A Brief History of Economic Thought — By Jim Cox

Professor Jim Cox

Jim Cox is one of my favorite living economists. His slim but pregnant book — The Concise Guide To Economics — is a miniature masterpiece. The following comes from Chapter 37:

The Spanish Scholastics of 14th through 17th century Spain had produced a body of thought largely similar to our modern understanding of economics. The work of these scholars was largely lost to the English speaking world we’ve inherited. The French physiocrats carried the discipline forward in the 18th century with prominent economists of the time including A. R. J. Turgot and Richard Cantillon. A strategic error was made by these French advocates of laissez-faire as they attempted to change policy by influencing the King to embrace free markets, only to have the institution of monarchy itself delegitimized. Thus a guilt by association undermined the credibility of the laissez-faire theorists.

In 1776 Scotsman Adam Smith published The Wealth of Nations only to set the discipline back with his cost of production theory of value. (Smith did properly emphasize specialization and the division of labor in his analysis.) The correct subjective theory of value had been understood by both the Spanish Scholastics and the French laissez-faire school. Why Adam Smith chose the faulty cost of production theory over subjectivism is a mighty mystery as it is clear from Smith’s lecture notes that he had endorsed marginal utility analysis prior to the publication of his book. The marginal revolution of the 1870’s–with Carl Menger in Austria, William Stanley Jevons in England, and Leon Walras in Switzerland each writing independently and in differing languages–reestablished the correct marginal approach. As stated by Joseph Schumpeter in The History of Economic Thought:

It is not too much to say that analytic economics took a century to get where it could have got in twenty years after the publication of Turgot’s treatise had its content been properly understood and absorbed by an alert profession. p. 249

Unfortunately, the theory was perverted into a mathematized method with the rush to positivism in the 20th century.

The Austrian tradition of Menger was completed in the theories of Ludwig von Mises with the application of marginal utility analysis applied for the first time to money, which in turn led to the correct business cycle approach during the 1920’s. This approach was gaining headway in the English speaking world with F. A. Hayek’s appearance in England in the early 1930’s. But in the late 30’s the well-named Keynesian Revolution displaced the Austrian theories–not by refutation, but by neglect–taking economic theory to the bizarre point of splitting macro-theory from an underlying micro-emphasis; a point where it still is today.

Jim Cox is an Associate Professor of Economics and Political Science at the Gwinnett Campus of Georgia Perimeter College in Lawrenceville, Georgia and has taught the principles of Economics courses since 1979. Great Ideas for Teaching Economics includes nine of his submissions. As a Fellow of the Institute for Humane Studies his commentaries were published in The Cleveland Plain Dealer, The Wichita Journal, The Orange County Register, The San Diego Business Journal, and The Justice Times as well as other newspapers. His articles have also been published in The Atlanta Journal and Constitution, The Margin Magazine, Creative Loafing, The LP News, The Georgia Libertarian, The Gwinnett Daily News, The Atlanta Business Chronicle, The Gwinnett Post, The Gwinnett Citizen, The Gwinnett Business Journal and APC News. Cox has been a member of the Academic Board of Advisors for the Georgia Public Policy Foundation, and is currently on the Board of Scholars of the Virginia Institute for Public Policy.



  • Redmond

    August 26, 2010

    So what do we do at this point?

  • Ray

    August 27, 2010

    We keep on keeping on.

    And remember: the revolution won’t be televised, but it will be broadcast live here.

  • Marshep

    August 29, 2010

    The primary purpose of our founding documents is to establish a limited government that recognizes, protects, and defends the rights and freedoms of American citizens; emphasis on protect and defend the individuals’ rights, which are spelled out in concise language.

    Utopians* have declared it the “moral responsibility” of our government to provide “human rights”, including basics like health care, food, housing, etc. A full litany can be found in U.N. materials, references available, and I’m certain we can find videos of the “moral responsibility” assertion during the “health care reform debate”.

