My passion for economics was ignited in college thanks to my favorite professor Randy Grant (no disrespect to Jeff Summers because he was also a major influence). For some reason economics was the one subject that made sense to me, almost as if it were intuitive.
Of all the great economics classes that Linfield had to offer two stood out as my favorites. My favorite was environmental economics because of the interesting problems the subject posed (i.e externalities, individual vs. social cost-benefit analysis, free loading, etc.).
However, my second favorite economics class was, “This Evolution of Economic Thought”. It was taught by Randy who later re-wrote the text with his doctoral professor Stanley Brue (if this is any indication as to what a dork I am I actually bought this text for myself for my 28th birthday). It may also have been that this was my favorite class because it had the least intimidating final (trivial pursuit with economics questions).
That said, when Robert L. Heilbroner’s, “The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers” was given to me as a gift for Christmas in 2007 I was excited to read it. However, even given my excitement I didn’t manage to pick it up until Thanksgiving 2008. But, once I picked it up I couldn’t put it down.
Economics is such an interesting science. It is arguably one of the youngest sciences on the planet and therefore the history is very recent. What I found most intriguing about Heilbroner’s account about the history of economic thought is how he associated the environmental impacts of his subject’s contributions to economic thought.
For example, in describing the contributions of Karl Marx he created the context under which Marx developed his philosophy (i.e. industrial revolution, exploitation of labor, etc.).
Second, Heilbroner dedicates a relatively large proportion of his book to lesser known “underground” economists who made important but somehow less noteworthy contributions to the subject of economics.
If you enjoy economics this is a great read. If not, don’t bother.
Here are my notes:
*When times are tough people come together:
“…when the specter of starvation can look a community in the face…the pure need to secure its own existence pushes society to the cooperative completion of its daily labors.”
*During medieval times economics as a science could very well have been established. However, as Heilbroner explains,
“…it had not yet conceived the abstract elements of production itself. Lacking land, labor, and capital, the Middle Ages lacked the market…”
*During the middle ages the process of “enclosure” (privatizing of land for the purpose of raising sheep) caused land to be regarded as a valuable which is an important step in the concept of scarcity and the marketplace.
*Adam Smith’s most notable contribution from The Wealth of Nations:
“What he sought was, ‘the invisible hand,’ as he called it, whereby, ‘the private interests and passions of men’ are led in the direction ‘which is most agreeable to the interest of the whole society.”
*Great economists see society as an evolving process:
“To Smith and the great economists who followed him, society is not conceived as a static achievement of mankind which will go on reproducing itself, unchanged and unchanging, from one generation to the next. On the contrary, society is seen as an organism that has its own life history.”
*Adam Smith believed that wealth accumulation was good because of the positive impact on society.
*Although many people believe that Adam Smith’s laissez-faire doctrine means that he was universally opposed to government intervention this is not necessarily the case. Here is a quote from Smith:
“the understandings of the greater part of men are necessarily formed in their employments. The man whose whole life is spent performing a few simple operations…generally becomes as stupid and ignorant as it is possible for a human creature to become unless the government takes some pains to prevent it.”
*However, Heilbroner goes on to write that Smith thought:
“The market must be left free to find its own natural levels of prices and wages and profits and production; whatever interferes with the market does so only at the expense of the true wealth of the nation.”
*Heilbroner writing about Thomas Malthus:
“For what the essay on population said was that there was a tendency in nature for population to outstrip all possible means of subsistence.”
*David Ricardo also had a negative outlook on natural developments in a market economy. He felt that the interests of landlords ,”always opposed …the interest of every other class in the community…”
*David Ricardo was a gifted businessman. Much like a modern day value investor:
“Sir John Bowring later declared that Ricardo’s success was based upon his observation that people in general exaggerated the importance of events.”
*According to Heilbroner, Ricardo’s biggest contribution to economic thought was the tool of abstraction. By thinking of land, labor, and capital as abstract items economists were later able to build economic models.
*Utopian Robert Owen recognized the impact that a person’s environment can have on their behavior:
“…Owen was convinced that mankind was no better than its environment and that if that environment was changed, a real paradise on earth might be achieved.”
