|Name: William Petty|
|Birth: May 27, 1623|
|Death: December 16, 1687|
|School/tradition: Classical economics|
|Political philosophy, ethics, economics|
|Division of labor, the growth of London, fiscal theory, monetary theory, national income accounting, economic statistics|
|Aristotle, Hobbes, Francis Bacon||Mandeville, Adam Smith, Keynes, Karl Marx|
Sir William Petty (May 27, 1623 – December 16, 1687) was an English economist, scientist and philosopher. He first became prominent serving Oliver Cromwell and Commonwealth in Ireland. He developed efficient methods to survey the land that was to be confiscated and given to Cromwell's soldiers. He also managed to remain prominent under King Charles II and King James II, as did many others who had served Cromwell.
- 1 Life & Influences
- 2 Economic Works and Theories: Overview
- 3 Fiscal Contributions
- 4 National income accounting
- 5 Statistician
- 6 Money Supply & the velocity of its circulation
- 7 Theory of Value
- 8 The Interest Rate
- 9 Laissez-faire governance
- 10 Foreign Exchange & Control of Trade
- 11 Full Employment
- 12 Division of Labor
- 13 Urban Society
- 14 Summary & Legacy
- 15 Publications
- 16 Notes
- 17 References
- 18 External links
- 19 Credits
He was Member of the Parliament of England briefly and was also a scientist, inventor, and entrepreneur, and was a charter member of the Royal Society. It is for his theories on economics and his methods of political arithmetic that he is best remembered, however, and he is attributed as having started the philosophy of laissez-faire in relation to government activity. He was knighted in 1661. He was the great-grandfather of William Petty Fitzmaurice, 2nd Earl of Shelburne & 1st Marquess of Landsdowne. Petty was one of the first to place value on labor, and to emphasize the importance of long-term economic planning and of statistical data. He calculated projected population growth. He first coined the term "full employment" and argued that it was better for people to earn a wage than to receive charity. Aspects of Petty's legacy continue to influence those who formulate, and implement, economic policy.
Life & Influences
William Petty was born in Romsey on May 27, 1623 to a family of middle income, his father being a Hampshire clothier, as was his grandfather. A precocious and intelligent youngster, he became a cabin boy in 1637, but was set ashore in Normandy after breaking his leg on board. After this setback, he applied in Latin to study with the Jesuits in Caen, supporting himself by teaching English. After a year, he returned to England and had by now a thorough knowledge of Latin, Greek, French, mathematics and astronomy.
After an uneventful period in the Navy, he left to study in Holland in 1643, where he developed an interest in anatomy. Through an English professor in Amsterdam, he became the personal secretary to Hobbes allowing him contact with Descartes, Gassendi and Mersenne. In 1646, he returned to England and, after developing a double-writing instrument with little success in sales, he studied medicine at Oxford University. He befriended Hartlib and Boyle, and he became a member of the London Philosophical Society, and possibly met John Milton. By 1651, he had risen to Professor of Anatomy at Brasenose College, Oxford and was also Professor of Music in London.
In 1652, he left on a leave of absence and travelled with Oliver Cromwell's army in Ireland, as physician-general. His opposition to conventional universities, being committed to ‘new science’ as inspired by Francis Bacon and imparted by his afore-mentioned acquaintances, perhaps pushed him from Oxford. He was pulled to Ireland perhaps by sense of ambition and desire for wealth and power. His breadth of interests was such that he successfully secured the contract for charting Ireland in 1654, so that those who had lent funds to Cromwell's army might be repaid in land - a means of ensuring the army was self-financing. This enormous task he completed in 1656 and became known as the Down Survey, later published (1685) as Hiberniae Delineatio. As his reward, he acquired approximately 30 thousand acres (120 km²) in Kenmare, in southwest Ireland, and £9 000. This enormous personal advantage to Petty led to persistent court cases on charges of bribery and breach of trust until his death. None were ever proven.
Now back in England, as a Cromwellian supporter, he ran unsuccessfully for Parliament in 1659 for West Looe. Despite his political allegiances, he was well-treated at the Restoration, although he lost some of his Irish lands. In 1662, he was invited to join the 'Invisible College', a club of intellectuals and was a charter member of the Royal Society of the same year. This year also saw him write his first work on economics, his Treatise of Taxes and Contributions. Petty counted among his many scientific interests naval architecture: he had become convinced of the superiority of double-hulled boats, although they were not always successful; the Experiment reached Porto on 1664, but sank on the way back. He was knighted by Charles II and returned to Ireland in 1666, where he remained for most of the next 20 years.
