The Worldly Philosophers

Here’s a few summary notes from a book I’m reading at the moment for my module States and Markets called The Worldly Philosophers. The more I read, the that more will be added.

2. Economic Revolution

Even today man has failed to solve the problem of want and misery. There is tension between the self-centred nature of the human being and the society in which he finds himself. In primitive society, this is taken care of by the environment – it forces men to co-operate. In less stringent conditions, men and women co-operate under universal rules of kindness and reciprocity. In modern day society, there is very little of this ‘social work’ and we are at great risk from a breakdown (e.g. miners stop mining, factories stop churning out goods). In previous times, this possibility has been guarded against by tradition and custom (similarities with modern-day India) or by the whip of authority (e.g. Soviet Russia). As long as society was ruled in either of these two ways, economics was irrelevant. It wasn’t until the arrival of the ‘market system’ that economists were needed; the rule was simple, each do what is to their monetary advantage. Together, through this system, individuals pursuing their own interests resulted in society getting things done. The economic revolution was fundamental to the shaping of modern society. The idea of gain can be pinned to modern man. The Ancient Greeks, Romans, Egyptians and the large majority of Eastern civilisations did not strive for more wealth. In fact, within many societies, gain was viewed as en evil. The early capitalists were considered outcasts. Work was a way of life and not a way to make a living. Markets have existed as far back as history goes; however a market system is not just a means for exchanging goods, it is a mechanism for sustaining and maintaining an entire society. Market systems did not develop during the Middle Ages, the Renaissance period etc because Land, Labour and Capital (the basic agents of production) did not exist – when viewed as separate entities they were dehumanised and impersonal, separate from society’s needs. For example, land provided prestige and the core of social life; it would not have entered a nobleman’s head that he could sell his acres in exchange for money. Who would look for the abstract laws of supply and demand, or cost, or value when the explanation of the world lay like an open book in the laws of the manor and the Church and the city? There would have been nothing for an economist to actually do until the 18th Century. This process was a gradual and convoluted process – an evolution, however the fundamental uprooting of all aspects of society that it caused warrant the term revolution. The gradual change to the market was not caused by any particular individuals or events – it was a spontaneous and many-sided change. The gradual emergence of national political units in Europe was a factor. Monarchies, central organising units, developed and with this came a national spirit and national industries. A modernising Europe also brought the onset of exploration and adventure. A further factor was the decay of the religious spirit under the impact of the sceptical, inquiring, humanist views of the Italian renaissance. There was a re-evaluation of the merchant in the eyes of the Church – they were integral to the new world. Additionally, the development of improved transport links and towns put the merchant into favourable conditions – they understood the new landscape better than the nobleman. Probably the most important change that took place was the rise of scientific curiosity. Together these changes gave place to the birth of capitalism, but the idea needed a philosophy. Thomas Hobbes’ Leviathan signalled the importance of gold for the all-encompassing sovereign ruler. However, this soon seemed out-dated as commerce began to represent national vitality. People began to debate ideas on how best for a nation to succeed in an increasingly competitive global environment. Different and contrasting ideas flourished about the state of society and how it worked; one thing was clear – man needed some sort of intellectual underpinning in order to help him understand the world in which he lived. “There is nothing which requires more to be illustrated by philosophy than trade does” Dr Samuel Johnson. Out of the chaos came a philosopher of astonishing scope, Adam Smith. His vision became the prescription for the spectacle of generations. A new vision came into being.

3. The Wondeful World of Adam Smith

Adam Smith lectured on Moral Philosophy at Glasgow University, a subject that ranged from Natural Theology to Ethics to Political Economy. The 18th Century world in which Smith inhabited was nasty, chaotic and brutish. It is therefore an even greater achievement that Smith was able to pull various pieces together to develop clear and purposeful laws on the way in which the world worked.

