The Worldly Philosophers

Evolution and Adaptation of Economic Thought

The evolution of economic thought is a testament to the adaptability and dynamism of the field. From Adam Smith's pioneering work on the market mechanism to the modern era's embrace of mathematical modeling and statistical analysis, economics has continuously evolved to address the changing needs of society.

Smith's foundational principles, such as the invisible hand and the laws of the market, provided a brilliant analysis of the expansive propensities of the 18th-century economy. However, as the Industrial Revolution unfolded, new social forces emerged that challenged Smith's static conception of society. Subsequent economists, such as Keynes, built upon Smith's work, incorporating macroeconomic perspectives and the role of government intervention to address the complexities of the modern economy.

The increasing reliance on mathematics and statistics in economics reflects the growing interdependence and scale of today's economies. Concepts like Gross Domestic Product and Price Level have become essential tools for understanding and analyzing economic phenomena. While the predictive capabilities of these mathematical models may be limited, they have become indispensable for the analytical purposes of the discipline.

The evolution of economic thought is not merely a technical exercise; it is a reflection of the changing societal needs and the ongoing quest to understand the complex mechanisms that drive economic activity. As the world continues to evolve, the field of economics must remain adaptable and responsive, constantly refining its theories and tools to provide meaningful insights and solutions.

Here are examples from the context that illustrate the evolution and adaptation of economic thought:

• Adam Smith's vision: The context describes Smith's "blueprint for a whole new mode of social organization" centered on the "laws of the market" and how "society is seen as an organism that has its own life history." This represents an early, foundational perspective on economics.

• Malthus and Ricardo's divergent views: The passage notes how Malthus and Ricardo, despite their "striking differences in their analyses," shared a basic vision of "society as a great social mechanism driven by the imperative of a search for profit." However, their differing perspectives were shaped by "changes in the effects of technology" they observed.

• Marshall's contributions: The context highlights how Marshall "combined a mind of mathematical precision with a style that was leisurely, discursive" to address the "fuzzy questions of economic theory" and emphasize the "importance of time" in the equilibrium process. This reflects an evolution towards more rigorous, nuanced economic analysis.

• Keynes' "Copernican system": The passage describes how Keynes created "a whole Copernican system" that differed from previous economic thought, reflecting a major shift in perspective and analysis.

• The decline and evolution of Keynesianism: The text discusses how "Keynesianism withered" in the 1960s-1980s due to challenges in reconciling its macro and micro views, but then led to a "new period of economic thought" with a "crisis of vision" and a more "pragmatic fusion of micro and macro" emerging in Europe.

These examples illustrate how economic thought has dynamically evolved, adapting to changing societal needs, technological advancements, and new analytical perspectives over time.

Influence of Historical Figures on Economics

The 'Great Economists' wielded immense power through their ideas, shaping and swaying the minds of people worldwide. Though many never directly took action, their theories and philosophies had far-reaching consequences, shattering empires, igniting revolutions, and transforming societies.

These thinkers, from diverse backgrounds and with conflicting viewpoints, tackled the most fundamental economic questions of their time. Their notions, whether right or wrong, proved to be enormously influential, guiding the decisions of policymakers, businessmen, and the public alike. The power of their ideas often exceeded that of physical force or political authority.

Despite the profound impact of these 'Great Economists,' they remain relatively obscure figures today. Their work, once the subject of passionate debate, is now often perceived as dry and inaccessible. Yet the ideas they grappled with were anything but dull - they were world-shaking, with the potential for both great progress and calamitous error.

The ability of economists to shape the course of history underscores the vital role of intellectual discourse in society. While the specific theories and models may evolve, the influence of economic thinkers on the trajectory of nations and the lives of individuals remains a testament to the transformative power of ideas.

Here are some examples from the context that illustrate the key insight about the profound influence of great economists on shaping economic thought and policies:

• The passage states that the "ideas of economists and political philosophers" are "more powerful than is commonly understood" and that "the world is ruled by little else." It cites the quote from Keynes that "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."

• The passage describes the "great economists" as an "odd group of men" who were "of every nationality, of every walk of life, of every turn of temperament" yet were able to "remake the world" through their "heretical opinions" that "constitute nothing less than the gradual construction of the intellectual architecture of much of contemporary life."

• It provides examples of the diverse backgrounds of these great economists, including "a philosopher and a madman, a cleric and a stockbroker, a revolutionary and a nobleman, an aesthete, a skeptic, and a tramp." Yet despite their differences, their "viewpoints toward the world were as varied as their fortunes" and they were able to have a profound impact.

