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The Genesis of Macroeconomics

Thomas Boylan

The Genesis of Macroeconomics: New Ideas from Sir William Petty to Henry Thornton, by Antoin E Murphy, Oxford University Press, 234 pp, £18.99, ISBN: 978-0199543236

If there are two names in the development of economics as an academic discipline that most students would identify as pivotal figures, then Adam Smith would be quickly identified as the “founder” of economics while Keynes would be named as the “progenitor” of macroeconomics. This is a long-standing conventional reading of the iconic status of these two figures that has been visited upon generations of students of economics. Certainly, for those generations that studied economics in the postwar period, Keynes was to all intents and purposes the founding figure of macroeconomics, notwithstanding the pioneering work of Simon Kuznets in the 1930s in the construction of national income accounts, while the first person to use the term “macroeconomics”, also at this time, was the distinguished Norwegian economist Ragnar Frisch.

But it was unquestionably the publication of Keynes’s The General Theory of Employment, Interest and Money (1936) that provided the major stimulus for the development of macroeconomics as we currently conceive of it. Prior to Keynes, macroeconomics was a composite of different branches of the discipline and wasn’t referred to as macroeconomics. Frequently the history of economics prior to Smith is referred to, even in formal histories of economic thought, as the “pre-history” of economics – which is a decidedly odd situation, raising questions about the level of historical literacy with respect to our understanding of the discipline and its development. Only students, and currently they are a rather precious minority, who have had the benefit of formal courses in the history of economic ideas can have an appreciation of the discipline’s intellectual development, the difficulties of the interpretation of economic ideas, the complexities of their transmission and their changing impact on economic policy.

Antoin Murphy’s impressive and engaging book on The Genesis of Macroeconomics will serve to debunk both pillars of the historically restricted and ill-informed interpretation that has been foisted on generations of students. Of course a case can be made for both Smith and Keynes’s position within the historiography of economics, but on a more qualified, nuanced and historically informed basis. Interestingly, Murphy’s book does contain a chapter on Smith, but not on Keynes. The latter omission is for a very good reason. The aim of the book is to identify the very substantial and intriguing legacy of a number of selected individual writers, extending from the seventeenth century to the early nineteenth century, who bequeathed to economics many of its foundational ideas and conceptual structures two hundred years before Keynes. We will return to Murphy’s selected cohort of writers later. First, there is the interesting issue of Keynes’s perceived status as the founding figure of macroeconomics and the basis for this claim. Given his pivotal role in twentieth-century economics and the increasing references to his ideas in the current crisis, some brief comments on the context and uniqueness of Keynes will serve to illustrate the complexities and vicissitudes of the movement of ideas within this deeply contested terrain of macroeconomics, considered in either historical or contemporary terms.

Robert Skidelsky, the most recent biographer of Keynes, recently stated that it was his firm belief that “Keynes would live as long as the world needed him”. At one level it is difficult to decipher what exactly Skidelsky meant by this. In any event, the academic world of economics, along with the community of policy-makers, decided over thirty years ago that it no longer needed Keynes. The so-called “Keynesian revolution” had been essentially reduced to a mechanical system – the word “hydraulics” was invoked at one stage – for stabilising economies by means of budget surpluses and deficits. On balance, it must be noted, deficits featured more prominently than surpluses for most countries, including Ireland. The persistent practice of deficit budgeting led, it was argued, to the twin evils of inflation and, arising from the disruption to the international economy due to the oil crisis of the 1970s, economic stagnation. The simultaneous emergence of both these phenomena, which were conjoined in the concept of “stagflation”, provided the basis of an intellectual crisis in the world of macroeconomic theorising and policy. The upshot was that Keynes, according to a new generation of theoreticians, was redundant in both the theoretical and policy domains. Keynesian policies were the source of inflation, which was deemed to be pernicious, disruptive and even potentially subversive to the liberal economic system.