    Ray, a key aspect of my personal philosophy is what Russell called the “Philosophy of Logical Analysis”. Essentially, all Russell is saying is that he’s ok with any cogent philosophy. Russell, a renowned mathematician and contributor to Boolean algebra and symbolic logic, would boil a philosopher’s statements down to cohesive phrases, build those into a symbolic argument, find the mathematical disconnects, then re-phrase those to demonstrate the flaws in the reasoning of the author. On a side note, the classic philosophical flaw is usually rooted in the ontological argument.

    I think the two statements at the top regarding primary purpose and utopians offer a narrow-scope example of what appears to be flawed thinking.
    Where does the Constitution grant power to elected officials to define what is a “moral responsibility” upon which the government is now obligated to act? In particular, act in a way that can easily be proven as harmful to many individuals?

    The utopians use government power to discriminate in order to satisfy our “moral responsibilities”. This year, I will not get a raise and my health insurance cost is increasing. The specific Bill of Rights protections of my property (money) have been abrogated, rationalized by giving supremacy to the commerce clause.

    It would be interesting if we could get to the root of the argument. What we’ve been doing is debating in the context of flawed premises, which is a wasteful diversion to the benefit of those who use government powers to discriminate against individual people, groups, businesses, and in favor of others. That’s why our economy is fucked up: politicians meddle with it in the first place. Isn’t destructive political meddling rooted in the same “moral responsibility” argument?

    *liberals? progressives? collectivists? democrats? marxists? socialists? communists? theocrats? Not intended as a slight, I use “utopian” to indicate everyone BUT conservatives and believers in the U.S. Constitution as the guardian of our individual rights and freedoms. Got a better word, let’s hear it.

  • Redmond

    August 29, 2010

    Great post marshep – the earliest socialized were utopians – and to some effect still are.

    Government bureaucracy has co-opted their movements, and simply siphons off more money to expand their class and power in the name of using our society to engineer the greatest good.

    Graft and corruption…

  • Ray

    August 30, 2010

    Marshep wrote: “Where does the Constitution grant power to elected officials to define what is a ‘moral responsibility’ upon which the government is now obligated to act?”

    That reminds me of this recent article, which I think you’ll find interesting:


    by Robert Tracinski

    Thursday night, I witnessed an unusual sight: a Democratic incumbent speaking to a local Tea Party group. Tom Perriello, the congressman for Virginia’s fifth district, spoke to a monthly meeting of our local Charlottesville group, the Jefferson Area Tea Party.

    I almost had to give Perriello credit for courage, for having the guts to venture into the lion’s den while other Democratic congressmen are scrambling to evade their constituents. Almost. But when I saw Perriello at work, I realized that this wasn’t the courage of a principled leader who is willing to go forthrightly into the enemy’s camp and defend his principles. It’s the brazenness of a practiced card-sharp who is confident he can shuffle the deck fast enough to fool the suckers.

    But I took the opportunity to ask the congressman one simple question that, in my mind, cuts through to the core issue, reveals the real radicalism of Democrats’ attack on liberty, and exposes the myth of the moderate Democrat.

    Perriello’s whole method was not to answer our questions or address the ideological differences between us. His method was to evade our questions and defuse any sense of confrontation, to mollify us with soothing sounds while disguising his real intentions. I found myself chuckling part-way through his opening presentation when I realized how crudely, childishly obvious his method is. The formula is to emphasize areas of seeming agreement with his audience—even with a Tea Party audience—but always to keep his answers vague, general, up in the clouds. After all, if he was forced to get down to specifics, the illusion would vanish.

