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Sunday, July 7, 2013

Resistance and triumph in Germany of Smithianism

In contrast to Great Britain, the German-speaking countries were predictably highly resistant to the spread of Smithian views. They had been ruled, ever since the late sixteenth century, by cameralism. Cameralists, named after the German royal treasure chamber, the Kammer, propounded an extreme form of mercantilism, concentrating even more than their confreres in the West on building up state power, and subordinating all parts of the economy and polity to the state and its bureaucracy. Whereas mercantilist writers were generally pamphleteers scrambling for some particular form of state advantage, the cameralists were either bureaucrats in one of the 360 tyrannical German states, or else university professors advising the princes and their bureaucracy how best to maximize their revenue and power. As Albion Small put it: to the cameralists ‘the object of all social theory was to show how the welfare of the state might be secured. They saw in the welfare of the state the source of all other welfare. Their key to the welfare of the state was revenue to supply the needs of the state. The whole social theory radiated from the central task of furnishing the state with ready means.’

As professors, the cameralists wrote lengthy tomes cataloguing various parts of the economy and the plans the government should make for each of these parts. The cameralists lauded virtually all forms of government intervention, sometimes to the point of a collectivist welfare-warfare state. They could scarcely be called ‘economists’, since they had no notion of regular economic law that could reach beyond or nullify the plans of state power.

The first major cameralist was Georg von Obrecht (1547–1612), son of the mayor of Strasbourg, who went on to be a famous professor of law at the university in that town. His lectures were published posthumously (1617) by his son. In the next generation, one important cameralist was Christoph Besold (1577–1638), born in Tubingen, and later a highly influential law professor at the University of Tubingen. Besold wrote over 90 books, all in Latin, of which the Synopsis politicae doctrinae (1623) was the most relevant to economics. Another influential cameralist of the early seventeenth century was Jakob Bornitz (1570–1630), a Saxon who was the first systematizer of fiscal policy, and who urged close supervision of industry by the state. Another contemporary who, however, wrote later, in the middle of the seventeenth century, was Kasper Klock (1584–1655), who studied law at Marburg and Cologne and later became a bureaucrat in Bremen, Minden, and finally in Stolberg. In 1651, Klock published the most famous cameralist work to that date, the Tractus juridico-politico-polemico-historicus de aerario.

The most towering figure of German cameralism came shortly thereafter. Veit Ludwig von Seckendorf (1626–92), who has been called the father of cameralism, was born in Erlangen, and educated in the University of Strasbourg. He went on to become a top bureaucrat for several German states beginning with Gotha, during which he wrote Der Teutscher Furstenstaat (1656). This book, a sophisticated apologia for the German absolutism of the day, went through eight editions, and continued to be read in German universities for over a century. Seckendorf ended his days as chancellor at the University of Halle.

During the late seventeenth century, cameralism took firm hold in Austria. Johann Joachim Becher (1635–82), born in Speyer and alchemist and court physician at Mainz, soon became economic adviser to Emperor Leopold I of Austria, and manager of various state-owned enterprises. Becher, who strongly influenced Austrian economic policy, called for state-regulated trading companies for foreign trade, and a state board of commerce to supervise all domestic economic affairs. A pre-Keynesian, he was deeply impressed by the ‘income-flow’ insight that one man's expenditure is by definition another man's income, and he called for inflationary measures to stimulate consumer demand. His well-known work was Politischer Discurs (1668). Schumpeter described Becher as ‘brimming over with plans and projects’, but some of these plans did not pan out, as Becher ended up fleeing from the wrath of his creditors. Apparently, his own ‘consumer demand’ had been stimulated to excess. Becher's brother-in-law, Philipp Wilhelm von Hornigk (1638–1712), was another Mainzer who became influential in Austria. He studied at Ingolstadt, practised law in Vienna, and then entered the government, his Austrian chauvinist tract, Österreich über Alles, wann es nur will (Austria Over All, If She Only Will) (1684) proving highly popular. Von Hornigk's central theme was the importance of making Austria self-sufficient, cut off from all trade. A third contemporary German cameralist in Austria was Wilhelm Freiherr von Schroder (1640–88). Born in Konigsberg and a student of law at the University of Jena, Schroder also became influential as an adviser to Emperor Leopold I of Austria. Schroder managed a state factory, was court financial councillor in Hungary, and set forth his views in his Fiirstliche Schatz und Rentkammer (1686). Schroder was an extreme advocate of the divine right of princes. His cameralism emphasized the importance of speeding the circulation of money, and of having a banking system that could expand the supply of notes and deposits.

