place was fairly secondary. But the fact is that this subordination was not internal to the economic discourse – in other words it was not caused by a clear preference for formulations of a physiocratic of mercantilist nature – but rather the attribution of a peripheral position to the entire economic discourse whenever immediate action was concerned. Political economy continued to perform what were obviously auxiliary functions. Although it provided both arguments and reasons, it still failed to provide the basic elements for the building of a global concept of the world. In the case of the works of renowned liberal leaders such as Ferreira Borges and Mouzinho da Silveira it may therefore be said that we are dealing with learned readers, who are fairly mindful of the economic discourse, though not exactly persons clearly qualified to take up political economy. For these reasons, their relations with this science may be considered fundamentally at three levels. First, by using it to buttress their political ideal, demonstrating that it was a knowledge that could only be consistent within a constitutional, parliamentary system. Then, by upholding its importance and the accompanying need for it to be taught to the population at large, and to the civil servants in particular. And finally, by using its arguments to reinforce Portugal’s natural agrarian aptitude – its natural advantages in this area, the reliability of a form of development based upon it, the independence resulting from it, its inherent political and social stability, the solid, decent progress characterizing it, the promises for the future it contained. Hence the host of expressions designed to emphasize the link between political economy and agricultural well-being, and to link the latter with the potential inherent in international free trade, capable of converting our possible agricultural surpluses into a whole range of industrial products we do not manufacture.


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Therefore, though regarded as being of relatively secondary importance, and the subject of a somewhat biased reading, classic political economy survived the liberal revolution of 1820 and the 1832–4 civil war.

The making of a new elite: the academic institutionalization of political economy It was only with the liberal victory that the projects regarding the teaching of this science would materialize, in both private as well as public institutions. The Trade Association of Porto and the Mercantile Association of Lisbon set the example, to be followed, immediately afterwards, by the inclusion of political economy in the training of jurists at the University of Coimbra. Strictly speaking one cannot compare the meaning and implications of the two types of teaching: this was, however, the decisive moment for the institutional definition of the future path to be followed by classical political economy in Portugal, both as a science and as a guide for economic policy-making. The bourgeois associations, political and economic class associations, opened up their doors to that science, a move that might have fundamentally provided the opportunity for a technical statement, a professional interest, as well as a knowledge bearing a philosophical appeal – more in the old sense of political philosophy of commerce, about which Silva Lisboa was already speaking in 1804, rather than in the exact ideological sense of the banner of a class interested in a resolutely free-trade project. The University of Coimbra in its turn, and almost at the same time, provided it with the space in which it could eventually perform its more scientific, politico-administrative role. Political economy was situated in the law course, hence being associated with the training of those who played a central role in moulding the figure of the intellectual – of a new class whose affirmative voice is founded on the possession of knowledge. And, as a complement, Coimbra also gave it a place in the political and administrative training of new state functionaries, as the former graduate courses in canons and laws had been reduced to no more than a single course. When the possibility of institutionalizing the technical and intellectual component occurred, what happened? The Lisbon and Porto Associations’ experience were a resounding failure, due to lack of pupils. As for the Coimbra experience, it triumphed (not without considerable difficulties) thanks to the perseverance and political wisdom of a teacher, Adrião Forjaz de Sampaio (1810–74). This means that in Portugal there were serious, unexpected difficulties in accomplishing the final stage of formal institutionalization and development of the economic science: where practical and intellectual adhesion to the economic discourse could come about by exploiting a technical or

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even an ideological component, there was a mistrust or rejection with which a lack of cultural and professional background had a lot to do. As a result, it may be said that it was only through its virtuous academic facet, which had now become compulsory, that political economy managed to ensure its political survival. To do so, it was nevertheless necessary to reduce its scope and raison d’être to the parameters peculiar to what was felt at the time to be a truly scientific discourse. Moreover, it was necessary to discipline a discourse that had, until then, been open and relatively uncontrolled in terms of implications and modes of application. This was precisely the key role played by Adrião Forjaz de Sampaio in the course of his long teaching career (1836–71). His meticulous work may only be really understood and appraised by giving due consideration to the specific complex institutional circumstances in which it was produced. This is to say that his work should be considered in the light of a certain lack of sensitivity visible in the extrauniversity environment regarding the utility of economic theories, as well as the hostility shown within the university towards more orthodox classical political economy, whether it was the English form, regarded as cold, materialist and abstract, or the French counterpart, considered as Jacobin and egalitarian, democratic and philosophical. The university, being a fairly closed, conservative environment, was institutionally able to make demands and produce obstacles that were far beyond the legitimate perception of a new knowledge: before being given its stamp of approval one had to fulfil a number of formal and substantial requirements. While the social pressures had been exerted in a tangible, more threatening manner (immediately after the 1820 revolution), there were some signs of flexibility as to the acknowledgement of the relevance of some of the alterations that were socially called for. However, at the end of the civil war in 1834, the university soon became more rigid again in its relationship with the world at large, by reasserting not only its internal sovereignty, but in fact the primacy it should exercise over the mental corps of society and state. Therefore, the inclusion of political economy as an integral part of the curriculum of future jurists inevitably presupposed adapting a discourse that had, until then, remained open and undisciplined, to the criteria that the University of Coimbra demanded at scientific, pedagogical and ideological levels.

On taming political economy The role of Adrião Forjaz de Sampaio was consequently far more complex than that of his fellow-teachers linked to more informal teaching experiences. In addition to conveying a useful, important knowledge, his action should have helped to train legal specialists. As well as discovering and


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exploring new directions, his classes should strengthen the knowledge provided in other subjects; whatever the case, the economic doctrines taught by him should never or could never openly contravene the basic legal Weltanschauung which gave unity and charisma to the course. In the light of these ideas, one is able to understand a little better some of his options during the course of his teachings. What immediately springs to mind is his choice of a handbook by K.H. Rau as a model for organizing the subjects he was to deal with. In fact, Rau, besides being a teacher, had in himself the advantage of being German (a privileged place of origin of most of modern legal scholarship, and the birthplace of an important tradition – cameralism – for the teaching of economic and administrative sciences); on the other hand his handbook consisted of a range of economic subjects which was perfectly in keeping with the transition that was now expected of the traditional university spirit (theoretical, practical and national). One may also get another important perspective of the complex labour performed by Adrião Forjaz if we try to follow up the evolution of his various compendia, from the early moment when he gave up the handbook of Ferreira Borges in favour of Say’s Catechism, to the later successive editions of his own handbook, plenty of commentaries and bibliographical clues. By way of this second approach, it becomes in fact clear that Adrião Forjaz strove to link up and reconcile the multifarious tendencies of classical political economy with the Portuguese university environment, in other words, with the demands made by a university which had, for some time, been organized along the lines of a continental tradition. By the mid nineteenth century, modern economic scholarship was almost a trademark from the English culture, where the state respected university autonomy, which resulted in the development of the teaching of political economy in other forms, be it through individual experiences, or academic inclusion within the teaching of moral philosophy. But what was missing from this English culture was the reference to and weight of a Catholic tradition. Faced with this quandary, Adrião Forjaz turned to France and Germany to organize his acculturation strategy. The main thing he borrowed from France was a Christian – and later a freeexchange – component which provided a greater concordance between economic doctrines and the significant Catholic background of Portuguese national culture. From Germany not only did he obtain the basic structure for the presentation and treatment of economic subjects, but also a part of the actual curricular organization model, which was typical of modern post-Smithian cameralism, and was particularly well suited to link economic with legal reasoning. This was the first price classical political economy had to pay for admission to Coimbra University: as in other European countries where relations between the state and the university were strong – one might even

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say strategic for the development of both – such was the case in Portugal, where university education in economics had to be in concordance with the public spirit. The state required men of letters, especially lawyers, who were politically trustworthy, and technically suited to the performance of diverse public functions. The university in turn owed a great deal of its prestige to its capacity to produce the men who were to occupy posts in the state institutions. Faced with this restriction, which removed any chance of building a course largely reliant on the works and approaches to be found among English authors (Smith, though mainly Ricardo and Malthus), the problem arose as to the choice of textbooks. As we have already mentioned, Say was initially used but subsequently relegated to a more discreet position. In his place there appeared two types of authors. Initially, the thoughts of classical authors pertinent to the field of law – such as Bentham, Montesquieu and Filangieri – were welcomed as a supplement to the discussion of economic doctrines; but immediately afterwards there appeared some of the basic references of Adrião Forjaz, those whom one may unquestionably refer to as his ‘compagnons de route’ – Joseph Droz and Villeneuve-Bargemont, Pellegrino Rossi and Michel Chevalier. This more extensive basic bibliography was the direct consequence of the second restriction imposed on political economy: to be considered scientific its doctrine could not be of one single author, or even one single school, for it had to be the outcome of joint scientific investment of a plurality of researchers of acknowledged merit. For this reason, Adrião Forjaz attempted to construct a coherent array of references based on authors who, though different in several aspects, were not definitively incompatible with one another. Thus, for instance, the Christian version of economics supplied by Villeneuve-Bargemont could fit in with the social preoccupations of a former Saint-Simonian such as Chevalier, in the concern of Rossi for justice, or the moral and pedagogical interests of Droz. On the substantive questions addressed by these authors he added the formal alignment provided by K.H. Rau. Why? Because the fact of being a Heidelberg professor, who had received a real economic education, was an inheritor of an already long tradition of Staatswissenchaft teaching, gave him the ideal profile to serve as a model for a rigorous, global organization of subjects referring to economic theory, economic policy and finance, not to mention the fact that he belonged to the cultural space wherein the Faculty of Law of Coimbra University looked for its sources of inspiration to modernize work methods. This strategy, carried out between 1836 and circa 1850, ensured that the essential part of the process of formal recognition of classical political economy as a discipline in Portugal took place, and with it the most important part of its irreversible academic institutionalization. Con-


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sequently, from the late nineteenth century until the advent of autonomous schools of economics in the twentieth century, and in spite of all the quarrels that some economists still inspired with their extreme ideas, political economy was accepted as little more than an acceptable academic issue to be included in the curriculum of law schools.

Notes 1 We would like to thank our colleagues Maria de Fátima Brandão and Rui Pedro Esteves, as well as Maria Eugénia Mata and Michalis Psalidopoulos for their helpful comments and suggestions. We are also grateful to Gemma Jones for her help in improving the English in the text. Notwithstanding these outstanding helps, the usual disclaimer applies. 2 Acúrsio was appointed to several public places: Mesa de Desembargo do Paço (1787), Desembargador da Relação do Porto (1810) and to the Junta de Comércio (1818–20). Silva Lisboa had a career similar to Acúrsio, for he was also appointed to several public places, namely member and secretary of the Mesa de Inspecção da Agricultura e Comércio da Cidade da Baía (Brazil). 3 Moreover, Brito considered that Smith was a follower of Quesnay and the other Physiocrats, such as Mercier de La Riviére and the Marquis of Mirabeau (1803–5: 14 and 196–207). Despite his disaffection towards Smith’s work, Brito emphasized Smith’s recognition of the value and the high skills of those working in agriculture, only with the purpose of enhancing agriculture as the most important source of the nation’s wealth. His critical stance towards Smith extended to the theory of value. According to Brito, labour was a very important part of the value but not an exclusive one, which he considered to be Smith’s position. 4 Interesting and profitable writings to the learning of political economy where those of Storch (Cours d’Économie Politique – 1815), Ricardo’s Principles of Political Economy and Taxation (in spite of some criticisms to Ricardo’s method and theory of rent), and Sismondi’s early works (Richesse Commerciale and New Principles of Political Economy). 5 In this discussion, Brito used Smith’s criticisms to the mercantile system. 6 According to this author this policy of monopolies, for being against common sense, demanded administrative and political fuzziness, which were unnecessary if particular interests were not attended. 7 This protection of the sovereign was much more important due to the state of stagnation of agriculture and manufactures. 8 The importance of promoting technical improvements justified its exceptional treatment. In fact, this importance is enhanced by references to Say or to legal documents (alvará of 28/4/1809), namely to the doctrine of Say about the privileges on patents and technological achievements. 9 In this aspect the transition of Acúrsio from a Smithian industrialism to a more modern one, following Say’s writings becomes evident (cf. Almodovar, 1995). Departing from a pre-modern industrial reference (namely manufactures), Acúrsio would be increasingly concerned with technological advances (namely by the introduction of machinery) and its impact in the improvement of production. 10 This conciliatory and gradualist approach was visible in the highly important topics of the colonial relations and the corporations of arts. Writing in 1800, before the events of the late first decade of the nineteenth century that broke the colonial pact between Portugal and Brazil, he avowed the benefits of the colonial pact, recurring to Montesquieu. Later, he argued that this conciliation

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of interests could be achieved through the impartial behaviour of the sovereign, and a way of overcoming the negative effects of the disappearance of the colonial pact to the Portuguese interests, namely the industrial ones. His gradualist approach is also visible in the case of corporations of arts. Although Acúrsio criticized them because of the restrictions on economic activity that they promoted (due to unjustified privileges), he recognized the need to promote a cautious and gradual change of these institutions in order to avoid social and economic disorder. 11 On this see Winch (1978). 12 Notably the social and political functions of the land, stronghold of that structure, were absent of their reflections. An interesting fact is that the most critical of these three authors, Acúrsio das Neves, was the only one to have a clear antiliberal position after the liberal revolution and during the period of political instability that followed that event. 13 For an appraisal of the general characteristics of Portuguese economic thought during the revolutionary years of the 1820s, see Cardoso 1991 and Almodovar 1995.

References Almodovar, A. (1990) ‘Caminhos para a economia política em Portugal (1789–1836)’, Estudos sobre o Pensamento Económico em Portugal. Porto: Faculdade de Economia do Porto. —— (1995) A Institucionalização da Economia Política em Portugal. Porto: Edições Afrontamento. Almodovar, A. and Cardoso, J.L. (1998) A History of Portuguese Economic Thought. London–New York: Routledge. Brito, J.J.R. [1803–5] (1992) Memórias Políticas Sobre as Verdadeiras Bases da Grandeza das Nações (ed.) José Esteves Pereira. Lisboa: Banco Portugal. Cardoso, J.L. (1987) ‘Introdução’, in Memórias Económicas Inéditas (1780–1808). Lisboa: Academia das Ciências. —— (1988) Contribuições para a História do Pensamento Económico em Portugal. Lisboa: Dom Quixote. —— (1989) O Pensamento Económico em Portugal nos Finais do Século XVIII (1780–1808). Lisboa: Editorial Estampa. —— (1990) (ed.) Memórias Económicas da Academia Real das Ciências de Lisboa (1789–1815). Lisboa: Banco de Portugal. —— (1995) Introduction to Francisco S. Constâncio, Leituras e Ensaios de Economia Política (1808–1842). Lisboa: Banco de Portugal (Series of Portuguese Economic Classics, edited with an introduction by J.L. Cardoso). Castro, A. (1980) O Pensamento Económico no Portugal Moderno. Lisboa: Instituto de Cultura Portuguesa. Lisboa, J. da S. [1804] (1993) ‘Princípios de economia política’, Escritos Económicos Escolhidos 1804–1820 (ed.) António Almodovar. Lisboa: Banco de Portugal. —— [1808] (1993) ‘Observações sobre o comércio franco’, Escritos Económicos Escolhidos 1804–1820 (ed.) António Almodovar. Lisboa: Banco de Portugal. —— [1810] (1993) ‘Observações sobre a franqueza da indústria’, Escritos Económicos Escolhidos 1804–1820. Lisboa: Banco de Portugal. —— [1810A] (1993) ‘Observações sobre a prosperidade do estado’, Escritos Económicos Escolhidos 1804–1820. Lisboa: Banco de Portugal.