The new generation of theoreticians which emerged in the 1970s reverted to a pre-Keynesian mode of theorising, which reinstated the centrality of the crucial assumption that human beings are rational maximisers. If this starting assumption becomes the basis of theorising, as it did for the intellectual leader of the counter-Keynesian movement, Robert Lucas and the putative “Lucasian Revolution” (economists are big on revolutions), then it followed that within this theoretical paradigm the main disturbance that would befall market economies arose from external interferences to this self-equilibrating system. While this mode of theorising has a long standing in economics, going back to yet another pivotal turning point at the end of the nineteenth century, the so-called “Marginal Revolution” (another!), what Lucas and his followers achieved was the incorporation of rational maximising behaviour into macroeconomics, thereby purporting to have solved a long-lasting conundrum in economic theory, ie the provision of a consistent micro-behavioural basis for macroeconomic activity. This was, for critics of Keynesian economics, something that Keynes had singularly failed to deliver.

The problem of providing a micro foundation for a complex macro system is a fundamental methodological issue that plagues most disciplines across the spectrum of the behavioural, social and life sciences. Even the exemplar for many people, physics, is not immune from the difficulties of reconciling its different branches within a unified framework, for instance quantum physics and gravitation theory. So this problem is not unique to economics. But economics has long been infatuated with the dynamics of a self-equilibrating system conceptualised around the construct of markets and self-interested and rational individuals, or “globules of calculation” as Thorstein Veblen would have sarcastically referred to them, all pursuing their articulated aims without fear or hindrance from any source. And all this was to be overseen by a minimal and benign State apparatus which was to provide defence for its citizens and to ensure the administration of justice, along with other minor functions.

For such intellectual giants of the twentieth century as Hayek and Friedman, the principal source of disruption of the smooth functioning of this essentially self-organising and self-equilibrating system was the misplaced or disproportionate interference of government in the system. For Hayek, and in particular for Friedman, the manipulation of the money supply, very often in the pursuit of popular political ends, and its consequent impact on the price level was a prime example of misdirected and harmful government interference. This was to be the basis of Friedman’s monetarist doctrine, which was in the vanguard of the theoretical assault on Keynesian economics, which when complemented by Lucas’s later contribution under the title of the “rational expectation hypothesis”, followed by the “new classical economics” and the “real business cycle theory”, all pointed to the demise of Keynesian economics.

Given the much-vaunted and in some quarters celebrated demise of the theories named after him, why is it that Keynes is still regarded as one of the greatest, and for many perhaps the greatest, economist of the twentieth century? He was unquestionably the architect of recovery – some may more reverentially invoke the term “saviour” of the liberal capitalist economy following the Great Depression of the 1930s. In the midst of our current economic and financial convulsions the increasing invocation of Keynes’s name has a ring of “Come back Mr Keynes, all is forgiven” – or if not all then at least a great deal. Certainly the implementation of “stimulus packages”, “quantitative easing” (read increasing the money supply) and near zero rates of interest on the part of the central monetary authorities all have a decidedly old-fashioned Keynesian ring to them. But unfortunately there is no actual contemporary Mr Keynes available to us to provide the conceptual vision or the creative set of policies to indicate a sure-footed pathway to recovery.

What is the claim to greatness, if not uniqueness, of the “founding father” of macroeconomics against the backdrop of Murphy’s extraordinary group of eighteenth century luminaries? Keynes’s greatness, according to Skidelsky, “was that he was more than an economist”. In addition to being an outstanding theoretician and shrewd policy adviser, he was also a gifted administrator, and was the science’s “only poet of human nature”. This latter phrase of Skidelsky’s I take to be his coded way of pointing to Keynes’s perceptive understanding of how human beings negotiate their pathway through the contingencies, fragilities and pitfalls of that central social construct of the liberal economic system, namely the market. Keynes’s characterisation of participation in markets, and the human psychology underlying it, had a number of features which sat very uncomfortably with the orthodox or mainstream economics of his time. The most inescapable is the uncertainty that accompanies economic decision-making in real historical time. As Joan Robinson, an economic contemporary of Keynes at Cambridge, used to say, “time was the Achilles heel of economics – we come from an unchangeable past through a transitory present to an unknowable future”. For Keynes, “the outstanding fact,” as he wrote in his magnum opus, The General Theory of Employment, Interest, and Money (1936), “is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made”. How these words will ring in the ears of the personnel of Nama as they go about the task of assessing the “long-term economic values” of our national stock of toxic assets! Faced with the radical uncertainty that Keynes understood so well, we attempt to deflect this uncertainty from ourselves by assuming that the future will be similar to the past, that existing “informed” opinion correctly captures future prospects, and that a modicum of safety will be provided by imitation of what the crowd is doing.