*In John Stuart Mill‘s text Principles of Political Economy he points out that the true province of economic law is production and not distribution. He goes to associate laws of production as natural laws.
*In Karl Marx‘s Manifesto he differed from previous economic thinkers in that he saw communism as a logical conclusion to the developments in the economy rather than being a matter brought upon society as a choice.
*While writing about Marx and theories of economic fluctuations Heilbroner delivers this brilliant paragraph:
“A crisis does not mean the end of the game. Quite the contrary….each crisis serves to renew the capacity of the system to expand. Crisis-or a business slump or recession, in modern terminology-is therefore the way the system works, not they way it fails.”
*Critics of Marx later discovered that he made a major mathematical mistake in equating labor value & price. As a result, he concluded that communism was eminent in his model. In retrospect this is easy to dismiss as inaccurate.
*Following Marx economists began to focus their studies on more detailed aspects of the economics (i.e supply and demand, marginal utility) instead of the broad-based macro-view that previous economists had taken.
*Francis Edgeworth described humans as pleasure machines. For him economics was defined to be,
“…the study of human pleasure-mechanisms competing for shares of society’s stock of pleasure…”
*Coincidentally, Heilbroner wrote this paragraph about Henry George‘s view on property speculation that sounds dangerously similar to today’s economic reality in the US (interesting to note that Henry George lived in California which is one of the hardest hit by the recent housing downturn):
“George was convinced that rent led inevitably to wild speculation in land values and just as inevitably to an eventual collapse which would bring the rest of the structure of prices tumbling down beside it.”
*Many critics of the Iraqi War have speculated that the source of US aggression was more about economic interests than threats to our freedom. John Hobson probably would have agreed. Here is Heilbroner on Hobson:
“Imperialism thus paves the way to war-not by swashbuckling adventures or high tragedy, but through a sordid process in which capitalist nations compete for outlets for their unemployed wealth.”
*Alfred Marshall‘s famous description of supply and demand (arguably his greatest contribution) per Heilbroner:
“Neither cost nor utility…could ever be quite divorced from the determination of price; demand and supply…were like ‘the blades of a pair of scissors,’ and it was as fruitless to ask whether the upper or lower blade of the scissors did all the cutting.”
*Two additional contributions from Marshall- First, he believed an economy ultimately rested on the decisions of the individual. This was a major shift in perspective. Second, he did not focus on political influences. He saw economics being independent of political influence.
*Heilbroner writing about the stock market crash of 1929- does his description bear any resemblance to the housing market today?:
“In retrospect it was inevitable. The stock market had been built on a honeycomb of loans that could bear just so much strain and no more. And more than that, there were shaky timbers and rotten wood in the foundation which propped up the magnificent show of prosperity.”
“And then there was the fact that the average American had used his prosperity in a suicidal way; he had mortgaged himself up to his neck, had extended his resources dangerously under the temptation of installment buying, and then had ensured his fate by eagerly buying fantastic quantities of stock- some 300 million shares…on margin.”
*During World War I John Maynard Keynes worked for the British Treasury in the area of foreign finances. As a testament to his brilliance it was said:
“…men of ripe judgment have declared that Keynes contributed more to winning the war than any other person in civil life.”
*One of Keynes’s major contribution was his recipe for government spending during times of depression to help stimulate the economy.
*Joseph Schumpeter coined the term “entrepreneur” and saw their innovating activity as the source of profit in the capitalist system.
*Interestingly, Schumpeter agreed with Marx in that they shared the view that capitalist economies are bound to eventually fail. However, they disagree on the path under which this occurs. For Marx the process took place because of the collective uprising of the working class. For Schumpeter it occurs because as the economy grows large corporations are erected. Over time, the values of entrepreneurship and innovation (which create economic growth) are replaced with bureaucratic management.
*Heilbroner writing about Schumpeter’s view that economic analysis is subjective (hence, a person’s environment impacts their economic views):
“There is a ‘preanalytic’ process that proceeds our logical scenarios, a process from which we cannot escape, and which is inescapably colored with our innermost values and preferences.”