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—— [1819] (1993) ‘Estudos de Bem Comum’, Escritos Económicos Escolhidos 1804–1820. Lisboa: Banco de Portugal. Neves, A. (s/d) [1800] ‘Memória económica-política sobre a liberdade do comércio dos Grãos com a sua aplicação às Ilhas dos Açores’ (ed.) António Almodovar e Armando Castro, Obras Completas, Vol. 4º. Porto: Edições Afrontamento. —— (s/d) [1814–17] ‘Variedades sobre objectos relativos às artes, comércio e manufacturas, consideradas segundo os princípios da economia política’ (ed.) António Almodovar e Armando Castro, Obras Completas, Vol. 3º. Porto: Edições Afrontamento. —— (s/d) [1820] ‘Memória sobre os meios de melhorar a indústria portuguesa, considerada nos seus diferentes ramos’ (ed.) António Almodovar e Armando Castro, Obras Completas, Vol. 4º. Porto: Edições Afrontamento. Penalves Rocha, A. (1996) A Economia Política na Sociedade Escravista. São Paulo: Editora Hucitec. Winch, D. (1978) Adam Smith’s Politics: An Essay in Historiographic Revision. Cambridge: Cambridge University Press.

13 Friedrich List and Oliveira Marreca Some odd coincidences Carlos Bastien

The nation will therefore possess most productive power, and will consequently be the richest, which has cultivated manufacturing industry in all branches within its territory to the highest perfection, and whose territory and agricultural production is large enough to supply its manufacturing population with the largest part of the necessaries of life and raw materials which they require. F. List (1841) To create producers; agricultural producers who will sustain manufacturing; manufacturers who will consume our agricultural surplus; this is the main economic need we are supposed to face. A. Oliveira Marreca (1849)

This chapter attempts to shed some light on certain areas of economic thought in Portugal in the mid nineteenth century, and specifically the economic ideas of António de Oliveira Marreca. This economist, who was probably the most outstanding economist of the Portuguese liberal regime established after the end of the Civil War in 1834, showed a clear understanding of the backwardness of the Portuguese economy and sought to define the conditions that would foster the modernization of the Portuguese economy. Both his theoretical approach and views on the economic policy to be pursued in Portugal show him to be a pioneer of development economics. They reveal some odd coincidences with the viewpoints that List was also introducing, at that same time, into Germany and disseminating abroad, especially after the publication of his well-known book The National System of Political Economy.

Two disorderly careers António de Oliveira Marreca was born in 1805 in Santarém, a small town some 75 km from Lisbon, and died in Lisbon (Portugal) in 1889. He was 16 years younger than Friedrich List who was born in Reutlingen in 1789 and died in Kufstein (Austria) in 1846. During his long life, Marreca

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became a liberal politician (who was forced to spend some time in London), a Member of Parliament, a professor of economics, a bureaucrat, a publicist and a newspaper editor. This means that his experiences were very similar to those of the well-known German economist. Their intellectual background was also similar. Both Marreca and List were heavily influenced by Romanticism and the organicist paradigm. However, the most relevant coincidence between the two men is that they were both distinguished self-taught economists. The core of Marreca’s economic writings was published between 1836 and 1854, mainly in the form of reports and newspapers articles.1 List’s writings, mostly published between 1827 and 1841, were also to be found scattered in various newspapers, although he also published a number of books, and in particular The National System of Political Economy, in 1841, where the most comprehensive exposition of his views can be found. Just like List, Marreca observed the world from a semi-peripheral backwater in an expanding world economy. Their main concern was to understand the conditions needed to overcome economic backwardness, a common feature to both Germany and Portugal. But they also sought to re-evaluate the axioms of economic theory in order to adjust them to the demands of their own doctrine of ‘national economy’. The way List defined the purpose of his approach – ‘it is the task of national economy to accomplish the economic development of the nation’ (List, 1991: 175) – also applies to Marreca. As in most Western European countries, the theoretical framework of economic thought in Portugal and Germany had been influenced, at least since the 1820s, by the classical and liberal paradigm (in the case of Portugal mainly following the French approach – that of Say and showing little direct knowledge of Smith’s or Ricardo’s theories). List claimed to have ‘preached free trade’ in his early lectures (cf. Tribe, 1988: 21) and so did Marreca: his sole economic book, a textbook published in 1838, Noções Elementares de Economia Política (Marreca, 1983; 1: 71–197) was clearly inspired by Say’s Cours d’economie politique. As time went by, his deeper awareness of the nature of Portuguese backwardness made him break with his own early economic views and reject the notion of free trade. Although he never published a book similar to the National System of Political Economy in many of the articles he published from 1846 onwards in an ideologically radical newspaper – A Revolução de Setembro – and in a report on an industrial exhibition published in 1849, he propounded developmentalist views that were quite close to the theoretical positions and policy proposals put forward by List. In spite of the coincidences stated so far, there was no relevant direct transfer of ideas between them. Though List makes long, persistent references to Portugal he never quoted, and probably never read, any Portuguese author, including Marreca. As for Marreca, he quotes economists who also represented important

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intellectual references for List, such as Ferrier or Chaptal, but he never travelled to America and never became acquainted with the most important writings of the American protectionists who were so influential upon List, especially Hamilton.2 He did, however, read very little of List’s writings. He only once quoted List’s The National System of Political Economy directly, in 1854, in a footnote, when discussing certain demographic questions (Marreca, 1983; 2: 278). This sole quotation, taken from the first edition of the French translation – for a long time the only one made by a Portuguese economist – suggests a superficial and belated knowledge of List’s book (Bastien and Ferreira, 1996). Otherwise, Marreca would at least have mentioned the long discussion of the impact of the Methuen treaty established in 1703 between England and Portugal, a major subject in Chapter 5 of List’s book and whose argument was akin to his own argument. The arguments and the evidence presented by Marreca in his writings were mostly unscholarly, revealing someone who was a popularizer of ideas for an emergent well-informed audience but not an academic economist. Marreca’s and List’s careers again show remarkable similarities.

Theoretical and methodological positions The economic writings of Marreca are both few in number and less systematic in nature when compared to List’s. Nonetheless, they suggest a similar theoretical criticism of the liberal school and a similar break with the classical canon especially after 1848. Although economic policy was his major concern, his work induced a theoretical reflection founded upon the analysis of historical processes to validate his developmentalist views. Such considerations, which lacked a sound formal structure, focused on four main topics: the critique of cosmopolitan economics, the theories of value and of productive forces, the different stages in the development process, and the historical methodology. The critique of cosmopolitan economics The starting point for Marreca’s considerations was his discussion and rejection of the abstract classical ideas of the individual and the belief in individual liberty as a convenient basis for the understanding of economic life. In the classical scheme of thought, egoism was considered to be a universal and eternal feeling, the motive behind all economic activity conducive to the harmony and well-being of humankind. To him – and to List – it was the origin of an erroneously cosmopolitan doctrine. According to Marreca, such a spurious generality had to be substituted by the concept of the nation, which he saw as the relevant historical reality shaping individual behaviour and consequently the basic tool in economic analysis. In his view the nation was an entity – and not merely an eco-


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nomic one – that came before individuals, so that its interests were different and had priority over theirs: A nation is a continuous set of generations that remain in a confined territory. So, the ephemeral calculations of individual selfishness are therefore not appropriate. The horizon of the nation’s economy is larger than the mean rule by which it must buy in the cheapest market. It should equip itself with the instruments of wealth in order to build the prosperity and glory of modern peoples. (Marreca, 1983; 2: 28) This somewhat romantic idea of the nation was supplemented by an organic view of society which defined the nation as ‘a community of interests’ (Marreca, 1983; 2: 33), and as ‘a collective body, multiple entities performing different functions and having an energy that not only ensures preservation but also guarantees progress and growth’ (Marreca, 1983; 2: 49). These ideas were surprisingly close to List’s: ‘nations, but in all of them, as in the individual human being, exists the impulse of selfpreservation, the striving for improvement which is implanted by nature’ (List, 1991: 175). Other statements by List such as ‘I would indicate as the distinguishing characteristic of my system nationality’ (List, 1991: xxix) and ‘these interests of the community are, however, infinitely different from the private interests of all the separate individuals of the nation [. . .]; they care but little for the continuance of the nation’ (List, 1991: 173), could have been made by Marreca, as they were entirely consistent with the latter’s thinking. Marreca’s definition of a nation makes little reference to the social relations of production and barely recognizes the capitalist system, although he was very much aware of the importance of groups, of specific intermediate social interests, in particular the interests of the social classes which he saw as collaborators in his developmentalist blueprint. He accepted that the much desired social integration and harmony was not the spontaneous result of a natural order but the result of cultural solidarities and of an intelligent ‘organizational intervention’ (Marreca 1983; 2: 176) by the state. Marreca’s views were again very close to those of List. The theories of value and of productive forces Unlike List, Marreca’s writings provide no sophisticated critique of the liberal school’s theory of value. Even the concept of wealth – ‘all goods with which man satisfies his wants are goods [ . . . ] wealth consists of those very same goods’ (Marreca, 1983; 1: 80) – and the subjective concept of value adopted in his early writings – ‘utility is the basis of value’ (Marreca, 1983; 1: 89) – are not explicitly discussed and were abandoned in his

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mature writings. The same thing happened with the labour theory of value, a subject to which Marreca never paid much attention. At the second stage of his theoretical ideas, Marreca rejected this static idea of wealth. For him, the very concept of wealth no longer amounted to a stock of material goods available at a certain moment, but depended on the productive forces of the nation. He would speak of these forces, the ‘instruments of wealth’, as ‘the basis of the prosperity and glory of modern peoples’ (Marreca, 1983; 2: 28). List’s views on this subject were quite similar: The causes of wealth are something totally different from wealth itself. A person may possess wealth, i.e. exchangeable value; if, however, he does not possess the power of producing objects of more value than he consumes, he will become poorer. A person may be poor; if he, however, possesses the power of producing a larger amount of valuable articles than he consumes, he becomes rich. The power of producing wealth is therefore infinitely more important than wealth itself. (List, 1991: 133) On the other hand, these productive forces are not confined to a set of material goods. They also include natural resources and a diversified set of intellectual forces. According to List: The Christian religion, monogamy, the abolition of slavery and of vassalage, hereditability of the throne, invention of printing, of the press, of the postal system, of money, weights and measures, of the calendar, of watches, of police, the introduction of the principle of freehold property, of means of transport, are rich sources of productive power. (List, 1991: 139) In Marreca the definition of productive forces is not so clear but his support of the most participative, democratic political regimes (he became a leading figure in the Portuguese Republican Party), his demand for legal reforms to guarantee ‘freedom of production’ (Marreca, 1983; 2: 58), his statements about the need to foster ‘technological education’ (Marreca, 1983; 2: 176) or his reference to industrial entrepreneurship as ‘the raw material of the prosperity and glory of some nations’ (Marreca, 1983; 2: 168), are significant parts of his developmental economic discourse, precisely because all this was considered to be part of the productive forces. These considerations about the productive forces drove Marreca explicitly to revise the Smithian doctrine according to which ‘the law of the division of labour, the splitting of the different productive tasks is the main cause of the improvement of producers, of increasing production’


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(Marreca, 1983; 2: 48). Anyway, his expounding of the benefits of the divison of labour he did not restrict his considerations to individual enterprise but examined the benefits of the relationship between the different economic sectors at the level of the entire nation. As List also put it: ‘[. . .] the augmentation of the powers of production in consequence of the separation of occupations and the co-operation of the powers of individuals begins in the separate manufactory and extends to the united nation’ (List, 1991: 152). The stages in the development process Sometimes Marreca refers to a simplistic dichotomy between ‘retarded countries’ and ‘rich manufacturing countries’ (Marreca, 1983; 2: 195), quite similar to List’s contrast between ‘less advanced nations’ and ‘developed nations’ (List, 1991: 126–7). List sketched out the well-known, more sophisticated, scheme of five separate stages – ‘original barbarism, pastoral condition, agricultural condition, agricultural-manufacturing condition, and agricultural-manufacturing-commercial condition’ (List, 1991: 177) – which are supposed to characterize the course of the development process and to give some indications as to how each stage arose from the previous one. Marreca has no clear theory about these stages. In fact he talks of certain different types of economies, not very different from List’s, which he mentions at various moments but not in a systematic typology. In his own words: agricultural nations, manufacturing nations, commercial nations, agricultural and manufacturing nations, and agricultural, manufacturing and commercial nations. He maintained that this last type would be the most convenient for Portugal (Marreca, 1983; 1: 263). In broad terms, his considerations provide a rather simplistic description of the dynamics of these economies. But, unlike List, he adds no relevant features to explain the processes of transition from one stage to another, namely the transition from the primitive stages in the economic life of mankind, which Marreca does not explicitly refer to in his implicit typology. As he was specially worried with the modernization of the Portuguese economy – in Listian terms the transition from the agricultural stage to the agricultural and manufacturing stage – he confined himself to suggesting some economic policy measures that would make such a transition possible (on these, see below). He simply tried to demonstrate the ‘deplorable destiny’ (Marreca, 1983; 2: 59) of every country that did not strive to achieve such a transition and therefore remained as agricultural economies. There was apparently only one exception to List’s views on this subject: the case of countries with a hot climate. He thought that under such climatic conditions countries had to accept an international division of labour that would deprive them of access to industrial development, so

