The Classical School

The Birth of Economics in 20 Enlightened Lives


By Callum Williams

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A fascinating chronicle of the lives of twenty economists who played major roles in the evolution of global economic thought.

What was Adam Smith really talking about when he mentioned the “invisible hand”? Did Karl Marx really predict the end of capitalism? Did Thomas Malthus (from whose name the word “Malthusian” derives) really believe that famines were desirable?

In The Classical School, Callum Williams debunks popular myths about these great economists, and explains the significance of their ideas in an engaging way. After reading this book, you will know much more about the very famous (Smith, Ricardo, Mill) and the not-quite-so-famous (Bernard de Mandeville, Friedrich Engels, Jean-Baptiste Say). The book offers an assessment of what they wrote, the impact it had, and the worthiness of their ideas. It’s far from the final word on any of these people, but a useful way of understanding what they were all about, at a time when understanding these economic giants is perhaps more important than ever.




The whipping boy

Mercantilism is never, ever a good word in the world of economics. The word has connotations of ideas that are pre-modern, irrational and innumerate. Economists who deride President Donald Trump’s trade policy, which is almost all of them, dismiss it as “mercantilist”. And in the 18th and 19th centuries most political economists explicitly defined themselves in opposition to mercantilism. Adam Smith coined the term “mercantile system”, which in his Wealth of Nations (1776) was target practice.1 From Smith onwards you could be respectable only if you were “against” the mercantile system. Yet few people have ever bothered really to understand what the mercantilists were all about–or even who they were. A more complex picture emerges. To be sure, many of the mercantilists had daft ideas. But not all of them were stupid.

Josiah Child (c.1630/31–99) and Thomas Mun (1571–1641) were England’s most famous mercantilists. But the best-known of all is Jean-Baptiste Colbert, the finance minister of France in 1661–83, when Louis XIV (the “Sun King”) was in power (1643–1715). A look at Colbert’s life gives the reader the strongest overall impression of how mercantilist ideas worked in practice.

Colbert is today perhaps most remembered for his quip concerning taxation, beloved by journalists: “The art of taxation consists in plucking the goose so as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” But that was about as far as Colbert’s economic theorising went. He never wrote a book (though according to a 1991 edition of the journal Libraries & Culture his library contained 23,000 of them) nor delivered any lectures. Sir John Clapham, perhaps the most esteemed economic historian of his age, remarked that Colbert had “no single original idea”. Why, then, is he so important? Because he put mercantilist ideas into practice, and thus to understand him is to understand that system of thought. Donald Coleman reckons that “Colbert was perhaps the only true ‘mercantilist’ who ever lived.”

Jean-Baptiste Colbert was born in Reims, now the centre of France’s champagne industry, in 1619. Unlike most of the people in this book he did not have a distinguished academic career. Nor was he rich. But he did have fairly good connections in the French bureaucracy. Before he was 20, Colbert had secured a job in military affairs. From 1645 to 1651 he was an assistant to someone responsible for military matters. Soon after, he went to work for Louis.

Colbert did not have a reputation for being a particularly nice man. The Abbé de Choisy, a cross-dresser who published a memoir in 1737, remarked that Colbert had a “naturally scowling face”. But he would suck up like the best of them in order to curry favour with superiors, buying jewels for Louis’s mistresses, for instance.2 Clapham rather childishly refers to Colbert as a “big stupid man”. Rumours and intrigue abounded. According to the Abbé’s memoirs, Colbert “let himself be touched by the charms of Françoise de Godet”, who had “an advantageous size”, and he also “took care of Marguerite Vanel, wife of Jean Coiffier”. Colbert features in the BBC drama Versailles, which depicts the sordid affairs of Louis XIV’s court in often graphic detail.

The popular image of Louis XIV’s reign (1643–1715) is one of utter inefficiency and decadence. France was corrupt and backward. The incompetence of Louis’s administration set the ball rolling for the French Revolution several decades later. And Colbert was right at the centre of it. Data from the Angus Maddison database suggest that during the 17th century French GDP per capita grew at an average annual rate of just 0.08%, while that of the Netherlands grew by 0.43%.3 But Pierre le Pesant, sieur de Boisguillebert (1646–1714), calculated that in 1665–95, which corresponds more closely to the period when Colbert was actually in charge of stuff, French national income declined by an astonishing 50%.4 The French economy noticeably accelerated in the 18th century, after Colbert had departed. Politicians who sympathise with mercantilist logic might take a look at what happened under Colbert’s direction.