But basing one’s view of the future on “so flimsy a foundation” was for Keynes to be exposed to “sudden and violent changes. The practice of calmness and immobility, of certainty and security, suddenly breaks down. New fears and hopes will, without warning, take charge of human conduct … the market will be subject to waves of optimistic and pessimistic sentiment, which are unreasoning yet in a sense legitimate where no solid basis exists for a reasonable calculation.” Surely a succinct account of the “poetry” of that part of human nature concerned with the behaviour of people operating within the framework of markets faced with uncertainty. Then, in an extraordinarily insightful and prescient comment, Keynes described economics as “one of these pretty, polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future”. If he had lived a little longer, he would have witnessed what was regarded as one of the most spectacular formal achievements of economics in the twentieth century, namely the mathematical proof for the existence of general equilibrium, an endeavour that took exactly eighty years from Walras’s first attempts in 1874 to 1954, when Kenneth Arrow of Stanford University and Gerard Debreu of Berkeley University delivered the proof of the “existence theorem” for general equilibrium.

This theorem provides the proof of the conditions that must be met to provide equilibrium across the myriad of markets in a decentralised, unplanned, market-based society. It represents the nearest thing to the economist’s “holy grail”, or in more formal terms it appeared to provide a unified theoretical framework for the discipline. However, the assumptions underlying this endeavour turned out to be so outlandishly restrictive, reductive and unrealistic, particularly with respect to the realities of time and uncertainty, as to render it at best technically interesting but largely irrelevant, depending on one’s methodological commitments and view of economics as a discipline. As Frank Hahn, the distinguished Cambridge economist and theorist of general equilibrium, stated, “the most useful function that was achieved by the existence theorem was its negative heuristic in that it showed us the restrictive conditions that would have to be met to achieve a general equilibrium”. Hahn himself, though very committed to the concept of equilibrium, never believed that these conditions would be met. But then Keynes had that well figured out a long time before when dealing with the complexities of a macroeconomic system. What Keynes understood was that in the face of uncertainty, the motivations and influencing factors that will shape human behaviour are very different from what economists may conceive them to be. In fairness to economics, and under the weight of relentless theoretical, cognitive and empirical criticism of general equilibrium-type economics in the latter decades of the twentieth century, new developments in the form of behavioural, experimental and game theory have emerged which represent constructive responses and the search for more enriched insights into the complexities of the “poetry” of human nature.

But the issues that Keynes grappled with, such as time, uncertainty and in particular the complexities of trying to provide explanatory frameworks to render intelligible the workings of society at the macro level would not have been lost on the distinguished figures that populate Antoin Murphy’s book. The book is quintessentially an eighteenth century one, with the exception of Sir William Petty (1623-87) from the seventeenth century and Henry Thornton (1760-1815), whose career and concerns slipped into the nineteenth. Other figures studied include three Scotsmen (John Law, David Hume and Adam Smith), one Irishman (Richard Cantillon) and two Frenchmen (François Quesnay and Anne Robert Jacque Turgot). Petty and Thornton were Englishmen. The conundrum for a reviewer is that, given the status and originality of their contributions each individual chapter would arguably warrant a review in its own right. But this is clearly not feasible given the volume of scholarly research that is available on the individuals included here. Murphy himself has made a major contribution to this scholarship with his two excellent studies on Cantillon (Richard Cantillon: Entrepreneur and Economist, Oxford, 1986) and Law (John Law: Economic Theorist and Policy-Maker, Oxford, 1997) respectively, in addition to his contribution to a number of other topics in the history of economic thought. He has established an international reputation as a leading scholar of eighteenth century economic and monetary thought with particular reference to the leading French contributors and their influence in the English-speaking world, as is very clearly manifest in the various chapters of this book.