• The passage highlights how the "ideas of the great economists were world-shaping, and their mistakes nothing short of calamitous," illustrating their outsized influence compared to "the great philosophers or statesmen."

• It describes how these economists were able to "buttress and undermine political regimes" and "set class against class and even nation against nation" through the "extraordinary power of their ideas," despite the fact that "few of them ever lifted a finger in action."

In summary, the context provides numerous examples showcasing how the "great economists," through their innovative ideas and theories, were able to dramatically shape economic policies, social structures, and even global affairs, despite their diverse backgrounds and lack of direct action.

The Role of Capitalism in Shaping Economics

The text highlights how capitalism fundamentally shaped the development and evolution of economics as a discipline. Capitalism, with its emphasis on the acquisitive drive, market-based distribution, and the interplay of public and private authorities, provided the social and economic foundation upon which economic theories were built.

As capitalism displaced traditional and feudal systems, it necessitated a new mode of understanding society's material organization. This gave rise to economics as the explanatory framework for the novel capitalist order. The worldly philosophers, from Smith to Keynes, formulated their theories and prescriptions based on the realities of the capitalist system.

Importantly, the text suggests that the increasing prominence of scientific approaches and the relative disappearance of the term "capitalism" in modern economics textbooks reflect a shift in the underlying vision of the discipline. This transformation, however, does not negate the deep-rooted connection between economics and the capitalist social formation that birthed it.

Here are some examples from the context that illustrate the key insight about the role of capitalism in shaping economics:

• The context notes that the word "capitalism" does not appear at all in the 997-page economics textbook by Joseph Stiglitz, suggesting the disappearance of the concept of capitalism from modern economic thought.

• It contrasts this with the increasing prominence of the "concept of science" as the "vision" and "essence" of economics, as evidenced by quotes from textbooks by N. Gregory Mankiw and Joseph Stiglitz that emphasize the "scientist's objectivity" of economists.

• The passage discusses how economists have sought to find "lawlike aspects to economic behavior" and "regularities of behavior" in the same way that scientists seek to uncover natural laws, reflecting the increasing influence of the scientific mindset on economics.

• It suggests that this shift away from the language of capitalism and towards the language of science represents a "more significant change" in the field of economics.

• The context also explores how the personal experiences and values of influential economists like Schumpeter shaped their "vision" of economics and the role of elites, illustrating how capitalist ideology can subtly permeate economic thought.

In summary, the key examples highlight how the concept of capitalism has faded from modern economics, being replaced by a more scientific framing, even as capitalist ideology and values continue to shape economic theories and perspectives in subtle ways.

Economics as a Reflection of Human Behavior

Economics is not a pure science like physics or chemistry. Rather, it is a study of human behavior and the social structures that shape economic activity. Unlike the predictable movements of particles in nature, human beings have the capacity for volition - the ability to make choices and change their minds. This introduces an element of unpredictability into economic phenomena that cannot be captured by rigid scientific laws.

Furthermore, economic systems do not arise in a vacuum, but are deeply embedded within broader social and political realities. Factors like class, privilege, and power dynamics profoundly influence the organization of production, distribution, and consumption in a society. An "objective" analysis of economics that ignores these social forces is therefore incomplete and misleading.

In essence, economics reflects the complex interplay between individual agency and collective structures. It is not a detached, value-neutral science, but a worldview shaped by the analyst's own assumptions and priorities. Recognizing this allows us to better understand the limitations of economic models and theories, and to situate them within the broader context of human civilization.

Here are examples from the context that support the key insight that economics is deeply intertwined with human volition and social structures, rather than a strict science:

• Heilbroner notes that unlike the "behavior" of particles in physics, human behavior "cannot be understood without the concept of volition—the unpredictable capacity to change our minds up to the very last moment." This highlights the role of human agency and free will in economic behavior.

• He argues that "the social life of humankind is by its very nature political" and that economic arrangements like "the distribution of wealth or income" are not determined by "immutable laws of nature" but by the "highly mutable determinations of the sociopolitical order in which we live." This emphasizes the influence of social and political structures on economic outcomes.

• Heilbroner states that when it comes to policy recommendations, it is "impossible to present economic analyses as if they stemmed unchallengeably from the givens of society" because "there are no such givens comparable to those of nature." This contrasts economics with the objectivity of natural sciences.