The system of cameralism was set in concrete in Germany by the mid-eighteenth century work of Johann Heinrich Gottlieb von Justi (1717–71). Justi was a Thuringian who studied law at several universities, and then taught at Vienna and at the University of Gottingen. He then went to Prussia to become director of mines, superintendent of factories, and finally administrator of mines in Berlin.
Justi's work was the culmination of cameralism, including and incorporating all its past tendencies, and emphasizing the importance of comprehensive planning for a welfare state. Characteristically, Justi emphasized the vital importance of ‘freedom’, but freedom turned out to be merely the opportunity to obey the edicts of the bureaucracy. Justi also stressed the alleged ‘alienation’ of the worker in a system of factories and an advanced division of labour. Among his numerous works, the most important were Staatswirthschaft (1755), the System des Finanzwesens (1766), and his two-volume Die Grundfeste zu der Macht und Glückseeligkeit der Staaten (The Groundwork of the Power and Welfare of States) (1760–61). Justi, however, came a cropper on his own welfare in the welfare state and over his own unwillingness to obey the laws of the realm. Because of irregularities in his accounts as administrator of the Prussian mines, Justi was thrown into jail, where he died.

The other towering figure of eighteenth century German cameralism was a follower of Justi, Baron Joseph von Sonnenfels (1732–1817). Born in Moravia, the son of a rabbi, Sonnenfels emigrated to Vienna where he became the first professor of finance and cameralistics, and became a leading adviser to three successive Austro-Hungarian emperors. An absolutist, mercantilist, and welfare-state proponent, Sonnenfels's views were set forth in his Grundsätze der Polizei, Handlung, und Finanzwissenschaft (1765–67). His book, remarkably enough, remained the official textbook of the Austro-Hungarian monarchy until 1848.

In this atmosphere deeply permeated with cameralism it is no wonder that Smith's Wealth of Nations made little headway at first in Germany. However, Britain had an important foothold in Germany, for the electorate of Hanover was a continental possession of the British dynasty in the heart of Prussia, and therefore this land was under strong British cultural influence. Hence the first German review of the Wealth of Nations appeared in the official journal of the University of Gottingen, in Hanover. The University of Gottingen had developed the most respected department of philosophy, history, and social science in Germany, and by the 1790s it had become a flourishing nucleus of Smithianism in the otherwise hostile German climate.

Taking the lead in introducing Adam Smith into German thought was Friedrich Georg Sartorius, Freiherr von Waltershausen (1765–1828). Sartorius was born in Kassel and studied theology and history at the University of Gottingen. Soon Sartorius taught history at Gottingen, by the 1790s expanding his repertoire to courses in political science and economics. Sartorius published selections of Adam Smith's works, and his Handbuch der Staatswirthschaft summarizing the views of Adam Smith. An expanded summary of Smith's work appeared a decade later as the Von den Elementen des National-Reichthums, und von der Staatswirthschaft, nach Adam Smith (Concerning the Elements of National Wealth and State Economy according to Adam Smith) (1806).

