Have you ever read that one book which you had been wanting to read for a long time but which when you actually start reading refuses to end? This is that kind of book! I have been wanting to read this book page by page since my Ph.D days. I remember that this was the course book for my course 'History of Economic Thought'. Now that I have finally read the book instead of just skimming through it, I say the book is enlightening, in parts.
Personally, I do not enjoy old school Engligh; 50-word sentences are just too long too remember. But, given that the first edition of this book came out in 1953, I should have been prepared for old English. Heilbroner wrote this book in his graduate days, a commendable achievement. It is a very well structured book. I think the central takeaway from the book is that economic thought is product of social, political and of course economic circumstances of its times.
All descendants of Adam and Eve have faced the problem of how to survive best as a society. It earliest solutions were 'follow religion', 'follow custom', then came 'follow the King'. As long as the problem of survival was handled by tradition or command, it never gave rise to the study called "Economics". Till the 16th century, the idea of "gain" or "profit" was considered a sin according to the doctrines of Church (and even in other religions). Till 17th century, the idea of "making a living" or "working for commodities" had not taken shape. The world was still where economic life and social life were entwined as one, but it was slowly changing.
In 1720s, the young Adam Smith was growing up in a trade-bustling town country, UK. He was a sincere student, with a particular inclination for philosophy and political economy, and at the age of 28 he was to be offered the Chair of Logic at the University of Glasgow. That he was brilliant is of no doubt. That he could change the way people thought about society, one had to wait till 1776 to read it in his masterpiece, The Wealth of Nations. The Wealth of Nations had two important contributions. First, it provided a novel insight to see labor, not gold or commodities, as the source of "value". It is the drive of individual self-interest in an environment of similarly motivated individuals which result in competition; and further competition results in the provision of those goods and services that the society wants, in the quantities that society desires, and at the prices society is prepared to pay. Self interest and competition have created a market society which functions without the need for a dictator or a planner. Adam Smith's, second crucial contribution was to record the tremendous gain in productivity which sprang from the minute division and specialization of labor. Specialization of labor is the basis for gains from trade and more so productivity gains -- his insights still hold about 250 years after he wrote them. Is it a wonder that he quoted so widely even today?
The world of Adam Smith was a world of atomistic competition, where businesses and workers were competitive, and prices were responsive to changes in demand. Adam Smith saw evolution of society, he could not foresee that the process would be painful. In forty years since the Wealth of Nations, England had divided into two hostile groups: rising industrialists fighting for parliamentary representation and the old rich landowners who looked resentfully at these brassy new riches. Ricardo, in 1817, saw this bitter conflict and saw that the only class which could benefit from the progress of society was the one which owned the scarce resource called land, i.e. the landlords. Marx, in 1848, was more gloomy where the bourgeois and the proletariat will fight over dominance. The capitalist (or bourgeois) owns capital and technology and hence is the monopolistic producer of jobs. He dictates that a laborer ought to work for 10 hours per day and be paid 'just enough to be alive'. By paying the laborer the subsistence wage and not the true value, capitalists earn profits and exploit workers. This exploitation, where labor is treated merely as an input to production process, would be the death knell of capitalism. Marx not only predicted the death of capitalism but he predicted the kind of social structure which would replace it -- Communism. Marx noted that the base of industrial production -- the actual making of goods -- was an ever more organized, integrated, interdependent process, whereas the superstructure of private property was the most individualistic of social systems. Hence the superstructure and the base clashed; which meant doom!
Marx's diagnosis about the problems of capitalism were very much true -- concentration of wealth and power as well as inherent economic instability. However, Marx (and his friend Engels) got one thing wrong. They had predicted that workers would want to overthrow the capitalists, but instead over time workers wanted to emulate the capitalist. In the next decades, thanks to developments of technology, the hourly wages of workers rose and one never really saw the revolution that Marx had predicted. However, one did see the economic instability, the Great Depression of 1930s. By this time, economic thinkers were thinking differently. They were no more philosophizing or concocting the ideal economic systems; they were repairing the existing economic systems. In this sense, the last philosopher and the first modern world economist was John Maynard Keynes. He was born in 1883, the year Marx died, and added to the list of brilliants within his family. His brilliance became household name when he rightfully predicted the un-workability of Versailles Treaty (and that it eventually lead to World War II). Note, we are near October 1929, the fateful week when US markets would collapse and would wipe out over $40 billion in next two months. But fret not, as popular folklore goes, Adam Smith's invisible hand would get the system up and running in no time. Till 1933, millions sat unemployed waiting for the invisible hand till Roosevelt's expansionary fiscal policies came to aid. It was Keynes in his phenomenal text, The General Theory of Employment, Interest and Money, which documented that the invisible hand is not always available. That someone could correct Smith's workings of economic system was nothing short of revolutionary. There was no automatic safety mechanism to get out of economic downturns. Rather than a seesaw that would always right itself, the economy resembled an elevator: it could be going up or down, but it could also be standing still on the ground floor as at the top of the shaft. A depression, in other words, might not cure itself at all! The economy depends on investment, which is uncertain.
What after that? Thereafter you have to pick you Macroeconomics undergraduate textbooks. Worldly Philosopher is a good narrative of prominent economists cum philosophers till the mid twenty-first century. (One may choose to not spend so much time over less prominent characters in the book) The book depicts a time when:
“The study of economics does not seem to require any specialized gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy or pure science? An easy subject at which few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.” (Keynes 1924: 321-322)
Those are bygone days, when thinking and travelling and talking could lead to great economic revelations. Today, you need to pick up the maths book to even understand the E-C-O of the subject. I do not complain, only warn you. Try not to fall in love with economics after reading this book, it would lead to either a short affair or a mismarriage.
