The world of academia has long been plagued by an unfortunate tendency of overspecialization. For example, economists tend to stick strictly to their discipline and know next to nothing about history. Conversely, it’s mostly true of historians that they know next to nothing about sound economics. To make matters worse, specialization and ever more narrower focusing of the experts has for a long time been a tendency within many social sciences as well. Some economists devote their entire careers to analyzing trade between two regions (sometimes even two countries). Historians who specialize on events in 1930s Germany may know almost nothing of the events which occurred in 1940s Germany. Given this reality, the field of economic history is criminally underdeveloped. A dead giveaway of this fact is that the laughable view that Adam Smith essentially birthed economics as a science with his 1776 work “Wealth of Nations” is all too pervasive even today. In this article I wish to go over at least some lesser known figures who made contributions to economic thought and theory.
One suitable point of interest when discussing lesser known economic contributions are the late scholastics of Spain, particularly scholars of the School of Salamanca. They were heavily influenced by St. Thomas Aquinas’ thought, including his concept of “natural law”, which led them to observe the existence of economic laws which operate just like any other natural laws. With these insights they were able to conclude that the “just price” is precisely the common market price, developed an explanation for supply and demand, defended the abolition of usury laws, and even hinted at the subjective nature of value. A person with an Austrian perspective will find a lot of these contributions to be closer to the truth than Adam Smith’s writings and opinions, which casts doubt on whether or not he’s truly the Godfather of the economic science as many people believe.
A precursor to the School of Salamanca was the Italian Thomist Cardinal Thomas Cajetan (1469-1534). His treatise titled “De Cambiis” contained the most comprehensive explanation and the most rigorous and radical defense of the workings of the foreign exchange market written up until that point. He concluded that the just price in foreign exchange was the price established by the unhampered market, just like in any other market. He also made great contributions in monetary theory and his work was an influence on the eventual repeal of usury prohibition.
A pioneer of international law as a discipline and major legal scholar, Francisco de Vitoria (1485-1536) was the founder of the School of Salamanca. He did not leave any writings so all information about his philosophical contributions is only available to us due to his students transcribing his lectures. He did not concern himself with economics that much, and most of his focus while lecturing on it was discussion about the “just price”, typical of scholastics at the time.
One of Vitoria’s most distinguished students, Martin de Azpilcueta Navarrus (1493-1586) managed to advance economic liberalism further than ever by pointing out how governmental price controls are always harmful and unnecessary. His biggest accomplishment in economics is his theory of money, found in is work “Comentario resolutoio de usuras”. He identified the value of money as its purchasing power in terms of goods rather than holding the then typical view that money is a fixed measure of value of other goods. He concluded that the value of money is inverse to its supply, just like any other good.
Juan de Medina (1490-1546) was staunch in his economic defense of charging interest on loans, pointing out that bearing the risk of non-payment is sellable.
Major improvements in value theory came from Diego de Covarrubias y Leiva (1512-77) in his book “Variarum”. He noted that value of goods depend on their utility and scarcity. That is, it depends on the evaluations of the consumer rather than anything intrinsic to the good or the production of it.
Tomas de Mercado applied utility analysis to money, writing that its purchasing power is highest where its most scarce and is determined by its supply and demand.
The last Salamancan thinkers came very close to arriving at the full marginal utility explanation of value, which was arrived at by the marginal revolutionaries in the 1870s and finally solved the value paradox which plagued British-dominated classical economics of the nineteenth century. Leonard Lessius (1554-1623) developed insights about the interconnectedness of markets, psychic profit as opposed to only monetary profit, marginal productivity as determinant of wages, and entrepreneurship in general. Cardinal Juan de Lugo (1583-1660) built upon these insights in terms of utility theory, and pointed out that money moves from areas where it’s valued lower to areas where it’s valued higher.
If any man deserves to be called “the Father of Economics” (or at least of “modern” economics), that title should no doubt go to the Irish-French economist Richard Cantillon (1680-1734). His “Essai sur la Nature du Commerce en Général” (“Essay on the Nature of Trade in General”) has been named “the first treatise on economics” and the “cradle of political economy” by William Stanley Jevons. Cantillon was keen on a deductive analyses of cause-and-effect relations in the market economy, often using economic abstractions and thought experiments. Cantillon held the view developed by the medieval scholastics that value comes from consumer valuation, in contrast to the later objective value, cost-of-production/labor theories of value expounded by Adam Smith and David Ricardo. Cantillon’s handling of the topic of entrepreneurship is masterful, illuminating the importance of uncertainty in real world economic dealings and pointing out the ways in which entrepreneurs bear uncertainty. He also points out the entrepreneur’s role in forecasting the future needs and wants of consumers, and investing resources accordingly in an attempt to satisfy them. Another important insight in “Essai” was Cantillon’s treatment of money. He was the first to note that money enters the economy as a step-by-step process and doesn’t just increase or raise prices in a homogeneous aggregate. Shifts in the money supply don’t imply a proportional shift in prices, nor do all prices rise/fall at the same time. There are also original insights of the effect of money being used in consumption and investment. Cantillon’s treatment of the whole market economy as self-regulating and harmonous as opposed to chaotic is also worth noting.
