Robert Heilbroner and I got off on the wrong foot when I began reading his The Worldly Philosophers because he disses the Middle Ages. This is a hanging offense in my book. What he says is that Adam Smith was the first economist. It really needn't have been him but humanity had to wait until the Enlightenment for its first economist because there just couldn't be one in the Middle Ages. Sure, it had markets but no market system. The age was bogged down by tradition and the capriciousness of authority which stifled innovation and standardization.
His argument has much merit. Medieval guilds were out to ensure prosperity for its members, not to necessarily advance the trade. The Church took a very dim view of usury. Government authorities could and did interfere with commerce in ways that make no sense to us now. Heilbroner gives us examples such as a German merchant who returned from a business trip complaining of having to pay a custom toll every 10 miles and encountering no less than 80 different standards for measuring weight. And then there's the time in 17th century France when tailors began making buttons out of cloth which pissed off the button makers guild to no end and eventually it lobbied to have the force of law brought down on those who would dare make a cloth button or wear clothing with them.
While I'm no expert on medieval economics and I take Heilbroner's point here, I still think he gives the Middle Ages short shrift and paints people of that time as being more ignorant than they were. It's not like the denizens of the so-called Dark Ages didn't understand markets and that commerce at that time worked outside of market forces. After the Black Plague went into remission in the early 1350s, what happened was what any good free marketeer would expect. With 50%+ of the population having been wiped out, there was a big labor shortage and wages skyrocketed. And for the same reason land prices dropped like rock.
The landed aristocracy often didn't react too kindly to their overhead going up. In England you got the Statute of Labourers in 1351 which said that wages had to go back to pre-Plague levels. Others decided to go all retro and bring back serfdom which had been on the wane. Labor costs eating into your profits? Tie those peasants to the land and get your work done nearly free. Yeah, these are distortions of the market but I don't think that the people back then were ignorant of the underlying principles of supply and demand. And not just for labor and land. Goods were the same way. Saffron is expensive now but it was egregiously so back then. Demand was high as it was popular in cooking and for herbal remedies but it had to be imported. Ergo the stuff was really expensive. This is also one of main reasons we get the Age of Exploration. Europeans got tired of Arab middlemen and wanted direct access to markets.
Heibroner portrays the medieval merchant as being like a hen-pecked husband. There he is out committing commerce yet everywhere he turns there's a guild, a priest, or a government official putting the kibosh on his plans for no good reason. I understand what Heilbroner is getting at but I don't understand why there were no medieval economists, if indeed that was the case. Whatever the Church preached or the guilds did wouldn't have prevented a guy in the 1350s from noticing, “Gee, now that half the men in my region have died because of the Great Mortality, the few who are left can really demand a premium for their labors.” Sure, there was a lot of interference in commerce and the markets in the Middle Ages but, until I see proof to the contrary, I have to believe that medieval people understood simple ideas such as competition in a market and how supply and demand regulates prices.
In the chapter on Adam Smith Heilbroner says of the man “To see that labor, not nature was the source of 'value,' was one of Smith's greatest insights.” Yet this seems to run against something I learned when I read Ha-Joon Chang's Bad Samaritans. In that book Chang notes how Tudor monarchs instituted a regimen of government intervention to transform England's wool industry from one that exported the raw stuff to one that manufactured woolen products. He noted, “Britain exported its raw wool and made a reasonable profit. But those foreigners who knew how to convert the wool into clothes were generating much greater profits. It is a law of competition that people who can do difficult things which others cannot will earn more profit. This is the situation that Henry VII wanted to change in the late 15th century.” It sure seems to me that Henry understood very well that labor was the “source of value”.
OK, gripes about the Middle Ages aside, The Worldly Philosophers was a great read. It was written with a scholarly tone but for the intellectually curious layreader. (And there are some light-hearted moments as well.) I got the feeling while reading it that Heilbroner, who was an economics professor, just had the biggest blast writing it. But I can't put my finger on why I feel this way exactly. The book profiles several of the greatest economic thinkers that the West has produced so the author is writing about the subject to which he has dedicated himself. Not only that, Heilbroner examines men whose ideas made them visionaries. They weren't just sitting around demonstrating how interest rates affect the price of women's underwear by using calculus, they were laying out grand schemes and attempting to show how economics can shed light on human society and existence. These guys had big, bold views and there's just something about the book's style which leads me to believe that Heilbroner was not only interested in the topic himself, but that he got great satisfaction in trying to get others interested as well.
