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TitleReinert, Erik S. - How Rich Nations Got Rich - Essays in the History of Economic Policy
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Page 1

Working Paper Nr. 2004/01

How Rich nations got Rich
Essays in the History of

Economic Policy

Essay I
Mercantilism and Economic Development:

Schumpeterian Dynamics, Institution Building and
International Benchmarking

Essay II

German Economics as Development Economics:
From the Thirty Years War to World War II

Essay III

Benchmarking Success: The Dutch Republic (1500-1750)
as seen by Contemporary European Economists

Erik S. Reinert

Page 2

© 2004 Authors
Centre for Development and the Environment, University of Oslo
All rights reserved.

The views expressed herein are those of the author(s) and should not be attributed
to the Centre for Development and the Environment.

ISSN 0804-7391

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and in this matter neither sympathy nor compassion should be shown foreigners, be they
friends, kinsfolk, allies, or enemies. For all friendship ceases, when it involves my own
weakness and ruin. And this holds good, even if the domestic commodities are of poorer
quality, or even higher priced. For it would be better to pay for an article two dollars which
remain in the country than only one which goes out, however strange this may seem to the ill-
informed’. This sums up the value added, employment and balance of payment arguments, an
argument also presentable in a neo-classical production possibility frontier type of analysis.

The 18th Century: The Birth of Academic Economics and of Specialization in the Field
The 18th century, the Age of Enlightenment, was characterized by a very considerable literary
production, including the cameralist sciences. Bibliographie der Kameralwissenschaften – the
main bibliographical source – lists 14,040 items, with some duplication, over 1184 pages
(Humpert 1937), the majority published in the 18th century. Johann Heinrich Gottlob von Justi
(1717-1771) – the most influential German economist of the century – was also the most
prolific writer among the economists, with a total of 67 published books (Reinert, 2004a)
Thirteen different contemporary translations were made of eight of Justi’s books into five
different languages.

This was also the century of the first economics journals, mixing practical advice,
theory, and news on the whereabouts of economists, in typical cameralist style. The best-known
German economists of the time – Justi, Georg Heinrich Zincke (1692-1769) and Johann
Beckmann (1739-1811) – published their own journals. Practical works on agriculture, arts,
inventions and manufacturing also abounded all over Europe at the time. In addition to being an
age of discoveries, the 18th century was an age of science and scientific academies, with the
foundation of the large museums in Europe.
The world’s first two professorships in economics (and cameralism) were established in
Germany in 1727, about a century before the first such professorship in England. The first
professorship in economics outside Germany was in Uppsala in Sweden, starting some time in
the 1830s. The next countries to follow were Finland (then part of Sweden), at the Åbo (Turku)
Academy, then Austria, where Johann Heinrich Gottlob von Justi was named professor in the
cameral sciences in 1752 in Vienna, and Italy, where Antonio Genovesi was appointed
professor of political economy at the University of Naples in 1754.
Since the early 1970s, Kenneth Carpenter, a librarian at Harvard University, has
collected large amounts of material documenting the translations of economics books in Europe
before 1850. Carpenter describes a pattern of frequent translations between continental
European languages, but less frequent translations to and from English.38 The material is not yet
fully systematized, but the section on Sweden – which is finished, but remains unpublished –
shows that out of 207 economics publications translated into Swedish before 1850, 84 were
from German, 55 from French and 51 from English. The rest were from Danish and from multi-
lingual sources. The widespread myth, of English origin, that German economics has been the
isolated ‘odd man out’ in the history of economic thought seems to be thoroughly unfounded.39

Johann Heinrich Gottlob von Justi was probably the most representative German
economist of the period. He was both a synthesizer and a modernizer of the German tradition,
absorbing the important novelties of the 1700s into the consensus of the late 1600s. One
example of a new institution was fire insurance. Perhaps the most important novelty of the
century was the discovery of important synergies between manufacturing and agriculture. By
promoting manufacturing, one would not be punishing agriculture, but quite the contrary. The
segmentation of the field of cameralism into subfields, with their own publications and
textbooks, was a sign of a maturing science. Justi himself wrote a book on the theory of finance,
and his 1754 inaugural lecture as professor of the cameral sciences in Vienna was about the
relationship between science and economic welfare, a theme which was to be the subject of a
book by Johann Gottfried von Herder (1744-1803) some twenty years later.