In the same year, however, there appeared another volume which set forth Sartorius’ own views, as well as where they differed from the master: Abhandlungen, die Elemente des Nationalreichthums und die Staatswirthschaft (Essays on National Wealth and State Economy) (1806). Sartorius differs from Smith's odd value theory, and affirms that the main source of value is its use in consumption. The value of labour, too, is determined by its usefulness, and therefore it cannot serve as an invariable measure of value, and neither can money, since money prices are also subject to the changing interplay of supply and demand. Sartorius therefore finds Smith's labour theory of value ‘a strange and deceptive conclusion’. Unfortunately, Sartorius’ other main deviation from Smith is a great weakening of Smith's already shaky devotion to laissez-faire. Sartorius advised frequent interventions by the state.
Sartorius was one of a great quartet of professors who propagated Smithian doctrine in Germany. Another was Christian Jakob Kraus (1753–1807), a distinguished philosopher who was born in East Prussia and studied under Immanuel Kant at the University of Konigsberg, later becoming a close friend of Kant. Kraus took his doctorate at the University of Halle, but spent a formative year at Gottingen, where he imbibed a lasting interest in economics. After gaining his doctorate in 1780, Kraus became professor of practical philosophy and cameralia at the University of Konigsberg, where he taught not only philosophy, but also the Greek classics, history, English literature and mathematics. By the early 1790s, however, Kraus's interests became entirely devoted to economics. Indeed, Kraus was one of the first persons in Germany to acclaim the Wealth of Nations, which he hailed as ‘the only true, great, beautiful, just, and beneficial system’. Kraus greeted Adam Smith with none of the deviations or hesitations that had beset Sartorius; in fact, he trumpeted the Wealth of Nations as ‘certainly one of the most important and beneficial books that have ever been written’. Kraus even dared to liken Smith's book to the New Testament: ‘certainly since the times of the New Testament no writing has had more beneficial results than this will have...’.

Curiously enough, for a German academic Kraus published very little during his lifetime. He was, however, a highly influential teacher; his lectures at Konigsberg were always crowded and he was considered the most important professor there with the exception of Kant. After his death, Kraus's friends published all his manuscript writings, the most important of which was Die Staatswirthschaft (5 vols, Konigsberg, 1808–11). The first four volumes of this work were essentially a paraphrase of Smith's Wealth of Nations, substituting Prussian for British examples.

The fifth volume of Die Staatswirthschaft was by far the most important, for there Kraus presented his own contribution to Smithian economics. Kraus addressed himself to Prussian economic policy, in lecture form. The volume was an incisive call for individualism, free markets, free trade, and a drastic reduction of government intervention. Kraus began with the fundamental insight that every individual wants to improve his lot. (‘The desire and effort of each individual to improve his lot is the basis of all state economy, like the force of gravity in the universe.’) But if men wish to improve their own lot, then government coercion, requiring certain actions or forbidding others, must necessarily cripple and distort such effort at improvement. For otherwise, why don't individuals do what government wants of their own accord, and without coercion? And since they don't wish to do so, they will seek means of evading the government mandates and prohibitions. In all these cases, and in stark contrast to the cameralists, Kraus puts himself in the point of view of the individuals in society subject to government edicts, and not in the point of view of the officials issuing the decrees.

A charming memorial to Christian Kraus was set forth to a friend by the great statesman of reform, Baron Karl vom Stein (1757–1831). Stein said of his friend and adviser:

The whole province [Prussia] has gained in light and culture through him, his views forced their way into all parts of life, into the government and legislation. If he has set up no brilliant new ideas, he has at least been no glory-seeking sophist; to have presented the plain truth clearly and purely and correctly expressed, and to have communicated to thousands of auditors successfully, is a greater service than to arouse attention through chatter and paradoxes... Kraus had an unassuming but genial personality, which laid strong hold on its environment, he had flashes of new insight, and great applications, and often astonished us by his unexpected conclusions... Reading his writings, everything there is clear and simple, and at present you need nothing more.