The events that took him from Oxford to Ireland marked a shift from medicine and the physical sciences to the social sciences, and Petty lost all his Oxford offices. The social sciences became the area that he studied for the rest of his life. His primary interest became Ireland’s prosperity and his works describe that country and propose many remedies for its then backward condition. He helped found the Dublin Society in 1682. Returning ultimately to London in 1685, he died in 1687.
He regarded his life in bittersweet terms. He had risen from humble origins to mix with the intellectual elite and was by age 35 a considerably wealthy man and leading member of the 'progressive sciences'. Nonetheless, he was insecure about his land holdings and his ambitions of obtaining important political posts remained frustrated. Perhaps he expected the astronomical rise he experienced in his early years to continue throughout his life. Contemporaries described him, nonetheless, as humorous, good-natured and rational.
He is most well known for economic history and statistic writings, pre-Adam Smith. Of particular interest were Petty's forays into statistical analysis. Petty's work in political arithmetic, along with the work of John Graunt, laid the foundation for modern census techniques. Moreover, this work in statistical analysis, when further expanded by writers like Josiah Child documented some of the first expositions of modern insurance. Vernon Louis Parrington notes him as an early expositor of the labor theory of value as discussed in Treatise of Taxes in 1692.
Economic Works and Theories: Overview
Before discussing Petty's economic theories, it is important to point out two crucial influences in his life. The first is Thomas Hobbes, for whom Petty acted as personal secretary. According to Hobbes, theory should set out the rational requirements for ‘civil peace and material plenty’. As Hobbes had centered on peace, Petty chose prosperity.
Secondly, the influence of Francis Bacon was profound. Bacon, and indeed Hobbes, held the conviction that mathematics and the senses must be the basis of all rational sciences. This passion for accuracy led Petty to famously declare that his form of science would only use measurable phenomena and would seek quantitative precision, rather than rely on comparatives or superlatives, yielding a new subject that he named political arithmetic. Petty thus carved a niche for himself as the first dedicated economic scientist, amidst the merchant-pamphleteers, such as Thomas Mun or Josiah Child, and philosopher-scientists occasionally discussing economics, such as Locke.
He was indeed writing before the true development of political economy. As such, many of his claims for precision are of imperfect quality. Nonetheless, Petty wrote three main works on economics, Treatise of Taxes and Contributions (written in 1662), Verbum Sapienti (1665) and Quantulumcunque concerning money (1682), all refreshingly concise. These works, which received great attention in the 1690s, show his theories on major areas of what would later become economics. What follows is an analysis of his most important theories, those on fiscal contributions, national wealth, the money supply and circulation velocity, value, the interest rate, international trade and government investment.
Fiscal contributions were of prime concern to policymakers in the seventeenth century, as they have remained ever since, for the wise country would not spend above its revenues. By Petty’s time, England was engaged in war with Holland, and in the first three chapters of Treatise of Taxes and Contributions, Petty sought to establish principles of taxation and public expenditure, to which the monarch could adhere, when deciding how to raise money for the war. Petty lists six kinds of public charge, namely defense, governance, the pastorage of men’s souls, education, the maintenance of impotents of all sorts and infrastructure, or things of universal good. He then discusses general and particular causes of changes in these charges. He thinks that there is great scope for reduction of the first four public charges, and recommends increased spending on care for the elderly, sick, orphans, etc., as well as the government employment of supernumeraries.
On the issue of raising taxes, Petty was a definite proponent of consumption taxes. He recommended that in general taxes should be just sufficient to meet the various types of public charges that he listed. They should also be horizontally equitable, regular and proportionate. He condemned poll taxes as very unequal and excise on beer as taxing the poor excessively. He recommended a much higher quality of statistical information, in order to raise taxes more fairly. Imports should be taxed, but only in such a way that would put them on a level playing field with domestic produce. A vital aspect of economies at this time was that they were transforming from barter economies to money economies. Linked to this, and aware of the scarcity of money, Petty recommends that taxes be payable in forms other than gold or silver, which he estimated to be less than one percent of national wealth. To him, too much importance was placed on money, 'which is to the whole effect of the Kingdom… not [even] one to 100'.
