The political economy of trade and growth: an analytical interpretation of sir James Steuart's inquiry

Abstract

Sir James Steuart (1713-80) has been unduly neglected by the majority of historians of economic thought. This study aims at casting a new light upon his original thought to provide a basis for the revaluation of his contribution to the development of economic discipline. The present interpretation of his Inquiry (1767) reveals that his political economy contains not only fresh new ideas and path-breaking thinking for his time but also most major ingredients of modem economics. Firmly based on the recognition of the interdependence of economic sectors and social classes, he clearly grasped the circular system of production, distribution and consumption in the exchange economy. He discerned between the 'profit upon alienation' and the 'real value' of commodities in their current price' determined in the markets. He emphasized the 'balance of work and demand', secured by the 'double competition' among the sellers and buyers of commodities, for the efficient allocation of economic resources. On these foundations, Steuart established his theory of output, employment and population in terms of the notion of 'effectual demand'. His economic analysis culminates in his discussions of economic growth and foreign trade. He linked the limitations of the former to the benefits of the latter. Meanwhile, refuting his predecessors' quantity theory, Steuart presented what might be called the production-consumption theory of money, according to which money is not neutral to the determination of the level of output in an exchange economy. His theory of international money also takes on modernity, as it adopts an absorption approach to the balance of payments. Steuart's monetary analysis comes complete with his argument for government's active finance. The state interventionism underlying the whole of Steuart's political economy is seen as its logical conclusion, rather than a mere assumption. Thus, it is suggested that the ultimate message of his Inquiry is neither laissez faire nor centa-al planning.