• He suggests that the purpose of economics is to "help us better understand the capitalist setting in which we will most likely have to shape our collective destiny" rather than to be a "science of society." This frames economics as a tool for navigating the human-created system of capitalism.

Contradictory Nature of Economic Progress

The book explores the contradictory nature of economic progress. Advancements in technology and industry can simultaneously bring both prosperity and social upheaval. On one hand, innovations like the spinning jenny and steam engine opened up new avenues for economic growth. However, this also led to harsh working conditions, child labor, and the exploitation of the working class.

The theories of Malthus and Ricardo exemplify this paradox. While their models provided important insights, they also painted a gloomy, pessimistic view of the future. Malthus warned of unchecked population growth outpacing food supply, while Ricardo foresaw an inevitable decline in profits. Their analyses revealed how the natural forces driving economic progress could also produce dire social consequences.

This contradiction lies at the heart of capitalism's development. The same technological and organizational advances that fuel economic expansion also disrupt existing social structures and power dynamics. As new industries rise, old privileges and hierarchies are challenged, leading to conflict between social classes. Economic progress, it seems, comes at a cost - one that is not always shared equally across society.

Here are examples from the context that support the key insight about the contradictory nature of economic progress:

• The context describes how Malthus and Ricardo were focused on different problems - Malthus on the issue of "How Much Is There?" and Ricardo on the explosive issue of "Who Gets What?". This reveals the dual-edged nature of economic progress, where growth can lead to both abundance and conflict over distribution.

• The context explains how the emerging industrial technology known to Malthus and Ricardo, like the spinning jenny and steam engine, opened up new avenues for economic growth. However, this also implied "new problems arising from that very prospect", such as the further enrichment of landlords and the more threatening aspect of population growth. This shows how economic progress can have both positive and negative consequences.

• The context recounts the "appalling problem of population" that Malthus pointed out, and how he "sensed, even if he could not explain, the problem of general depression" - illustrating how economic progress can lead to social ills like overpopulation and economic downturns.

• The context describes the "gloomy terms" in which Malthus and Ricardo conceived of the world, due to the "gloomy place to live" in 1820s England, with the "burgeoning factory system piling up a social bill of dreadful proportions." This reveals how economic progress can come at a heavy social cost.

• The context provides vivid details of the "frightful brutality" and "callous inhumanity" experienced by child factory workers, showing how the benefits of industrialization were accompanied by severe human suffering.

In summary, the examples from the context demonstrate how economic progress can simultaneously bring prosperity and social upheaval, highlighting the contradictory nature of development.

Interdisciplinary Approach to Understanding Economics

Heilbroner argues that a multidisciplinary approach is essential for truly understanding economics. Rather than viewing it solely through the lens of analysis and mathematical models, he advocates integrating insights from history, philosophy, and other social sciences. This allows for a more comprehensive grasp of the complex social, political, and cultural forces that shape economic realities.

By drawing on diverse disciplinary perspectives, Heilbroner contends that economists can better elucidate the underlying values, biases, and worldviews that inevitably influence their analytical frameworks. This interdisciplinary perspective reveals how economic theories are shaped by the preanalytic visions of their proponents, rather than emerging as purely objective, detached analyses.

Heilbroner's approach challenges the notion of economics as a purely scientific endeavor. He suggests that the increasing emphasis on mathematical modeling and the diminishing references to "capitalism" in economic textbooks reflect a shift in the vision of the discipline, moving away from its historical roots. This shift, he argues, must be critically examined to fully understand the evolving nature and purpose of economic inquiry.

Here are examples from the context that support the key insight of Heilbroner advocating for an interdisciplinary approach to understanding economics:

• Schumpeter's economic model is used to "flesh out a larger social vision" - Heilbroner notes that Schumpeter's analysis goes beyond conventional economics into the realm of "historical sociology."

• Heilbroner states that Schumpeter's depiction of an "aristocracy of talent" at the top of society is "not by any of the conventional conceptions" of economics, but rather "better described as historical sociology."

• Heilbroner suggests that to fully understand the changes in how economics is presented in modern textbooks, one must look beyond just economics and consider factors like the increasing emphasis on the "methods of science" and the "disappearance" of the concept of "Capitalism."

• Heilbroner argues that to comprehend the "workings" and "problems and prospects" of the economy, one must look beyond just the "figures, forecasts, and government pronouncements" or the "supply and demand diagrams and equations" - economics requires a broader, more interdisciplinary "explanation system."