Make France great again

Colbert’s policies were the best expression of mercantilist economic doctrine. One core notion is “bullionism”. This amounts to an obsession with the balance of trade, and more specifically, with the notion that it must be in surplus (meaning that exports exceed imports). Bullionists prioritised the accumulation of gold and silver–“specie”, in the jargon–above all else. Exports would result in goods leaving the country, with specie entering the country. Imports would result in the opposite. So if exports exceeded imports a country would see a net inflow of bullion.

It is easy to see why bullionism was such an attractive notion. You can measure and hoard specie. It also looks nice. In many people’s minds, bullion is wealth. By contrast, the consumption of goods and services involves money disappearing. If you use money to buy an apple, and then eat it, you are left with no money and no apple.

Accumulating as much bullion as possible called for a Trumpist trade policy–duties on imports (to reduce their number) and subsidies or “bounties” on exports (to increase their number). As specie flowed in from abroad, the receiving country would necessarily get richer, or so the argument went. The mercantilists subscribed to a “zero-sum” notion of the international economy: for every country becoming richer, there must be one becoming poorer. After all, there is only so much gold and silver to go around.5

Mercantilist theory is so intuitive that it continues to hold sway today. Not only Trump but a large number of Brexit supporters see a trade deficit (where imports exceed exports) as inherently a bad thing. A trade deficit seems to represent money “leaking” from the country. An export surplus, by contrast, is seen as inherently good.

Few contemporary economists agree with this view of the world. The end purpose of economic activity is consumption. If exporting amounts to working hard to produce something that foreigners then get to enjoy, then imports are the opposite–by that logic, it’s a good thing if imports exceed exports.6 Meanwhile, bullion (or money) is merely a claim on the things we care about, rather than the thing itself. Imports can also improve productivity. A country can in theory run trade deficits indefinitely, with no ill effects. Trade deficits are usually associated with strong, not weak, economic growth.

Nonetheless, in the 17th century the view was widely held that having a trade surplus was a good thing. Joseph Schumpeter says that it is “strikingly illustrative of the ways of the human mind that [John] Locke of all men should have committed himself to this [mercantilist] argument”. Michel de Montaigne was another supporter, noting that “no man profits but by the loss of others”. Daniel Defoe reckoned that wealth increased as the value of products that could be exported similarly increased. As he put it, “nothing that is consumed at home is an advantage to the national wealth”. And Samuel Pepys remarked that “the trade of the world is too little for us two, therefore one must down”. John Maynard Keynes argued that “both economic theorists and practical men did not doubt that there is a peculiar advantage to a country in a favourable balance of trade, and grave danger in an unfavourable balance, particularly if it results in an efflux of the precious metals”. It is hard to say why mercantilist ideas took hold around this time.7 It may have been because the 1600s were a period of rapid growth in overseas trade, as naval technology improved. People started to view trade as more central to daily life than they had previously done.

Colbert liked the theory that a trade surplus equalled national prosperity. Schumpeter goes further, claiming that Colbert was “addicted” to it. “The universal rule of finances”, Colbert said to the King, “should be always to watch, and use every care, and all the authority of Your Majesty, to attract money into the kingdom.”8 Contrary to modern economists, who basically argue that it is possible for all countries to get richer at once, Colbert implied that France could only get rich at the expense of other places. “Commerce amounts to a perpetual combat, in peace and in war, between the nations of Europe,” he told Louis in 1669.9

Historians have noted that under the watchful eye of Colbert there was a clear change in French government policy from what had come before. Martin Wolfe, for instance, finds little evidence of high import tariffs in Renaissance France. By the 17th century that had decisively changed. “The famous mercantilist principle of the balance of trade and its connection with the nation’s stock of money”, Wolfe argues, “is nowhere to be found in Renaissance France–at least not as we see it in Colbert’s time.”

As Donald Coleman, a historian, shows, in the mid-1660s Colbert started a trade war with France’s closest partners, England and the Netherlands, “in the interest of revenue, the balance of trade, and shipping, or in order to encourage and protect industry”. Tariffs imposed in 1667 were “protective to the point of aggression”. The English and Dutch responded with higher tariffs on French wines and brandies. Within a few years of Colbert taking the helm of economic power English exporters were moaning that exporting to France was impossible. Colbert also wanted the French navy to muscle in on trade in the Indian Ocean. According to Glenn Ames, a historian, Colbert’s motivation for doing so rested on a theory that “held that any French gains would necessarily have to come at the expense of the Dutch, the dominant power in that trade”.