At first glance the book appears to provide a series of overviews, within the confines of relatively short chapters, of the contributions of an extraordinary group of writers who wrote on a wide and variegated array of topics related to various aspects of economic structures, processes and policy. But this would be a misleading impression. Murphy has a number of very clear objectives in mind, which provide a unity of purpose and coherence of approach to his project. The first is to demonstrate that “despite strong claims for the view that macroeconomics was founded in the 1930s, it is the contention of this book that macroeconomics had effectively been founded many centuries before”. The second objective is “to involve readers in the excitement of the macroeconomic discoveries that were made and to show how some of these ideas were built on in some cases and forgotten in other instances”. Along the way the author engages in some speculative opinions and evaluations, which will no doubt be carefully scrutinised by experts in eighteenth century economic thought. There are also a number of interesting philosophical reflections which would merit further interrogation but they are not developed at any length here: had they been it would have become a rather different kind of work.

But there is no ambiguity as to the central thesis of the book, which is the identification, analysis and interpretation of what Murphy calls the “formidable list of contributions” his chosen set of writers, from Petty to Thornton, have made “in providing a skeletal framework for modern economics”. It should be noted that macroeconomics includes Murphy’s own specialisation, namely monetary theory and policy, which features largely in nearly all the writers included here. The first of his selected cohort, Sir William Petty, provided macroeconomics with a major impetus through his pioneering attempts to measure national income and wealth. Petty, who spent a number of years in Ireland as a physician to Cromwell’s army, will thus scarcely be fondly remembered in this country, notwithstanding his fine contributions to the origins of macroeconomics. He will, however, be remembered as the architect of the Down Survey, which covered twenty-two of the thirty-two Irish counties and which was of course undertaken for the purpose of paying Cromwell’s soldiers with lands confiscated from those who resisted them during their unwelcome and violent sojourn in Ireland. The Down Survey was itself an extraordinary feat of administration and cartographic expertise. But Petty’s contributions to macroeconomics were certainly substantial and original. In a few brief pages, which went largely unrecognised until recent times, Petty distinguished between stocks and flows and between income and wealth. He articulated the national income equals national expenditure identity, provided methods of measuring both income and wealth and identified the significance of the velocity of circulation in monetary analysis. Petty was one of the first to recognise the centrality of the role of labour in the process of income generation, thereby launching a line of fundamental analysis that would cast long and contested shadows into the future.

Petty’s achievements, though substantial, pale by comparison with those of the Scotsman John Law. In the realm of theory, he was the first to introduce the concept of “demand” into economics, as he was the first to use supply and demand analysis. Similarly, he incorporated the concept of the demand for money into monetary analysis, identifying how inflation could occur if money supply exceeded money demand. He also had a clear understanding of the role of money in stimulating economic activity in circumstances where unemployment of a country’s resources prevailed. But Law’s extraordinary attempts to demonstrate the redundancy of basing the monetary system on the precious metals, or even an intrinsically valuable money, must be deemed one of his most innovative and visionary ambitions. In the event it was developments in the domain of economic policy, in particular the famous Mississippi System, wonderfully related in Murphy’s chapter on Law, which undermined many of his ambitions, including his plans to replace metallic money with paper money. Law’s achievements were truly astonishing. Within an exciting but turbulent life, he sampled the heights of extraordinary success and the depths of utter failure.

The circumstances of his birth, some time between 1680 and 1690, and the ambiguities surrounding his death, circa 1734, provide an aura of mystique around the deeply enigmatic Richard Cantillon from Ballyheigue in Co Kerry. A contemporary, friend and later bitter opponent of John Law, he was an economic genius. In the only known publication by Cantillon, the Essai sur la nature du commerce en général, published in 1755, twenty-one years after his death, he provided a brilliant analytical framework or model of an economic system which traced the progression of an economy from a barter, command and closed economy to its development as a market-based, monetised and entrepreneurially driven economy open to international trade and capital flows. At the centre of his system was a well-developed circular flow model of the overall economy with the entrepreneur as the animating catalyst. This was a veritable tour de force. Murphy comments in the introduction to his book that the “spirit of John Law lives through these chapters because, in many ways, he sets the standard for others”. It depends of course on your interpretation of “in many ways”. One can argue with Murphy that Law was indeed the visionary extraordinaire, but when it came to schematic conceptualisation and theoretical insight Cantillon sets the standard. He combines a clarity of theorising akin to that of David Ricardo in the nineteenth century with the insight of Joseph Schumpeter’s celebrated theory of the role of the entrepreneur in economic development in the twentieth. And along the way he provides much more.