The key point is that Heilbroner advocates going beyond narrow economic analysis and integrating insights from other disciplines like history, sociology, and philosophy to develop a more comprehensive understanding of economic phenomena. He demonstrates this through examples of how Schumpeter's work blends economic analysis with broader social and historical perspectives.

Quotes

Let's take a look at some key quotes from "The Worldly Philosophers" that resonated with readers.

If socialism failed, it was for political, more than economic, reasons; and if capitalism is to succeed it will be because it finds the political will and means to tame its economic forces.

The success or failure of economic systems hinges on political rather than purely economic factors. A system's viability depends on its ability to balance economic forces with the will and means to address social and political concerns. If a system neglects these aspects, it risks collapse, regardless of its economic performance. Effective governance is essential to harnessing economic power for the greater good.

You cannot get them to talk of politics so long as they are well employed,

When people are comfortably engaged in their daily activities, they tend to avoid discussing sensitive topics like politics. As long as their basic needs are met and they feel secure, they are less likely to question or challenge the existing social order. This lack of engagement can lead to a sense of complacency, making it easier for those in power to maintain their influence without facing opposition.

To make the Society Happy... , it is requisite that great numbers should be Ignorant as well as Poor,” wrote Bernard Mandeville, the shrewdest and wickedest social commentator of the early eighteenth century.

In order to maintain social stability, it is necessary for a significant portion of the population to remain uninformed and impoverished. This allows those in power to maintain control and prevent potential threats to their authority. The ignorance and poverty of the masses serve as a means of social control, keeping them submissive and distracted from the true nature of their circumstances.

Chapter Notes

Preface to the Seventh Edition

Here are the key takeaways from the chapter:

• The Worldly Philosophers is a book that has been revised 7 times over the past 46 years, outliving the author's own age when he first wrote it.

  • The author, Robert L. Heilbroner, was a graduate student when he first wrote the book, and it has now been revised and republished numerous times over the decades.

• The book's origins trace back to a chance meeting with a publisher who encouraged Heilbroner to write about the history of economic thought.

  • Heilbroner was initially hesitant, but his professor Adolph Lowe eventually encouraged him to pursue the project.
  • The book's original title was a point of discussion, with the publisher suggesting "The Great Economists" before settling on "The Worldly Philosophers."

• The Worldly Philosophers has been remarkably successful, selling more copies than Heilbroner could have imagined and introducing many readers to economics.

  • The book has "lured tens of thousands of unsuspecting victims into a course on economics," though Heilbroner cannot vouch for the "pains" this may have caused.
  • Heilbroner has heard from economists that the book first sparked their interest in the field.

• This 7th edition includes two key changes:

  • Minor corrections and updates to reflect Heilbroner's evolving views and new research.
  • A new emphasis on the "changing concepts" or "visions" that underlie economic thought, an idea first proposed by economist Josef Schumpeter.

• The final chapter, titled "The End of the Worldly Philosophy?", suggests a significant change in the nature and significance of economic thought.

  • Heilbroner does not reveal the nature of this change, stating that it will be explored in the final chapter.

Introduction

Here are the key takeaways from the chapter:

• The Great Economists: The chapter introduces a group of men who, despite not being national heroes or villains, had a profound impact on history through their ideas. These men are known as the "Great Economists."

• Power of Ideas: The chapter emphasizes the extraordinary power of the ideas put forth by the Great Economists, stating that they "shaped and swayed the world" more than the actions of statesmen or the movements of armies.

• Obscurity of the Great Economists: Despite the importance of their ideas, the Great Economists are described as "shadowy figures of the past," with their work and debates largely forgotten or viewed with "distant awe."

• Excitement and Danger of Economics: The chapter argues that the ideas and experiments of the Great Economists were as "exciting—and as dangerous—as any the world has ever known," in contrast with the perception of economics as a "cold and difficult" subject.

• Diversity of the Great Economists: The chapter paints the Great Economists as a diverse group, with varying personalities, careers, biases, and ideas, but united by a "common curiosity" about the world and a desire to understand the "order and meaning of social history."

• Absence of Economists in History: The chapter notes the "perplexing fact" that for thousands of years of recorded history, there were no economists who had come to "dominate the scene," despite the long-standing economic problems faced by humanity.

• Importance of Understanding the Pre-Economist World: The chapter suggests that to fully understand the Great Economists, we must first "understand the world that preceded their entrance" and "watch that earlier world give birth to the modern age—the age of the economists—amid all the upheaval and agony of a major revolution."

