The Scope and Method of Political Economy

Unexpectedly—his Diary gives no explanation—Keynes capitulated to Marshall’s urgings and agreed to lecture in Oxford for the Trinity term of 1885 only, lecturing on the Methods of Political Economy ‘and have an idea of writing a small book on the same subject’ (Diary: 16 February 1885). He set about it with a will, realising perhaps that he already had the material for his lectures and that a book would enhance his merit list. Keynes travelled to Oxford one day each week, and his Saturday lectures there were popular and well attended. He could not, however, be persuaded to extend the arrangement nor to apply for the Oxford Chair when it became vacant in 1888.^[1]

When Keynes initially told his colleague J.S. Nicholson about his book plans, Nicholson had exclaimed that ‘anyone could write such a book as that. He says he is sick of disquisitions on Method and what we want is useful applications of the right method’ (Diary: 2 June 1885).^[2] There was no doubt about the substance in Nicholson’s criticism. Methodological controversy— Methodenstreit—still raged among economists as to which method, the deductive or the inductive, should be used to examine economic phenomena. German writers were regarded as the leading exponents of an exclusive use of inductive techniques applied to historical and sociological data while the classical economists such as Ricardo and Mill approached economics by deducing from first principles the laws that govern the behaviour of the abstract ‘economic man’.

Classical theory in the 1860s and 1870s still centred on the doctrinaire adherence to laissez-faire despite its failure to solve ethical problems of an industrial economy or explain growth. Critics of the approach that deduced economic laws from ‘first principles’ held that humanity and justice called for more rather than less government intervention in economic matters. Marshall felt the disputes were inhibiting the development of modern economic analysis and the use to which the subject could be put in solving the pressing problems of the day. When a depression took root in the 1870s, the complacency of the ‘classical’ economists and their lack of answers to these urgent and serious economic difficulties were exposed. Meanwhile, the Historical School, an important movement in German-speaking universities, was becoming accepted in England. Proponents of the ‘historical’ school in

England could be found in Oxford University and in Cambridge in the person of the economic historian William Cunningham and later Herbert Foxwell. Why could not economists give an account of the processes of growth or decline? Historians challenged the idea that there were ‘economic laws’ independent of specific legal, institutional, and cultural contexts. Nor did they believe that introspection on the part of economists could produce meaningful economic theory deduced from ‘first principles’. This could only lead to a speculative and ideologically biased science.

Marshall and the new generation of economists were sensitive to charges that they were biased in their assumptions and quarrelled over their fundamental principles. They looked with envy at the progress being made in the natural sciences where methods and laws were accepted and well understood and they were tempted to use the logical rigour of mathematics to bolster the image of economic science. Just as history was a respected academic discipline in Germany, mathematics was, in English universities in general and Cambridge in particular, a high-prestige subject.^[3] Jevons’s paper on the mathematical theory of Political Economy read to the British Association for the Advancement of Science (BAAS) in 1862 had demonstrated the analytical potential of mathematics, reworking the laws of supply and demand with the concept of diminishing marginal utility.

Popular feeling also ran high. Fierce criticisms of economic science were aired less than a month after Marshall’s appointment at the three-day Industrial Remuneration Conference held in London in January 1885. Topics for discussion were the changes in the distribution of the products of industry that had occurred in the past hundred years with reference to shares of capital and labour, the effects on the continuity of employment and wage rates, and, finally, policy proposals. Delegates were drawn from all sections of society, capital, labour, politics, and academia. Special mention was made of the attendance of the newly elected Professor of Political Economy at Cambridge, Alfred Marshall.^[4] Many speakers were highly critical of the science of economics, regarding it as bogus, abstract, irrelevant, irresponsibly doctrinaire, and immoral. The subject matter was the economic activity of man in his s pecific social environment and as such should be treated as a branch of sociology or a moral science (Kadish 1982: 127-130).

These methodological disputes and the lectures he delivered at Oxford provided the impetus for Keynes’s only book on economic topics, The Scope and Method of Political Economy, which he started writing before the Oxford course was finished. He recorded in his Diary the rapid progress he was making and felt that the book should be ready for the publisher after the Christmas of 1885. This was not to be as he became bogged down with teaching, examining and Syndicate duties, and the publisher’s urgent request for a new edition of his Formal Logic book that was almost sold out by 1886. Picking up the task again in the long vacation of 1887, his own work was interrupted by the proofs of Marshall’s Principles that he had agreed to give a critical reading. Also, the death in January 1888 of the incumbent, Bonamy Price, of the Oxford Drummond Chair meant that Neville Keynes had to submit to Marshall’s schemes to try to have him elected as the Professor of Political Economy there.^[5] The work of writing Scope and Method dragged on but Keynes was finally ready to send the manuscript to Macmillan in August 1889. Marshall, Nicholson, his wife Florence, and his close logician friend W.E. Johnson agreed to give the proofs a critical reading. Keynes was most concerned by the comments that came from Marshall who urged him not to be so cut and dried about his definitions, to consign many controversial points to footnotes and appendices and worried him with reference to many German writers.^[6]