A third member of the Smithian professorial quadrumvirate in Germany was August Ferdinand Lueder (1760–1819). Lueder was also a product of the University of Gottingen, studying there, and becoming professor of philosophy. He was also a history professor and court councillor in Brunswick. Lueder had done a great deal of work in historical and geographical statistics, publishing the statistical compendia, Historische Portefeuille (Historical Portfolio) (1787–88), and Repositorium fiir Geschichte, Staatskunde und Politik (Repository for History, Statistics and Policy) (1802–5). But in the meantime, Lueder read Adam Smith and became an enthusiast, publishing a Smithian work in 1800–2 (Über Nationalindustrie und Staatswirthschaft) (On National Industry and State Economy). In addition to a compendium of Smith's views, Lueder provides an impassioned defence of freedom in all its social and political aspects, as well as in the strictly economic sphere. As Lueder wrote in another work, ‘I hazarded everything for freedom, truth and justice; for freedom of industry as well as of opinions, of hand as of spirit, of person as well as of property’.

A fascinating aspect of August Lueder is that he was driven both by Smithian methodology and by his devotion to freedom to repudiate his beloved life work, the investigation into national statistics. For not only would statistics mislead government policy makers, but government planners could scarcely hope to plan at all without a raft of statistics at their command. Statistics is not only misleading, therefore; it becomes a necessary condition for the very government intervention which must be repudiated. Lueder levelled his criticisms in two volumes on statistics, Kritik der Statistik und Politik (Criticism of Statistics and State Policy) (1812) and Kritische Geschichte der Statistik (Critical History of Statistics). In the preface to his Kritik, Lueder wrote movingly:

On the strongest pillars and the firmest foundation the structure of statistics and policy seemed to me to rest. I had devoted the happiest hours of my life and the greatest part of my time to statistics and policy;... everything in me could not but revolt at the convictions which pressed upon me. But the current of the times flowed too swiftly. Ideas, which had entered my very marrow, had to be reviewed and exchanged for others; one prejudice after another had to be recognized as prejudice; more and more indefensible appeared one rotten prop after another, one rent and tear after the other; finally, to my no small terror, the whole structure of statistics collapsed and with it policy, which can accomplish nothing without statistics. As my insight grew and my viewpoint cleared, the fruits of statistics and policy appeared more and more frightful; all those hindrances which both threw in the path of industry, whereby not only welfare but culture and humanity were hindered; all those hindrances to the natural course of things; all those sacrifices brought to an unknown idol, called the welfare of the state or the commonweal, and bought with ridicule of all principles of philosophy, religion and sound common sense, at the cost of morality and virtue.

With such perceptive insight into the evils of statistics and ‘policy’, one shudders to think of Lueder's reaction to the current world, where statistics and policy, both then in their infancy, have spread and virtually conquered the earth.

The fourth influential German Smithian academic was Ludwig Heinrich von Jakob (1759–1827). Jakob studied at Halle, and then taught at the University of Kharkov in the Ukraine. As a result, Jakob became a consultant to several commissions at St Petersburg, and helped spread Smithian economics to Russia. But for most of his life Jakob taught political economy and philosophy at the University of Halle, where like Christian Kraus, he combined Kant and Smith's individualism into an economic and philosophical whole. Like Kraus also, Jakob played an important advisory role in the liberal Stein–Hardenberg reforms in Prussia. His most important work was his Grundsätze der Nationalökonomie (Principles of Economics) (1805).

At any rate, under the influence of the quadrumvirate of Sartorius, Kraus, Lueder and Jakob, the Smithians rather rapidly took over one economics department after another from the older cameralists, who were pushed back where they more properly belonged, into the departments of law and administration. Smithian views also penetrated the civil service, and were responsible for the important failed liberal reforms, in the early nineteenth century, of Stein and Hardenberg in Prussia. Stein and Hardenberg, it should be added, had both studied at the University of Gottingen. In a little over a decade, Smithianism had triumphed over cameralism in Germany.

Austrian Perspective on the History of Economic Thought (2 volume set)

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