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that they become ‘tributary’ (List, 1991: 162) on the temperate countries. Marreca does not look into this topic. However, he describes such countries as mere suppliers of agricultural goods and raw materials (Marreca, 1983; 2: 48) and as markets for the ‘goods manufactured in this country [Portugal]’ (Marreca, 1983; 2: 204). In the case of temperate countries that successfully modernized their economic structures, List implicitly foresaw an ever-lasting growth in productive forces, in contrast to the theory of the steady state defended by some classical economists. This optimistic view also prevented him from formulating a theory of economic crisis. In a similar way, Marreca considered crises as typical of agricultural economies, and having only a minor impact on agricultural and manufacturing economies, at least if a well-proportioned structure had resulted from a balanced growth strategy: ‘a country that allocates labour and capital to agriculture and manufacturing minimizes risks wherever those crises occur that disturb and upset the economy of nations’ (Marreca, 1983; 2: 62). His long-run prospects were a little less optimistic than List’s. Although the idea of the steady state was not a must in his theoretical system, he explicitly mentioned the ‘hypothesis of a probable stationary situation for peoples’ (Marreca, 1983; 2: 294). Anyway, the historical wisdom of both economists was more voluntaristic than deterministic. If List thought it possible for the development process to stop, or even to be reversed by ‘retrograding steps’ (Hirst, 1909: 238), Marreca argued, much along the same lines: ‘retarded nations must move towards prosperity unless a powerful impulse pushes them out of the way’ (Marreca, 1983; 2: 195–6). Balanced economic growth Of all the items in which the ideas of List and Marreca show significant coincidences, methodology is certainly the one where these coincidences are most apparent. In both cases, a historical account of the development of particular nations provides the basis for causal interpretations and economic policy prescriptions. Their thought revealed an empirically substantiated line of argument, minimizing the value of pure abstract knowledge. List stated that ‘political economy must build up its doctrine on international trade from experience’ (Anson-Meyer, 1982: 38); similarly, Marreca stated that: ‘the branch of social science that includes economics has few absolute principles’ (Marreca, 1983; 2: 41). It is worth noting that this methodology did not prevent Marreca, just as it did not prevent List, from producing certain counterfactual reasonings with which they argumentatively explored the possibilities of alternative paths of development. However, despite the fact that both of them defended the use of an inductive methodology, the precise way in which they did this was not


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entirely similar in both authors. List reaches his conclusions on the strength of a comparative analysis of several cases such as Italy, the Hanseatic League, Holland, England, Spain, Portugal, France, Germany, Russia and the United States of America. Marreca’s writings also contain a few references to other national cases, such as North America, China and Germany (Marreca, 1983; 2: 60–1, 79–80 and 196–8), but they are short and not very conclusive. In fact, Marreca’s historical analysis is less sophisticated, devoted mostly to the Portuguese case. According to his interpretation, the main cause of Portugal’s economic backwardness lay in the specialization generated by its historically asymmetric relations with England. The historical discussion (and not any considerations about abstract laws) of the Methuen and 1810 commercial treaties signed by Portugal and England, led him to reject free trade. He underscored the importance of long-run analysis, stating: ‘It is important to investigate the benefits that the Methuen treaty brought us. We will do this by analysing the state of our factories since 1703’ (Marreca, 1983; 2: 90). The idea that ‘our economic history is the light that must guide us in the discussion of these matters’ (Marreca, 1983; 2: 42) was the same as the idea that ‘history teach’ (List, 1991: 172) and ‘history proves’ (List, 1991: 317) stated by List again and again to validate his views and policy proposals.

Economic policy proposals The theoretical attitudes of Marreca in his mature years, more so than List’s, were generally embedded in his presentation and discussion of economic policy proposals and only rarely were they seen to emerge from an abstract discussion or introduced systematically. Such proposals were designed to solve the problem of Portuguese backwardness and were the most sophisticated alternative to the prevailing free trade doctrines. They formed an institutionalist blueprint whose main pillars of support were a balanced growth strategy, protectionism and state intervention. Balanced economic growth According to Marreca’s theory of the different stages of development, economic progress represented a successful transition from one stage to the next. However his main concern was pragmatic, centred around what in Listian terminology was the transition from an agricultural stage to an agricultural and manufacturing stage. According to Marreca, remaining in the agricultural stage while other nations were becoming industrialized was undesirable: ‘[. . .] an agricultural country has to endure an ever growing population confined to a specific, limited territory, where food production has, according to its nature, clearly defined limits’ (Marreca, 1983; 2: 62). Although he supported industrialization, he was against a transition to

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the manufacturing stage (as was the case with England), which he considered a dangerous situation: ‘a manufacturing country and an exporter of manufactured goods, but faced with a shortage of grain, is in risk of decaying under the law of competition’ (Marreca, 1983; 2: 62). In his opinion all of these stages would experience numerous crises, which, in the long run, would lead to the nation’s decline and loss of political independence. Consequently, in spite of his enthusiasm for ‘industrial growth and the spread of steam engines’ (Mendes, 1996: 205), Marreca emphasized the advantages of harmony and complementarity between the two sectors, advocating a balanced growth strategy: We must feel happy that manufacturing growth is keeping pace with a plentiful production of grain here. If, as happened some time ago, we lacked grain, the price of bread and the wages of factory workers would rise and it would be impossible to devote ourselves to the huge tasks of manufacturing and still expect reasonable profits. [. . .] And manufacturing – if we protect it – will create an important demand for agricultural goods, and, thanks to the necessary – providential – payments, will face a demand for its goods due to the numerous workers. (Marreca, 1983; 2: 45) Like Marreca, List defended a balanced growth strategy, a strategy relying on the existence of a dynamic home market which called out for important changes in the agricultural sector: ‘[. . .] agriculture cannot rise to a high state of prosperity unless the exchange of agricultural produce for manufactures is guaranteed for all future time’ (List, 1991: 102). It is therefore no surprise that, while for Germany, List supported ‘a system for the division of land into many arable allotments’ (Anson-Meyer, 1982: 142), Marreca maintained that for Portugal: ‘the best system for us is that of arable allotments, small and medium-size farms, the distribution of our common land amongst hardworking families’ (Marreca, 1983; 2: 184). These strong convictions of Marreca were based on the virtues of the domestic market – ‘the domestic market is the largest market we can depend on’ (Marreca, 1983; 2: 34) – and often caused him to hesitate in the terms he chose to use to define the desirable path for the Portuguese economy. He gradually tended to abandon the expression ‘commercial’, which he had frequently used in his early writings when he was a supporter of free trade (Marreca 1983; 1: 263). Protectionism The main instrument for ensuring that the nation was correctly heading towards a balanced state of growth was the use of protective tariffs against trade.


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The idea was to seek protection against the more powerful economic nations. Like List, Marreca argued that ‘manufacturing cannot forever be the lasting privilege of some countries’ (Marreca, 1983; 2: 196) and explicitly rejected an international division of labour imposed by the more advanced and politically influential countries: No one has the legitimacy to prescribe to one country that it should become a commercial economy, or to another that it should be an agricultural economy, and to yet another that it should be a manufacturing economy. A person can stay forever in the same productive activity, without moving to another one. [. . .] However, nations must not guide themselves by this rule. (Marreca, 1983; 2: 49) According to Marreca, a protectionist policy was the mechanism by which ‘retarded nations’ could change their position in the international division of labour and enforce their interests. But protectionism, based on tariff barriers, should not be either absolute or permanent – ‘absolute prohibition is to deny trade itself, the obstacle to all progress’ (Marreca, 1983; 2: 53). However, ‘tariff barriers restrict foreign competition but not national competition’ (Marreca, 1983; 2: 53) and ‘an abundance of lowpriced grain from abroad is good for the manufacturing nation’ (Marreca, 1983; 2: 56). So, these instruments should have an educational role and only be used to protect ‘infant industries’ from external competition: ‘after some years [. . .] factories will converge day after day with their foreign competitors in price and quality, [so that] the tariffs that protect them must end’ (Marreca, 1983; 2: 29–30). List said exactly the same thing when he stated that duties must never ‘intend to protect native agricultural production’ (List, 1991: 308) and that: by means of diligence, skill and economy every branch of industry must become profitable in time; [. . .] in any nation already advanced in agriculture and civilization, by means of moderate protection, its infant manufactures, however defective and dear their productions at first may be, can by practice, experience, and internal competition readily attain ability to equal in every respect the older productions of their foreign competitors (List, 1991: 39) This obvious agreement between Marreca and List on this subject was to break down when this doctrine was applied to the historical situation of the Portuguese economy. In a brief reference to Portugal, List states that the Portuguese economy, suffocated by its relationship with England, had degenerated to a stage where it was no longer convenient to follow a protectionist policy:

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Carlos Bastien History teaches us how nations [. . .], may and must [. . .] modify their systems according to the measure of their own progress: in the first stage, adopting free trade with more advanced nations as a means of raising themselves from a state of barbarism, and of making advances in agriculture; in the second stage, promoting the growth of manufactures, fisheries, navigation, and foreign trade by means of commercial restrictions; [. . .]. In the first stage we see [. . .] Portugal; in the second, Germany [. . .]. (List, 1991: 115)

State intervention In his early writings, particularly in the above-mentioned textbook, Marreca showed a deep concern with entrepreneurship and the working of the market system. After 1846 it is quite clear that he no longer accepted the idea that a hidden hand should be a major regulatory mechanism of economic life. According to his changed views, the state should not only act as the repository of abstract values, such as justice, but also as an active economic agent which could often pursue efficiency more effectively than individuals, i.e. a major force in promoting economic development. As has been said, in Marreca’s approach, development meant a change in economic stage, but the transition from one stage to another was not automatic. It was mainly the result of a voluntaristic intervention by the state, at least as far as the transition from an agricultural nation to an agricultural and manufacturing nation was concerned. The intervention in order to promote development, an ‘organizing intervention’, was supposed to take place in a liberal political environment (Marreca, 1983; 2: 176). It had to be able to create or regulate economic sectors that were of definite public interest and to promote the above-mentioned balanced growth in different sectors. Of course, protectionism was an instrument of government intervention, but Marreca advocated an increased economic role on the part of the state. In his opinion, a whole series of economic activities should come under state ownership or at least under its direct control, whenever this represented an efficient means of compensating market failures and fostering economic growth: Government as a great consumer of manufactures, as a great distributor of incomes, as a great borrower, as a great tax collector, as a great capitalist, as a great protector of production, as a great entrepreneur, as a great road builder, and as a great promoter of technological training, should be responsible for its acts whether for or against the manufacturing sector. (Marreca, 1983; 2: 176)


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Among all these activities that the state already performed, Marreca emphasized the importance of its specific intervention in transport networks as a powerful device for the creation of a dynamic domestic market. Surprisingly, in contrast to List, he did not mention railways; he preferred ‘the building of roads and canals to reduce the costs of transporting goods from the manufacturing to the consumer centres’ (Marreca, 1983; 2: 44). Obviously this idea was linked to his demand for the abolition of all restrictions on the internal ‘circulation of goods’ (Marreca, 1983; 2: 141) and especially of the ‘exorbitant taxes on consumption [. . .] whose impact on both agriculture and manufacturing is similar to that of creating an unsuitable environment’ (Marreca 1983; 2: 139). Another area in which the views of Marreca and List coincided was the subsidizing of the private sector. List supported subsidies, especially those given in favour of the ‘home manufactories of machinery’ (List, 1991: 314). As for Marreca, he believed that ‘the firms created after the industrial exhibition of 1844 [. . .], [were] the factories that had been established with State funding’ (Marreca, 1983; 2: 166). As far as monetary issues were concerned, Marreca advocated that the government should substitute non-existent investment banks and exercise a direct credit policy designed to foster private investment. It should lend money ‘to active and efficient entrepreneurs’ for them to invest at an interest rate of 0% (Marreca, 1983; 2: 44). Similarly List wrote: ‘Yet there are cases where they [bounties] are to be justified as temporary means of encouragement, namely where the slumbering spirit of enterprise of a nation merely requires stimulus and assistance in the first period of its revival [. . .]. But even in these cases it ought to be considered whether the State would not do better by making advances free of interest [. . .]’ (List 1991: 315). In contrast to List, who suggested a budgetary deficit policy to finance public investment projects – ‘a part of all future increase in import duties should be placed at the disposal of the Prussian Government to be expended for these objects [foundation of a German fleet and colonies]’ (List, 1991: 435) – Marreca was never very explicit about this subject, nor did he ever mention public debt. In his early writings, he adopted orthodox views about budgetary policy. However, in his mature writings, he called both for the abolition of some taxes, namely consumption and industrial taxes (which would be partially offset by external tariffs) and for an expansion of government spending, particularly when arguing that: ‘the state should be financially responsible for the most expensive works [. . .] irrigation, draining, canals and road building’ (Marreca, 1983; 2: 184).

The nation and the Zollverein Both List and Marreca had strong nationalistic ideals, which they introduced into their economic blueprints for Germany and Portugal. As is

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known, the Zollverein was a pillar in List’s doctrine of ‘national economy’, since it was considered a crucial instrument which could accelerate the catching-up process and lay the political foundations of the German state. Zollverein was considered to be a transitional developmental stage. After some time, when most countries (at least the temperate ones) had reached a similar level of development, the open competition between the large economic blocs would be settled. Thereafter, the whole of humanity would fuse together into a single economic community, due to the spread of international trade. Small nations had no significant role to play in this process. According to List, a shortage of natural and human resources would deprive them of an efficient use of tariffs and they would be either integrated in economic blocs or absorbed by larger national economies: ‘a small State can never bring to complete perfection within its territory the various branches of production. In it protection becomes mere private monopoly. 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, 1991: 176). Marreca’s political and economic views and proposals differed slightly from List’s as far as small countries, and in particular Portugal, were concerned. Marreca agreed that protectionism was not only a question of economic efficiency but a sign of strength in the international political arena – ‘the issue [the protective duties] [. . . ] is a matter of politics and social interest’ (Marreca, 1983; 2: 42) – but the Zollverein had no place in his doctrine. As was said above, his proposals were similar to List’s in relation to the transport network and the abolition of internal restrictions on circulation, but his narrow nationalism, probably reflecting his hopes for the rebuilding of the Portuguese colonial empire and his fear of Spanish hegemony, prevented him from reasoning in favour of an Iberian Zollverein. Oddly, this scenario was discussed by a number of Portuguese (and Spanish) intellectuals and politicians from quite different ideological tendencies in the 1850s, but Marreca did not mention the topic, clearly avoiding even considering the German case, except for a couple of oblique references. Both Marreca and List considered the availability of natural resources to be central to the modernization process. No wonder that Marreca repeatedly stated that Portugal had ‘a very large area where agriculture may unleash all its power and resources’ (Marreca, 1983; 2: 45). After this statement, Marreca could afford to exclude Portugal from the group of small economies, so that it became a member of the group of ‘normal nations’ (List, 1991: 175). Now he could avoid any discussion about how to overcome the restrictions of the territory and above all ignore and implicitly to reject any reference to the hypothetical Iberian customs union. Marreca did not accept either the Listian idea that the Portuguese


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economy was in a barbarian stage, and so showed no advantages for the adoption of protectionism, or the idea that it was not able to embark on a successful development process. Marreca had neither an Iberian policy nor a Continental policy: we can find almost no clear, detailed ideas about the future of either the European or the world economy in the long run. Nonetheless, he once more showed that he had a similar position to List, especially when he admitted the possibility of a future convergence towards a single economic and societal system: ‘societies progress in accordance with their need for selfpreservation and towards a universal community’ (Marreca, 1983; 2: 294).