The Economic Revolution

Here are the key takeaways from the chapter:

• The Idea of Gain as a Modern Concept: The notion of gain for gain's sake, or the profit motive, is a relatively modern concept that was largely absent throughout most of recorded history. For much of the pre-modern world, the idea of constantly striving to better one's material lot was foreign to the majority of the population.

• The Absence of Land, Labor, and Capital as Abstract Concepts: In the pre-modern world, the key agents of production - land, labor, and capital - did not exist as abstract, dehumanized economic entities. Land was tied to social status and obligations, labor was bound by custom and tradition, and capital was used for safety rather than aggressive investment.

• The Lack of a Market System: Without the abstract concepts of land, labor, and capital, the pre-modern world could not conceive of a market system where these elements were freely bought and sold. Society was organized around tradition and command, not the impersonal forces of supply and demand.

• The Painful Transition to a Market Economy: The transition from the pre-modern to the modern market-based economy was an agonizing, centuries-long process. It involved the uprooting of entrenched social and economic structures, the creation of a mobile labor force, and the commercialization of land and capital - all of which was bitterly resisted.

• The Emergence of Economic Thought: As the market system began to take hold, there was a need for a new philosophy and theory to explain this novel way of organizing society. This gave rise to the field of economics, with thinkers like Adam Smith providing the first comprehensive vision of the market-based economy.

• The Role of Broader Social Changes: The transition to a market economy was not driven by a single cause, but rather a confluence of broader social, political, and technological changes. These included the rise of national political units, the decay of the religious spirit, and the gradual development of scientific and technical progress.

• The Tension Between Tradition and Change: Throughout the transition, there was a fundamental tension between the forces of tradition and the forces of change. Established industries, social classes, and ways of life fiercely resisted the disruptive impact of the market system, even as it gradually took hold across Europe.

The Wonderful World of Adam Smith

• Adam Smith's Background and Reputation: Adam Smith was a renowned philosopher and economist in 18th-century Scotland, known for his eccentric personality and absent-mindedness. He was a professor at the University of Glasgow, where he lectured on Moral Philosophy, which encompassed subjects like natural theology, ethics, jurisprudence, and political economy.

• The Wealth of Nations: Smith's magnum opus, "The Wealth of Nations," was published in 1776 and was a revolutionary work that challenged the prevailing economic theories of the time. The book was not entirely original, as it drew on the ideas of various thinkers before him, but Smith's genius lay in his ability to synthesize these ideas into a comprehensive and coherent system.

• The Market Mechanism: At the heart of Smith's economic philosophy was the concept of the "invisible hand" of the market, which he believed could guide the self-interested actions of individuals towards the greater good of society. Smith argued that the interplay of self-interest and competition in a free market would lead to the efficient allocation of resources and the provision of goods and services that society desires.

• The Laws of Accumulation and Population: Smith identified two key laws that would drive the growth and development of society: the Law of Accumulation, which posited that the accumulation of capital would lead to increased productivity and wealth, and the Law of Population, which suggested that higher wages would lead to an increase in the population, thereby counteracting the rise in wages and allowing for continued accumulation.

• Limits to Growth: While Smith was optimistic about the potential for economic growth and improvement in the standard of living, he recognized that this growth would eventually reach its limits as the economy exhausted its resources and the division of labor could no longer be expanded. In the long run, he believed that wages would return to subsistence levels, and the system would reach a state of equilibrium.

• Laissez-Faire and the Role of Government: Smith advocated for a policy of laissez-faire, where the government should refrain from interfering with the free market. However, he also recognized the need for certain government interventions, such as the provision of public goods and the administration of justice, to ensure the proper functioning of the market system.

• Legacy and Influence: The Wealth of Nations had a profound impact on economic thought and policy, becoming a foundational text for the field of political economy. While some of Smith's ideas have been challenged or refined by later economists, his vision of the market as a self-regulating system and his emphasis on the importance of the consumer have remained influential.

The Gloomy Presentiments of Parson Malthus and David Ricardo

Here are the key takeaways from the chapter:

• Malthus's Principle of Population: Malthus argued that population tends to grow geometrically (1, 2, 4, 8, etc.), while food production can only grow arithmetically (1, 2, 3, 4, etc.). This inherent imbalance between population growth and food supply would lead to famine, disease, and poverty as a "check" on population.

• Malthus's Pessimistic Outlook: Malthus's theory painted a bleak future for humanity, with the working classes condemned to a life of subsistence and misery. He saw no solution other than "moral restraint" to limit population growth.

