Reflection on The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers by Robert L. Heilbroner

               This is a book that will save you a lot of time. Instead of reading dry, boring economics books, you can read Heilbroner’s summary of the best of the best, telling you about the lives of the most important economists, their greatest works, and their significance to the modern-day study of economics. It’s written very well, and I found it easy to read. He likes to describe the economists’ theories and discoveries in the context of their lives and has great details about who these men were. The book covers Adam Smith, Thomas Malthus, David Ricardo, “the utopian socialists,” Karl Marx, the “Victorian economists,” Thorstein Veblen, John Maynard Keynes, and Joseph Schumpeter.

               Heilbroner begins by telling us about the world before modern economics. For example, “there was no such thing as land in the sense of freely salable, rent-producing property.” He writes that since all land was under the feudal system, estates, manors, and principalities owned by dukes, barons and such, people did not freely sell land. These vassals saw their land as their birthright and never sold it, rather going to war to get more. To sell it would be like the governor of Massachusetts selling land to New Hampshire. Capitalism didn’t yet exist. While people certainly bought and sold things, it wasn’t done freely. It was all controlled from the top. For example, in 16^th century England they banned “workshops” that had hundreds of looms at the complaint of the guilds. Innovations were squashed. In France in 1666 they ruled that any new innovations in cloth weaving had to be approved by the oldest merchants and weavers of the guild, guaranteeing failure almost always.

               The first economist discussed is Adam Smith, who did not “invent” capitalism, but described the processes of the (capitalistic) British economy that had emerged by the late 18^th century. One of his greatest insights was seeing that not nature, but labor was the source of value. Gold is not the source of value, getting it out of the ground and shaping it is. Smith saw the division of labor into specializations as a process that would only have positive economic effects for 200 years, meaning it should already be over. Perhaps it is ending as western economies slow down. He advocated for the government to protect society against the value of others, administer courts of justice, and maintain public works that no individual or small number of individuals would find profitable to maintain. Other than those things, he felt that government should just get out of the way and avoid messing up the economy.

               The book then turns to a friendly rivalry among two British economists, Thomas Malthus and David Ricardo. While they were always friends, they argued about anything. For example, Malthus identified that it can be possible for producers to produce too much of a good, causing a “glut,” which Ricardo and most of the mainstream thought was ridiculous. Today, we call that “glut” a recession and it certainly happens. Ricardo is responsible for turning economics into a science by making it abstract, taking what Adam Smith had written about English economy and making it universal, discovering rules that underlay it. Malthus is famous today for identifying the problem of increasing population, which, until he put it forward, had always been considered to be a very good thing. The book then goes into talking about the utopian socialists, who weren’t that interesting to me except as a prelude to the real socialists, like Karl Marx.

               Marx was the best critic of the failures of the industrial revolution, which lay in what he considered an excess of capitalism. Capitalists, essentially businessmen with access to capital, A.K.A. lots of money, used their control of the job market to pay people little and give them bad conditions. Who could blame him? He lived in a brutal time full of worker abuses, child labor, and lots of death and maiming on the job where you might work 70 hours a week. Due to historical forces, people lost the land they lived on and moved to cities, where the only thing they had to sell was their labor. He predicted that these intense social conditions would cause the end of capitalism, and in some places, like the Soviet Union, it did. However, in others, like Europe and the United States, we responded with reforms to help workers while maintaining the benefits of capitalism.

               Heilbroner moves on to discuss several Victorian-era economists. These eonomists tended to be much more optimistic about economic systems contemporarily in place. I found it to be a less interesting chapter. However, I was interested in how he talked about the expansion of imperialism, which was seen as a way to help domestic markets. To keep their workers employed in workshops, imperializing countries needed to produce lots of goods. However, they couldn’t sell them to themselves forever because you only need so many of these things. As a result, it was better to sell them to developing countries cheaply, offloading goods for profits there while simultaneously making them dependent on you for those goods since prices are too low to develop their own industries. I guess that’s their problem though, right? Thanks to the empire, between 1870 and 1914 one half of English savings were invested abroad and the interest from foreign investments was one tenth of national income.

               Then the book has a chapter on Thorstein Veblen, who made a lot of sociological and anthropological observations about the economy. For example, some goods people want to buy because of their high price, not their low price, as they advertise a certain level of wealth. He connected this back to earlier human times, when “savage” humans would admire the war-like members of their society who tool what they wanted. He argued that the same happened in the modern day. Instead of rising up, he thought the proletariat would rather become like the bourgeoisie and emulate them. He argued that capitalists were not the drivers of the economic machine but its saboteurs, seeking to sneak away with the profits from it, weakening the economic “machine.”

               The last two chapters of the book are fantastic and the penultimate is about John Maynard Keynes. He made his name criticizing the Treaty of Versailles that ended World War One and became even more famous for arguing for government intervention to end the Great Depression. It had been thought that any recession or recession would right itself as it would be caused by too much saving and eventually those savings would get spent. However, Keynes realized that when it was bad enough there would be no savings left for the vast majority of people to spend and pump back into the economy. Therefore, he advocated for “priming the pump,” that the government would start the spending and then people would find work, earning more money to spend, restarting the economy. The trouble was not turning the “faucet of spending” on, but rather turning it off to manage the inflation that would come afterwards. He wanted governments to manage the economy but today it remains unclear if that is possible.

               The final chapter discusses the Austrian economist Joseph Schumpeter, another one of the best chapters of the book. He argued that an economy in equilibrium was not the end state, but rather he conceived of it as the start. He imagined everything circulating and being traded without any profits. Like a river, the economy would find the path of least resistance and become more and more efficient until there were not profits, which were inefficiencies in the system of trade. However, profits could be created by the introduction of an obstacle in the river’s path, a new invention or innovation. Therefore, the source of profits in an economy was not the capitalist nor was it the worker but the inventor. Calling these people entrepreneurs, Schumpeter argued that they introduced true advances into the economy but rarely benefitted greatly as everyone starts to copy them quickly, gradually reducing the profits to be gained and returning the economy to an equilibrium until another innovation would come about. Schumpeter predicted that in the long term, capitalism would not last due not to economic reasons but sociological reasons. He thought it was not that the proletarians would rise up however, but because innovation would become institutionalized and bureaucratized, with the system becoming almost too rational until it dies, lacking those romantic entrepreneurs.

               To end, Heilbroner writes three changes brought about by capitalism. The first is that it legitimated the gain of wealth not just by Kings but by everyone who can manage to do it in society. Next, it allowed “the encouragements and discouragements of the market” to determine what should be produced rather than being commanded by a man or woman. And last, it is the “first society to place its overall guidance under two authorities, one public, one private, each with its own powers and its boundaries to power. In sum, great introduction to economic thought. I am a big fan and would recommend it to newcomers to economics who have taken a few classes but want to know more like I did.

Miscellaneous Facts:

• With the share Queen Elizabeth received as a stockholder in Sir Francis Drake’s voyage of the Golden Hynd, she paid off all of England’s foreign debts, balanced the budget, and invested abroad enough at compound interest to account for all of Britain’s overseas wealth in 1930. Wow.
• In 1813, wheat was selling one bushel for twice the wages of a workingman in a week in England. I may have underestimated Napoleon’s continental system when I read it last.