Concluding remarks The works of both Marreca and List achieved their main purpose. Both allowed nationalism to compete with an emergent socialism; both sought to provide an economic basis for a nationalism which, until then, ‘had neglected the economic sphere’ (Szporluk, 1988: 95); and both produced theoretical considerations and prescribed a set of developmentalist policies which showed them to be pioneers of development economics. As noted below, many features in their different careers brought them together but others divided them. As far as theory is concerned, Marreca underscored the national dimension of political economy and made a critique of the classical school that was quite original in the Portuguese scene, although less systematic and detailed than List’s theoretical discourse. Marreca was an up-to-date economist, in spite of his heterodoxy and the fact that he lived somewhat isolated from the main centres of economic theory in his time. He made no claim to be an original thinker or a propounder of new economic theories, and never thought of himself as the forerunner or founder of an eventual Portuguese historical school. The fact that Schumpeter’s History of Economic Analysis did not mention him is, to a certain extent, further confirmation of his self-evaluation. Marreca tried mainly to go beyond common-sense analyses and provide some coherence and theoretical grounds for protectionist policies, strengthening the basis for the discussions that had already been going on in Portuguese society for some time. In this sense, he was one of the few theorists of international economic relations who supported protectionism as a privileged policy instrument to promote economic development in the mid nineteenth century. He was less rigorous than List when he characterized protectionism and the conditions necessary to introduce it at an advanced developmental stage. The only really significant differences in relation to the policy views of List were the specificities of the road to development to be followed by the small nations, namely Portugal, and his refusal to accept the economic integration exemplified by the German customs union. Marreca presumed that his views expressed the interests of the whole

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society in seeking to find a Portuguese road to developed capitalism. In fact, he became a representative of a weak manufacturing bourgeoisie who needed to influence public opinion, especially in the late 1840s, when once more the Portuguese authorities were about to give in to British commercial interests and sacrifice their expectations of industrial growth. Like List in Germany, Marreca was highly regarded by his fellow countrymen, even being afforded recognition by some of his fellow economists (Freitas, 1889), and by university professors (Carneiro, 1850; Sampaio, 1853). But, unlike List, he did not succeed in promoting the formation of contemporary Portuguese policy and was to remain unknown abroad.

Notes 1 Marreca’s writings are available in a two-volume edition (Marreca, 1983). His speeches and letters and some studies on the history of economic ideas are not included. 2 Marreca did, in fact, have an indirect connection with North-American protectionist literature. He frequently quotes the Portuguese economist Solano Constâncio (1777–1846) who, like List, lived for some time in the USA. He was acquainted with this literature and anticipated some views of the ‘national economy’ school.

References Anson-Meyer, M. (1982) Un économiste du développement au XIXe siecle, Friedrich List. Grenoble: Presses Universitaires de Grenoble. Bastien, C. and Ferreira, S. (1996) ‘Die List-Rezeption in Portugal’, E. Wendler (hrsg.), Die Vereinigung des Europaischen Kontinents. Stuttgart: Schaffer Poeschel. Carneiro, B. (1850) Lições de Economia Política publicadas por alguns dos seus discípulos. Coimbra: Imprensa da Universidade. Freitas, R. de (1889) ‘Um economista portuguez (António de Oliveira Marreca)’, in Revista de Portugal 1: 394–6. Hirst, M.E. (1909) Life of Friedrich List and selections from his writings. London: Smith/Elder. List, F. (1991) The National System of Political Economy. Fairfield [reprint of the English translation published in 1885]. Marreca, O. (1983) Obra Económica, vols I and II. Lisboa: Instituto Português de Ensino à Distância. Mendes, A. (1996) ‘Portugal agrícola ou industrial? — contornos de uma polémica e suas repercussões no desenvolvimento (sécs. XIX–XX)’, Revista de História das Ideias 18: 187–230. Sampaio, F. de (1853) Estudos de Economia Política. Coimbra: Imprensa da Universidade. Szporluk, R. (1988) Communism and Nationalism – Karl Marx versus Friedrich List. New York: Oxford University Press. Tribe, K. (1988) ‘Friedrich List and the critique of “cosmopolitical economy”’, The Manchester School 56(1): 17–36. Valério, N. (1980) ‘Portugal nos séculos XVIII e XIX segundo Adam Smith e Friedrich List’, Revista de História Económica e Social 6: 105–15.

14 The western periphery Irish agriculture and Irish political economy in the nineteenth century Terrence McDonough and Eamonn Slater Introduction This chapter will argue that the Famine in nineteenth-century Ireland marked a turning point in the theoretical basis of Irish economic thought. Prior to the Famine, Irish political economy was inward-looking, seeking to constitute political economy as an objective science uniquely suited to the resolution of social divisions. After the Famine, Irish political economy became exceptionally outward-looking, seeking inspiration in the broader field of the social sciences, and adopting an historical and institutionalist approach. We will argue that while the demonstrative power of the Famine itself may have had an influence on this transformation, the social changes wrought in the wake of the Famine were especially significant. The creation of an emerging class of substantial tenants in the wake of the Famine clearances created the social basis for the altered perspectives on Irish political economy. In addition, the problematic character of the Irish agricultural economy and the proposed solutions to this problem form an essential background to developments within political economy. We will contend that the Irish economy remained predominantly feudal in character up until the late nineteenth century. We will argue further that the Famine marked a watershed in the forms in which feudal rent was extracted from the Irish peasantry. Following the distinction drawn by Marx between absolute and relative surplus value, extraction of feudal rent before the Famine was of an absolute character, relying on the multiplication of direct producers on the land. After the Famine, the extraction was of a relative character, depending on the increasing productivity of new agricultural techniques and involving the consolidation of tenant land holdings. This process of consolidation and its associated social changes would be key to understanding developments in political economy and policy. The Famine marked a seachange in the character of Irish political economy. Before the Famine, classical political economy, based in a utilitarian framework and advocating a policy of laissez-faire, was dominant in Ireland both at the level of the academy and attempts at popular

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education in economic matters. Indeed, in the work of Longfield and others, Irish political economy in this period anticipated the development of marginal theory in economics. After the Famine, classical political economy was abandoned and alternative frameworks of thought were sought. Both the transformation of Irish agriculture under pressure for consolidation and the new thinking in the economics profession altered the terrain upon which solutions to Ireland’s development problems were sought. The creation of capitalist farming on the English model was abandoned as not taking into account local particularities and progress was sought in the creation of an independent peasantry.

The persistence of feudalism in Ireland The economy of nineteenth-century Ireland was predominantly agrarian and feudal in character. The agrarian character of the economy is hardly in doubt. In 1841, when statistics begin to become reliable, less than 14% of the population lived in towns of 2,000 or more. Almost three-quarters of the occupied males were engaged in farming (Hoppen, 1992: 33). Since the plantations of the sixteenth and seventeenth centuries, the land surface of Ireland had been divided into landed estates. Some estates were as small as 100 acres, but it was the large landed estate, which predominated (Dudley Edwards, 1973: 160–2). Twenty years after the 1845 Famine, about 2,000 owners of landed estates, each with 2,000 acres or more, owned two-thirds of the country’s land surface (Hoppen, 1992: 87). Indeed, half of that surface belonged to less than 800 individuals. These landlords enjoyed a gross annual rental in the region of 10 million pounds. This was at a time when the total United Kingdom central expenditure on civil government amounted to 6.6 million (Vaughan, 1980: 187). Rent broadly considered as a payment in return for access to the land as a factor of production is a category which exists in capitalist as well as feudal economies. We contend that Irish rent in the nineteenth century cannot be considered to be capitalist rent in this sense. Rent in Ireland was rather the extraction of surplus from the peasantry obtained through extra economic coercion. Within a Marxian framework, the key factor which distinguishes feudal from capitalist modes of production is the specific form through which the surplus is extracted from the labouring classes. In the feudal case, the surplus is appropriated from the direct producers through the application of extra-economic coercion, that is, through political or ideological coercion or some combination of the two. This definition is similar to the one proposed by Laclau (1971) and is consistent with Marx’s (1981: 926–7) treatment of this question. Under capitalist relations of production, rent results from a competitive relationship between agricultural capitals seeking access to land which is

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held monopolistically by landlords. It is necessary therefore to look critically at Irish rent as a competitive rent relationship. A close reading of nineteenth-century accounts establishes the non-capitalist nature of this rent. Most theorists of the nineteenth century who discussed the Irish rental relationship were generally at pains to develop the difference between normal economic rent under capitalistic agriculture and the rent paid by Irish tenants. They referred to the Irish rental system as the cottier rent system. John Stuart Mill (1965) suggests that competition is a feature of the cottier system which regulates the level of money rent, but it is competition of a peculiar sort: The produce, on the cottier system, being divided into two portions, rent, and the remuneration of the labourer, the one is evidently determined by the other. The labourer has whatever the landlord does not take; the condition of the labourer depends on the amount of rent. But rent, being regulated by competition, depends upon the demand for land, and the supply of it. The demand for land depends on the number of competitors, and the competitors are the whole population. The effect, therefore, of this tenure, is to bring the principle of population to act directly on the land, and not as in England on capital. Rent, in this state of things, depends on the proportion between population and land. As the land is a fixed quantity, while population has an unlimited power to increase, unless something checks that increase, the competition for land soon forces up rent to the highest point consistent with keeping the population alive. (p. 193) The consequence of Mill’s analysis is that in Ireland competition is not carried on by capitalists, but by the whole population seeking entry to the land for its subsistence. We must be mindful here that the existence of this competition is initially conditioned by the conquest of Ireland by the British. This conquest began a process of the elimination of the customary access to the land of the indigenous peasantry. While the peasantry remained, the Gaelic tribal chief was replaced by new landlords who had no traditional obligations to the actual occupiers of the soil. The competition for the land referred to by Mill therefore has the political subjugation of the older Gaelic order as its necessary condition of existence. Wilmot Horton (1832) further highlights the non-capitalist nature of the Irish peasant’s demand for land: He [the tenant] . . . knows that many others, in the same condition with himself, are prepared to offer any rent which they have the slightest hope of being enabled to pay, in order to obtain possession of the land. Having but little to lose, the apprehension of his ultimately finding himself unable to fulfil his contract is not so powerful as the

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Terrence McDonough and Eamonn Slater fear of being outbidden in the offer of rent, and thereby losing his only present resource. Under these circumstances, he offers a rent which, in many instances, he is utterly unable to pay. (pp. 8–9)

The concluding part of this passage indicates the market distorting consequences of the dispossession and re-entry of the Irish peasantry in relation to the land. The contract entered into between the peasant and the landlord is not one of equals and cannot be expected to be fulfilled as if it were entered into on this basis. The monopoly position which the landlord holds over the tenant is not only achieved by his ownership of the land, but also by the direct producer’s inability to acquire an economic existence outside the agricultural sphere of production. The lack of industrial development in Ireland helped tie the Irish tenant to the land. This economic bondage could only be broken by emigration. Butt (1867) neatly summarizes the case for the feudal character of cottier rents in the following: Land is not an article of which the supply can be proportioned to the demand. The tenant on an estate cannot deal with his landlord on equal terms. It is the power of the tenant to endure exaction, and nothing like the competition of other persons offering him lands, that limits the amount to which it is possible for a landlord to raise his rents . . . How often do we hear it said that a proprietor is a harsh and oppressive landlord, because high rents are exacted on his estate! We frequently hear a landlord praised as kind and generous, because his farms are let at a low valuation. The very language of ordinary life is sufficient to show that the fixing of rent depends upon something very different from the laws of demand. We do not speak of a harsh and oppressive grocer, because he sells his goods at a high price, or speak of a kind and indulgent draper, because he is contented with small profits and quick sales . . . But in a country like Ireland, . . . rent has not yet entirely lost its character of a feudal impost . . . (pp. 56, 58) It is necessary to further examine the general forms of the extraction of feudal rent. This task is similar to the one undertaken by Marx in his analysis of the distinction between absolute and relative surplus value within the capitalist mode of production. Marx himself opens up the possibility of analysing feudal rent in an analogous manner. In his discussion of Richard Jones, Marx (1972) suggests that pre-capitalist rent relationships can exist in two specific forms: In discussing forced labour and the forms of serfdom [or slavery] which correspond to it more or less, Jones unconsciously emphasises


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the two forms to which all surplus value [surplus labour] can be reduced. It is characteristic that, in general, real forced labour displays in the most brutal form, most clearly the essential features of wage labour. Under these conditions [where there is serf labour] rent can only be increased either by the more skilful and effective utilisation of the labour of the tenantry [relative surplus labour], this however is hampered by the inability of the proprietors to advance the science of agriculture, or by an increase in the total quantity of the labour exacted . . . (p. 400) Marx has suggested that absolute surplus labour is concerned with increasing the total quantity of labour extracted, while relative surplus labour attempts to increase the surplus by more skilful and effective utilization of labour. It is our contention that the period following the Famine is dominated by the extraction of relative rent. Prior to the Famine, absolute rental extraction is important, though after 1815, the Irish agricultural economy begins a period of transition to the relative rental regime. Before examining the character of Irish political economy before the Famine, it is important to clarify some of the essential features of the absolute rental regime. We will delay a more detailed discussion of relative rental extraction until we take up the post-Famine period. Absolute surplus labour can be extracted either by means of increasing the amount of surplus labour extracted from each worker or by increasing the number of workers on the land. The first of these possibilities can be pursued through the simple expedient of raising the rent charged on a particular tenancy. The higher the increase, the more surplus labour is expropriated from the tenant, all other things being equal. In its more aggressive forms this type of absolute rental value extraction has traditionally been referred to as rackrenting. The second route through which absolute rental value extraction may be pursued is through increasing the number of peasants on the land. Concretely, this was accomplished through the division of the available land into smaller plots let out to a larger number of tenants. In Ireland, this subdivision was accomplished through the mechanism of subletting by middlemen and also through family subdivision. The final subdivision of the land has given its name to this entire period of the absolute rental regime – the cottier system. The Poor Law Inquiry (1836) defines cottierism in the following : The most prevalent meaning of the term ‘cottier’ is that of a labourer holding a cabin, either with or without land, as it may happen [but commonly from a quarter to three acres are attached], from a farmer or other occupier, for whom he is bound to work, either constantly at

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Terrence McDonough and Eamonn Slater a certain fixed price [usually a very low one], or whenever called upon, or so many days in the week at certain busy seasons, according to the custom of the neighbourhood. (p. 660)

Accordingly, the relationship between the tenant and the cottier is not a wage labour relationship but rather a form of feudal labour rent, where the cottier works a number of days in the year on the tenant’s plot and the rest on his own cottier plot. Absolute rent, pursued either through the increase in rental charges or through subdivision has a tendency to absorb all the normal rewards of commodity production. The ultimate limit of absolute rent is reached when the rackrented tenant can only obtain a meagre physical subsistence. Not only did absolute rent rob the tenant of any potential profit, but also of the money needed for capital investment. This trend forced the Irish tenant into using exclusively products of the natural economy, and their associated production techniques. The direct producer substituted the spade for the plough, manure for guano, and family labour for wage labour etc.

