11. Review of Lionel Robbins, Robert Torrens and the Evolution of Classical Economics

11. Review of Lionel Robbins, Robert Torrens and the Evolution of Classical Economics

October 14, 1960

Dr. Ivan R. Bierly

William Volker Fund

Dear Ivan:

There is no questioning the considerable merit in Lionel Robbins’s Robert Torrens and the Evolution of Classical Economics.⁶³ The scholarship is first rate and very thorough; the style is, as usual with Robbins, excellent; and Robert Torrens is resuscitated as a classical economist of considerably more merit and originality than was generally known. Robbins notes Torrens’s various improvements on Ricardian theorems and with approval; notable is Torrens’s pioneering in the insight that value cannot, in the nature of the case, be measured, and also in the rejection of the labor theory of value.

The most notable chapter in the book is Robbins’s exposition of Torrens’s great contributions to the development of the currency principle and critique of Banking School doctrines, including the development of the 100 percent gold doctrine, and the hints of anticipation of Wicksell-Mises views on money and interest. Also, Robbins shows that Torrens, of all the currency theorists, was alive to the essential identity of bank deposits with bank notes as money—although he unfortunately did not carry this insight over into policy recommendations. Here, while Robbins generally approves Torrens’s position, he makes two mistakes: (1) in criticizing Torrens for overlooking the important functions of the Bank of England in being a “lender of last resort” to bail out banks in trouble; and (2) in attributing originality to Torrens’s recognition of bank deposits as being money. Here, Robbins suffers from British insularity, since he overlooks the many Americans who arrived at a correct position over twenty years before Torrens.

To some extent in the general theory chapter, and certainly in the money and banking chapter, then, this book is of considerable interest and merit. On the other hand, the two latter chapters—“The Theory of Colonization” and “The Theory of Commercial Policy”—are very disappointing, not only because Robbins joins Torrens in the errors and fallacies that dominated his discussion of these issues, but also because Robbins gives such a commanding position and emphasis to Torrens’s views in these particular areas. Here, in these two fields, Robbins says repeatedly, Torrens made his most important contribution to economics.

Torrens’s—and Robbins’s—position in these last two chapters is, essentially, a repudiation of the position of nineteenth-century liberalism, and of the insight that individual and social interests are always harmonized by the free-market processes. In the colonizing chapter, Robbins hails Torrens’s conversion to the fallacies and statist views of E.G. Wakefield, which (a) reversed the older liberal scorn at governmental colonization and enthusiastically favored colonization, imperial preference, etc., and (b) advocated—in the name of the common laborer, note—the artificial restriction of free land in the colonies.

It is one thing to fall into the Turner error and attribute to the existence of free land all the glories “colonial” civilization (the United States, Australia, etc.); it is, however, an equal error to go to the other extreme (as did Wakefield, Torrens, and even, to some extent, Robbins) and denounce the existence of the boon of free land as evil and oppressive of the worker, because it delays the processes of concentration of population and of industrialization.⁶⁴ But this is to fall into the very error that the “underdeveloped countries” are making now: of putting industrialization of their particular area as the prime desideratum for prosperity.

Overall industrialization is fine and important for prosperity; but this hardly means that every area of the globe—or, therefore, everycountry—must be industrialized. On the contrary, it was and is better for, say, Australia to concentrate its resources on its abundant land and agriculture, and then to exchange these agricultural products for imported manufactures, than to try to industrialize itself. Only the market can decide which resources do what; and to put artificial burdens on superior land, to make it artificially expensive, is a cruel penalty on the average worker. Robbins has an easy time—too easy—in disposing of Marx’s bitter strictures against Wakefield (who also partially defended slavery, by the way, and is almost defended here by Robbins), but while Marx is clearly wrong in his detailed analysis, I must say that I find his moral indignation at Wakefield’s proposals sounder than Robbins’s sophisticated defense.

Furthermore, Robbins seems to believe that Torrens’s repudiation of Say’s Law and adoption of the “Keynesian” or “Hansenian” view that depressions are caused by oversaving—by saving that can’t find profitable outlets—is a great contribution to economic thought. Robbins apparently refuses to realize that this is a fallacy through and through.

Furthermore, while he recognizes that Torrens’s commercial ventures in colonization in S. Australia colored his pamphlets and made them more propagandistic, Robbins fails to see how much and how thoroughly Torrens’s economic interests weakened his analytic capacities in economic theory. It is obvious that this theory of oversaving and “economic glut”—this repudiation of his own previous adherence to Say’s Law—was caused by Torrens’s desire to find a good argument for encouraging colonization and foreign investment of capital: he found it in the supposedly depressant falling rate of profit at home, which leads to a search for foreign outlets abroad. This fallacious argument led eventually to many pernicious results: specifically, to the Brooks Adams type of championing of American imperialism in the late nineteenth century, and, conversely, to Lenin’s explanation of the causes of this imperialism. Thus, both sides were to feed on the same mischievous fallacy.

Finally, in the commercial policy chapter, Robbins devotes himself, at length, to hailing Torrens’s desertion of the cause of unilateral free trade and his adoption of the principle of reciprocity—all because of his discovery of the “terms of trade” argument for tariffs, which Robbins takes so seriously as to make up virtually the entire chapter. Yet this is surely a fallacious argument; the tariff is essentially a “negative railroad”—an artificial imposition of transport costs—and, if we take the methodological-individualist point of view, it is clear that a tariff can only benefit a few “monopolists” at the expense of the bulk of the consumers in the area.

We thus see that, despite the numerous merits of the volume, a great deal of it is used to demonstrate—supposedly—the weaknesses and failings of the free market in harmonizing individual and social interests, and therefore where government action must “correct” the free market: specifically, in the areas of colonization (governmental), of imposing an artificial scarcity on land, and of protective tariffs—and there is also a strong implication that Keynesian measures would be required in a depression, since Torrens is hailed for his pre-Keynesian doctrine. I would have to say, therefore, that overall, Robbins’s book is not sound enough for National Book Foundation distribution.