The shaping of human behaviour and of legal arrangements by production conditions and social institutions
While in his arguments on socialism he takes human motivation and behaviour as given and immutable relative to a mere change of property rights - and rightly so in his historical framework of thought, which deals with a relatively short-run analysis of a given stage of economic development - in the historically very long run, in contrast, Roscher considers preferences, work habits, human knowledge and the average state of economic information as shaped by conditions of production and the levels of per capita income.
Quite explicitly, he pronounces the basic political constitution of a society to be the mere result of its modes of production (and never the other way round).The reader of the first of Roscher’s economic policy volumes to be published, that on agriculture, may be surprised to be first treated to a history of the development of the powers of government within the last five thousand years. Three important ‘natural laws’ explain everything: (i) the development of personal freedom and private property up to a state of general free competition within society, (ii) the progressive centralization of the state, and (iii) the development of all branches of industry (in particular of agriculture) from extensive to ever more intensive production.
The centralization of the state or of government is due to the tendency of ever-increasing responsibilities or purposes of the state with the rise in ‘culture’ (that is, national per capita income). This is due to the increasing intensity of all production which causes more frequent and intensive economic interactions of individuals, which in their turn imply increasing possibilities for external effects. For Roscher, however, increasing state responsibilities and centralization are not in conflict with increasing liberalism. He says, for example, that ideally in a highly developed society public care for the poor is to be replaced by legally regulated, but private, insurance and state regulation of industrial employment is to be replaced by free contract.
Thus increasing state concerns do not necessarily increase state activities. In fact, in the rude state of society there is neither need nor capability for much government activity. Government activity (particularly in industry and trade, as we are told in later books) then rises on both these counts, while the final stage will be free, but legally regulated, trade: ‘Freedom of trade proceeds parallel to the establishment of a constitutional government’. Roscher is also clear as to the limits to all government: if opposed by strong economic forces, ‘the law giver frequently gains not only relatively, but absolutely more if his demands are moderate’. Furthermore, Roscher is never one-sided. Centralization of government, for example, is to be held in check by the principle of subsidiarity, which also has much to be said for it - England in this respect showing the ideal example of a ‘healthy equilibrium’.As to the basic political constitution of a people, we are told that the agriculturist is trained ‘by his strict dependence on nature to a blind obedience in human affairs as well’. Thus the prevalence of agriculture makes for a conservative and aristocratic government and - in the case of artificial irrigation - even for absolute monarchy. But the number of agriculturists declines in the higher stages of economic development; and industry and trade, and in particular small-scale artisan firms, make for democracy, and also for enlightenment and rationality, as traders and manufacturers constantly have to examine natural causes. (Roscher takes the materialist interpretation so far as to liken the art of Corinth and Rhodes in classical antiquity to that of Venice and the Dutch Republic, because all those were commercial people.)
As to agriculture, the incentive effects and the possibilities of control by the landlord in various systems of land holding are discussed extensively on very modern lines. The importance of legal security is stressed, ‘which is to the advantage of not only those who gain at law, but to all’.
Inheritance is of great importance, as it makes for long-term planning. Roscher explicitly explains, for example, the economic prosperity of the high Middle Ages as ‘in particular due to fiefs having become hereditary from the middle of the eleventh century onwards’. Finally, competition is the panacea for many social ills.Becoming more and more devout as he aged, Roscher in the book on public finance adds ‘the sinfulness and the tendency to err of human beings’ as an argument against absolute government and also concludes that for the same reason no tax will be possible that causes no ‘other disadvantages’ besides the financial sacrifice. Tax collectors should get a share of the amount of taxes illegally evaded which they recover.