Keynes warned in the Preface to his book that questions of scope and method in Political Economy tend to be controversial and discussions heated. Ethical judgements and practical policies adopted to achieve specific ends could be the playgrounds of controversy. Keynes sought to examine the nature of these disputes, to identifying possible misunderstandings and teach his students and readers how to avoid such pitfalls.^[7] His central pedagogical tactic was to identify three strands of thought on economic matters and, by careful definition, he attempted to isolate those parts of the subject that he felt could be discussed in neutral, scientific terms. By carefully separating the positive science from the normative science, the positive science would be immune from such attacks. Thus Political Economy is:

(a) A positive science—an examination of regularities, ‘a body of systemized knowledge’ dealing with what is;
(b) A normative science concerned with what ought to be; and

As regards economics as a positive science, Keynes wrote:

The abstract discussion of methods may appear to some to have mainly an academic interest, since it does not directly extend our knowledge of economic phenomena. Whilst, however, we ought to be upon our guard against allowing any such discussion to obscure the greater importance of actual economic investigations, the subject is one to which all students of economics must necessarily give some attention in the course of their reading, and its indirect bearing on the solution of practical economic questions is very far indeed from being without importance (ibid.: xvii).

As an example of the confusion of (a) economic science with (b) maxims of economic conduct Keynes cited the prevalent misunderstanding that arises when Political Economy is identified with a policy of laissez- faire (ibid.: 65). The assumption of conditions of laissez-faire, by which Keynes means an assumption of free competition and absence of government interference, is a convenient simplification when beginning an analysis of market forces and because it has been the general rule ‘in modern economic societies’ (ibid.). Other socio-economic models for societies exist, such as socialism or communism, and even under laissez-faire the total absence of government interference is rare. Most societies have, in some way, control over their currencies, foreign trade or trade in specific commodities, such as opium (ibid.: 66-67). The need to analyse and understand economic phenomena, such as cost of production or rent, remains even if society is organised on socialist principles or if our analysis relates to modern industrial times or historical periods. Similarly, laissez- faire may be a sound practical rule, but it is not sacred and there would necessarily be exceptions made to it. Adam Smith, for example, explicitly recognises exceptions to the policy of free trade and discusses cases where protection may be preferred.

In examining Political Economy as (c) an art, Keynes recognises two strands: the principles under which individuals and societies organise their economic affairs and the principles that guide the economic activity of the human race as a whole. There can be a conflict between these principles of which the economist should be aware, as, for example, the impact nationally and internationally of duties on trade. Ever the pedagogue, Keynes provides the student with many examples of the scope of Political Economy: What are we trying to achieve? Do we simply want to maximise wealth or are we concerned with how wealth is distributed according to some concept of social justice? (ibid.: 80).

Keynes devoted a chapter to the use of symbolic and diagrammatic methods in Political Economy. Like Marshall, Keynes feared that the mathematical approach to the subject would alienate further those commentators who found economic science irrelevant. Yet unlike Marshall, he chose not to hide his mathematical tools in an appendix but informed the reader: ‘The fact that political economy is essentially concerned with quantitative relations, and therefore involves mathematical notions, needs to be insisted upon, because to some economists the very idea of a mathematical treatment of economic problems is not only repugnant, but seems even absurd’ (ibid.: 237).

Keynes assured his readers that numerical accuracy is not required before mathematical techniques—symbols and diagrams—can be used. The benefits are precision of thought and expression, a better understanding of the significance of continuity and multi-variability. Thus: ‘One of the most important functions of mathematical analysis is to discover determinate relations between quantities whose numerical values are unassignable’ (ibid.: 242). Unlike Marshall, Keynes is wholehearted in his approval of the use of mathematics and symbolic or diagrammatical methods in Political Economy and concludes: ‘Mathematics may not up to the present time have proved an absolutely indispensable instrument of economic investigation and exposition; but it would be difficult to exaggerate the gain that has resulted from the application of mathematical ideas to the central problems of economic theory’ (ibid.: 251).