Heilbroner gives us background on each thinker before explaining what they contributed to economics. (There's also a chapter devoted to socialist utopians of the 19th century.) He doesn't try to explain every nuance of a given man's ideas and instead goes for a greatest hits kind of thing. The main theories are served up alone to keep things simple.
Aside from the individual economic theories, there were a couple of things which really stood out for me.
First is that, once the ideas of some of these guys left the academy, they sure got mangled in the popular imagination.
Smith tends to be thought of as the guy who famously denied the existence of benevolent butchers, brewers, and bakers and thought that government should just get out of the way of the Invisible Hand, but he also wrote "No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable." He favored public education and was an optimist. Smith felt that, if government gets out of the way and lets the market do its thing, everyone would benefit.
The terms "Marxism" and "Marxist" are fightin' words these days but I suspect that 99% of the people who use these terms know little about the man and his ideas. He wrote a lot about how capitalism has within itself the seeds of its own destruction: it produces goods with no good plan so you have economic slumps and depressions which would embitter and motivate the proletariat to move beyond it. The thing is, Marx never really articulated what a post-capitalist society would be like in much detail. As Heilbroner says, "Das Kapital is the Doomsday Book of capitalism, and in all of Marx there is almost nothing that looks beyond the Day of Judgment to see what the future might be like." Well, harrumph. Lenin was winging it the whole time.
I'll also mention John Maynard Keynes. With the Tea Baggers in ascendancy, Keynes' ideas are nearly tantamount to communism these days. But he was all about, Heilbroner's words, the government "lending a helping hand". For instance, Keynes wrote a letter in 1934 asking "How soon will normal business enterprise come to the rescue? On what scale, by which expedients, and for how long is abnormal government expenditure advisable in the meantime?" Government spending to get the economy going was "abnormal" while business enterprise was "normal".
The other thing which occurred to me was just how contingent some of the economic theories of the gentlemen profiled in the book are. Prior to reading the book I tended to think of economic theory as being composed of laws that were more or less universal. I thought that Adam Smith was venerated because he had sussed out the laws of markets which were applicable throughout time and space. Well, yes and no. Furthermore it was interesting to learn about how these men formulated their ideas. They were certainly inspired by their times.
Take Adam Smith. He wrote at the beginning of the Industrial Revolution and saw things moving upwards and onwards – an ever-rising tide which would continually lift all boats. As Heilbroner points out, though, he didn't foresee "the ugly factory system", how ginormous corporations would disrupt the market system, and the great social changes that the Industrial Revolution would bring about. Look at the milieu when Marx wrote The Communist Manifesto: riots in Berlin, Italy, Prague, Paris, and Vienna; the kings of France and Belgium forced to flee. Everywhere he could hear the sound of marching, charging proletarian feet. Yet capitalism was more flexible than Marx thought. Plus, in America, it was allowed to develop in an environment that lacked the traditional European class distinctions. Thorstein Veblen hailed from right here in Wisconsin. Witnessing the Guilded Age of robber barons, is there any wonder he wrote about "conspicuous consumption"?
Lastly I'll note that the chapter on Keynes was especially good reading because of how his times mirror our own. He wrote during the Great Depression and we're in a recession. If you read the likes of Paul Krugman, you've heard people advocating Keynesian spending programs. So why would there be a need for them? Heilbroner lays it out simply. Prior to Keynes, the running theory was that, when the economy goes south, people will start to save. A glut of savings will drive interest rates down because of supply and demand. There's a lot of money to lend so rates will be low. And with low interest rates businesses will have incentive to invest. Keynes figured out the obvious: there would be no savings. As Heilbroner asks "How could a community be expected to save as much when everyone was hard up as when everyone was prosperous?"
The Worldly Philosophers doesn't give the reader a thorough lesson in economics. It doesn't even give the reader a thorough lesson in the economists it profiles. But it tells a great story. You get the big picture of the dismal science dotted with some detail. Plus some of these guys were more than a little eccentric which adds a bit of levity to the tale.
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