The French Enlightenment is represented in this book by François Quesnay, who for many would contest the claim with Adam Smith for the title of “father of economics”, and with perhaps some justification. Quesnay, building on Cantillon’s work, is famous for his celebrated tableau économique, which was the first diagrammatic representation of the circular flow of income for the whole economy. His more substantial contribution was the demonstration of how surpluses could be produced within an economy and how these in turn provided the basis for future economic growth. This “surplus approach” was to become the basis for the British Classical School of political economy, which would dominate economic theory and policy for most of the nineteenth century, and has been resuscitated in the twentieth century based on the work of Piero Sraffa and the Neo-Ricardians. Quesnay’s compatriot and contemporary Anne Robert Jacques Turgot is also represented here. Turgot’s contribution to economics is identified with his analysis of the significance of capital for economic growth, and the role of the rate of interest, along with a theory of its determination through the interaction of supply and demand for loanable funds.

Paralleling the French contributions, the Scottish Enlightenment is represented in Murphy’s book by two pivotal figures, David Hume and Adam Smith. Hume, the most distinguished British philosopher of the eighteenth century, made one major incursion into economics in the form of his celebrated essays Political Discourses (1752), of which seven out of twelve essays addressed economic topics while an additional one was added to the second edition in 1758. Hume’s writings on economics came between his three major philosophical works, A Treatise of Human Nature (1739-40), An Enquiry Concerning Human Understanding (1748) and An Enquiry Concerning the Principles of Morals (1751) and his hugely popular multi-volume History of England (1754-62). A striking feature of Hume’s position in economics resides in the fact that notwithstanding his influence on his contemporaries, in particular Adam Smith and Turgot, and the absorption of his ideas into the mainstream of economic discourse, he remained a relatively minor figure in the history of the discipline, representing something of a staging post between the larger sets of presiding economic ideas, such as Mercantilism and Physiocracy on the one hand and Classical Political Economy on the other. Currently however, scholarly research into Hume’s economic ideas is expanding at a rapid pace. Hume is associated with hostility to certain Mercantilist doctrines, and with his advocacy of international free trade and the self-adjusting properties of the monetary system in an open economy, or his famous price-specie-flow mechanism, to invoke Jacob Viner’s term which is now irrevocably identified with Hume.

Not many eighteenth century writers on economics have had two twentieth-century Nobel Laureates in economics pronouncing on the relative merits of their contributions, one favourable the other unfavourable. Milton Friedman has argued that twentieth century monetary theory is no more than a technical footnote to Hume. Paul Samuelson, on the other hand, is critical of Hume for not distinguishing between the nominal and real balance of payments or not fully understanding the law of one price. In any event the task of evaluating Hume’s contribution to economic analysis has now become something of a minor industry in its own right, and not before time.

But Hume was a philosopher first and foremost, and his economic writings are imbued with his philosophical concerns. Not too surprisingly, Hume not only provides an analysis of a number of economic topics, particularly in the domain of money, but also a philosophical account of money, which brings him into much larger and fundamental topics such as the nature of custom, convention, property, markets and the critical issue of trust in a money-using economy. In the previous century, the Irishman George Berkeley grappled with similar issues as he engaged in what we might term the “metaphysics of money”. If Berkeley were to return, he would find his very considerable metaphysical capacities pressed to their limits in attempting to unravel the underlying metaphysics of modern finance and its modus operandi. In Hume’s case his philosophical concerns, particularly his political philosophy as related to such issues as property, justice and political authority were never too far from his economic reasoning. Neither was his acute awareness of the role of history and its place in his epistemological reflections, particularly as the source of “experience” as he attempted to forge the “science of man” within the framework of the experimental method understood by him in its Newtonian interpretation. The challenge for economists is not to lose the philosophical richness and of Hume’s analysis as they attempt to repatriate and incorporate him into a seriously reductionist methodological framework that would have been alien to him.