Personally, I do not enjoy old school Engligh; 50-word sentences are just too long too remember. But, given that the first edition of this book came out in 1953, I should have been prepared for old English. Heilbroner wrote this book in his graduate days, a commendable achievement. It is a very well structured book. I think the central takeaway from the book is that economic thought is product of social, political and of course economic circumstances of its times.
All descendants of Adam and Eve have faced the problem of how to survive best as a society. It earliest solutions were 'follow religion', 'follow custom', then came 'follow the King'. As long as the problem of survival was handled by tradition or command, it never gave rise to the study called "Economics". Till the 16th century, the idea of "gain" or "profit" was considered a sin according to the doctrines of Church (and even in other religions). Till 17th century, the idea of "making a living" or "working for commodities" had not taken shape. The world was still where economic life and social life were entwined as one, but it was slowly changing.
In 1720s, the young Adam Smith was growing up in a trade-bustling town country, UK. He was a sincere student, with a particular inclination for philosophy and political economy, and at the age of 28 he was to be offered the Chair of Logic at the University of Glasgow. That he was brilliant is of no doubt. That he could change the way people thought about society, one had to wait till 1776 to read it in his masterpiece, The Wealth of Nations. The Wealth of Nations had two important contributions. First, it provided a novel insight to see labor, not gold or commodities, as the source of "value". It is the drive of individual self-interest in an environment of similarly motivated individuals which result in competition; and further competition results in the provision of those goods and services that the society wants, in the quantities that society desires, and at the prices society is prepared to pay. Self interest and competition have created a market society which functions without the need for a dictator or a planner. Adam Smith's, second crucial contribution was to record the tremendous gain in productivity which sprang from the minute division and specialization of labor. Specialization of labor is the basis for gains from trade and more so productivity gains -- his insights still hold about 250 years after he wrote them. Is it a wonder that he quoted so widely even today?
The world of Adam Smith was a world of atomistic competition, where businesses and workers were competitive, and prices were responsive to changes in demand. Adam Smith saw evolution of society, he could not foresee that the process would be painful. In forty years since the Wealth of Nations, England had divided into two hostile groups: rising industrialists fighting for parliamentary representation and the old rich landowners who looked resentfully at these brassy new riches. Ricardo, in 1817, saw this bitter conflict and saw that the only class which could benefit from the progress of society was the one which owned the scarce resource called land, i.e. the landlords. Marx, in 1848, was more gloomy where the bourgeois and the proletariat will fight over dominance. The capitalist (or bourgeois) owns capital and technology and hence is the monopolistic producer of jobs. He dictates that a laborer ought to work for 10 hours per day and be paid 'just enough to be alive'. By paying the laborer the subsistence wage and not the true value, capitalists earn profits and exploit workers. This exploitation, where labor is treated merely as an input to production process, would be the death knell of capitalism. Marx not only predicted the death of capitalism but he predicted the kind of social structure which would replace it -- Communism. Marx noted that the base of industrial production -- the actual making of goods -- was an ever more organized, integrated, interdependent process, whereas the superstructure of private property was the most individualistic of social systems. Hence the superstructure and the base clashed; which meant doom!
Marx's diagnosis about the problems of capitalism were very much true -- concentration of wealth and power as well as inherent economic instability. However, Marx (and his friend Engels) got one thing wrong. They had predicted that workers would want to overthrow the capitalists, but instead over time workers wanted to emulate the capitalist. In the next decades, thanks to developments of technology, the hourly wages of workers rose and one never really saw the revolution that Marx had predicted. However, one did see the economic instability, the Great Depression of 1930s. By this time, economic thinkers were thinking differently. They were no more philosophizing or concocting the ideal economic systems; they were repairing the existing economic systems. In this sense, the last philosopher and the first modern world economist was John Maynard Keynes. He was born in 1883, the year Marx died, and added to the list of brilliants within his family. His brilliance became household name when he rightfully predicted the un-workability of Versailles Treaty (and that it eventually lead to World War II). Note, we are near October 1929, the fateful week when US markets would collapse and would wipe out over $40 billion in next two months. But fret not, as popular folklore goes, Adam Smith's invisible hand would get the system up and running in no time. Till 1933, millions sat unemployed waiting for the invisible hand till Roosevelt's expansionary fiscal policies came to aid. It was Keynes in his phenomenal text, The General Theory of Employment, Interest and Money, which documented that the invisible hand is not always available. That someone could correct Smith's workings of economic system was nothing short of revolutionary. There was no automatic safety mechanism to get out of economic downturns. Rather than a seesaw that would always right itself, the economy resembled an elevator: it could be going up or down, but it could also be standing still on the ground floor as at the top of the shaft. A depression, in other words, might not cure itself at all! The economy depends on investment, which is uncertain.
What after that? Thereafter you have to pick you Macroeconomics undergraduate textbooks. Worldly Philosopher is a good narrative of prominent economists cum philosophers till the mid twenty-first century. (One may choose to not spend so much time over less prominent characters in the book) The book depicts a time when:
“The study of economics does not seem to require any specialized gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy or pure science? An easy subject at which few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.” (Keynes 1924: 321-322)
Those are bygone days, when thinking and travelling and talking could lead to great economic revelations. Today, you need to pick up the maths book to even understand the E-C-O of the subject. I do not complain, only warn you. Try not to fall in love with economics after reading this book, it would lead to either a short affair or a mismarriage.