    For example, his opening statement stressed his opposition to the TARP bank bailouts. He expanded this with some populist Main-Street-versus-Wall-Street rhetoric and then ended with a hint at pseudo-patriotic protectionism, talking about keeping jobs in the US and the need for an economy that “making things” again. Notice how he hit some notes that are calculated to resonate with the Tea Partiers: no corporate handouts, more American jobs, and an appeal to patriotism. But if you ask “what did he say specifically,” he mentioned only one actual policy: “closing a tax loophole for companies that ship jobs overseas.” “Closing a tax loophole” is a code phrase for “raising taxes.” Leave it to a Democrat to look at a struggling economy and the long-term strangulation of American manufacturing, and to fall back on the only solution he can think of: whose taxes can we raise?

    But of course, if he had just said “my solution to the economy is to raise taxes,” that would have given the game away. So the rest of his presentation was there as protective camouflage to hide his actual, concrete meaning.

    Then I got a chance to ask my question. For obvious reasons, I’ve been working for a long time on the art of asking questions to politicians. The main challenge is to keep them from floating off into the safe zone of vague generalities and instead to pin them down to concrete, specific reality. In other words, a good question has to be a short-circuit Perriello’s whole methodology.

    Here was my question. (I’m writing this from memory; the exact wording, as I asked it to Perriello, may have been slightly different.) “You hear us talk a lot at Tea Party events about the Constitution, and the reason is that we view the Constitution as granting limited power to government. But part of what started this movement is that we look at the Democratic Congress, and they don’t seem to think that there are any limits to their power. I could cite recent quotes here from Charlie Rangel or from Pete Stark, but basically their interpretation of the Constitution is that they have the power to do anything they like to us, so long as they say it’s for the ‘general welfare,’ which is no limitation on anything. So my question for you is: what limits does the Constitution place on the power of Congress—and can you name anything that Congress has done, since Democrats have held a majority, that you think goes beyond those limits?

    Note what this question is designed to do. Perriello’s method of blowing smoke is to stick to generalities and never contribute anything specific or commit to a positive statement on the big issues. So the point is to ask him a question that requires him to contribute something specific, to offer us a concrete product of his own thinking. If he is allowed to speak in empty generalities, he could tell us that, sure, he thinks there are limits on government. But ask him to name, from his own thinking, real examples of specific legislation, and you’re likely to get a much more revealing answer.

    And that’s precisely what we got. As I expected, he confirmed that there are limits on the power of Congress—in theory. But even there, he talked in terms of the authority of federal government versus state governments, and the division of power between the legislative and executive branches. But he made no mention of the essential issue, the one that has the Tea Parties up in arms: the government versus the people. The limits imposed on government by the rights of the people were not even on his radar screen.

    And as for the specifics, Perriello paused for a moment and confessed that no, nothing came to mind. He couldn’t think of a single thing—not one piece of legislation—that the Democrats had proposed in the past four years that might go beyond constitutional limits.

    That was the answer I expected, and though it might not seem like it, that was the “gotcha” moment I was looking for.

    Bear in mind the recent frenzy of legislative activity. Perriello’s fellow Democrats voted overwhelmingly for TARP, which disbursed massive borrowed funds for no specific use and with virtually no direct control by Congress. (And despite his anti-TARP rhetoric, Perriello has voted lockstep with Democratic leaders on the big items of their agenda, from cap-and-trade to the health care bill. Do you really believe he would have held out on TARP?) Then there was the giant stimulus bill. There was the health care bill which imposes massive new controls on health care, dictating whether we buy insurance, what we buy, what it must cover, what it costs. There is the cap-and-trade takeover of the entire energy industry, dictating what we can drive and how much we will have to pay to heat our homes. There is “card-check” legislation that would eliminate the secret ballot for union elections. And there was the DISCLOSE Act, an attempt to impose controls on political speech that specially targeted opponents of the Democratic agenda.

    And those are just the highlights of a genuinely gargantuan, sweeping agenda. But nothing strikes Perriello as having gone over the line. And if that’s the case, then there is no line.