Similarly for his compatriot, Adam Smith, who has of course been long embraced as the iconic father figure of economics. Smith’s exalted status in the historiography of economics must surely be put down to good timing on his part, combined with a gifted capacity to clearly synthesise the work of his predecessors in both Scotland, including Hume and others, and in France, especially Quesnay and Turgot. His Wealth of Nations represents a brilliant exercise in the compilation, orchestration and synthesis of existing ideas, in addition of course to some novel ones of his own. It provided the outline of a framework which facilitated its acceptance as the canonical text which rendered intelligible the new commercial society that was emerging from the turbulence and intellectual creativity of the eighteenth century. But like Hume, Smith too was a philosopher, and the intellectual, not to mention the methodological, dangers of isolating his economic thinking from their philosophical moorings are considerable and potentially subversive to any adequate interpretation of him. Arising from the voluminous research on Smith over an extended period, the idea of reading the Wealth of Nations without reference to the Theory of Moral Sentiment of 1759 is now at least regarded as unacceptable. This is a point, however, that appears to have been lost on Mrs Thatcher, who purported to have kept a copy of the Wealth of Nations beside her bed but clearly not one of the Theory of Moral Sentiments, a perusal of which might have saved her from delivering one of the most ill-informed statements of the twentieth century, that “there is no such thing as society”.

The final figure in Murphy’s line-up, Henry Thornton, who brings us into the early nineteenth century, is certainly an interesting case. And Murphy provides an intriguing hypothesis for an innovative reading of him, which represents an additional interpretation as between the “first” Mr Thornton, the “concerned anti-deflationist” who opposed Adam Smith’s position of having the money supply essentially reliant on the gold stock of the country, and the “second” Mr Thornton, the “concerned anti-inflationist” who argued against the excessive issue of paper money. Both of these Mr Thorntons co-existed, if not happily at least peacefully, within the pages of An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802). But now Murphy has detected, “lurking in the shadows of the book”, a third Mr Thornton. This is Mr Thornton “the paper credit emancipator and financial innovator”, whose motivation was to rescue monetary economics from the restrictions of the presiding orthodoxy of the time, namely the gold standard. Thornton was of course a committed anti-metallist, who realised that paper credit was taking over from metallic money as the principal and largest component of the monetary system. He was indeed prescient on this development given the future trajectory of money and finance. Murphy extracts an interesting story that provides a compelling case for the “third man” interpretation of Thornton, who up to now lay undetected in the deep shadows of Paper Credit.

Murphy poses the question that perhaps historians of economic thought will “immediately ask why this early prehistory of macroeconomics has stopped with Henry Thornton”, on the basis that the gap between Thornton and Keynes omits completely the nineteenth century and the early part of the twentieth. His reply is interesting. He believes that “macroeconomics went through a great sleep during the nineteenth century and the innovativeness and vitality shown with respect to macroeconomics issues in the works from Petty to Thornton would not reappear until the twentieth century”. It is very difficult to conceive of the nineteenth century as engaging in a “great sleep” with respect to the historiography of economic thought. This may arise from conceiving macroeconomics in too narrow a frame, with money assigned too central a role. While money is certainly a key part of macroeconomics, it is not the only part. It is a house with many rooms, not least that of economic growth and distribution. If one wants to gain insight into the dynamics of growth and its interaction with the distribution of the national wealth, it is to the nineteenth century that one would look for the elaboration of systematic theorising of the development of the expanding capitalist economy. It is hard to think of a century that provided us with the works of Ricardo, John Stuart Mill and Marx to name but three giants of our discipline, not to mention many others, such as Nassau Senior and the Irishman John Elliot Cairnes, the latter two engaged the task of providing the methodological basis of the new discipline of political economy, as engaging in a “great sleep”. If the eighteenth century provided the relentless and extraordinary creativity conveyed so well in this book, the nineteenth was the century that had to address a rather different set of issues, including establishing the intellectual credentials that would earn the discipline the right to sit at the high table of the academic family. Simultaneously, the writers of the nineteenth century had to grapple with the implications of the full-blown force of the Industrial Revolution, with its radical reconfiguration of economy and society, driven by rapid technological progress with all its implications. It was also the century that witnessed the ideological battle, distasteful as that may be to many, for the “soul” of economics (one can be in trouble here with the choice of metaphor). It was the nineteenth century that threw up the three major schools of economic thought, Classical, Marxian and Neo-Classical, that have dominated so much of economic discourse and cast such long shadows into the twentieth century. Whatever descriptor one would reach for in relation to the nineteenth century, the choice of “sleep” would not spring to mind.