National income accounting
In making the above estimate, Petty introduces in the first two chapters of Verbum Sapienti the first rigorous assessments of national income and wealth. To him, it was all too obvious that a country’s wealth lay in more than just gold and silver. He worked off an estimation that the average personal income was £6 13s 4d per annum, with a population of six million, meaning that national income would be £40m. Petty produces estimates, some more reliable than others, for the various components of national income, including land, ships, personal estates and housing. He then distinguishes between the stocks (£250m) and the flows yielding from them (£15m). The discrepancy between these flows and his estimate for national income (£40m) leads Petty to postulate that the other £25m is the yield from what must be £417m of labor stock, the value of the people. This gives a total wealth for England in the 1660s of £667m.
Petty's only statistical technique is the use of simple averages. He would not be a statistician by today's standards but during his time a statistician was merely one that employed the use of quantitative data. Because obtaining census data was difficult, if not impossible, especially for Ireland, he applied methods of estimation. The way in which he would estimate the population would be to start with estimating the population of London. He would do this by either estimating it by exports or by deaths. His method of using exports is by considering that a 30 percent increase in exports corresponds to a similar proportionate increase in population. The way he would use deaths would be by multiplying the number of deaths by 30 - estimating that one out of 30 people die each year. To obtain the population of all of England he would multiply the population of London by eight. Such a simple use of estimation could have easily have been abused, and Petty was accused more than once of "doctoring" the figures for the Crown. (Henry Spiegel)
Money Supply & the velocity of its circulation
This figure for the stock of wealth was contrasted with a money supply in gold and sliver of only £6m. Petty believed that there was a certain amount of money that a nation needed to drive its trade. Hence it was possible to have too little money circulating in an economy, which would mean that people would have to rely on barter. It would also be possible for there to be too much money in an economy. But the topical question was, as he asks in chapter 3 of Verbum Sapienti, would £6m be enough to drive a nation’s trade, especially if the King wanted to raise additional funds for the war with Holland?
The answer for Petty lay in the velocity of money’s circulation. Anticipating the quantity theory of money often said to be initiated by John Locke, whereby Y*p=MS*v, Petty stated that if Y was to be increased for a given money supply, 'revolutions' must occur in smaller circles (i.e., higher v). This could be done through the establishment of a bank. He explicitly states in Verbum Sapienti "nor is money wanting to answer all the ends of a well policied state, notwithstanding the great decreases thereof which have happened within these Twenty years"and that higher velocity is the answer. He also mentions that there is nothing unique about gold and silver in fulfilling the functions of money and that money is the means to an end, not the end itself:
Nor were it hard to substitute in the place of Money [gold and silver] (were a comptency of it wanting) what should be equivalent unto it. For Money is but the Fat of the Body-Politick, whereof too much doth often hinder its agility, as too little makes it sick… so doth Money in the State quicken its Action, feeds from abroad in the time of Dearth at home.'
What is striking about these passages is his intellectual rigor, which put him far ahead of the mercantilist writers of earlier in the century. It is also interesting to note the use of biological analogies to illustrate his point, a trend continued by the physiocrats in France early in the eighteenth century.
Theory of Value
On value, Petty continued the debate begun by Aristotle, and chose to develop an input-based theory of value: all things ought to be valued by two natural Denominations, which is Land and Labour. Both of these would be prime sources of taxable income. Like Richard Cantillon after him, he sought to devise some equation or par between the 'mother and father' of output, land and labor, and to express value accordingly. He still included general productivity, one’s 'art and industry'. He applied his theory of value to rent. The natural rent of a land was the excess of what a laborer produces on it in a year over what he ate himself and traded for necessities. It was therefore the profit above the various costs related to the factors involved in production.
The Interest Rate
The natural rate of rent is related to his theories on usury. At the time, many religious writers still condemned the charging of interest as sinful. Petty also involved himself in the debate on usury and interest rates, regarding the phenomenon as a reward for forbearance on the part of the lender. Incorporating his theories of value, he asserted that, with perfect security, the rate of interest should equal the rent for land that the principal could have bought - again, a precocious insight into what would later become general equilibrium findings. Where security was more 'casual', the return should be greater - a return for risk. Having established the justification for usury itself, that of forbearance, he then shows his Hobbesian qualities, arguing against any government regulation of the interest rate, pointing to the 'vanity and fruitlessness of making civil positive laws against the laws of nature.'