    And I don’t think Perriello was trying to evade the question. I don’t think that he realized there was some legislation that was iffy, and he was trying to avoid mentioning it. He really seemed to be trying to come up with an example, and he genuinely drew a blank. But this is not how you would react if you were actually in the habit of thinking about the constitutionality of legislation. If you were in the habit of asking, about every bill that comes up: where is the authority in the Constitution for this bill?—then you would have that knowledge stored away as an important fact about any particular piece of legislation. Even if you didn’t think any proposal violated the Constitution, you would at least be prepared to talk about why it was constitutional.

    Perriello’s response is the reaction of someone who clearly doesn’t spend a lot of time thinking about the Constitution. It doesn’t figure in as a consideration in drafting, debating, and voting for legislation.

    This fits with his response to an earlier question from a tea partier who asked about the state lawsuits challenging the constitutionality of ObamaCare. He did the usual tap-dance: he was glad, he said, that those suits had been filed, but he was confident they would be rejected in the courts, and this was the way the question should be settled, by arguing it out before the courts. But he just asserted that the law would be found to be constitutional, providing no argument for why that is so. That is the typical method of this Congress. It’s not their job to think about the Constitution. Their job is to charge full steam ahead, grabbing as much power for government as they can, and finding out later how much the Supreme Court will allow them to get away with. It is the policy of leaders for whom the Constitution is not a moral law to be taken seriously, but an annoying roadblock to be overrun.

    Since we’re in Thomas Jefferson country here in Charlottesville, it’s appropriate to contrast this attitude to that of Thomas Jefferson, who rejected the idea that guarding the Constitution was a task to be outsourced to the courts. Instead, he held that each branch of government had the responsibility to enforce constitutional discipline on itself. He took this so seriously that he almost decided against the Louisiana Purchase on the grounds that the Constitution gave him no explicit authority to acquire new lands for the United States. He went ahead with the purchase on the grounds that it was an emergency—he didn’t know how long the French would be willing to sell—and he then asked Congress to pass a constitutional amendment authorizing his action after the fact. Since it was already a moot issue, and because the purchase had overwhelming support, Congress didn’t bother. But has one ever seen such solicitous concern for constitutional limits from our current leaders?

    All of this highlights the reason why, for all of his glib political skills, Perriello didn’t win any friends Thursday night. Perriello’s method is intended to make him look like a reasonable “moderate.” But there is a reason he votes with the Democratic leadership on all of the really important pieces of legislation, and that is because he accepts the Democrats’ radicalism on one central issue: their view of the unlimited power of government and their contempt for constitutional restraints.

    That is what the public is beginning to realize, and that is what is going to sink the left and lead—I suspect—to a wipeout of “moderate” Democrats like Perriello in November.

    The public is learning that the “moderate Democrat” is a myth. It’s a myth because the actual choice is between two radical alternatives: limited government, or unlimited government. If you side with unlimited government, as Perriello does, then the flood gates burst open, and it doesn’t matter whether you support every little bit of the left’s agenda: you have let that agenda loose in the world by denying the constitutional limits that were intended to restrain the government from taking our precious liberty.


  • Marshep

    August 30, 2010

    Echo: “And as for the specifics, Perriello paused for a moment and confessed that no, nothing came to mind. He couldn’t think of a single thing—not one piece of legislation—that the Democrats had proposed in the past four years that might go beyond constitutional limits.” … “And those are just the highlights of a genuinely gargantuan, sweeping agenda. But nothing strikes Perriello as having gone over the line. And if that’s the case, then there is no line.”

    Excellent, thank you Ray. Great link, I’ll review when time allows. Oh, I was thinking “Borg” may be better fit than “Utopian”, as we will be assimilated whether we like it or not. Seems to fit, and does have an “ism”.
    My goal is to get past the politics and partisanship and establish a politic that is verifiably rational, both “sides of the aisle”. Tracinski’s article hits the easy target, a member of the ruling elite, but members of the Republicans have statements and rationale that are equally irrational. Would it be fun to work the issue as a math problem?

Leave A Response

* Denotes Required Field