Did Colbert succeed in his objective to bless France with an enormous trade surplus, which would allow it to accumulate vast quantities of gold? It is hard to be sure since trade data for the 17th century are poor. Margaret Priestley, however, points to evidence that by 1674 France exported to England £965,128 more than it imported from England (that’s around £200 million in today’s prices). In other words, in that year France was attracting £965,128-worth of bullion from England, which could then be squirrelled away in the nation’s coffers. Success? Not necessarily. France had long had a trade surplus with England. The data suggest that by the end of Colbert’s tenure, France’s trade surplus was probably barely bigger than it had been before he came to power. So, even in his own terms, Colbert was not much of a success.

Yet Colbert was not only obsessed with France’s external trade. He also wanted to improve the domestic French economy. And this speaks to one of the central concerns of mercantilists, which today is underappreciated.

The other face of mercantilism

In a paper of 1952 William Grampp, a historian of economic thought, argued that the “objective of mercantilist doctrine was different from what it is usually thought to be”.10 The group’s goal, he suggests, was not simply to accumulate bullion for its own sake, as in the popular understanding, but something different: full employment.

Grampp does not really explain why a group of thinkers emerged who all addressed themselves to improving employment rates. It might have something to do with how the economy was changing from the 17th and 18th centuries. Look at the British economy, for instance. Agriculture was becoming a relatively less important economic activity. More and more people were living in cities, for a wage. Unemployment, in a word, may simply have been getting more visible. And people wanted to do something about it.

Enough speculation. What is clear is that the mercantilists’ view of the employment question was quite different from the hardline political economists who were to follow them. In its purest form, classical economics says that society naturally tends towards a pleasant equilibrium in which everyone can earn a decent wage. Eli Heckscher, writing in the 1930s, characterises the classical political economists, reasonably fairly, as believing that the “desired results” were “expected to follow from the untrammelled forces of economic life” (see, for instance, Chapter 10 on Jean-Baptiste Say). The mercantilists did not believe this. They thought that “the desired results were to be effected ‘by the dextrous management of a skilled politician’”.11 In other words, you need state intervention to reach full employment. In this regard the mercantilists appear to have pre-empted John Maynard Keynes, who argued in favour of extra government spending during times of poor economic growth and high unemployment. Indeed, in his General Theory (1936), Keynes referred approvingly to mercantilist doctrine.

What could be done, in the mercantilist view, to create lots of jobs? Just like Simonde de Sismondi (Chapter 12) and Alfred Marshall (Chapter 20), mercantilists worried about the propensity of the rich to hoard their wealth rather than spend it. Low spending by the rich would, in turn, deny employment opportunities to the less well off.

Many of them, therefore, encouraged the rich to spend, spend, spend. In 1598 Barthélemy de Laffemas, a French thinker who is seen as an intellectual precursor to Colbert, criticised those who opposed the purchase of expensive silks. He suggested that people who went out and bought luxury goods created job opportunities for the poor, whereas the miser who saved his money caused them to die in abject poverty.12 Bernard Mandeville (Chapter 3) made similar arguments. Mandeville suggested that spending on luxuries–indeed, even on things like prostitution–had considerable economic benefits since it created employment. Lots of employment, too, since the production of luxuries tended to involve hiring more people than the production of run-of-the-mill commodities. These arguments presage what Thomas Malthus would argue a century or so later (see Chapter 11).

Crucially, too, the mercantilists reckoned that trade surpluses would also help to increase spending. The gold and silver flowing into the country could be used to spend on activities that would give employment to the poor.13 A healthy export sector, meanwhile, would lead to more jobs. Edward Misselden noted in 1622 that “when trade flourishes, the King’s revenue is augmented, lands and rents improved, navigation is increased, the poor employed. But if trade decay, all these decline with it.”14

From theory to practice

Back, then, to Colbert. He was also a paid-up member of the full-employment club. And that called for direct forms of state intervention. Clare Crowston shows how in 1665, to reduce female unemployment, Colbert created a royal company with a nine-year monopoly over a new “French” style of lace that was to replace imported Venetian lace. A “series of edicts from 1666 to 1669 repeated prohibitions on selling imported lace”, Crowston notes. Colbert in effect believed that the more precise the regulations, the more unique a product France could produce. That in turn would allow France to corner the market, and hence more people could end up in work. In 1666 Colbert issued a rule which in effect stipulated that fabrics made in Dijon had to contain exactly 1,408 threads. Regulations such as these were in the modern jargon a “non-tariff barrier”, making it more difficult for foreign fabric-makers to get access to the French market. The desire to boost jobs was also behind his imperialistic instincts. According to C. W. Cole, writing in 1939, Colbert believed that as a result of French expansion into the West Indies “employment would be given to 6,000 more Frenchmen”. However wrongheaded Colbert’s means to improve employment, his objective was pretty clear.