Pre-Famine political economy in Ireland In the pre-Famine period, Ireland became a key stomping ground for the development of the conservative political implications of classical political economy. Indeed, Irish political economy managed to produce a kind of radical orthodoxy which was well ahead of what would be its time in Britain. In the work of Bishop Whately and Mountifort Longfield, Irish political economy became more Catholic than the Pope, where papal authority in this case rested with the Ricardian tradition. Strangely, it was the anachronistic character of Irish society which made it ripe for the ideological application of the most advanced elements of economic science. A predominantly feudal society, suffering from a late transition to capitalism, proved fertile ground for the latest in bourgeois political economy. A deeply divided society was the legacy of the English imposition of a kind of bastardized feudalism on Ireland, a feudalism not founded in a history of the evolution of mutual rights and obligations between a native peasantry and a native (or at least assimilated) ruling class. Without a system of mutual rights and obligations, agrarian relations within the Irish estate suffered from a more radical schism than had historically existed in the British feudal order. To this radical economic inequality were added differences in nationality and religion. These latter differences were especially consequential in that they closed off the most powerful of the traditional ideologies establishing a common principle of identification across the class divide. The British ruling elite in Ireland could appeal to neither patriotism nor the


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Church in commanding a common allegiance from the exploited strata of the population. The Anglo-Irish ascendancy, largely descended from the Cromwellian invaders of the seventeenth century, had maintained an English cultural identity and a loyal Protestantism which separated them from the Irish Catholic majority. From the beginning, the moral economy of Ireland was impoverished. Ireland generated an ongoing legitimation crisis for the state and the economic elites. A concerted attempt was made to fill this ideological vacuum with political economy. While it lacked the emotional resonances of nationalism and religion, British political economy was in many ways well suited to the ideological task it was called upon to perform. Political economy claimed a scientific impartiality and an ideological neutrality. It assumed for itself the capability of adjudicating conflicting social claims. In a religiously divided society, political economy was a secular system of thought. Its universal validity superseded religious and moral discourse. While claiming impartiality, political economy was at the same time highly and quite pointedly partisan. It devoted considerable energy to defending existing social and economic relations. It was dedicated to a policy of free trade and most especially laissez-faire, confident of the identity of the pursuit of self-interest and the furtherance of public interest. In promulgating the principle of government non-interference, political economy was especially concerned to defend property rights. Looking to the success of capitalist agriculture in the English countryside, political economists found justification for applying this doctrine of the inviolability of property rights to the Anglo-Irish aristocracy’s landed estates. The pivotal figure in this regard was Richard Whately, the Anglican Archbishop of Dublin from 1831 to 1863. Before his appointment to religious office in Dublin, Whately had been Drummond Professor of Political Economy at the University of Oxford, where he had succeeded Nassau Senior. Whately did not allow his religious duties in Ireland to sap his interest in political economy. While in Dublin, he established the first Professorship of Political Economy at Trinity College. He was the first president of the Dublin Statistical Society and was widely regarded as ‘the father of economic science in Ireland’. He also served on the Board of National Education, interesting himself particularly in the spread of economic ideas into the schools. To this end, he wrote the text, Easy Lessons in Money Matters, which quickly became the best-selling work on economics in the nineteenth century. In 1848, in the midst of the Famine, Whately contended political economy was ‘the only means which existed of rescuing the country from convulsion’, and went on to say: It was a mistake to suppose that religion or morals alone would be sufficient to save a people from revolution. No; they would not be sufficient, if a proper idea of Political Economy was not cultivated by that

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Terrence McDonough and Eamonn Slater people. A man, even of the purest mind and most exalted feelings, without a knowledge of Political Economy, could not be secured from being made instrumental in forwarding most destructive and disastrous revolutions. (quoted in Boylan and Foley, 1992)

As a form of irrefutable knowledge, political economy imposed consensus. It presented existing social relations as harmonious and beneficent, between nations, between employers and employees, and, crucially, between landlords and tenants. Through the agency of competition, individual, class and national interests coincide.1 Whately’s enthusiasm for political economy did not extend to the work of David Ricardo and the majority of the occupants of the Whately professorship at Trinity were anti-Ricardian. Ricardo’s framework, while laissezfaire in outlook, contained within it elements which could be used to undermine the Whatelian vision of universal social harmony. This was especially true of the labour theory of value, and Ricardo’s analysis of landlord consumption as a drag on economic progress.2 Whately’s first appointment to the professorship, Mountifort Longfield, produced a new economic theory, which according to Schumpeter (1967: 465), ‘overhauled the whole of economic theory and produced a system that would have stood up well in 1890’. Longfield, in Black’s (1945: 141) estimation, constructed an extraordinary complete marginal theory of value and built upon it a new, nonRicardian theory of distribution. Longfield rejected the Ricardian ideas of the subsistence theory of wages and the view that the productivity of agricultural land plays a decisive role in determining the return on investment. He developed a theory of profit that linked the return on capital to the marginal productivity of machinery employed in production. Profits, rents and wages were all determined by the laws of supply and demand (Roll, 1978: 340–1). His theory emphasized price instead of value, and scarcity instead of the cost of production (Vance, 1847: 3–4). It fell to William Neilson Hancock, who succeeded to the Trinity chair in 1846, and who was to initiate the Dublin Statistical Society in 1847, to draw out the implications of this conservative political economy for Irish economic policy. Hancock first had to confront the apparent contradiction between a theoretical framework which advocated laissez-faire a priori and a Famine ravaged Irish economy which cried out for reform. Hancock neatly resolved the problem in the following way: What is the advantage it is said, of interfering with existing arrangements? We are taught by laissez-faire to leave things as they are, and trust that they will come right in time. Now, this reasoning is quite true if we suppose it to be applied to a state of affairs in which there is no legislative or other interference with the enterprise of individuals.


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But where such interference does exist, to leave things as they are is to perpetuate interference. (Hancock, 1847: 3) What Hancock is arguing is that aspects of the legal code appropriate to feudal relations of production have persisted in Ireland. These remnants are interfering with the efficient operation of the market, which could otherwise be expected to resolve Irish agricultural problems. Hancock sets out to investigate these legal interferences and how they impede the development of an Irish economy based upon laissez-faire principles. In a series of six papers read before the Dublin Statistical Society, between 20 November 1848 and 30 April 1849, Hancock looked at how legal impediments affected the agriculture of Ireland.3 Hancock argued that the poor state of Irish agriculture was in part caused by the legal structure, which prevented the free transfer and sale of land, and thereby hindered the application of capital to Irish agriculture. The vendor of land had to produce sixty year’s title to every acre on offer. This was a time-consuming and expensive process as in Ireland at that time there was no general register of land. To find a sixty-year title for land, Hancock reckoned that about 20% of the selling price was needed to cover the cost of the legal searches. Hancock (1848) also criticized legal restraints on the power of the landlord to alienate land. Hancock suggested that fee in tail and life estates4 should become fee simple estates. This would give the holder of the estate the right to sell it and pay off the estate’s debts. In order to achieve this legal position, it would be necessary for the government to provide a parliamentary title to the landed estate by creating a general register. Papers reaching roughly the same conclusions as Hancock’s were presented to the Society by John A. Lawson, Edward Lysaght, William Hearn, and Jonathan Pim. The political economists of the Dublin Statistical Society in this period were in the main unsympathetic to the demands of the nascent Tenants Right Movement.5 Lysaght (1851: 7) saw the Movement as prejudicial to all classes of the community on three counts. First, converting the landlord’s rent into a fixed rent would deprive him of all interest in the improvement of the land. Second, absenteeism by landlords would be encouraged, since they would not be able to increase their income by having their residence on their estates. Third, the quantity of food produced would be decreased because fixed rents would eliminate ‘the present system of competition rents’. These discussions were not without influence in the setting of public policy. With respect to landlord indebtedness, Hancock, Longfield, and Lawson were called before a Parliamentary committee, whose enquiries led up to the passing of the new Encumbered Estates Act of 1849. This Act allowed indebted landlords who had taken mortgages on their estates to

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acquire a Parliamentary title to their property, allowing them to sell their land on the open market and pay back their debts (Beckett, 1966: 353).

The Famine and its aftermath Marx (1976) characterizes the years after the Famine in the following way: The depopulation of Ireland has thrown much of the land out of cultivation, greatly diminished the produce of the soil, and in spite of the greater area devoted to cattle breeding, brought about an absolute decline in some of its branches, and in others an advance scarcely worth mentioning, and constantly interrupted by retrogressions. Nevertheless, the rents of the land and the profits of the farmers increased along with the fall in the population, though not so steadily as the latter. The reason for this will easily be understood. On the one hand, with the throwing together of smallholdings, and the change from arable to pasture land, a larger part of the total product was transformed into a surplus product. The surplus product increased although there was a decrease in the total product of which the surplus product formed a fraction. (p. 860) This increase in the amount of surplus product, although the total product decreased, is an indication of the changeover from absolute rental production to relative rental production. The institution of the relative rental regime involved a conscious attempt by the Irish landlords to increase the efficiency of Irish tenantry as rent producers, thereby increasing the rate of rental extraction. Crucial to this particular transition period is the necessary decline in population to allow for the emergence of relative rental production. Along with decreasing the population, it was essential for the landlord to prevent subletting and family subdivision, and encourage the consolidation of estate farms. The reorganization of Irish agriculture and its feudal rental regime was greatly accelerated by the impact of the potato Famine. This was due to the process of depopulation and the subsequent consolidation of farm holdings. Between 1845 and 1851, the number of farm holdings under 15 acres decreased by 25% (Solow, 1971: 92). In County Cork between 1844 and 1851, the percentage decrease of holdings between 1 and 5 acres was 61.8%, between 5 and 15 acres was 53.5%, and over 15 acres, 11% (Donnelly, 1975: 119). Clearances during the Famine years were far easier since the ability of the tenants to resist this kind of coercion was lowered (Donnelly, 1975: 118–19). The Famine period must be seen as a watershed, not because it was in itself the cause of the evolution of relative rental production, but because it allowed the landlords to overcome the resistance of the tenants to con-


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solidation. The landlords were thereby allowed to introduce on to their landed estates the new management system of the estate agent, and to increase their social control over the tenantry. Previously, under the absolute rental regime, and its process of family subdivision, the leaseholder had a large pool of labour to call upon, in order to produce his rent charge. But with the coming of the new type of estate management, the direct tenant still had to produce the same level of rent (or an increase) with fewer direct producers. Therefore, with the rent charge remaining constant, the declining numbers of direct producers had to create more rent per producer if they were to remain on the land. In consequence of the near demise of the absolute rental regime, spade husbandry and its various forms of direct labour cooperation become spatially restricted and structurally subordinate to the specific labour processes which operated under the relative rental regime.6 The declining labour force under relative rental production forced the tenant to attempt to introduce new technical means of production. The most important innovation was adoption of the all-metal Scottish swing plough. Its use had become common throughout Ireland by the middle of the nineteenth century (Bell and Watson, 1986: 77). This new type of plough technology marks a watershed according to Hooper (1922): The great abundance of labour and low rate of wages – some of it could not find employment on any terms – coupled with the smallness of the holdings up to late in the forties, and the defective appliances for horse husbandry, led inevitably to spade cultivation. When the consolidation of holdings took place after the Famine, and emigration on a large scale set in, the way was paved for the expansion of plough husbandry. (p. 222) Plough husbandry superseded spade husbandry as the dominant labour process under the Irish feudal mode of production after the Famine period. Crucially, plough husbandry depended upon the tenant’s ability to accumulate the necessary capital and to apply that capital on the land in the form of permanent improvements. The ability to accumulate capital depended on the level of rent demanded and the size of the holding which the tenant worked. Carrying out permanent improvements also depended on tenurial security. Without tenurial security, the landlord was able to either confiscate improvements or to confiscate the value of improvements through increases in rent. The consequence of this was detrimental to the development of plough husbandry in Ireland. The tendency was for the tenant to invest in fluid capital alone or in fixed capital that could be removed from the farm, e.g. farm implements. Consequently those aspects of plough husbandry used most included purchased seeds, especially artificial

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grasses and clover, and the use of fertilizer, e.g. guano. Those features of plough husbandry that involved fixed capital which could not be carried away were underdeveloped. The lack of permanent improvements in the form of drainage, outhouses and adequate fencing severely stunted the development of plough husbandry. Significantly, the reorganization of the rental relationship which followed the Famine was changing the balance of class forces on the ground. The Irish countryside had become more homogenous. This was accomplished through the massive elimination of the most disadvantaged sectors of the rural population. While the major class opposition prior to the Famine was the confrontation between landlord and tenant, the tenantry contained within it significant divisions. For instance, the cottier’s small plot of land was held in return for labour or money from the tenant immediately above him. Clark (1982: 14–15) estimates that over half of the agricultural labour force consisted of cottiers and, less numerously, landless labourers. The conflict between landlord and tenant could be reproduced on a smaller scale in antagonism between the tenant and the cottier. Including the small independent farmer, Clark (p. 16) estimates that three-quarters of the population in agricultural districts before the Famine belonged to the rural poor. Prior to the Famine, collective action by the rural population consisted of the formation of secret societies or gangs whose members were drawn from the poor. These organizations, collectively referred to as Ribbon societies, attempted to violently prevent eviction and the enclosure of common lands. Frequently, a larger farmer, seeking to rent the land of an evicted tenant, would be the object of this violence. Conacre rents, charged by farmers to cottiers, received special attention. Agrarian outrages were frequently directed at the regulation of wages and employment, reflecting the interests of labourers (Clark, 1982). During and after the Famine, population declined drastically due to starvation, disease and emigration. Significantly, the average size of holdings almost doubled. Grazing increased in economic importance. Subdivision declined. Clark (pp. 21–2) summarizes the demographic changes in the following way: the percentage of the adult male agricultural labour force comprised of labourers fell from 56 per cent in 1841 to 38 per cent in 1881, while the percentage comprised of farmers and farmers’ sons rose from 42 per cent in 1841 to 60 per cent in 1881. The sharpest drop occurred among labourer-landholders; they fell from 30 per cent to 12 per cent while landless labourers remained steady as a percentage of the adult male agricultural labour force. These figures reflect the clearance of estates and the growing consolidation of farm size under the conditions of relative rental production. In


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consequence, the rural class structure was simplified to one of landlords, tenants and wage workers, with the now more substantial tenants forming the largest group. The pursuit of the relative rental regime had created a large and growing class of people who had an interest in the transition to peasant proprietorship, an interest not shared by the inadequately landed majority in the pre-Famine period. In addition to an interest in peasant proprietorship, the growing class of substantial tenants had the resources and the will to push their demands. When the Land War broke out in 1879, Paul Bew (1978: 221) has argued that ‘the most important forms of struggle were different varieties of highly legalistic strategies’. He contends that the dominant strategy was ‘rent at the point of a bayonet’. What this meant was that the tenant refused to pay rent, but only up to the last moment short of eviction, with the Land League covering the legal expenses generated by the delay. Bew observes that this low-risk strategy was objectively in the interests of the more substantial tenantry (Bew, 1978: 222). It was the growing importance in the Irish countryside of this substantial tenantry which placed the demand for the restriction of the property rights of the landlord on the political agenda. Peasant proprietorship was, in the eyes of these farmers, the ultimate and logical outcome of this development. This new social force provided the political base for the changing policy prescriptions of Irish political economy. It was the potentially revolutionary force behind what would previously have been regarded as a radical proposal. Perhaps ironically, it was also the conservative force which made safe the granting of the demand. This potent mixture of rebellion and restoration provided the climate in which the political economics of land reform could be creatively discussed.