But with respect to his primary objectives, of demonstrating that macroeconomics was founded two centuries before Keynes and to involve readers in the excitement of macroeconomic discoveries, Murphy succeeds brilliantly in this book. This is in no small part due to the clarity of his writing, the depth of his knowledge of eighteenth century economic thought and his ability to provide perceptive insights into the personal and social context of his selected protagonists. He is uniquely equipped to guide us through the vortex of intellectual developments in the emerging discourse of political economy at this time, set against the larger canvas of the political, social and financial circumstances of the period. His book is an exemplar of exposition of the contribution of what he charmingly calls this “motley lot”, which is an apt description given the diversity of their backgrounds, their varied careers and unpredictable destinies. But it is not just exposition. Along the way Murphy intersperses his own conjectural interpretations of particular events and developments which challenge the reader to reflect on and reconsider what may perhaps be long-cherished positions.

As mentioned earlier, Murphy also touches briefly on a number of more philosophical and methodological themes. This is not the place to rehearse or evaluate his brief reflections on such topics as the role of imagination and intuition in the process of conceptual and theoretical discovery, all of which are both insightful and methodologically significant. Similarly, his reservations about the “absolutist” approach to the history of economic ideas are both measured and perceptive. Absolutism, to which Murphy is opposed, is a particularly pernicious mode of valorising the present state of knowledge while condescendingly discounting past efforts at knowledge construction. As an approach to historical research, it can quickly degenerate into a form of pretended omniscience. Lurking in the background to Murphy’s objection to absolutism is a larger agenda which is located deep within the philosophy of history, whose central issues were highlighted by Quentin Skinner, elaborated on by Richard Rorty and introduced into the historiography of economics by Mark Blaug. Central to Skinner’s and Rorty’s analysis of these issues was a distinction between “historical reconstruction”, which attempts to examine the work of past thinkers’ systems of thought “in their own terms”, and “rational reconstruction”, which examines the ideas of past thinkers and systems of thought “in our terms” and is preoccupied with identifying past mistakes while establishing that progress, ie the movement from error to truth, has been the salient characteristic of intellectual history. Murphy strives for a medium path between these positions, acknowledging the achievement of progress, but counselling that “this progress has not been linear”. History, he comments, “should encourage reflection and teach caution”, and should convince “today’s macroeconomic thinkers that modesty should be the hallmark of the profession”. And so it should: they have plenty to be modest about.

This is a delightful book to read. Well written, richly contextualised and underlain by a deep foundation of scholarship and research. As an outline of the contribution of these eighteenth century writers to macroeconomics and particularly to the evolution of monetary theory and policy, it is an outstanding contribution. For those who read it, and one would have every student and teacher of economics do so, it will reorientate their thinking and reconfigure their intellectual understanding of the origins and evolution of one of the most challenging, contested and influential parts of this awkward, but always challenging, discipline of economics.

Thomas Boylan is Professor of Economics at NUI Galway. His research interests are mainly in the areas of economic methodology, the history of economics ideas and in growth and development. Amongst his current projects are the compilation (with T.P. Foley) of a four-volume anthology on Irish Political Economy in the 19th Century, acting as guest editor for a special issue of Revue Internationale de Philosophie on the theme 'The Philosophy of Economics', and papers on pragmatism in economic methodology and a critical assessment of Hahn on economic methodology.