This is one of the major themes of Petty’s writings, summed up by his use of the phrase vadere sicut vult, whence we get laissez-faire. As mentioned earlier, the motif of medicine was also useful to Petty, and he warned against over-interference by the government in the economy, seeing it as analogous to a physician tampering excessively with his patient. He applied this to monopolies, controls on the exportation of money and on the trade of commodities. They were, to him, vain and harmful to a nation. He recognized the price effects of monopolies, citing the French king’s salt monopoly as an example. In another work, Political Arithmetic, Petty also recognized the importance of economies of scale. He described the phenomenon of the division of labor, asserting that a good is both of better quality and cheaper, if many work on it. Petty said that the gain is greater 'as the manufacture itself is greater'.
Foreign Exchange & Control of Trade
On the efflux of specie, (the Latin term used to refer to the precious metals used to back the value of a nation's currency), Petty thought it vain to try and control it, and dangerous, as it would leave the merchants to decide what goods a nation buys with the smaller amount of money. He noted in Quantulumcunque concerning money that countries plentiful in gold have no such laws restricting specie. On exports in general, he regarded prescriptions, such as recent Acts of Parliament forbidding the export of wool and yarn, as 'burthensome'. Further restrictions 'would do us twice as much harm as the losse of our said Trade' albeit with a concession that he is no expert in the study of the wool trade.
On prohibiting imports, for example from Holland, such restrictions did little other than drive up prices, and were only useful if imports vastly exceeded exports. Petty saw far more use in going to Holland and learning whatever skills they have than trying to resist nature. Epitomizing his viewpoint, he thought it preferable to sell cloth for 'debauching' foreign wines, rather than leave the clothiers unemployed.
The goal of full employment was of most importance to Petty, having recognized that labor was one of the major sources of wealth for individuals and 'the greatest Wealth and Strength of the Kingdom'. In this vein, he extended the cloth-wine argument above, arguing that it is better to employ men and burn their product or to engage in extravagant public works projects, than to have indolent 'supernumeraries' in an economy - hence his famous example of relocating Stonehenge across the plains of Salisbury.
Division of Labor
Petty made a practical study of the division of labor, showing its existence and usefulness in Dutch shipyards. Classically the workers in a shipyard would build ships as units, finishing one before starting another. But the Dutch had it organized with several teams each doing the same tasks for successive ships. People with a particular task to do must have discovered new methods that were only later observed and justified by writers on political economy.
Petty also applied the principle to his survey of Ireland. His breakthrough was to divide up the work so that large parts of it could be done by people with no extensive training. (The ethics of doing this is another matter.)
Petty projected the growth of the city of London and supposed that it might swallow the rest of England—not so far from what actually happened:
Now, if the city double its people in 40 years, and the present number be 670,000, and if the whole territory be 7,400,000, and double in 360 years, as aforesaid, then by the underwritten table it appears that A.D. 1840 the people of the city will be 10,718,880, and those of the whole country but 10,917,389, which is but inconsiderably more. Wherefore it is certain and necessary that the growth of the city must stop before the said year 1840, and will be at its utmost height in the next preceding period, A.D. 1800, when the number of the city will be eight times its present number, 5,359,000. And when (besides the said number) there will be 4,466,000 to perform the tillage, pasturage, and other rural works necessary to be done without the said city."
He imagined a future in which "the city of London is seven times bigger than now, and that the inhabitants of it are 4,690,000 people, and that in all the other cities, ports, towns, and villages, there are but 2,710,000 more." He expected this some time round the year 1800, extrapolating existing trends. Long before Malthus, he noticed the potential of human population to increase. But he also saw no reason why such a society should not be prosperous.
Summary & Legacy
The above shows the contribution Petty made to theoretical issues that have dominated the later subject of economics ever since. He covered such a wide range of topics according to his political arithmetic method, i.e., like modern economists, he set out to show something and tried to find data and statistics, rather than anecdotal evidence, to prove his case. He wrote rigorously, but also with concision and humor. The issues that Petty thought about and wrote are major topics that have plagued the minds of economic theorists ever since.
He influenced not only immediate successors such as Richard Cantillon but also some of the greatest minds in economics, including Adam Smith, Karl Marx and John Maynard Keynes. With Adam Smith, he shared a Weltanschauung that believed in a harmonious natural world. The parallels in their canons of taxation epitomize their joint belief in natural liberty and equality. They both saw the benefits of specialization and the division of labor. Furthermore, Smith and Petty developed labor theories of value, as did David Ricardo and Karl Marx in the nineteenth century.
Smith says nothing about Petty in The Wealth Of Nations. In his published writings, there is nothing apart for a reference in a letter to Lord Shelburne, one of Petty's aristocratic descendants (Correspondence Of Adam Smith, Letter No. 30, Glasgow Edition).