Political economy after the Famine The year 1855 marks a turning point in the deliberations of the Statistical Society. In this year, the Society merged with the Social Inquiry Society. Black (1947: 13) points out the significance of this development: The objects of the Statistical Society were correspondingly enlarged and its business became ‘the promotion of the study of statistical political economy and jurisprudence . . .’. The Society could now be said to deal with social science in the widest sense . . . This development also marked the beginning of a change in the theoretical outlook employed by the members of the Society in understanding the Irish economy. The tenor of the contributions began to drift from the deductive methodology of classical political economy to a more inductive collection of facts, statistics, and comparative studies. Ameliorist

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approaches were taken to social problems and questions of morality loomed larger in the Society’s discussions. Perhaps the most dramatic indication of these changes can be found in the work of Hancock. Beginning in 1855, Hancock increasingly concerned himself with an advocacy of the preservation of the family as the natural unit of society. Women and men each had a specific role or function within the family. A consistent dedication to this principle led Hancock to begin to challenge the universal applicability of a political economy which would call the special role of women into question: it is urged that the principles of free trade require that all employments should be thrown open to women; that it is tyranny and oppression to oppose any restriction; that existing misery and distress arise from arrangements and prejudices against the employment of women. (Hancock, 1860: 439) In a paper read in 1859, Hancock (1859) begins to reject the consequences of the unfettered practice of capitalism in agriculture. The paper was entitled ‘On the Bothy System of Lodging Farm Labourers in Scotland; its violation of the Family Principles; its condemnation by the Free Church of Scotland; the conclusions to be deduced from the facts stated, and their application to Ireland’. The bothy system was a housing scheme for farm labour, employed by the capitalist tenant farmers in Scotland, where both sexes were lodged together in a hut or out-house (Carter, 1979: 119). Hancock (pp. 376–7) quotes a report on the social conditions of the Scottish bothies made by a Committee for the General Assembly of the Free Church of Scotland: The nearly unanimous testimony of the returns is to the effect that almost every form of moral evil has sprung from the bothy system, and especially that it has been a great foster parent of Sabbath-breaking, drunkenness and illegitimacy in the districts in which it prevails. Hancock then links the bothy system with the development of capitalism in Scotland, where the concentration of capital has consolidated the small croft holdings. He argues this trend should call into question our support for a laissez-faire approach to capitalist development in agriculture: In many of the returns to the General Assembly the system is said to have been caused by the introduction of improved farming, the throwing of several farms into one, and the demolition of the old cottages, as being no longer necessary under the new system of husbandry . . . Now, when we find improved agriculture in Scotland is attended with the development of the Bothy System with such results


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as we have seen, it is plain that we cannot place unlimited confidence in capitalist farmers, that the well-being of the labouring classes, which after all, form the bulk of our population, will be safe in their hands without some public opinion to control them. (p. 380) This questioning ultimately results in a call from Hancock for the preservation of the small farm: I believe that both large and small farms should exist, and neither to be excluded, and that the forced destruction of small farms, which has been so much favoured in Scotland and in Ireland, is as injurious as forced subdivisions in France. (p. 378) This new view of Hancock’s is a complete rejection of his earlier work in the 1840s, in which he argued for the elimination of legal impediments within the Irish land system in order to make way for the unfettered dynamics of the market. A related development was the introduction of Comtist sociology to Ireland and Irish political economy. One the one hand, Comte’s system was positivist in that it held that all social phenomena were data from which a comprehensive science of history could inductively be built. On the other hand, in common with Hancock’s developing perspective, Comtists believed that the object of a better understanding must be an improvement in the moral basis of society. Comte went so far as to establish an alternative religion of ‘humanity’.7 Comtist sociology as a system was enthusiastically brought to Ireland by John Kells Ingram. Arguing that ‘we cannot isolate the study of one organ from that of the rest’, Ingram (1878: 49–50) held that political economy could not be isolated from other branches of social science. This understanding of the economy accorded more importance to the differing political and cultural institutions of various times and places. In common with other post-Famine intellectual currents, Comte’s sociology rested the explanation of social phenomena in their historical development. This preference for historical explanation was underlined by Ingram’s active participation in the founding of the ‘English’ historical school of economics. Irish economists had a disproportionate influence in the formation of the historical school. Ingram was a prominent proponent and published the only full-scale treatment of the history of economic thought from the historical point of view (Ingram, 1888). Even more influential was T.E. Cliffe Leslie. Leslie opened what has been called the English Methodenstreit in a series of articles in the 1870s. Leslie argued against what he considered to be an overly abstract deductivism in classical political economy.8

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Influenced by the work of Sir Henry Maine, Leslie (1879: v) believed that explanation must rest with the historical development of particular times and places: every branch of the philosophy of society, morals and political economy not excepted, needs investigation and development by historical induction; and that not only the moral and economic condition of society, but its moral and economic theories and ideas, are the results of the course of national history and the state of national culture. Contemporary social phenomena, such as the statistician explores, though indispensable to the researches and verification of the economist and the moralist, are regarded . . . as but the latest links in chains of sequence connecting the past and the future, and as marking steps in a movement in which there is both continuity and change. The English historical economists in Ireland saw their approach as consistent with social reform. Ingram saw his project as ‘describing objectively existing economic relations, not as immutable necessities, but as products of a gradual historical past, and susceptible of gradual modification in the future’ (quoted in Coats, 1954: 149) Leslie’s conviction of the inadmissibility of universal principles led him to reject the English land ownership pattern as the solution to Ireland’s agricultural ills. Instead, he fervently supported peasant proprietorship. In his first article on the Irish Land problem, Leslie (1866) contends the state should intervene in the landlord and tenant relationship in order to provide security for the tenant ensuring an adequate return for his improvements. This security goes beyond the right of sale of improvements to also include the right to a long lease (p. 126). Since the market in land in Ireland has not produced this type of long lease, the state must intervene: But since tenants cannot obtain under contract the security they require, the state, upon the narrowest view of its province and duties, should interfere to afford them such security. Leslie (p. 128) deepens the analysis by arguing that the present insecurity of Irish tenants is itself the result of the historical intervention of the state: The landholders of Ireland are not only, in the same sense as those of England, the creatures, the tenants of the state, but they are the creatures of a violent interference with pre-existing rights of property. Moreover, by further violent interference in the shape of penal laws, directed expressly against industry and accumulation on the part of the bulk of the people, and precluding the acquisition of property


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and capital and the rise of other industries, the state forced the great mass of the population to become competitors for the occupation of land as a means of subsistence. They were thus placed even more at the mercy of the landlord than the Egyptians were at the mercy of the Pharaoh in the famine, for their lands as well as their cattle and money were gone, and nothing remained to exchange for bread but their bodies and their labour. Leslie has employed an historical framework to understand the particular character of rent in Ireland. According to Leslie, the state cannot really intervene impartially to protect the private contract between the landlord and tenant, because the state has already played an historical role in undermining the position of the tenant, leaving him at the mercy of the landlord. The consequence of this interference by the state is the specific historically determined character of the Irish rental market: Instead of the conditions to which the maxim of non-interference applies, is a system of interference which has made the landlord independent of all exercise of frugality and improvement, and deprived the tenant of all security for it. (pp. 128–9) Leslie is arguing that the historical specificity of the Irish situation demands the abandonment of general principles and the application of specific remedies. In Ireland, at least, these remedies include provisions for increasing tenant security. The urgency of the political situation pushes Leslie (1870: 48) beyond merely advocating increased security but actually proposing the need for peasant proprietorship: A combination of measures is necessary to arrest the progress of sedition, to encourage improvement in farming, to facilitate the rise of a class of yeoman and peasant proprietors . . . In this passage, Leslie is calling for the radical transformation of class relations in Irish agriculture, substituting a countryside dominated by sturdy yeoman proprietors for one in which peasants live in thrall to hereditary landlords. In seeking historical insight into the Irish land question, Leslie discovered a framework within which the goals of the substantial peasant could be rationalized and represented to British policy-makers. A further current to emerge in Ireland in the post-Famine period was the application of the historical jurisprudence of Sir Henry Maine to the study of the Celtic Brehon Law tradition. In common with the historical school of economics which he influenced, Maine argued that social norms were the result of a long historical and evolutionary process. No programme, however advanced, could succeed if it found itself at variance

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with prevailing, historically established custom. In societies less advanced than Victorian Britain, the customary was to be given more weight than the contractual. Maine put special emphasis on the evolution of property, as Dewey (1972: 308) indicates in the following: At the core of Maine’s thought there lay a complex of tightly-knit evolutionary trends; from status to contract, from patriarchy to liberty, from political organisations based on kinship to political organisations based on territorial propinquity, from polygamy to monogamy, from animism to monotheism, from magic to science – and from collective to individual property. Property, like the political and social institutions with which it was linked, had to fit into an evolutionary framework; and an already hallowed framework was at hand. The notion that the historical movement of property had been from collective to individual forms was not new. It was as old as the ‘state of nature’. What Maine and the historical school did was to restore the theory, adducing fresh evidence of a kind acceptable in an age attuned to new methodologies. Accordingly, the primitive form of property was a form of collective property, centred around the village community in which there was egalitarian redistribution of land among the village members. The historical jurists believed that these primitive communities subsequently passed through identical evolutionary phases, though at differing speeds (Dewey, 1974: 41). The Irish application of these principles found expression in the publication of The Ancient Laws and Institutes of Ireland in six volumes by the Brehon law commission, the first in 1865. On the insistence of several Irish antiquarians, the English Government agreed in 1852 to appoint a commission for publishing the ancient laws and institutions of Ireland. The commission employed two Irish scholars, Dr O’Donovan and Professor O’Curry, who copied and made rough translations of a large number of manuscripts, but both died before the first volume was published in 1865. Following their deaths, the work was taken up by the ubiquitous W.N. Hancock and by A.G. Richey, professors of political economy and jurisprudence respectively at Trinity College. Inspired by Maine’s approach, Hancock and Richey reconstructed the character of Early Irish society, finding it based on kinship and status, and, crucially, joint ownership of property. The Brehon Laws material not only proved the existence of collective property in Ancient Ireland, but also indicated that Irish society was starting from a very early stage of social development. A.G. Richey (1887: 35) characterizes the early Irish society he and Hancock discovered in the Brehon law tracts in the following way:


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The difficulty in understanding any ancient social organisation, such as that of the Irish Gael arises from the necessity of conceiving a society founded upon principles not only unfamiliar to us, but absolutely contradictory to those which we believe to be of universal application and primary necessity. It requires an effort so completely to cast off modern prejudices as to realise a community without a government or executive; without laws, in the modern sense of the term; in which the individual had no rights save as a member of a family; the trade of which was carried on without currency, and uninfluenced by the laws of political economy; in which private, or rather individual, property was scarcely existent . . . Irish primitive society was contrasted with modern industrialized society, where the political state is fully developed and the Law deals with each individual separately, where private property is the rule and the owner of this property has full power to dispose of it as he wills, and where the concept of contract has superseded status and customary relationships. According to Hancock and Richey’s researches, Irish rural society was closer to its Gaelic origins than to contemporary English society. Indeed Richey (1887: 13) contends that one of the most remarkable facts in the history of the Celtic inhabitants of Ireland is, that they continued, during the entire historic period, to exist without important change in their civilisation and social system . . . Hancock and Richey suggested that English commercial ideas with regard to property relationships were imposed upon a society which had not emerged from its status-phase, and legislation in advance of its condition had only produced dislocation, agitation, and anomie (Dewey, 1972: 318). The historicists attributed agrarian unrest to a conflict of laws – a conflict between Gaelic customs and English contractual laws. They criticized the concept of ‘free trade in land’ as socially disruptive of the indigenous customs of the Irish peasantry and recommended a policy of comprehensive tenant rights to the Irish farmers. This legal historicism was instrumental in providing theoretical support for Irish land reform. Hancock was directly influential in formulating proposals for compensation for disturbance and improvements which were adopted by Gladstone in his Land Act of 1870 (Black, 1960: 63). These recommendations appeared in Hancock’s Report on the Landlord and Tenant Question in Ireland from 1860 till 1866. The other major inspiration underlying Gladstone’s Land Act of 1870, was George Campbell (1869), who published his The Irish Land in 1869. By comparing the historical evolution of Indian and Irish Land tenure systems, Campbell was able to propose the Indian solution to the Irish problem, i.e. rehabilitation of the tenant’s customary rights.

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The historicist framework of analysis was the ideological vehicle used for the passing of Gladstone’s two Land Acts of 1870 and 1881, as Dewey (1974: 61) suggests in the following. the Bessborough commission appointed by the incoming Liberals – agreed that the ‘Three Fs’ should be conceded [. . . in 1881] . . . the main thrust of the Bessborough Commission’s case for full occupancy rights was historicist. The Bessborough report consisted of an extended re-statement of the historicist case put by Campbell twelve years before. In Campbell’s argument (p. 32), as with Hancock and Richey, it was the inherent conflict between English Law and Irish customary laws which was the root of the problem: In Ireland there are two sets of laws – the English laws, and the laws or customs of the country, which, enforced in a different way are as active and effective. In the clashing of these two systems lies the whole difficulty. (p. 6) While the conflict appeared to embody the clash of two legal systems, the clash had its economic basis in the confrontation of two classes within the one feudal landholding system. An enforcement of the customary laws involved meeting the economic demands of the tenantry, while the English laws of the political state tended to buttress the economic position of the Irish landlords. The somewhat contradictory attempt to formalize the customary laws of the tenantry into the statute laws of the political state was in effect an attempt to undermine the existence of landlordism in Ireland.