He was born in Glasgow and gained a scholarship to study at Oxford University. Smith progressed up the ranks of the Glasgow University, where he was initially invited to become Chair of Logic, before swiftly moving onto Moral Philosophy. He was soon offered a very good wage to educate a aristocrat’s child and moved to France. It was here that boring evenings pushed Smith to develop his treatise on political economy – this was the beginning of the Wealth of Nations. When in Paris, Smith met with France’s greatest economist of the time – François Quesnay – who had developed thoughts on the economy strongly tied to the physical human body. Quesnay insisted that wealth sprung from production and that it flowed through the nation like blood flowed through the body. This was particularly influential on Smith, particularly how he would later correct Quesnay’s idea that nature, and not labour as Smith believed, was the source of wealth. The trip in France came to an abrupt end due to the illness of someone who had joined the mission and Smith travelled back to the UK. In 1776, The Wealth of Nations was published. It has been described as “the outpouring not only of a great mind, but of a whole epoch”. The book was heavily influenced by those who had come before him (e.g. Locke, Cantillon, Quesnay, Hume) but brought together pieces that others had missed; it offered a panorama of the landscape. It’s opening passage describes in detail the minute specialisation of labour in the manufacturing of pins. The book offered a living picture of England in the 1770’s. The book’s style is unstructured and the reader is left to wrap up their own conclusions from the lengthy, detailed thoughts that span its pages. It was written as a doctrine for running an empire, not for the lecture halls of a university. The book was a radical philosophy of wealth; gone are the notions of gold, treasures and kingly hoards – this was a book that described the modern world in which goods and services are consumed and traded, constituting the ultimate aim and end of economic life.

It was a blueprint for a whole new mode of social organisaion, a mode called Political Economy, or in our terms – Economics. At it’s heart lie solutions to the problem of how society hangs together and survive whilst pursuing self-interested causes with no underlying central authority to pull things together. This lead to the laws of the market and Smith’s infamous invisible hand. “The private interests and passions of men” are led in “the direction which is most agreeable to the interest of whole society”. Adam Smith’s laws of the markets allow us to explain how society works and hence whether is prospers or decays. Adam Smith’s laws of the market are simple – they tell us that the outcome of a certain kind of behaviour in a certain social framework will bring about perfectly definite and foreseeable results. Specifically they shows us how the drive of individual self-interest in an environment of similarly motivated individuals will result in competion; and they further demonstrate how competion will result in the provision of those goods that society wants, in the quantities that society desires and at the prices that society is prepared to pay. Self-interest is the driving power to guide men to whatever society is willing to pay for (our dinner does not turn up on the dinner table from the benevolence of butchers and bakers!). However, we do not live in a society full of profit-hungry individuals holding society to ransom – the regulator is competition. Each self-interested man out to generate wealth is faced with an army of similar-minded individuals. Those who seek greatest profit for example by charging highest prices and paying lowest wages will see their businesses collapse in front of their eyes. Thus, the selfish motives of men are transmuted by interaction to yield the most unexpected of results: social harmony. The laws of the market ensure a competitive price for all goods and additionally see that the quantities of each good demanded by society is matched by suppliers. The market also decides the incomes of those who cooperate to produce the goods – if one industry is making particularly large profits, other producers will rush into the industry and gain a share of this. Smith has found in the mechanism of the market a self-regulating system for society’s orderly provisioning. The world in which Smith grew up certainly conformed to these rules to a large degree. It is a much more difficult question when discussing today’s market system, with much larger actors involved, but the laws of the market can most definitely be discerned.

Smith believed in two deep-seated laws of behaviour which propel the market system in an ascending spiral of productivity. First is the Law of Accumulation. Accumulation of wealth did not benefit society for it’s own sake but it allowed capital to flourish, which combined with the division of labour, provided vast benefit to society. How did one maintain profit under accumulation of wealth (higher accumulation = more capital = more demand for workers = higher wages = less profit). This takes us to the Law of the Population. We must remember Smith wrote at a time when many failed to survive until the age of 10. If wages increased, the number of children reaching a working age would increase and there would be an increased supply of labourers, thus creating a downward pressure on wages. Higher wages are tempered by an expanding population.

Smith is a slave to the market system. He was not anti-Labour or anti-Capital, he believed that the greatest good would come to society if the market was left alone. He was undeniably laissez-faire. Unlike how many portray Smith these days, he did support government roles in a society of natural liberty.  Protection against violence and invasion of other societies was key. Secondly, it should provide an ‘exact administration of justice’ for all citizens. Third, government has the duty of ‘erecting and maintaining those public institutions and those public works which may be in the highest degree advantageous to a great society’ but which ‘are of such a nature that the profit could never repay the expense to any individual or small number of individuals’. Education and roads are two examples he mentions. Smith is not against government, he is against interference in the market mechanism. The great enemy is not government per se, but monopoly in any form.