• Ricardo's Theory of Rent: Ricardo argued that rent arises from the differences in productivity between the best and worst land under cultivation. As population grows and more marginal land is brought into production, rents on the best land would rise, benefiting landlords at the expense of workers and capitalists.

• Ricardo's Conflict of Interests: Ricardo saw an inherent conflict of interests between the landlord class, who benefited from rising rents, and the industrialists and workers, whose incomes were squeezed by higher food prices and rents.

• Malthus vs. Ricardo on Savings and Demand: Malthus argued that excessive savings could lead to a "general glut" of unsold goods, while Ricardo believed that savings were always invested productively, maintaining demand.

• Shift from Optimism to Pessimism: Malthus and Ricardo's theories represented a shift from the optimistic vision of progress in Adam Smith's work to a more pessimistic outlook, where natural forces seemed to threaten rather than promote human welfare.

• Passive Working Class: All three thinkers shared a view of the working class as essentially passive, with no ability or inclination to change the system to their own benefit.

The Dreams of the Utopian Socialists

Here are the key takeaways from the chapter:

• Gloomy Conditions of Early Industrialization: The chapter describes the horrific working conditions in early factories, including long hours, brutal treatment of child laborers, and the displacement of workers by machinery. This created widespread social unrest and a sense of impending crisis.

• Robert Owen and New Lanark: Owen established the model community of New Lanark, which demonstrated that industrial life did not have to be squalid and depraved. New Lanark featured humane working conditions, education for children, and a system of behavioral incentives.

• Owen's Utopian Socialism: Owen advocated for the creation of self-sustaining "Villages of Cooperation" organized around communal living and production. While his specific proposals were not adopted, his ideas influenced the emerging trade union movement.

• Saint-Simon and the Industrial Religion: Saint-Simon envisioned a society organized around the productive "industrials" rather than the idle aristocracy. He founded a quasi-religious movement that sought to restructure society along these lines.

• Fourier and the Phalanstère: Fourier proposed the creation of self-contained "phalanstères" - planned communities organized around cooperative living, division of labor, and the pursuit of individual passions. While fantastical, his ideas inspired numerous experimental communities.

• J.S. Mill and the Separation of Production and Distribution: Mill argued that while the laws of production were immutable, the distribution of wealth was a matter of social choice. This opened the door to reformist policies aimed at reshaping the distribution of economic outcomes.

• Mill's Vision of Gradual Transition to Socialism: Mill foresaw a "stationary state" of capitalism in which worker cooperatives would gradually displace private enterprise, leading to a benign form of socialism achieved through gradual, non-revolutionary change.

The Inexorable System of Karl Marx

Here are the key takeaways from the chapter:

• Dialectical Materialism: This is the philosophical framework developed by Marx and Engels, which views history as a constant flux of conflicting economic and social forces. It grounds itself in the material conditions of production and exchange, rather than just ideas.

• Base and Superstructure: According to Marx, every society has an economic "base" (the mode of production and exchange) that determines the "superstructure" of social, political, and cultural institutions. Changes in the base inevitably lead to changes in the superstructure.

• Class Conflict: Marx saw society as fundamentally divided into two main classes - the bourgeoisie (capitalists) who own the means of production, and the proletariat (workers) who must sell their labor. This inherent conflict between the classes drives historical change.

• Surplus Value: This is the key concept in Marx's economic theory. Capitalists are able to extract "surplus value" from workers by paying them less than the full value of their labor, and pocketing the difference as profit.

• Tendency of the Rate of Profit to Fall: Marx argued that as capitalists invest more in labor-saving machinery, the proportion of living labor (the source of surplus value) to total capital declines. This causes the overall rate of profit to fall, leading to economic crises and the eventual collapse of capitalism.

• Inevitability of Communism: Marx believed that the internal contradictions of capitalism would inevitably lead to its downfall and replacement by a communist, classless society owned and controlled by the proletariat. This was the core of his historical determinism.

• Limitations of Marx's Predictions: While many of Marx's economic and social predictions have been borne out, his vision of the inevitable collapse of capitalism has not materialized. Capitalist societies have shown the ability to adapt and reform, rather than succumb to revolutionary overthrow.

• Enduring Influence: Despite its flaws, Marx's analysis of capitalism remains a seminal and unavoidable contribution to social and economic thought. His insights into the dynamics of class, power, and historical change continue to shape contemporary debates.

