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Sunday, August 18, 2013

Plutology: Hearn and Donisthorpe

Another forerunner and contemporary hailed by the revolutionary marginalist Stanley Jevons was the Irish-Australian economist, William Edward Hearn (1826–88). Born in County Cavan, Ireland, Hearn was one of the last students of the great Whatelyite economists at Trinity College, Dublin, entering in 1842 and graduating four years later. There he learned an economics very different from the dominant Millian school in Britain, an economics steeped in subjective utility theory and a catallactic focus upon exchange. Made the first professor of Greek at the new Queen's College, Galway in Ireland at the age of 23, Hearn received an appointment five years later, in 1854, as professor of modern history, logic and political economy as well as temporary professor of classics at the new University of Melbourne, Australia. In a country otherwise devoid of economists, Hearn had little incentive to pursue economic studies; he became dean of the law faculty and chancellor of the university. Most of his scholarship was devoted to such diverse subjects as the condition of Ireland, the government of England, the theory of legal rights and duties, and a study of the Aryan household, on all of which he published books issued in London as well as Melbourne. Hearn also served as a member of the legislative council of the state of Victoria and as leader of the Victoria House.
Hearn wrote only one book in economics from his eyrie in Australia, but it proved highly influential in England. Plutology, or the Theory of the Efforts to Satisfy Human Wants, was published in Melbourne in 1863 and reprinted in London the following year.44 ‘Plutology’ was a term that Hearn adopted from the French laissez-faire economist J.G. Courcelle-Seneuil (1813–92), in his Traité théorique et pratique d'économie politique (1858) to mean a pure science of economics, a scientific analysis of human action. There are, indeed, hints in Hearn that he sought a broad science of human action going beyond even the limits of catallactics, or exchange.45
Hearn's Plutology was patterned after Bastiat. Like Bastiat, Hearn provided a Harmonielehre, demonstrating the ‘unfailing rule’ that the pursuit of self-interest produces a flow of services on the market in the ‘order of their social importance’. Like Bastiat, Hearn began with a chapter on human wants, the satisfaction of which is central to the economic system. Human wants, Hearn pointed out, are hierarchically ordered, with the most intense diminishing as the supply of goods to fulfil that want increases. In short, Hearn came very close to a full-fledged theory of diminishing marginal utility. Since each party to every exchange gains from the transaction, this means that each person gains more than he gives up – so that there is an inequality of value, and a mutual gain, in every exchange.
The value of every good, showed Hearn, is determined by the interaction of its utility with its degree of scarcity. Demand and supply thereby interact to determine price, and competition will tend to bring prices down to the minimum cost of production of each product. Thus Providence, through competition, brings about a beneficent social order, a natural harmony, through the free market economy.
In all these doctrines, Hearn anticipated the imminent advent of the Austrian School of economics, as well as echoing and building upon the best utility/scarcity/harmony-mutual benefit analyses of continental economics. Also anticipating the Austrian School, and building upon Turgot and various nineteenth century French and British writers including John Rae, was Hearn's analysis of entrepreneurship. The entrepreneur contracts with labour and ‘capital’ (i.e. lenders) at a fixed price, attains full title to the eventual output, and then bears the profit or loss incurred by eventual sale to the particular entrepreneur at the next stage of production.
Hearn also showed that capital accumulation increases the amount of capital relative to the supply of labour, and therefore raises the productivity of labour, as well as standards of living in the economy. He saw that capital could accumulate, and therefore living standards could increase in the economy, without limit. In addition, Hearn generalized the law of diminishing returns, expanding it from land to all factors of production, being careful to assume a given technology and supplies of natural resources.
A champion of free trade, William Hearn called for the removal of Catholic disabilities in Britain, the freeing of the Irish wool trade, the abolition of usury laws and entail, and the removal of all restrictions on transactions in land. Opposing government intervention, Hearn declared that government's only function is to preserve order and enforce contracts, and to leave all other matters to individual interest.
Hearn's Plutology was used as an economics text in Australia for six decades until 1924 – indeed it was virtually the only work on economics published in Australia until the 1920s. While the book went unnoticed upon its publication in London in 1864, it soon drew high praise from several economists, especially Jevons, who hailed it as the best and most advanced work on economics to date. Jevons featured Plutology prominently in his path-breaking Theory of Political Economy (1871). Apart from these citations, however, Hearn's work gave rise to only one plutological disciple. The attorney and mine-owner Wordsworth Donisthorpe (1847-?) published his Principles of Plutology (London: Williams & Norgate, 1876), which apparently was mentioned by no economic work from that day until the publication of the New Palgrave in 1987, either in the literature of the time or in any of the histories or surveys of economic thought. While scarcely an earth-shattering work, Donisthorpe's 206-page book certainly did not deserve to sink without trace.46
Most of Principles of Plutology was devoted to ground-clearing methodology, discussion of definitions, and attacks on plutology's great methodological rival, ‘political economy’. But yet there was much valuable substantive discussion in Donisthorpe, a lucid writer who admirably wanted to forge a scientific economics that would clearly distinguish between analysis and ethical or political advocacy. Denning plutology as the purely scientific investigation of the uniformity or relations between values, Donisthorpe went on to point out that values are all relative; and that these values, including the value of money, vary continually and unpredictably, in contrast to units such as weights which remain fixed and unvarying. There are different intensities of wants, and different degrees of utility, and the interaction of these utilities and relative scarcities determine values.
In a proto-Austrian manner, Donisthorpe also distinguished between directly useful and indirectly useful goods, and showed how the latter had varying degrees of remoteness from the pleasure-giving stage of goods; in short, Donisthorpe engaged in a sophisticated analysis of the time-structure of production. He also had a pioneering analysis of the influence of substitutes and complements (‘co-elements’) upon values. While Donisthorpe's discussion of demand curves (i.e. schedules), supply, and price was interesting but hopelessly confused (e.g. he denied that an increased desire of consumers for a product would raise their demand for the product), he did present a remarkably clear foreshadowing of Philip Wicksteed's insight of four decades later that witholding the stock of a product by suppliers really amounts to the suppliers' ‘reservation demand’ for that product. Thus Donisthorpe:

In the first place sellers and buyers are not two classes, but one class... To refuse a certain price for an article is to give that price for it. A proprietor who refuses to sell a horse for fifty guineas virtually gives fifty guineas for the horse in the hope of getting more for him another day, or else because he obtains more gratification from the horse than from fifty guineas. Proprietors who do not sell must be regarded as virtually buyers of their own goods.47

Perhaps from disappointment at the reception of his book, Wordsworth Donisthorpe, like Hearn before him, abandoned economic theory and plutology from then on, and spent the next two decades battling on behalf of libertarianism and individualism in law and political philosophy

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

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