History of Economics term paper

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“Steuart, however, had his other foot tentatively pawing at the new modes of existence. In fact, Steuart displayed a keen sense of the nature of a market economy. He was not only connected with traditional Scottish society; he also had the opportunity to witness the unfolding of capitalist development from the vantage point of the Scottish Highlands. He also had personal ties with recent capitalistic developments. For example, his own mother, supposedly "for the sake of finding employment to her mind, had taken coal work" (Kippis 1842, 282). Steuart also had the advantage of extensive travels. In his youth, he had compromised himself by his involvement in Jacobite conspiracies leading up to the battle of Culloden. As a result, he was forced to spend fourteen years in exile on the Continent. Such experience can be invaluable to perceptive economists. Petty's work certainly benefited from his years in Holland and Ireland. Similarly, Cantillon profited from his firsthand knowledge of the difference between Ireland and France. Steuart himself appreciated that the practical information that he garnered during his years away from Scotland gave him an advantage in comprehending his native economy. In the dedication to his handwritten manuscript of his Principles in 1759, he wrote, "The best method I have found to maintain a just balance . . . has been, in discussing general points, to keep my eye off the country I inhabit at the time, and to compare the absent with the absent" (cited in Chamley 1965, 137). By availing himself of this method, even before his return to the British Isles, he was able to anticipate the exceptional nature of what was occurring in his native Scotland.”
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“But somewhat less obvious would be a possible negative influence upon certain theories. It is possible that the downfall of the wages-fund doctrine may have been furthered by Socialistic criticism; while the separation of profits from interest would be encouraged, partly because of the Socialist emphasis of the non-productivity of capital, partly to put interest in a better light. Both of these developments, however, would have come regardless of Socialism. By way of reaction, Socialism has deeply influenced the tone and emphasis of economic writings. The effects here referred to are far too subtle to be pointed out in detail. One cannot read the works of the Austrian school or of Professor J. B. Clark, however, without finding evidence of what is meant. To-day there is no text-book of economics but that gives some space to a criticism of Socialism, and here and there stresses some point in theory as running counter to its doctrines. Certain particular theories have probably received their present emphasis, in part, at least, from a desire to refute Socialism. For illustration, the productivity theory of distribution as developed by the Austrians and Professor Clark may be mentioned. A part of the idea seems to be that if it can be shown that each factor of production gets what it produces the problem of distributive justice is solved. And so it is with the utility side of value. It is not improbable that the narrow, labour-cost theories of the Socialists helped bring on the reaction to extreme marginal utility theories beginning in the seventies. This would be the logical result of the narrow and extreme way in which Marx carried the doctrines of Smith and Ricardo on value to a reductio ad absurdum. Even before this the theory of abstinence was doubtless stimulated as a result of Socialistic criticism; and in later days, the refinement of this theory as illustrated by the adoption of such concepts as those of "saving" and "waiting" clearly have been stimulated by the attacks which have been made upon the doctrine of abstinence.”
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“With this evidence from Keynes's own hand before us, one can make the following claims that will serve as sufficient reason for the direction of the rest of the argument on the roots of Keynes General Theory views. One must look for the sources of two distinct sets of beliefs. First it is necessary to look for the source of what Keynes saw as obvious and necessary, that asset markets settle towards a (stock) equilibrium where market trading drives prices to positions characterized by equalized expected rates of return among assets at the margin, given market opinions. Second, one should understand his view of what determines the level this equilibrium will seek. This, to Keynes, is what is unique to the General Theory view of financial markets and rates of interest. One must therefore seek out the origin of his view of the economic relevance of market psychology, the behaviour of traders in a context of uncertainty and how these affect his view of the meaning, function, and consequences of asset market speculation. One can argue that this view emanates from Keynes's grappling with a largely forgotten turn-of-century literature on organized exchange speculation, as well as from his practical observations of and participation in actual financial market processes. Part and parcel of his unique viewpoint on these matters, though, from the beginning of his career to the end, was an attempt to classify the rationality of financial market transactors within the terms of his early philosophical work on probability. At this stage, claims are supported by noting that in pursuing the main question of chapter 12 in the General Theory -- the circumstances governing the "prospective yields of capital assets" and so the determining factors governing the influence of the equilibrium rate of interest on new investment -- Keynes ends up analyzing the "market psychology" which guides economic actions under uncertain expectations, and he stresses the crucial influence of the degree of "confidence" with which anticipations are held. In this context, he notes the special importance of observation of market processes.”
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