A confused legacy

What, then, to make of mercantilist doctrine? The belief that “more gold equals more wealth” is seductive but false. The policies that flowed from that belief–restrict imports and boost exports, no matter how much government intervention is required–almost certainly did a lot of economic damage to the country that implemented them most enthusiastically.

On the other hand, the mercantilists’ focus on how to provide employment to as many people as possible is far from misguided. As we will see most clearly in the chapter on Jean-Baptiste Say, many economists in this book basically believed that high unemployment over a long period of time was impossible–no government intervention was required to reduce it. Indeed, not until Keynes did the economic mainstream take seriously the notion that unemployment did not necessarily blow itself out, and that the government might have to step in if it endured year after year. In many ways Colbert and his mercantilist crew were daft. But in others they were prescient.




The man who invented economics

Science advanced at breakneck speed in 17th-century England. People felt freer than ever to challenge received wisdoms and orthodoxies, and more and more people were following the dictums of Francis Bacon (1561–1626), whose approach to science valued the rigorous collection of data and the testing of hypotheses. Bacon also insisted that all knowledge had to be useful. In contrast to l’art pour l’art, or what the historian Joel Mokyr calls the “mindless piling up of empirical facts”, which had characterised scientific inquiry of centuries past, increasingly people came to believe that knowledge was there to be used. Governments and private individuals were supposed to exploit scientific findings in order to improve the health and wealth of the average Joe. Bacon is the figure most intimately associated with the “scientific revolution” of the mid-16th to late 17th centuries.

Normally we think of the Baconian revolution in terms of its impact on the physical sciences, such as chemistry and physics. It is less well known that it shaped the human sciences as well. That is where Sir William Petty and his “political arithmetic” come in. Petty, influenced by Bacon, was one of the first people to think that a country’s population, income and wealth could and should be measured rigorously. That, in turn, would inform economic and social reform. Petty was undoubtedly a “beginner” in this field, as one of his biographers kindly puts it. Yet his approach to economics was little short of revolutionary.

Long before Adam Smith

Petty was not from a particularly respectable family. He was born in 1623 in a poor part of Hampshire; his father was a clothier. Yet he was a smart child. John Aubrey, a writer in the 17th century who was Petty’s first biographer, explains that the young Petty’s greatest delight “was to be looking on the artificers,–e.g. smyths, the watchmaker, carpenters, joyners, etc.–and at twelve years old could have worked at any of these trades”. Before long, Petty’s insatiable appetite for knowledge sent him all across the world. As well as spending time in Utrecht, Leiden and Amsterdam, he studied in Paris, where he met Thomas Hobbes.1 Soon, Petty became Hobbes’s research assistant, and from him imbibed empiricist philosophy, which argued in favour of deriving theories about the world from sensory experiences.

Before long Petty was a fellow of Oxford University. Soon after that he was also appointed a professor of music at Gresham College, where he lectured on mathematics. Petty was a difficult man to work with, demanding that his co-workers be precise with their language at all times. During one presentation someone used the phrase “considerably bigger”. Petty scolded the careless colleague, noting that “no word might be used but what marks either number, weight or measure”. He moved in social circles just as exacting, and these eventually came together to form the Royal Society (motto: “nullius in verba”, or, “take nobody’s word for it”). Petty was a founding member.

In observing the world around him, Petty had a number of economic insights which, among a small, nerdy crowd, have made him famous. He expressed interesting views on the division of labour, for instance, which pre-dated Adam Smith’s celebrated example of the pin factory by a century. Petty used the example of “the making of a watch”, pointing out in 1682 that “if one man shall make the wheels, another the spring… and another shall make the cases, then the watch will be better and cheaper, than if the whole work be put upon any one man”.

Sailed across the Irish Sea

Petty’s biggest contribution to economics, however, was to do with measurement and statistics. By the 1650s he was tiring of academic life. He also decided that he wanted to make a lot of money. According to Aubrey, his biographer, Petty’s father had on his death “left him little or no estate”. Much of Petty’s time with Hobbes in Paris had been spent in grinding poverty; once he had to survive for a week on three pennies’ worth of walnuts.

The obvious place to go to make money was Ireland. Oliver Cromwell’s forces had conquered the country. His army was supported by money lent by private businesspeople, which was secured against some 3 million acres of Irish land that was to be seized and handed out. Anyone crossing the Irish Sea could hope to acquire a large plot of land.

