Henry Dunning Macleod, 1821-1902.

Scottish lawyer, banker and maverick economist, critic of the Classical school and anticipator to the Marginalist Revolution

Born to a family of wealth Scottish landowners, Henry Dunning Macleod was raised in Edinburgh and studied at Trinity College, Cambridge.  He subsequently called to the bar in 1849.  Among Macleod's first works (1851) was a study of Scottish Poor Laws. 

In 1853, Macleod was appointed director of the Royal British Bank.   It was in the course of writing reports for the bank, that Macleod first delved into economic literature, reading Adam Smith, David Ricardo and John Stuart Mill.  As he recounts later in his life:

"I can hardly express the disappointment I felt at reading them...for the purpose of describing the actual principles and mechanisms of commerce they were absolutely worthless. They were merely a chaos of confusion and contradictions...In fact, they were in no sense a science, but the butchery of a science. I saw that the greatest opportunity that had come to any man since Galileo had come to me, and I then determined to devote myself to the construction of a real science of Economics on the model of the already established physical sciences. (Macleod, 1896, pp. 142–3)

In a prelude to this mission, Macleod composed his Theory and Practice of Banking (1855-56), a work of largely historical character, hailed by many as his most sober work.  It is here that Macleod famously "discovers" the use of the discount rate as a policy tool by the Bank of England.

Macleod's scientific reconstruction really begins in his Elements (1858).  Against the Classicals, Macleod embraced the 'catallactic' approach of Whately, emphasizing economics as the 'science of exchanges', with value determined solely by supply and demand.  He rejects the Classical cost-of-production theory of long-run price as scientifically invalid, the distinction between short and long periods as repugnant to logic, and, to top it off, an insidious encourager of labor unrest.  Rebuilding the theory of value on supply-and-demand theory, Macleod appealed to the physical sciences and mathematics to provide the constructive image and tools of the science - calling economics the "Queen of the social sciences", to jurisprudence to ground property rights on the things to be exchanged and the institutional details of credit and money to provide the context.  It is, incidentally, in this work where Macleod first coins the term "Gresham's Law" (p.477). 

Macleod's self-congratulations and his vehement attacks on the Classicals - notably John Stuart Mill - ensured his work would be received coldly.  It was not helped that it was marred by a bizarre language, repetitiousness, littered with juristic terms and obscure references.  But Macleod would be later acknowledged by Jevons as a predecessor to the Marginalist Revolution.

An additional factor may very well be Macleod's sudden embroilment in a very public scandal after the Royal British Bank collapsed in 1857.   The subsequent financial scandal would mar his repeated attempts to acquire a university chairs - he competed for the professorship in political economy at Cambridge in 1863 (it went to Fawcett) and at UCL in 1866 (it went to Cairnes).

Nonetheless, Macleod's works on banking were well-received. His "credit theory" of money and wealth in his Theory of Credit (1889) and elsewhere.  This is perhaps his most original achievement, although it is anticipated to a good degree by the "anti-metallist" theories of Berkeley, Law, Boisguilbert and Steuart.  Although he formed no school, he had an enthusiast in Michel Chevalier at the Collège de France.

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