Rae, John

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Rae, John

John Rae (1796–1872) was born in Scotland, but it was while he was living in Canada that he wrote his most important book, a work on the theory of capital and of economic development. He migrated to Canada in 1822, having acquired at the universities of Edinburgh and Aberdeen a knowledge not only of the classics but also of mathematics and, to some degree, of medicine. In Canada he held several schoolmasterships, from the last of which he was discharged in 1848, in part because he had become involved in religious and educational controversy. In financial straits and with poor professional prospects, he traveled across Panama to California, where he remained until 1851, and then went to the Hawaiian Islands, where he hoped to regain his health and resume a professional career. He supported himself at first by teaching, later mainly through medical and judicial posts. In 1871, ill and without funds, he returned to New York to live with a wealthy friend. He died within a year.

The treatise on which Rae’s fame mainly rests, Statement of Some New Principles on the Subject of Political Economy Exposing the Fallacies of the System of Free Trade and of Some Other Doctrines Maintained in the Wealth of Nations, was published in Boston in 1834. The full title is revealing; the book was a by-product of a never completed study of the Canadian economy and was essentially an argument with Adam Smith.

Rae’s New Principles has been called by Schumpeter “a theory of capital, conceived in unprecedented depth and breadth,” containing, as it does, two essential components of the theory that Böhm-Bawerk was to erect: “the proposition that ’lengthening’ the process of production (postponement) will usually increase the physical amount of final product …and the proposition that ’the actual presence of the immediate object of desire’ will give to it, in our valuation, a decisive advantage over an exactly similar object that is expected to become available at some future date, even if this expectation be perfectly certain” (Schumpeter 1954, p. 469).

Apart from his important contribution to the theory of capital, what distinguishes Rae’s political economy most strikingly from that of his orthodox contemporaries is his treatment of the neglected subject of invention (with which he was familiar at first hand) and his discussion of the capacity of legislators to foster invention and capital formation by preventing dissipative luxury, by promoting education, morality, and science, by maintaining order, and by affording protection to infant industries with real potential. His emphasis thus reflected his experience in a frontier society, as did his recognition of the role of banks in promoting growth and of the significance of durability and yield for capital allocation; his frontier experience may also have prompted his Veblen-like assessment of luxury.

Rae’s boyhood ambition, according to his later reminiscences, had been a large-scale study of natural history, especially the natural history of man, of the social attitudes that condition man’s behavior, and of changes in these attitudes. He continued all his life to do “research” on this subject, and although he never produced a major work, he did write a number of papers in the general area that we would now call social science. While in Hawaii he wrote an article on the Polynesian language, anticipated Wundt’s ideas on the gesture theory of language, and transcribed a Hawaiian legend. In his New Principles he had developed the notion of the “effective desire of accumulation”—a phrase that was adopted by John Stuart Mill, who quoted much from Rae (see Schumpeter 1954, p. 469)—and in correspondence with Mill, Rae developed this idea further, emphasizing the role of social “sentiments” in the formation of capital. In his letters to Mill he attributed the decline of Hawaii’s population to a weakening of the “effective desire for offspring,” which in turn weakened the “effective desire of accumulation.”

The New Principles, as R. Warren James (1951) has noted, had rather limited influence in the nineteenth century, despite its support from Nassau Senior and, above all, from Mill; its translation into Italian; and its generally favorable reception in the United States and Canada. Reasons for this limited influence may be the small number of copies printed, Rae’s residence in a then poor and undeveloped country, and the unpopularity of capital theory in England. The articles on Rae by C. W. Mixter (1897; 1902) and Mixter’s new edition of the New Principles, somewhat rearranged, annotated, and titled The Sociological Theory of Capital, made Rae’s work known to a distinguished circle of scholars, among them Bohm-Bawerk, Irving Fisher, and Knut Wicksell. Recently there has appeared John Rae, Political Economist: An Account of His Life and a Compilation of His Main Writings; Volume 1 contains a splendid biography by the editor, R. Warren James, which has finally made Rae’s position in the history of economic analysis secure.

Joseph J. Spengler

[For the historical context of Rae’s work, see the biography ofSmith, Adam; for discussion of the subsequent development of Rae’s ideas, seeCapitaland the biographies ofBÖhm-bawerk; Fisher, Irving; Mill, article onEconomic Contributions; Wicksell; Wundt.]

WORKS BY RAE

(1834) 1905 The Sociological Theory of Capital. New ed., annotated by C. W. Mixter. New York: Macmil-lan. → First published as Statement of Some New Principles on the Subject of Political Economy Exposing the Fallacies of the System of Free Trade and of Some Other Doctrines Maintained in the Wealth of Nations.

John Rae, Political Economist: An Account of His Life and a Compilation of His Main Writings. Compiled by R. Warren James. 2 vols. Univ. of Toronto Press, 1965. → Volume 1: Life and Miscellaneous Writings. Volume 2: Statement of Some New Principles on the Subject of Political Economy. Volume 1 contains an excellent biography by the editor, R. Warren James.