In 1652 Petty travelled to Ireland as an army doctor. Shortly after arriving he spotted an opportunity. In order to allow Cromwell to dole out the land that had been conquered, a survey was required. A man called Benjamin Worsley was in charge of the survey. Petty did not think much of Worsley, who always carried magnifying glasses on his person in a vain attempt to convince people that he was really clever. According to Lord Edmond Fitzmaurice, a 19th-century biographer of Petty, “Dr. Petty described him [Worsley] as one who ‘having been frustrated as to his many severall great designs in England hoped to improve and repaire himselfe upon a less knowing and more credulous people’”.

Petty, no doubt motivated by personal animosity, found plenty of errors in Worsley’s survey. He promised to do his own in its place–and not in the 13 years that Worsley had proposed, but in under two. Petty got the commission. What he produced, in the mid-1650s, is known as the “Down Survey” (so called because it was set down upon maps). It was, says Frank Prendergast, a historian, “the first systematic mapping of Ireland, with unprecedented levels of organisation and accuracy”.

Once Petty was in charge of doling out land, enriching himself was fairly easy. He is reported to have acquired over 270,000 acres in County Kerry alone (which amounts to roughly a quarter of the total land area of that county). It is possible that Petty acquired some of the lands formerly held by the family of Richard Cantillon, whom we will meet in Chapter 4. People became suspicious. Time and again in the years to come Petty was accused of fraud, including in the House of Commons, where he was in 1759 a member of parliament for a part of Cornwall. (The fact that Petty was knighted in 1661 must have irritated his enemies still further.) More importantly for our purposes, however, in Ireland there began Petty’s forays into the measurement and quantification of the world around him.

The Down Survey was not the world’s first census. Nor was it comprehensive. The 1,000 men employed to carry out the survey did not cover all of Ireland’s 32 counties. Yet from this raw material, and supplemented by data from tax returns in 1660, Petty was able to offer a statistical portrait of a country better than any other available in the world.

His calculations suggested that the population of Ireland in 1652 was 850,000, 1.1 million for 1672 and 1.3 million for 1687.2 Petty noted that Ireland was generally a poor place. Modern analysis suggests that at the time the average Irish person was about half as rich as the average Briton. He also made interesting observations about the distribution of income and wealth. As Adam Fox, a historian, shows, Petty calculated that Irish and old-English Catholics comprised roughly three-quarters of Ireland’s population–yet Protestant settlers owned three-quarters of the land. Catholics also had to make do with far poorer housing: Irish Catholics’ houses, Petty said, often had “neither chimney, door, stairs or window”.

What was Petty’s motivation in producing such detailed statistical information about Ireland? He wanted to convince those in the government to “improve” it. Of course, were the Irish economy to pick up, Petty himself would benefit financially, since he was a major landowner. But it is hard to avoid the impression that his desire to help the country had an altruistic side. He speaks of the “beasts and vermin [and the] damps and musty stenches” of the majority of the population. By providing lots of information about local conditions, Petty would be able to see where the problems lay, and what could be done to fix them.

Eventually he decided on his plan to “improve” Ireland. It was quite odd, including the deportation of 100,000 families from England to promote the Anglicisation of the island. According to Fox, Petty believed that Protestants worked harder than Catholics. He caustically noted the “overplus hollidays” of Irish Catholics, with “unnecessary churchmen and holydayes being a great damage to an underpeopld contry”. Boosting the Protestant population, he reasoned, would boost the economy. Petty’s plan for mass deportation did not materialise, though he did manage to found a town comprising English, Welsh and Cornish Protestants.

Plucking the goose

Petty’s studies of the English economy were even more impressive than those he made of Ireland. In Petty’s time the big question was how to raise taxes. Before around 1600 most governments had little interest in improving the lot of ordinary people, so they did not need to bother raising much tax revenue. Any taxes that were raised were largely used to keep the royal family at the appropriate level of comfort and style. The figures we have for England, a fairly developed country, show that in the years 1300–1600 taxes averaged less than 2% of GDP (they are about 35% today).


On Sale
May 19, 2020
Page Count
288 pages

Callum Williams

About the Author

Callum Williams is senior economics writer at The Economist. He joined in 2014 and covers global economic trends including the labour market, political economy and housing. He has been interviewed by the BBC World Service, Sky News, and Al Jazeera, among others. He is the author of The Classical School (Profile/PublicAffairs, 2020), a book about the history of economic thought. Callum studied at Cambridge, Oxford, and Harvard, where he was supervised by Amartya Sen.

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