Conclusion We have discussed the development of a number of novel approaches to the study of economic questions which developed in Ireland in the postFamine period. These included the social ameliorism of the post-Famine Hancock, Comtean sociology as espoused by Ingram, and the British historical school of economics as developed by Ingram and Leslie. Finally, we discussed the application of Henry Maine’s legal historicism to the study of the Irish Brehon law tradition. When each of these new frameworks was applied to the development of Irish agricultural policy, they lent support to the voluntary recognition of tenant right at minimum and at maximum the establishment of peasant proprietorship. This is in sharp contrast to the prescriptions of pre-Famine political economy which advocated the dismantling of legal impediments to the market in land and


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freedom of contract between the holders of the respective factors of production. Before the Famine, economists generally looked forward to the institution of the English system of capitalist agriculture in Ireland. After the Famine, the peasant proprietor received increasingly favourable notice. Just as the particular character of the Irish economy before the Famine conditioned the adoption of a conservative version of classical political economy and its associated policy prescriptions, so the changing character of the agricultural economy after the Famine lay the social basis for a new historical economics and the transformation of that science’s recommended remedies.

Notes 1 Much of the argument in the foregoing five paragraphs can be found in Boylan and Foley (1992). 2 According to Moss (1976: 15), candidates for the chair sat an open examination, which Whately corrected and made his own selection. The consequence of this was that ‘It is impossible to say exactly how much influence Whately was able to exert on the actual content of the lectures of the early Dublin Professors, but it does seem clear that, had a Ricardian applied for the job in 1832, his chances of being selected would have been almost nil.’ 3 In 1850, these papers were published in book form (Hancock, 1850). 4 Fee in tail estates dictated that succession should remain in the family while life estates conferred ownership only during the lifetime of the heir. 5 Hancock was an exception. 6 Absolute rental extraction tended to continue in the post-Famine period in the poorer parts of the west of Ireland with its accompanying labour processes associated with spade husbandry (Bew, 1978). 7 See Ingram (1962) and Ekelund (1966). 8 See Koot (1975) and Moore (1995).

References —— (1836) Reports of the Commissioners for Inquiry into the Condition of the Poorer Classes in Ireland, Reports from Commissioners 30–34: Appendix H. Beckett, J.C. (1966) The Making of Modern Ireland, 1603–1923. London: Faber & Faber. Bell, J. and Watson, M. (1986) Irish Farming, Implements and Techniques, 1750–1900. Edinburgh: John Donald. Bew, P. (1978) Land and the National Question in Ireland, 1858–82. Dublin: Gill & Macmillan. Black, R.D.C. (1945) ‘Trinity College Dublin and the theory of value, 1832–1863’, Economica. —— (1947) The Statistical and Social Inquiry Society of Ireland, Centenary Volume, 1847–1947. Dublin: Eason. —— (1960) Economic Thought and the Irish Question, 1817–1870. Cambridge: Cambridge University Press. Boylan, T.A. and Foley, T.P. (1992) Political Economy and Colonial Ireland. London: Routledge.

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Index

agriculture 4, 5, 96–9, 101, 232, 241; Denmark 6, 21, 24–6, 27, 31, 32; development stages 237, 238, 239, 240; Finland 57; Greece 13, 173, 174; Ireland 16, 247, 248–9, 251, 255, 256–9, 260–1, 266–7; Ottoman Empire 137; Physiocracy 132, 152; Poland 93, 94, 99, 101; Portugal 15, 215, 217, 222, 223, 224; Rumania 12, 108, 109, 112–13, 114, 115, 120–1; Russia 9, 75, 81, 83, 85–6; Serbia 145, 154–5, 165 Ahmed Cevdet Pasha 136 Ahmed Fethi Pasha 136 Ahmed Midhat Effendi 139 Ahmet Vefyk Pasha 134 Akyigˇitzade Musa Bey 139–40 Alapuro, R. 65–6 Albertone, M. 1 Albertoni, Ettore 201 Alestalo, M. 65–6 Alexander II, Tsar of Russia 75 Almodovar, António 15–16, 211–31 ancient thought 152, 159, 164 Anglo-Ottoman Commercial Treaty (1838) 13, 133–6, 138, 141 Asia 141 Austria 21, 92, 98, 146, 166 Austro-Hungary 107, 145–6, 166 Bajer, Frederik 28 banking 13–14, 173–80, 183–4 Bastiat, Frédéric 58 Bastien, Carlos 16, 232–46 Beccaria, Cesare 187–8, 189, 199 Belgium 154 Bentham, Jeremy 134 Bew, Paul 259 Bing, Frederik 29

Black, R.D.C. 30, 259 Blagojevic, O. 146, 153, 155, 161, 165, 167 Blom, Gustav Peter 45 Boeke, Julius H. 119 Borges, José Ferreira 223–4, 227 Brandes, Ernst 30 Brautaset, Camilla 7, 37–54 Brazil 214 Brehon law 16, 263–5, 266 Brentano, L. 65 Brito, Joaquim José Rodrigues de 15, 212–13, 214, 215–16, 218, 220–1 Butt, I. 250 Campbell, George 265, 266 capital 95, 96, 98, 153 capitalism 44, 57, 145, 235, 246; Ireland 16, 248, 249, 260–1, 267; Rumania 12, 107, 110–12, 113–14, 115–16, 117–21 Carey, Henry 6, 108, 159, 162, 163, 167 Carli, Gianrinaldo 188 Cassel, Gustav 64 Cattaneo, Carlo 15, 188, 197–201, 205–6 Cavit Bey 138 Chevalier, Michel 107, 228 Chicherin, Boris N. 9–10, 78–86, 88–9 Christianity 33, 77, 206, 253 circle of justice 130, 132–3 civil rights 84, 85, 89 civil society 15, 17, 81, 187–9, 195–7, 203, 206 Clark, S. 258 class 3, 4, 116, 150, 235; Denmark 22; Finland 57; Ireland 252–3, 258–9, 263, 266; Rumania 110–11, 118

Index classical economics 3, 6, 108, 164; Denmark 31; German 151; Marreca 233, 234, 238, 245; Serbia 146 Classical political economy 64, 152–3; Ireland 247–8, 252, 261, 267; Ottoman Empire 134, 135, 136–7, 139; Portugal 15, 16, 224–5, 226, 227–8 Cliffe Leslie, T.E. 16, 261–3, 266 Coats, Bob 1 Colbert, Jean-Baptiste 109, 137, 139, 152 collective property 16, 264 collective responsibility 88–9, 99–100 commodities 191–2, 193 communes 9–10, 74–5, 76–7, 79, 81–3, 85–9 communism 57, 60, 77, 164; critiques 158, 199; Serbia 153, 166 community 99–100, 101 competition 61–2, 95, 97, 215, 241; cottier system 249; Cukic 149; free 153, 202, 203–4; Italy 188, 189, 191, 206; Norway 48; Verri 194 Comte, Auguste 162, 261 Conrad, Johannes 65, 68 consumption 147, 149, 151, 155, 158–9, 162–3 cooperative movements 3, 6, 12, 25–6, 114, 122 cosmopolitan economics 234–5 cottier system 249, 250, 251–2, 258 credit 7, 95, 151, 163, 243; Greece 174, 177, 183; Norway 42, 49 Cukic, Kosta 14, 146, 147–57, 159, 161, 167 currency 5, 14, 27; Norway 7–8, 37–8, 41, 42, 48; unions 27, 28, 32–3, see also money customs 27, 43, 45, 46, 56, 107 Cuza, Alexandru, Prince of Rumania 106 Danielson-Kalmari, Johan Richard 57, 58 debt 43, 183 deflation 7, 38, 39, 40–1, 48, 49 democracy 3, 94, 224 Denmark 4, 6–7, 21–36, 37, 40, 43, 114 developmentalism 139, 140, 141, 233, 234–5, 244, 245 Dewey, C. 264, 266 distribution 147, 149, 150, 155, 158–9,

271

162–3; Longfield 254; of wealth 194, 202, 203 division of labour 10, 95, 153, 158, 200; international 11, 105, 107, 108–9, 120, 237–8, 241; Marreca 236–7; Romagnosi 202; Rumania 105, 107, 108, 120 Dobrogeanu-Gherea, Constantin 11, 12, 112, 113, 115, 116–21, 122 Dunoyer, Charles 203, 204 economic development 5–6, 237, 239–40, 242, 244, 245; Denmark 24–7; Ottoman Empire 130, 142; Rumania 108, 109, 110; Russia 75; Serbia 145, 165, see also growth Economos, Aristides 180 education 200, 202–3 emancipated labour 97, 98, 100 Engels, Friedrich 64, 115–16, 153, 160, 164 England 98, 99, 109, 154, 227; AngloOttoman Treaty 13, 133–6; historical school 261–2; influence on Serbia 146, 153; Ireland 252–3, 264, 265, 266; Portugal 219, 234, 239, 241, see also Great Britain exports 24–5, 45, 110, 131–2 Eynard, J.G. 173 feudalism 97, 98, 99, 101; Ireland 16, 247, 248–52, 255, 256; Rumania 119; Serbia 145 Finland 3, 4, 8, 55–73 First World War 3, 23, 56, 110, 121, 140 fiscal policy 46, 49 fiscalism 132, 133 Floros, G.S. 182 Forsman, Jaakko 66–7, 68 Fourier, Charles 153, 160 France 2, 4, 21, 98, 154, 227; Cattaneo critique 199; Classical paradigm 136–7; influence of French thought 6, 17; influence on Rumania 106; influence on Serbia 146, 153; Ottoman trade 133–4; Physiocracy 131; protectionism 109 free enterprise 6, 44 free trade 59, 95, 137, 260; Ireland 253, 265; Marreca 233, 239, 240, 242; Norway 7, 44, 45; Ottoman Empire 134–5, 136, 139; Rumania 106, 109 Fuoco, Francesco 15, 204

272

Index

Gebhard, Hannes 57, 58, 66, 68 George, Henry 23, 63 German historical school 3, 138–9, 178; Denmark 7, 21; Finland 8, 55–73; Serbian economists 146, 160, 164, 165 Germany 2, 4, 107, 227, 233, 242; banking 184; Finnish scholars 57, 58; influence of German thought 6, 17; influence on Serbia 146, 151, 153, 162; land division 240; Ottoman Empire 141; protectionism 109 Gerschenkron, Alexander 111 Gioja, Melchiorre 15, 188, 199, 204 Gökalp, Ziya 140 Goodwin, C.D. 2 Gounarakis, Nikolaos 14, 181 gradualism 133, 219, 221 Granfelt, Axel Fredrik 8, 58, 60–1 Great Britain 2, 4, 21, 106, 172, 249; Denmark 24, 25, 31; influence on Norway 45–6; political economy 64, 137, 253, see also England Great Depression 11, 107, 140–1, 142 Greece 3, 4, 13–14, 172–86 Groenewegen, Peter 196 Groundström, Oskar 67–8 growth 5, 24–7, 40, 42, 46–8, 239–40, 242, see also economic development Grytten, Ola Honningdal 46 Gylling, Edvard Vilhelm 68

incivilimento 15, 188, 198–9, 200, 201–3, 204–5 industrialization 3–4, 109, 137, 239–40; Denmark 26–7, 32; Finland 57, 60, 65; Ottoman Empire 13, 136; Rumania 11, 108, 113, 114, 116, 121, 122; Russia 9, 10, 75, 77, 84; Serbia 166 industry 4, 5; Italy 15, 189, 190, 192, 196, 204–5; Portugal 216, 217, 223; Rumania 11–12, 110, 113, 114, 122; Serbia 152–3, 155, 165–6, see also production inequality 61–2, 94, 194, 200, 203 Ingram, John Kells 16, 261, 262, 266 institutionalism 3, 239, 247 interest rates 39, 41, 42 interventionism 178, 183–4, 205, 214, 220, 242–3, 262–3 Ireland 3, 16–17, 98, 247–69 Ismail Pasha 134 Italy 3, 15, 187–210

Hancock, William Neilson 16, 254–5, 260–1, 264, 265 Hansen, Svend Aage 26, 27 Hansen, V. Falbe 29 Harmaja, L. 68 Hearn, William 255 Heinonen, Visa 8, 55–73 Helphand, Alexander Israel 141 Herzen, Alexander 78, 79 historical school 31, 33, 261–2, 266, see also German historical school Hjelt, August 57, 58, 68 Hjelt, Vera 67, 68 Hobbes, Thomas 206 Hodne, Fritz 42, 46 Hooper, J. 257 Horton, Wilmot 249–50 Hyldtoft, Ole 26

Kachorovsky 76 Kaergaard, Niels 6, 21–36 Kansantaloudellinen Yhdistys 8, 55, 57, 63, 64, 65–6 Kapodistrias, Ioannis 173 Kautsky, Karl 113, 114, 117 Kehayias, Efthimios 13, 175–6, 177 Kemal, Namyk 13, 136, 137, 138, 139 Kilpi, Oskar Kaaleb 8, 55–6, 58, 64, 65 Kisseleff, Count Pavel 105, 107 Klovland, Jan Tore 40, 41 Kostaki Bey 136 kulaks 88, 115 Kuusi, Eino 67

Iatros, Michalis 177 imports 43, 45, 131–2

Jaffé, W. 29 Jahn, Gunnar 41 Jansson, Birgitta 8–9, 74–91 Jevons, W.S. 7, 21, 29–30, 32, 59, 108, 137 Jews 11, 80, 107, 114, 160, 200 Johannsen, Fr. 31 Josifidis, Kosta 14, 145–71

labour 5, 95, 96, 213, 250–2; Finland 59–60, 67–8; Ireland 257, 258; Potocki 94, 95–6, 97, 98, 102; Rumania 11, 106, 108, 120, see also division of labour; work laissez-faire 59, 107, 135, 152, 247;

Index Ireland 253, 254, 255, 260; Poland 10, 92, 102 Lamprecht, Karl 63 land 3, 4, 96, 135, 155, 240; Denmark 7, 27; Ireland 17, 248–52, 255–7, 259, 262–3, 265–6; Portugal 213, 217, 222; Rumania 106, 107, 119; Russia 8–10, 74, 76, 78, 84–8, see also property; rent Lang, Joel Napoleon 58, 63 latifundism 107, 111, 112, 120–1 Laveleye, Émile de 62 Lavonius, Wilhelm 60, 61, 62 Law of Reflux 176 Lawson, John A. 255 legislation 4–5, 195–6, 197; Finland 56; Ireland 255–6, 265–6; Navigation Acts 45, 46; Russian reforms 86–7, 88 Lelewel, Joachim 98 Lemaitre, Louis 173 lender of last resort 13, 176–7 Lenin, V.I. 111, 115, 117, 121 liberalism 6, 15, 164, 201, 202, 233; critiques of 58–9, 61; Denmark 7, 22, 23; Finland 55, 56, 57, 59, 60–2; Greece 182, 183–4; Norway 37, 44, 45, 48, 49; Ottoman Empire 13, 135, 139, 140; Poland 10, 92, 94–6, 102; Portugal 211, 220, 221–2, 224; Rumania 11, 105, 106–8, 110, 117, 121–2; Russia 9, 75, 78, 79–80; Serbia 14, 145, 166 liberalization of trade 48, 133 Liljenstrand, Axel 8, 58–9, 60–1, 62 Lisboa, José da Silva 15, 212–13, 214–15, 216, 218–19, 220–1, 225 List, Friedrich 6, 8, 16, 44, 108, 232–46; Cattaneo critique 200–1; Ottoman Empire 13, 138, 139, 140, 141; Serbian economists 159, 167 Longfield, Mountifort 16, 248, 252, 254, 255 Love, Joseph L. 11, 105–28 Lysaght, E. 255 McDonough, Terrence 16, 247–69 Macgregor, D.H. 131–2 Maciejowski, Waclaw Aleksander 98 Mackeprang, E.Ph. 31 Maine, Henry 262, 263–4, 266 Mäki, U. 63 Malthus, Thomas 137, 138, 154 Malynes, Gerald de 206