While Roscher’s last book on the policy towards the poor, published when he was 77, contains little of novelty, his book thirteen years earlier, on trade and industry, contributes a wealth of interesting socioeconomic or legal- economic insights. Take the following three: (i) it is one of the legal advantages of joint-stock companies that, because of their greater permanency, they can hire more highly qualified personnel, especially better managers; (ii) if the obligation of the central bank to exchange its notes against coin be suspended by the government in a crisis, the bank is likely to fall victim to the government, which can then force it to finance any amount of government expenditure; (iii) improvements in transport and communication, particularly the introduction of the railways, will, by vastly cheapening transport and by levelling regional and social differences, increase the possibility of centralized control by the state, make for a common big city culture and create a national consciousness.
The book written in 1881 shows Roscher, the institutionalist, to particular advantage. In his materialist interpretation of all legal institutions he not only has to explain why legal arrangements of former times have become dysfunctional and how laws are first disregarded because of pre-eminent economic advantages and then swept away; he also has to show why these now dysfunctional arrangements had good economic reasons for them at the time when they arose.
Of particular interest are the arguments for the (former) protection of trade in contrast to the (now to be recommended) freedom of trade. For, explicitly against Adam Smith, protection cannot have arisen ‘purely out of error or even because of deceit’.Sometimes the arguments may not be fully convincing, as when Roscher contends that the medieval rights of staple of certain towns are to be explained by the fact that, in times ‘full of rapine and feuds’, commercial capital was safe only behind the walls of towns, and that with the then very thin markets there was an advantage in concentrating trade at certain places (reduction of transaction and information costs for buyers).
More interesting is the argument for international protection. Its good economic sense, though as something ‘conditional and transitory’, is argued on infant industry lines (quoting Friedrich List) as a measure of education, of developing ‘slumbering productive forces’ and of stimulating industrial diligence. Also the initial advantage of foreign production might give the foreigner monopoly power. (Roscher repeatedly - and, of course, implicitly - refers to the Pareto inefficiency of monopoly due to the fact that it does not use resources socially optimally.) Thus time has to be exactly ‘ripe’ for a successful introduction of free trade: Turgot, for example, had introduced free trade in France at too early a moment. Roscher adds a characteristic political explanation: protection had been introduced by absolute monarchs in order to help their bourgeoisie develop more rapidly and thus to weaken the power of their aristocracy. However, ‘full’ protection, by giving too much security, will ruin the habits of the manufacturers. Thus, in all matters of economic policy, according to Roscher, it is crucial to find exactly the right dose and exactly the right time.
References
Roscher, W.G.F., System der Volkswirthschaft: Ein Hand- und Lesebuch fur Geschdftsmdnner und Studierende, Stuttgart: J.G.
Cotta:Vol. 1 (1854), Die Grundlagen der Nationaldkonomie', 26th edn (with R. Pohlmann) (trans. English, French, Russian, Polish, Serbian) 1922;
Vol. 2 (1859), Nationaldkonomik des Ackerbaues und der verwandten Urproductionen; 14th edn (with H. Dade) (trans. French, Italian, Russian, Polish, Hungarian, Swedish) 1912;
Vol. 3 (1881), Nationaldkonomik des Handels und Gewerbefleifes; 8th edn (with W. Stieda) (trans. French, Polish, Hungarian) 1913-17;
Vol. 4 (1886), System der Finanzwissenschaft, 5th edn (with O. Gerlach) 1901;
Vol. 5 (1894), System der Armenpflege und Armenpolitik, 3rd edn (with C. J. Klumker) 1906.
Roscher, W.G.F. (1861), Ansichten der Volkswirthschaft aus dem geschichtlichen Standpunkte, Leipzig and Heidelberg: C.F. Winter; 2nd edn 1878; reprinted, Dusseldorf: Wirtschaft und Finanzen, 1994.
Roscher, W.G.F. (1874), Geschichte der National-Oekonomik in Deutschland, Munich: Oldenbourg; reprinted, Dusseldorf: Wirtschaft und Finanzen, 1992.
Streissler, E.W. (1994), ‘Wilhelm Roscher als fuhrender Wirtschaftstheoretiker', Vademecum zu einem Klassiker der historischen Schule, Dusseldorf: Wirtschaft und Finanzen.
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