The Victorian World and the Underworld of Economics

Here are the key takeaways from the chapter:

• Marx's Prediction of Capitalism's Doom Proved Premature: While Marx predicted the imminent collapse of capitalism, the system did not die as he expected. Instead, the condition of the working class improved, with wages rising and hours of work decreasing, contradicting Marx's "increasing misery" of the proletariat.

• The Rise of Mathematical Economics: Economists like Edgeworth, von Thünen, Jevons, and Walras sought to make economics a more "scientific" discipline by reducing it to mathematical models and formulas. This led to a focus on equilibrium and the neglect of the dynamic, expansionary nature of capitalism.

• The Underworld of Heterodox Economics: As the mainstream of economics became increasingly detached from real-world concerns, a vibrant "underworld" of heterodox thinkers like Bastiat, George, Hobson, and Lenin emerged, offering radical critiques of the capitalist system.

• Hobson's Theory of Imperialism: Hobson argued that imperialism was driven by the need of capitalists to find overseas outlets for their surplus savings, which could not be profitably invested at home due to the unequal distribution of wealth. This theory was later adopted and expanded by Lenin.

• The Rise of Multinational Corporations and Changing Imperialism: The modern form of imperialism is characterized by the global operations of multinational corporations, which have shifted the geographic flows of capital and intensified international competition, rather than the direct political domination of colonies.

• Marshall and the Equilibrium Approach: Alfred Marshall, the leading economist of the Victorian era, developed a vision of economics focused on the self-adjusting mechanisms of the market and the calculations of the individual economic agent, rather than the political and social dimensions of the capitalist system.

• The Disconnect between Academic Economics and Real-World Change: The official world of academic economics, exemplified by Marshall, remained largely oblivious to the dramatic social and political upheavals of the 20th century, ignoring the warnings of the heterodox thinkers in the economic "underworld."

The Savage Society of Thorstein Veblen

Here are the key takeaways from the chapter:

• Veblen's Outsider Perspective: Veblen was an "American by birth but a citizen of nowhere by nature", which allowed him to view American society with a detached, anthropological lens. This outsider perspective enabled him to see and critique aspects of American society that were taken for granted by his contemporaries.

• Critique of the Leisure Class: Veblen's seminal work, "The Theory of the Leisure Class", provided a scathing critique of the conspicuous consumption and display of wealth by the American upper class. He saw this as a vestige of a "predatory" and "barbarian" past, where social status was derived not from productive work, but from the ability to ostentatiously demonstrate one's wealth.

• Businessman as Saboteur: In "The Theory of Business Enterprise", Veblen presented a counterintuitive view of the businessman as a "saboteur" of the productive capacity of the industrial system, more interested in financial manipulation and the creation of "make-believe" capital than in the efficient production of goods.

• The Machine and Social Change: Veblen believed that the rise of the machine and industrial technology was the primary driver of social change in modern times, forcing a shift in mindsets away from the "anthropomorphic habits of thought" associated with the leisure class and towards a more "matter-of-fact", scientific worldview.

• Engineers vs. Businessmen: Veblen envisioned a future "revolution" in which a class of engineers would wrest control of the industrial system from the predatory businessmen, running the economy along more efficient, production-oriented lines.

• Veblen's Influence: While Veblen's theories were sometimes exaggerated or one-sided, he was credited with providing a new, more psychologically and anthropologically-informed perspective on economic behavior, challenging the prevailing "rationalist" assumptions of classical economics.

The Heresies of John Maynard Keynes

Here are the key takeaways from the chapter:

• Veblen's Stock Market Misadventure: Thorstein Veblen, a renowned critic of capitalism, briefly invested in the stock market, revealing the allure of the "elixir of prosperity" that had captivated America in the late 1920s.

• The Roaring Twenties and the Great Crash: The 1920s saw unprecedented economic growth and prosperity in America, with the average family living better than ever before. This led to a widespread belief that "Everybody Ought to Be Rich," fueling a speculative stock market bubble that ultimately collapsed in the Great Crash of 1929.

• The Great Depression: The aftermath of the stock market crash was a severe economic depression, characterized by high unemployment, business failures, and a dramatic decline in national income and standard of living. The depth and persistence of the depression challenged the prevailing economic theories of the time.

• John Maynard Keynes: Keynes was a renowned British economist who sought to understand and solve the problem of the Great Depression. He was a highly accomplished and multifaceted individual, with expertise in fields ranging from mathematics and finance to the arts and culture.