273

Manchester school 58, 60, 62, 63, 140 Manoilescu, Mihail 109, 122 marginalism 1, 2, 63, 108, 248; Denmark 28–9, 30, 32, 33; Ottoman Empire 137, 138; Serbian economists 162, 165 Marreca, António de Oliveira 16, 232–46 Marshall, Alfred 6, 21, 65, 191 Marx, Karl 153, 160, 164, 247, 248, 250–1; influence 64; Ireland 256; Rumania 113, 114, 115–16, 117; value 162, 163 Marxism 3, 6; Ottoman Empire 141–2; Rumania 11, 12, 105, 108, 110–12, 113–17; Serbia 146 Masoero, A. 1 Mata, Maria Eugénia 1–20 mathematics 7, 29–30, 32 Mavrocordatos, D. 180–1 Mechelin, Leo 8, 60, 62 Mehmed S¸erif Effendi 130 Menger, Carl 29, 63–4, 108, 162 mercantilism 13, 107, 129, 131–2, 135, 138; German economics 151; Portugal 15, 211, 213–15, 219, 220; Serbian economists 152, 164; Smith criticisms 212 methodology 63–5, 204, 238–9, 259 Meurman, Agathon 57, 63 Mijatovic, Cedomilj 14, 146, 157–61, 167 Milanese school 15, 187–8, 189, 197 Mill, John Stuart 6, 21, 23, 28, 44, 137, 163, 249 modernization 111, 183, 244; Norway 37, 48, 49; Poland 92, 93; Portugal 221, 222, 232, 237; Rumania 106, 119; Russia 89 Molla, Tatarcük Abdullah 130 monetary policy: Greece 13, 14, 173, 178–80, 181–3; Marreca 243; Norway 7, 37–42, 43, 48, 49; Ottoman Empire 130, 133, 136, 139, 142; Serbia 166, 167 money 5, 97, 98, 146, 192; Greece 173, 174, 175–6, 179–80, 181–3; Norway 7–8, 38, 39–40, 49; Serbian economists 151, 158, 163, see also currency monopoly 195, 214 moral sentiments 195, 196, 197 Moruzi, Alexandru 106, 108

274

Index

nation 234–5 national income 150–1, 159 nationalism 3, 11, 22, 56–7, 106, 107, 243–5 Navigation Acts 45, 46 neo-classical economics 3, 7, 8, 14, 31, 33, 55, 64, 69 Netherlands 21, 154 Nevanlinna, Ernst 8, 55, 57, 58, 63–4 Neves, José Acúrsio das 15, 212–13, 215, 217, 219, 220–1 Nicholson, Joseph 64 non-interference 253, 254–5, 263 Nordvik, H.W. 42 Norway 3, 7–8, 37–54 Ottoman Empire 11, 12–13, 105, 129–44, 145, 173 Özveren, Eyüp 12–13, 129–44 Paasikivi, Juho Kusti 57, 58 Pareto, Vilfredo 31 patriarchalism 81, 82, 98, 99, 102 peasants 4, 57, 165, 174; Ireland 247, 248–52, 259, 262–3, 265, 266–7; Poland 10, 92–4, 97, 99–100, 101, 102; Rumania 12, 106, 107, 110–15, 118–21, 122; Russia 8–10, 74–91 Petersen, Julius 29, 33 Phil, Ole Stockfleth 43 Physiocracy 152, 159, 164; Ottoman Empire 131–2, 133, 138; Portugal 15, 212, 213, 219, 220, 223 Pim, Jonathan 255 Poland 3, 10–11, 92–104 policy see fiscal policy; monetary policy political economy 1, 17, 64, 245; British 64, 137, 253; Greece 172; Ireland 16, 247–8, 252–6, 259–67; Italy 187, 189, 190–1, 197; Ottoman Empire 134, 135, 136–7, 139, 142; Portugal 211, 212–13, 218, 219, 220–1, 222–9; Serbia 147, 148, 151, 157, 158, 159–61, 162–3, 167, see also Classical political economy politics 3–4, 100–1, 154, 244; Denmark 22–3, 33; Finland 57; Italy 198; Ottoman Empire 130; Portugal 219–20, 221, 222, 223, 224; Rumania 121, 122; Russia 75, 78–9, 80, 83; Serbia 145 population 3, 137, 154; Greece 178;

Ireland 256, 258; Ottoman Empire 129, 131; Serbia 145 Populism 11, 12, 105, 108, 110–12, 113–16, 122 Porta, Pier Luigi 15, 187–210 Portakal Mikael Effendi 136, 139 Portugal 3, 4, 15–16, 211–31, 240; Marreca 232, 233–4, 237, 239, 244, 245–6; protectionism 241–2, 244, 245 Potocki, Tomasz 10–11, 92, 93–102 prices: Norway 38, 39, 41, 48; Rousseaux 41; Serbian economists 149, 158; Verri 191, 192–3 production 95, 96, 98, 196, 232, 237; Greece 178, 180, 181–2; Ireland 254, 255, 256; mode of 116–17, 119, 121, 122, 248; Ottoman Empire 132, 136; Portugal 217; productive forces 236–7, 238; Rumania 12, 116–17; Serbian economists 147, 149, 152–3, 155, 157–8, 162, see also industry progress 15, 95, 199, 201 proletariat 12, 85, 95, 113, 115–16, 118–19, 120 property 4, 6, 74–5, 76, 78, 88; Greece 174; Ireland 16–17, 253, 259, 262–3, 264–5; Jews 200; Ottoman Empire 13, 135; Poland 10–11, 92, 102; Potocki 94, 96, 97, 98, 99, 100, 101; Rumania 120; socialism 62, see also land protectionism 6, 109, 141; Denmark 27, 31, 33; Marreca 16, 240–1, 244, 245; Norway 7, 37, 44, 45, 49; Ottoman Empire 134, 139, 140; Portugal 15, 216, 217, 241–2, 244, 245; Rumania 11, 12, 105, 108–10, 113, 122 provisionism 132, 133 Prussia 22, 92, 98, 115–16, 180 Psalidopoulos, Michalis 1–20 public finance 155–6, 173, 182 Quesnay, François 131, 152, 164, 192, 211, 212, 223 Racovski, Cristian 12, 113, 115–16 Rae, John 140 Rallis, Loukas 177 Rau, Karl Heinrich 14, 147, 151, 154–5, 161, 178, 227, 228 Rein, Karl Gabriel Thiodolf 61–2 religion 252–3 rent: Ireland 248–9, 250–2, 255, 256–9,

Index 262; Serbia 150, 159, 163, see also tenure reproduction 190–1, 193–4, 195 resources 214–15, 216, 244 Ricardian economics 7, 16, 30, 31, 137 Ricardo, David 107, 137–8, 153, 159, 160, 162, 163, 254 Richey, A.G. 264–5 Romagnosi, Giandomenico 15, 188, 201–4, 205 Roscher, W. 157, 167 Rosicka, Janina 10, 92–104 Rousseaux 41 Rumania 3, 4, 11, 105–28 Russia 8–9, 74–91, 105, 107, 118, 121; agriculture 98–9; capitalism 117; Finland 56; influence on Serbia 146; kulaks 115; Poland 92–3, 101, 102; population 3; populism/Marxism 110, 111, 112, 116 Sadik Rifat Pasha 136 Saint-Simon, Claude-Henri 6, 153, 159, 199, 204 Sakyzly Ohannes Pasha 136, 138, 139 Sampaio, Adrião Forjaz de 16, 225, 226–7, 228 Say, Jean-Baptiste 107, 137, 199, 233; consumption 162; Portugal 213, 220, 227, 228 Scazzieri, Roberto 15, 187–210 Schäffle, Albert 64–5 Scharling, William 32 Schumpeter, Joseph A. 2, 131, 192, 205, 245, 254 Schweigaard, Anton Martin 7, 43–5 Scotland 260–1 Senior, William Nassau 134–5, 159 Serbia 4, 14, 145–71 serfdom 4, 10, 250–1; Poland 92, 97, 99, 102; Rumania 11, 106, 119, 120; Russia 8–9, 74–91 Sering, Max 66 shipping 45 Silveira, Mouzinho da 223–4 Slater, Eamonn 16, 247–69 Slavonic community 10, 94, 98, 101 Slavophiles 9, 76–7, 79, 81, 86, 89 Smith, Adam 3, 6, 48, 59, 107, 211; critiques of 58, 62; division of labour 158; Italy 192, 195; local situation 194; mercantilism 212; Ottoman thought 130–1, 135–6;

275

Portugal 212–13, 219, 220, 223; Schweigaard influence 44; Serbian economists 152–3, 159, 160, 162, 164, 167 Snellman, G.R. 67, 68 Snellman, Johan Vilhelm 8, 57, 58 social reform 4, 92, 262; Denmark 7, 27–8, 33; Finland 8, 56, 57, 60, 65, 68 socialism 1, 3, 6, 245; critiques of 10, 61, 95, 100, 158, 159, 199–200; Denmark 7, 23, 33; Finland 8, 57, 58, 60, 61–2, 65, 66–7, 68; Rumania 12, 113, 115, 116, 117, 118–19, 121; Russia 77, 80; Serbia 146, 153, 164, 165, 166 Sombart, Werner 64, 65, 114, 115 Soutsos, Ioannes 177, 179, 180 sovereign role 215–17, 218–19 Spain 3, 21, 131, 244 Stang, Fredrik 44 Stassinopoulos, Yiorgos 13–14, 172–86 state 2, 155–6, 202, 206; Greece 14, 173–4, 178–80, 183–4; intervention 178, 183–4, 214, 220, 242–3, 262–3; Ottoman Empire 129, 130, 135; Portugal 215, 216, 220, 221; Rumania 11, 109, 122; Russian serfdom 81, 82, 83, 84, 86, 87 state economics 147, 148, 154, 162 Steedman, I. 1 Stere, Constantin 11, 12, 111–15, 116, 121, 122 subjectivism 14, 148, 151, 158, 162, 163, 165, 167 Süleyman Penah Effendi 130 surplus labour 251 Sutu, Nicolas, Prince of Rumania 106–7 Sweden 21, 40, 42, 43 tariffs 5, 7, 217, 240–1, 244; Norway 43, 44–5, 46, 48; Rumania 11, 107, 109, 110, 122; Serbia 152, 166 taxation 5, 56, 62, 156, 243; Norway 42, 43, 45, 49; Portugal 217, 218, 222; Russia 82, 84 Teixeira, Pedro 15–16, 211–31 tenure 4, 97, 100, 249, 257, 265, see also rent territorial expansion 12, 129–30, 131 trade 4, 196, 244; Finland 8, 56; Norway 37, 41, 42, 43, 44–5, 46, 48, 49; Ottoman Empire 13, 131–2, 133–5, 136; Portugal 214, 215, 216, 217–18;

276

Index

trade continued Rumania 11, 105, 108, 110, 113–14, 115, 120; Serbia 145–6, 158, 160–1, 165, 166, see also exports; free trade; imports; mercantilism traditionalism 132, 133 transport 4, 25, 46, 165, 243 Trikaliotis, Stamos 179–80 Trikoupis, Harilaos 182 Turkey 105, 106, 107, 129–44 Ueland, Ole Gabriel 7, 44, 45 United States 109 Urquhart, David 135 utility 148–9, 235 Vahan Effendi 136 value 148–9, 235–6; labour theory of 108, 163, 236, 254; Verri 192–3; Vujic 162–3, 164 Vennola, Juho Heikki 55, 58, 66, 69 Vernardakis, A. 180 Verri, Pietro 15, 188, 189–97 Vico, Giambattista 199 von Philippovich, Eugen 64–5, 67 von Schmoller, Gustav 63–4, 65, 66, 67 Vujic, Mihailo 14, 146, 161–7 wages 30, 31, 33, 150, 159, 163, 254 Wagner, Adolph 63, 64, 66, 67, 167 Walicki, Andrejz 111 Walras, Leon 7, 29, 32, 108, 162

Warén, Axel 66 wealth 61–2, 95, 194, 195, 196, 235–6; distribution of 194, 202, 203; Portugal 212, 213, 214, 215, 216, 218, 221 Webb, Beatrice 67 Webb, Sidney 67 Weber, Max 64, 65 welfare state 27–8 Westergaard, Harald 29–30 Westernization 11, 106, 120 Westernizers 9, 76–7, 79, 81, 89 Whately, Bishop Richard 16, 252, 253–4 Whitaker, J.K. 29 Willerslev, Richard 26 women 28, 260 work: Cukic 149, 150, 153; Finland 67–8; pensions 156; Potocki 94, 95, see also labour Wulff, Julius 31, 33 Xenopol, Alexandru D. 11–12, 108–10, 121–2 Yrjö-Koskinen, Yrjö Sakari 8, 55, 59–60, 62 Zeletin, Stefan 107 Ziya Pasha 136 Zografos, I. 13, 178, 180 Zollverein 4, 201, 244

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Medieval Economic Thought

History of Economic Thought

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National Thought in Europe: A Cultural History

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Economic Thought and Economic Reform in the Soviet Union

International Migration: Trends, Policy and Economic Impact (Contemporary Economic Policy)

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Transcultural Europe: Cultural Policy in a Changing Europe

Regional Policy and Planning in Europe

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Enterprise restructuring and economic policy in Russia

Transcultural Europe: Cultural Policy in a Changing Europe

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Economic Thought & Policy in Less Developed Europe

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Economic Liberalization and Integration Policy: Options for Eastern Europe and Russia (Economic Liberalization and Integration Policy)

Medieval Economic Thought

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Economic Policy 56

Tourism and the Less Developed World: Issues and Case Studies

Economic Thought and Economic Reform in the Soviet Union

International Migration: Trends, Policy and Economic Impact (Contemporary Economic Policy)

Issues in Economic Thought (Economic Issues, Problems and Perspectives)

Subsidiarity and Economic Reform in Europe

Transcultural Europe: Cultural Policy in a Changing Europe

Regional Policy and Planning in Europe

Economic Growth in Europe since 1945

Enterprise restructuring and economic policy in Russia

Transcultural Europe: Cultural Policy in a Changing Europe

Economic Thought- A Brief History

Early Medieval Jewish Policy in Western Europe

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