- Title: The Worldly Philosophers
- Author: Robert L. Heilbroner
- Published: 1953
- Publisher: Touchstone; New York
- ISBN-13: 978-0-684-86214-9
The First Economic Revolution
It is the era (15th – 17th centuries) before economics and economists existed, yet it laid the foundation of them. The word “revolution” implies the concept of freedom or liberation from old customs and injustices. Written from the perspective of capitalist economics, the choice of the word “revolution” seems quite natural. I agree that the changes in the 15th through 17th centuries have immense historical importance, as they laid the cornerstone of the current capitalist societies. In addition to acknowledging the economic revolution, we need to look at the other side of the story; the lives of working-class people, the exploitation by industrialists (such as explorations and adventures depicted in the book), and the psychological alienation of our daily life and work.
The economic (commercial) revolution was not a short, sudden, or accidental event. It had happened over a couple of centuries and came with granular changes in political and social life.
The first point of the revolution is the emergence of the idea of gain. “Each working person constantly strives for the material gain.” It is natural to accept the idea nowadays, and it is also thought that the idea has been existed for a long time and is based on human instinct. However, we have accepted this idea only recently. To desire what we need for our existence is natural, but we do not pursue the material gains without limits. Once the basic needs are met, we might seek other pleasures such as leisure or cognitive adventures. Early industrialists recognized that wages were not directly proportional to the desire to work more. Instead, once wages reached a certain point, workers chose to reduce the working hours. These early capitalists adapted to the situation. The idea of material wealth was spread, but at the same time, capitalists wanted workers to remain poor so they could secure a new source of cheap labor. It is not easy to directly manipulate the general population (aka the mass), but the surplus made in the capitalist industries affected the general view of the material gain. Also, as religious power and doctrines weakened, the negative attitude towards the wealth began to shift. We live in the 21st century, where being wealthy is a virtue or even a goal of life. This idea, which we take for granted today, is a product of the economic revolution.
The most important driver of these changes was political changes. It was a time of transition from feudalism to centralized monarchies, which encouraged foreign exploration (exploitation). In the medieval era, everything was pretty much localized. The three big economic factors – land, labor, and capital – were fixed in the local manorial system, leaving no surplus of products or labor.
Then came another blow: scientific and technological improvements. Apart from the general understanding, guilds were not promoting technical advances. They stuck to the old skills and ways of producing goods and disliked challenges. However, change was inevitable. With a surplus of products and better transportation, traders found a way to move goods around the world and accumulated wealth. With a surplus of labor, industrialists found a way to use workers to produce much more. Thus, we witnessed the emergence of new classes: industrialists, traders, and financiers – the bourgeoisie.
Adam Smith and the Wealth of Nations
As an icon of free trade, a.k.a. the “invisible hand,” Adam Smith has been regarded as the father of economics. It is worthwhile to examine how and why he came up with the idea of a free market.
He was a professor of moral-philosophy, and his early book “The Theory of Moral Sentiments” showed his belief that human beings can behave morally (by looking at situations objectively and with sympathy) even though the self-interest is the main drive.
During his time (the late 18th century), economic activities were not regarded as a separate sector. Adam Smith believed that the market system could work autonomously without the guidance of political policies. He was also deeply influenced by the ideas of physiocracy that challenged the prevailing mercantilism. Physiocracy insisted that wealth could only be produced through agricultural activities – such as only plants can produce the energy from the Sun -. Other activities are merely transferring wealth. Adam Smith expanded the idea of Physiocracy and proclaimed that other economic activities such as factory labor or trade, could also produce wealth. It was a significant shift in the point of view of how wealth is produced and influenced future economists.
Two main ideas of Adam Smith’s economics are “the Law of Accumulation of Wealth” and “the Law of Population”. Wealth (Opulence) is accumulated and is reinvested back to industrial production. It is the positive feedback and the key point to sustain the ever-growing capital. In terms of population, it is a little bit controversial. Just like “supply and demand”, wealth and population will continuously find the optimal point to maintain one another. With accumulated wealth, more labor is required to support more production, which leads population growth. At some point, when wealth cannot keep up with wage increases, the population decreases. It looks simple, but it is a mistake to regard human beings as a simple variable in a model, which is still prevalent in modern economics and sociology. Thomas Malthus later pointed out that when population growth and the supporting system collide, the result can be disastrous. The decline of the population is not just a number. It is the lives of human beings.
Adam Smith’s idea of a free market is simple and powerful. Also, it has proven its success (at least in a limited degree). In the 21st century, we lived in a society that is more affluent than ever before in a general sense. Wealth has accumulated and even supported massive population growth. Yet, there are still many problems indeed. The biggest is the distribution of wealth, – both vertically in a nation or society and horizontally (regionally) across the world. Also, current wealth and general prosperity are not from the free-market and industrialists. They are the outcome of the development of a new political system – democracy – and the struggles and achievements of many revolutionary actions before us, such as labor and equality (race, gender) movements.
Thomas Robert Malthus and David Ricardo – Dismal Science
After Adam Smith, positive economic prospects were the norm among intellectuals. However, the distinct negative opinions challenged the naive positive mood.
From the late 18th to the early 19th century, the increasing power of new industrialists and traders collided with the existing powers. With population growth, the price of food increased, allowing big landowners to profit a lot from this. Traders and industrialists tried to import cheap grain for big gains but landowners fired back and pushed the parliament to pass the notorious “Corn Law” to make the grain import impractical.
Malthus, an academic, looked at the situation when the food supply could not support the population growth, which caused the misery of a whole country. For him, the important thing is the self-sustainability of the economic system, especially food. This explains why he supported the duty tax system of landowners.
Meanwhile, Ricardo, a businessman and stock investor, explained the economic situation in an abstract sense based on his experience of finance and business. He agreed with the basic idea of a free market but pointed out its naive assumptions – competition. Ricardo pointed out that competition cannot be fair. The starting point is different, and once one climbs to the next level, he “kicks away the ladder” to prevent others from climbing. The distribution of wealth is not fair either. Wealth will be accumulated to a few. Even though a free market has its shortcomings, Ricardo insisted that a revised free market is the way to go with some intervention of state powers. Relative advantage is a good example.
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