In his chapter on ‘Political Economy and Economic History’, Keynes again drives home to readers that ‘[t]he propositions of economic history are accordingly statements of particular concrete facts; economic theory, on the other hand, is concerned with the establishment of general laws. Neither of the two can take the place of the other’ (ibid.: 252). Keynes gives several examples of how economic theories can be illustrated, confirmed, or criticised using historical material. In questions relating to progress and growth, ‘abstract reasoning is reduced to a minimum’ and the use of historical generalisation becomes crucial (ibid.: 267). There is also a role for sociology to play in such investigations. Nevertheless, if problems of partiality are to be avoided, familiarity with economic theory is essential, especially when considering the events of the past hundred years.

The book, when finally published in 1891, was widely appreciated as solving or smoothing over points of methodological difference which had caused so much conflict in the 1870s and 1880s. This had been achieved by using the same skills of common sense, patience, and tolerance which Keynes had used to such effect in his administrative work: careful definition of the problems involved, combined with a logician’s clarity of exposition. The book received mostly favourable reviews, although the Oxford economist, L.R. Phelps, attacked it on the grounds of its lack of humour and, more seriously, because the ‘book is careful, accurate and clear but it is not distinguished by ideas’ (Phelps 1891: 570).^[8] What students made of it is more difficult to appreciate. Familiarity with the general outlines of Political Economy was expected of the reader (see J.N. Keynes 1891: xviii) but much more was in fact required. In his Introductory chapter, Keynes expects of his readers to understand the rules and method of logic and to have done some background reading in the early economic masters’ writing in both English and German. Students reading moral sciences could be expected to follow the logical terminology but the civil service probationers at both Oxford and Cambridge, students coming from the History Tripos, men aiming for the Pass degree or ‘general interest’ students may well have found it challenging.^[9]

Keynes’s Introductory chapter is ambitious with reference made to the writings of over twenty English, German, or American writers.^[10] The organisation of the book may have caused weaker students to despair, the text being broken up by lengthy footnotes and chapters extended by lengthy ‘Notes’ or appendices, again with extended footnotes. Some of this arrangement was the result of Marshall’s criticisms. He felt that Keynes’s views were presented too unambiguously and urged him to put controversial material in footnotes and difficulties in appendices. The book reflected what Marshall called Keynes’s ‘tidy mind’ and he complained that Keynes made ‘all [his] contrasts too sharply for me’ (Deane 2001: 140).

[1] Although his lectures had been popular and he had enjoyed the exchanges with some of the betterstudents, Keynes felt that the Balliol Fellowship had not really made him welcome.
[2] J.S. Nicholson was second Moralist in 1876 and won the triennial Cobden Essay Prize in 1877 andagain in 1880. He was Professor of Political Economy and Mercantile Law at Edinburgh University from1880 to 1925. Nicholson read Keynes’s chapters at the proof stage and gave constructive comments.
[3] Until the mid-century reforms, students could not proceed to the Classical Tripos without first havingsucceeded in the Mathematical Tripos.
[4] The Times, 13 January 1885: 4. The other delegates from Cambridge were Foxwell and Nicholson butnot Neville Keynes.
[5] The Drummond Chair in fact went to Thorold Rogers.
[6] Keynes confided in his Diary (21 April 1888) his embarrassing lack of fluency in German. Fortunatelyhis wife was able to help him with translations.
[7] As Deane reminds us, ‘Neville’s perspective was that of a teacher rather than a “prophet”’ (Deane 2001:137). Note that John Maynard Keynes called Marshall a ‘prophet’ in his necrology (Keynes quoted inPigou 1925: 65).
[8] While giving his course in Oxford in 1885, Keynes had dined with Phelps in Oriel College. Keyneswrote in his Diary that ‘Phelps is an old Charterhouse boy. He has the teaching of the Junior Indian CivilService men; but does not profess to know a great deal of Political Economy. He is immensely interestedin the Charity Organisation Society. He is very frank and friendly’ (Diary: 11 May 1885). Phelps, whowas later known as an authority on social administration, was at the time of his review a member of theBoard of the Oxford Economic Review, a journal that was in competition with the Economic Journal andreflected the views of the Historical School of Political Economy.
[9] For example, while it could be expected that the educated reader was familiar with the pitfalls of a posthoc ergo propter hoc fallacy, they may have found ignoratio elenchi fallacies more difficult to follow.
[10] The following luminaries appear in the text and some in footnotes of the Introductory chapter: Smith,Malthus, Ricardo, Mill, Senior, Bagehot, Cairnes, Sidgwick, Jones, Cliffe Leslie, Walker, Roscher,Hildebrand, Menger, von Thunen, Knies, Sax, Wagner, Schonberg, Schmoller, Ingram, von Scheel,Cohn, Seligman, and Dunbar.