• Keynes's Critique of Classical Economics: Keynes's seminal work, "The General Theory of Employment, Interest and Money," challenged the classical economic view that the economy would automatically return to full employment. He argued that the economy could remain in a state of prolonged depression due to a lack of investment.

• Keynes's Proposed Remedy: Keynes advocated for government intervention to stimulate the economy through increased spending, in order to supplement and support private investment when it was insufficient to maintain full employment.

• The New Deal and the Limits of Keynesian Policies: The New Deal's efforts to stimulate the economy through government spending were only partially successful, as business remained wary of the government's role and the scale of spending was insufficient to fully restore the economy.

• Keynes's Conservatism and Pragmatism: Despite his radical economic theories, Keynes was a conservative at heart, seeking to preserve and improve the capitalist system rather than replace it. He advocated for a pragmatic, managed approach to capitalism, with the government playing a supportive role.

• Keynes's Legacy and the Evolution of Economic Thought: Keynesian economics dominated economic policy in the United States for several decades, but later faced challenges and a decline in influence, leading to a more diverse and uncertain landscape of economic thought.

The Contradictions of Joseph Schumpeter

Here are the key takeaways from the chapter:

• Schumpeter's View of Capitalism: Schumpeter saw capitalism as an inherently dynamic and growth-oriented system, in contrast to Keynes's view of capitalism as potentially stagnant. Schumpeter believed that the source of capitalism's dynamism was the "entrepreneur" - an innovator who introduces new products, processes, or organizational methods that disrupt the existing "circular flow" of the economy.

• Schumpeter's Theory of Profits: Schumpeter argued that profits arise not from the exploitation of labor or the earnings of capital, but from the temporary "rents" that accrue to innovators whose new products or processes give them a cost advantage over competitors. These rents disappear as other firms imitate the innovation.

• Schumpeter's Theory of the Business Cycle: Schumpeter saw the business cycle as driven by the "bunching" of innovations, which spur investment booms, followed by the generalization of the innovations, which leads to the decline of profits and investment.

• Schumpeter's Pessimism about Capitalism's Future: Despite his belief in capitalism's inherent dynamism, Schumpeter ultimately believed that capitalism would not survive in the long run. He argued that the very cultural and social changes brought about by capitalism's success - the rise of bureaucracy, the decline of the entrepreneurial spirit, and the erosion of the bourgeois ethos - would undermine the system from within.

• Schumpeter's View of Elites and History: Schumpeter saw history as driven by the impact of "elites" - minorities with exceptional talents and abilities - on the inert mass of society. He believed that economic development was not intrinsic to capitalism, but rather the result of the actions of a non-capitalist elite of entrepreneurs.

• Schumpeter's Personal Influence on his Vision: Schumpeter's own aristocratic background and aspirations shaped his vision of history, in which an elite of talented individuals, rather than the working class, are the central agents of change. His personal experiences and values are reflected in his theoretical framework.

• The Role of Vision in Economics: Schumpeter argued that economic analysis is always shaped by the "preanalytic" vision of the economist, which reflects their values and preferences. This insight helps explain why even the most careful economists, like Marshall, can miss crucial insights, like Keynes's distinction between consumption and investment.

The End of the Worldly Philosophy?

Here are the key takeaways from the chapter:

• Economics is an Explanation System: At its core, economics is an explanation system that aims to enlighten us about the workings, problems, and prospects of the economy.

• Capitalism as the Foundation of Economics: The worldly philosophy of economics is the child of capitalism and could not exist without it. Capitalism introduced key innovations like the acquisitive drive, the market system, and the bifurcation of power between the public and private realms.

• Mathematization of Economics: While mathematics has become pervasive in modern economics, formalizing and becoming the favored mode of expression, it is not the most significant change. The deeper change is the increasing emphasis on the concept of "Science" as the vision and essence of economics, and the corresponding disappearance of the term "Capitalism".

• Limitations of the "Science" Analogy: There are two key limitations to the analogy of economics as a science: 1) Human behavior involves volition and cannot be reduced to the "behavior" of natural elements, and 2) The social life of humankind is inherently political, with arrangements of privilege and disprivilege that cannot be treated as immutable laws of nature.

• The Purpose of the Worldly Philosophy: Given the challenges facing capitalist societies (ecological dangers, nuclear proliferation, ethnic/religious hatreds, and a globalized economy), the purpose of the worldly philosophy should be to develop an awareness of the need for, and possibilities of, socially as well as economically successful capitalisms. This requires an enlarged and deepened economics that incorporates knowledge from other social sciences.

Discussion

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