My rating: 5 of 5 stars
In this excellent summary of the evolution of economic thought over the last two centuries, Professor Robert Heilbroner delves into not just the philosophies, but also the lives and the backgrounds of various economic thinkers and tries to find common ground between how they experienced their lives and what they wrote in their books.
He starts the book off with one essential question: what makes the modern economy so radically different from medieval and ancient economies so as to necessitate the invention of an entirely new branch of knowledge, namely ‘economics’, or a study of the ‘political economy’?
To explain this, Heilbroner postulates two means throughout history by which those in power ensured that everyone performed the duties according to their social station: command and tradition. In traditional caste-bound societies like India, social function is passed on through lineage while in the time of the ancient Egyptians, it was through the divine pharaoh’s command that the massive Pyramids were built. In any case, it was a combination of these two manners of transfer of authority that provided everyone with their ‘roles’ in society.
The modern economy, not unlike the Biblical moment of creation, began with Adam. In this case, with Adam Smith, an eccentric Scottish professor known as the father of modern economics. Modern economics or ‘political economy’, he said was radically different from the historical methods of organizing society because of the introduction of a new motivation: self-interest or the profit motive.
For the first time, society revolved around the actions of ‘free-thinking agents’ who pursued their own ‘self-interest’, a thought previously heretical to the Catholic medieval elite for whom covetousness was a sin. The rational man was thus born. Rational, in this context, meant that a man would rather have more of a product than less of it. Thus, the age of accumulation began. Increasingly, a certain section of the society began to be accorded more power: namely the ‘capital’ists, or those who were of the firm and simple belief that ‘capital’ accumulated by amassing profits ought to be reinvested to generate more profits.
Smith’s vision of the economic world was benign, a self-regulating market model in which a combination of atomistic competition and self-interest ensured that the means of production were organized efficiently. Simply put, prices and quantities produced were governed efficiently by demand and competition. For example, if high demand drives up prices higher than their cost of production, competition will ensure that a flood of new players and new products will bring prices down to their original levels of profitability.
This vision is rudely disrupted by the ‘gloomy presentiments’ of Robert Malthus and David Ricardo who present two disturbing thoughts: that population will overtake food production and that ‘the interests of the landowners are always opposed to that of every other class’ respectively. Ricardo, a great analytical thinker, in addition is also credited with flagging off the abstraction of economics. Ricardian vice now denotes the dangers of abstraction, a point at which an abstract model ceases to replicate reality around it and yields counterproductive results.
The rest of the book is an engaging, humorous, and informative account of how Smith’s comfortable narrative was subverted by succeeding generations of eccentric, intelligent and often radical economists and by the evolving global economic landscape. As capitalism sunk deeper into the increasingly interconnected and interdependent global economy, fresh theories were necessary to explain the workings of this complex monster that often spiralled out of control.
Heilbroner analyzes the lives, times and philosophies of Karl Marx, Robert Owen, John Hobson, Thornstein Veblen, John Maynard Keynes and Joseph Schumpeter, thus tracing the evolution of economic thought over the last two centuries through these important thinkers.
In particular, the chapters on Karl Marx and Thornstein Veblen are especially well-written. He explores their eccentric lifestyles and unconventional thoughts and the relation between the two in enthralling prose. Veblen’s The Theory of the Leisure Class and Marx’s Das Capital, both of which are great critiques of the capitalistic model, are analyzed in detail and the prescient nature of their observations given due importance.
Hobson’s envisaging of the transformation of capitalism into ‘imperialism’ wherein industrialized nations use colonies as ‘dumping grounds’ for their products – India being the prime example in the case of British textile products – is explored in a chapter titled ‘The Victorian World and the Underworld of Economics’.
Heilbroner should get the George Orwell Award for Clarity in English. He explains the often complicated and dull economic concepts in wonderfully precise prose, provides the right historical context and makes this an entertaining read.
He ends the book with a recent chapter titled ‘The End of Worldly Philosophy?’ in which he discusses the challenges facing modern economics, namely the increasing mathematization and politicization of the discipline which is leading it away from its original ambition of explicating the organization of the means of production and distribution into a deceptive cocoon of specialized jargon.