Petty continued to exercise influence. Karl Marx believed, as did Petty, that the total effort put in by the aggregate of ordinary workers represented a far greater contribution to the economy than contemporary thought recognized. This belief led Petty to conclude in his estimates that labor ranked as the greatest source of wealth in the kingdom. Marx’s conclusions were that surplus labor was the source of all profit, and that the laborer was alienated from his surplus and thus from society. John Maynard Keynes also wrote at a time of mass discord, as unemployment was rampant and economies stagnant during the 1930s. He showed how governments could manage aggregate demand to stimulate output and employment, much as Petty had done with simpler examples in the seventeenth century. Petty’s simple £100-through-100-hands multiplier was refined by Keynes and incorporated into his model.
- A Treatise of Taxes and Contributions (1662)
- Political Arithmetic posthum. (approx. 1676, pub. 1690)
- Verbum Sapienti posthum. (1664, pub. 1691)
- Political Anatomy of Ireland posthum. (1672, pub. 1691)
- Quantulumcunque Concerning Money posthum. (1682, pub. 1695)
- Vernon L. Parrington. Main Currents in American Thought, 1620 - 1800, Vol 1. (1917), chapter 3 "Benjamin Franklin: Our First Ambassador" at the University of Virginia Benjamin Franklin: Our First Ambassador. Retrieved October 17, 2007
- William Petty. The Political anathomy of Ireland: with the establishment for that kingdom and Verbum sapienti. (London: 1691), 113
- Charles H. Hull, (ed.) The Economic Writings of Sir William Petty. (Cambridge: Cambridge University Press, 1899), 113
- Sir William Petty. 1899 . Treatise of Taxes amid Contributions, The Economic Writings of Sir William Petty, ed. C.H. Hull (Cambridge: Cambridge University Press), 44
- Petty, 1899, 48
- Petty, 1899, 59
- "Quantulumcunque concerning Money," by William Petty. 1682.  Retrieved July 2, 2008.
- William Petty. The Economic Writings of Sir William Petty, together with The Observations upon Bills of Mortality, more probably by Captain John Graunt, ed. Charles Henry Hull. (Cambridge University Press, 1899, Volume 2), 552. text at Another Essay On the Growth of the City Online Library of Libraries, the Liberty Fund. Retrieved October 17, 2007.
- Aspromourgos, Tony. "The life of William Petty in relation to his economics." in History of Political Economy 20 (1988): 337-356
- Bevan, Wilson Lloyd. 1894. Sir William Petty: A Study in English Economic Literature.
. American Economic Association (August, 1894). Retrieved July 2, 2008. (biographical research and documentation)
- Heckscher, Eli F. Mercantilism. London: Allen & Unwin. NY: Garland, 1955; 1983 ISBN 9780824053635
- Hull, Charles H. (ed.) The Economic Writings of Sir William Petty. Cambridge: Cambridge University Press, 1899
- Hutchison, T. W. 1997. Sir William Petty critical responses. London: Routledge/Thoemmes Press, 1997 ISBN 9780415158770
- Keynes, John Maynard. The General Theory of Employment, Interest, and Money. Harcourt/ Harvest, 1965. ISBN 0156347113
- Schumpeter, Joseph Alois. History of economic analysis, edited by Elizabeth Boody Schumpeter, with a new introduction by Mark Perlman. New York: Oxford University Press, 1954; 1994 ISBN 0195105591
- Petty, William. The Economic Writings of Sir William Petty, together with The Observations upon Bills of Mortality, more probably by Captain John Graunt, ed. Charles Henry Hull. Cambridge University Press, 1899, Volume 2, 552
- Petty, William The Political anathomy of Ireland: with the establishment for that kingdom and Verbum sapienti (London: 1691), 113
- Petty, William. 1899 . Treatise of Taxes amid Contributions, The Economic Writings of Sir William Petty, ed. C.H. Hull. Cambridge: Cambridge University Press.
- Smith, Adam. Essays on Philosophical Subjects. (The Glasgow Edition of the Works & Correspondence of Adam Smith) Liberty Fund Inc., U.S.; New Ed, 1982. ISBN 0865970238
- Uhr, Carl G. The economic writings of Sir William Petty, 1623-1687, revisited. Newcastle, N.S.W.: University of Newcastle, Dept. of Economics, 1982. ISBN 9780725904357
All links retrieved April 17, 2015.
- William Petty
- The National Portrait Gallery which has eight portraits of Sir William Petty
- Critique of "A Treatise of Taxes & Contributions"
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