38 Preliminary results are published in Carpenter (1977).
39 This point is also forcefully made by Spanish historian of economic thought, Ernest Lluch (1996: 163-

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Geography had been an important element in continental European economics since the
books by Giovanni Botero (1588) and Antonio Serra (1619). From the 18th century, it became
fashionable to describe economics in stages, from hunting and gathering, to herding, agriculture
and, finally, agriculture and manufacturing (Reinert, 2000). Justi placed these historical stages
on a geographical plane using concentric circles, placing the urban increasing returns sector at
the centre. This is the tool normally attributed to Johan Heinrich von Thünen (1783-1850). Both
Justi and von Thünen thoroughly understood the importance of nurturing and protecting the
manufacturing area, both geographically and economically the core of any nation-state.
(Reinert, 2004a). When one German economist stated ‘It is known that a primitive people does
not improve their customs and institutions later to find useful industries, but the other way
around’ (Meyen, 1770: 11), he expressed something which could be considered the common
sense at the time.

Also, technology had always been an integrated part of cameralism, and in the 1770s,
from economics professor Johann Beckmann at the University of Göttingen, the world got its
first economics textbook focusing on technology. Also Beckmann built on Justi’s foundations,
publishing a third edition of Justi’s two-volume book, on ‘Factories and Manufacturers’.

Johann Friedrich Pfeiffer (1718-1787) wrote a successful cameralist textbook (Pfeiffer,
1764-1765 & 1777-1778) and also, a very early history of economic thought covering about 30
authors – German, French, English and Italian – in six volumes (Pfeiffer, 1781-1784). As
previously mentioned, virtually all German economists were opposed to physiocracy, and
Pfeiffer provided a systematic theoretical refusal of physiocratic doctrines in a book entitled The
Anti-Physiocrat (Pfeiffer, 1780).

Joseph Schumpeter compared German mercantilism with English classical economics

‘He (Justi) saw the practical argument for laissez-faire not less clearly than did A. Smith, and
his bureaucracy, while guiding and helping when necessary, was always ready to efface itself
when no guidance or help seemed needed. (Schumpeter’s footnote here: ’This was not merely
a dream. It will be pointed out below that the bureaucracy in the typical German principality
actually tried to behave like this.’) Only he saw much more clearly than did the latter all the
obstacles that stood in the way of its working according to design. Also, he was much more
concerned than A. Smith with the practical problems of government action in the short-run
vicissitudes of his time and country, and with particular difficulties in which private initiative
fails or would have failed under the conditions of German industry of his time. His laissez-
faire was a laissez-faire plus watchfulness, his private-enterprise economy a machine that was
logically automated but exposed to breakdowns and hitches which his government was ready
to mend. For instance, he accepted as a matter of course that the introduction of labour-saving
machinery would cause unemployment: but this was no argument against the mechanization of
production because, also as a matter of course, his government would find equally good
employment for the unemployed. This, however, is not inconsistency, but sense. And to us
who are apt to agree with him much more than we do with A. Smith, his (Justi’s) vision of
economic policy might look like laissez-faire with the nonsense left out (Schumpeter 1954:

The ‘Historical Schools’ of the 19th and 20th Centuries
After an initial period of resistance to the ideas of David Ricardo and English Economics, the
1830s and particularly, the 1840s saw very strong growth in belief in the merits of laissez-faire
capitalism. This period has a lot in common with the triumphalist period following the fall of
the Berlin Wall that came to mark the 1990s. This first period culminated in the repeal of the
Corn Laws in England in 1846, when the English for a while extremely skillfully managed to
convince the rest of the world no longer to protect its manufacturing industry, by no longer
protecting their own agriculture. There are many parallels between the 1840s and the period in
which we now live: never since, until now, has such blind faith in the virtues of free markets
dominated academia and policy-making to such an extent. The route from the overwhelming
social problems of the mid 19th century to the national welfare states that were to follow decades
later therefore contains clues on how contemporary problems, this time on a global rather than a
national scale, can be handled.

Page 63


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