Following Cantillon was Anne Robert Jacques Turgot (1727-1781). His most remarkable contributions were on matters of value and exchange on the one hand, and capital and interest on the other. Accepting subjective value theory and the insight that utility of a good diminishes to an individual as its supply increases, Turgot only needed the idea of a marginal unit in order to complete the theory. He also recognized that subjective utility rapidly changes for each individual. On capital, Turgot pointed out that wealth is accumulated by abstaining from consumption and engaging in saving. Those savings are accumulated in the form of money, and then invested in capital goods. In addition, the insight that the “capitalist-entrepreneur” has to first accumulate saved capital in order to pay his laborers while the product is being worked on is also of particular importance. Turgot was fiercely anti-mercantilist, stressing that both parties benefit in a free exchange and that it’s absurd to view buying goods from foreign lands as harmful. He argued that self-interest is the motivator behind market actions, and that individual self-interest always coincides with the general interest in an unhampered market.
Turgot also saw the flaws in attempting to regulate market activity for the purpose of consumer protection, pointing out that the market provides greater incentive for prevention of fraud and trickery than governmental activities do, and that any regulatory attempts impose financial burdens on taxpayers.
The first economist to properly examine the question of economic methodology was Jean-Baptiste Say (1767-1832) in his “Traité d’économie politique” (“Treatise on political economy”). He held that economic analysis isn’t about forming hypotheses and amassing data, but acknowledging universal economic laws and their logical implications. He contributed to pricing theory and the role capital plays in the division of labor, but his main contribution is what is now called “Say’s Law”. Its basic point is that in order for one to be a consumer one must first be a producer of a good in which others find utility.
The central figure of the French Liberal School in the early nineteenth century was Claude Frederic Bastiat (1801-50). Bastiat truly had a talent for writing as he wrote very clearly and wittily, and was a fan of utilizing satire. His “Petition of the Candlemakers” brilliantly exposed the follies of protectionism. His “Parable of the broken window” essentially refuted the entire foundation of Keynesianism about a century before its conception. Bastiat also made an important contribution in criticizing Adam Smith’s distinction between “productive” labor which produces material goods and “unproductive” labor which produces immaterial services by pointing out that all goods are productive because they’re viewed as having utility by consumers.
A crucial development in the science of economics was the so-called “Marginal Revolution” of the 1870s, when the cost theory of value was overturned in favor of the subjective value theory. The three pioneers of the marginal revolution were Leon Walras in Switzerland, William Stanley Jevons in England, and Carl Menger in Austria, all of whom made their discoveries independently. Since fans of the Austrian School are generally familiar with Menger and his contributions, a brief treatment of the other two figures will be suitable for this article. Although both Jevons and Walras propagated a quantitative, mathematical method in economics (Walras’ follies of “general equilibrium” and assumptions of perpetual economic certainty have unfortunately been very pervasive in neoclassical economics), their marginalist discoveries are certainly noteworthy. In his “A General Mathematical Theory of Political Economy”, Jevons correctly arrived at the conclusion that value depends on utility and presented the idea of a marginal unit, but at the same time argued that economics as a science is mathematical and concerned with quantities, therefore leading to a cardinal utility (the idea that utility is observable and can be given quantitative value and therefore goods can be compared in terms of their utility) instead of an ordinal utility (consumers only rank choices in terms of preference and cannot give exact numerical figures for utility) analysis. Since British economics was dominated by objective value theories at the time, Jevons was unable to turn the tide with his works. In continental Europe, Menger (and to a lesser degree, Walras) had much more success on this front. Unfortunately, Walras generally isn’t known for his work on value and his main focus was equilibrium theory with a particular emphasis on mathematics. His impact was much greater after his death than before it, and economic historian Mark Blaug wrote that Walras “may now be the most widely-read nineteenth century economist after Ricardo and Marx”.