The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic
Thinkers
Robert Heilbroner
Summary
Summary and Analysis Chapter 1 - Introduction
Summary
The subject of The Worldly Philosophers, the great economists, covers those
theorists whose words and thoughts concerning the creation and distribution of
wealth have had a major impact on society. Indeed, these men have swayed and
shaped the world. The title of the book comes from their common interest: the
human drive for worldly wealth. From this compulsion is derived the concept of
worldly philosophers. Surprisingly, these economists did not appear on the scene
of world events until long after the advent of history, philosophy, science, politics,
art, and statecraft. They began in the latter part of the eighteenth century with
the work of Adam Smith.
Analysis
Even though these economists are not yet named, they are described by such
intriguing characterizations as madman, skeptic, and tramp. Among the
identifications, which become apparent in subsequent chapters, are these:
a philosopher — Adam Smith
a parson — Thomas R. Malthus
a stockbroker — David Ricardo
a nobleman — Saint-Simon
a madman — Charles Fourier
a revolutionary — Karl Marx
an aesthete — John Maynard Keynes
a tramp — Henry George
a skeptic — Thorstein Veblen
Glossary
Worldly Philosophers Philosophers who concern themselves with economics.
,Summary and Analysis Chapter 2 - The Economic Revolution
Summary
From the beginning of civilization, human beings have faced the challenge of
survival, which depends upon two factors — work and cooperation with others.
Since individuals are notably self-centered, the possibility that humans will not
remain faithful to work has threatened society's existence. If there are not
enough miners to work the mines or if most miners should decide to follow
another line of work; if farmers should decide to fish instead of plow and reap; or
if an insufficient number of students studied medicine or engineering, the
economy would break down. In summary, if the interdependence of human
workers should fail at any vital point in the economy, the world would suffer.
During the early portion of civilized life, only two methods safeguarded against
such an outcome — tradition and command.
Tradition
The passage of tasks, or jobs, from generation to generation through custom — a
carpenter's child becomes a carpenter or a farmer's offspring take charge of the
family farm. This reliance on tradition for the selection of a life's work was
especially true of the Middle Ages and is still true in many underdeveloped areas
of the world.
Command, or Central Authoritarian Rule
The enforcement of economic survival by absolute rule or dictatorship. An
example of this principle is the building of the pyramids in ancient Egypt and the
carrying out of the Soviet Union's Five-Year Plans in the post-World War II era.
Throughout most of history, one or the other of these two methods has solved
the problem of survival. Because the methods are simple and need no economic
explanation, there has been no need for economists. Since the Economic
Revolution, however, the evolution of a third method — the market system — has
presented a more challenging economic puzzle.
The Market System
A system where buyers and sellers, motivated by self-gain, freely conduct
business with the goal of making profits. Another name for this arrangement is
capitalism. Prompted by neither the "pull of tradition or the whip of authority,"
free markets are motivated by a single factor — the human urge to acquire
goods.
The market system is not the simple exchange of goods which existed in
primitive society, nor the commercial fairs of the Middle Ages. Nor is it a farm
produce market or a stock exchange. The market system supports and maintains
an entire society. Unplanned and slow to evolve, it was brought about through
the most far-reaching revolution of the Western world — the Economic
Revolution.
Many factors combined to cause the revolution, such as the breakup of the
manorial system, the decline of guilds, the acceptance of the concepts of land,
labor, and capital, the effects of the Renaissance, scientific advancement,
European voyages of discovery and exploration, the emergence of modern
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,nation-states, and the Protestant Reformation, which sanctioned the concept of
profit.
The market system emerged only after bitter opposition to change by the people
who tried to maintain their role in the status quo. Nevertheless, as the profit
motive became respectable, the market system took shape, bringing with it the
economists who satisfactorily explained the complexities of the system. In 1776,
Adam Smith wrote his amazing masterpiece, Inquiry into the Nature and Causes
of the Wealth of Nations, a work which helped society understand how changes in
economics were leading toward a new plateau in human history.
Analysis
Tradition, or the subsistence economy, bases itself on family, clan, or tribe. By
this system, each unit produces all that it needs, and it consumes all that it
produces. In many rural areas of Africa, Asia, and Latin America, the question of
who will work and what work will be assigned to whom is settled by custom.
The planned economy under central authoritarian rule differs from tradition in
that the means of production and the authority to make economic decisions
belong to the state. Examples existed in ancient Egypt and Babylonia, where
massive work projects were organized at the whim of the ruling class. In more
recent times, the communist nations which were formed after the Russian
Revolution in 1917 have attempted the same large-scale operations as an
outgrowth of a centralized authority. In neither instance did individuals actualize
their own ideas or goals.
In the market system, or market economy, economic decisions are decentralized:
Each member of the labor force chooses which job to follow; each household
selects what to buy with its income; and each business decides what to produce,
what production methods to use, and where to sell the resulting product. Modern
examples exist in the United States, Western Europe, Japan, and Great Britain.
This capitalism, which is also called a free or private enterprise system, is named
for its use of capital, or investment funds.
None of the three methods, or systems, exists in pure form. Systems practiced
today in the United States, Great Britain, Japan, or the Soviet Union are better
described as mixed economies, which contain elements of both the market
economy and the planned economy. For example, within free enterprise there
are obvious government-sanctioned monopolies, such as electric power
companies, railroads, and communications systems.
In order to develop what is meant by the Economic Revolution and its roles in the
remaining chapters of the book, a few definitions will prove helpful:
Economics: The study of the ways in which human beings make a living; the
study of human wants and their satisfaction; the science of wealth.
Economic System: The rules, laws, customs, and principles which govern the
operation of an economy. Each economic system has its own peculiar problems
and therefore produces its own solutions.
Economic Activity: All action concerned with the creation and distribution of
goods and services.
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, Consumption: The process by which goods and services are utilized in satisfying
human needs and wants.
Production: The process of creating goods or services to be consumed.
Distribution
a. Physical: The process of transporting these goods and services to the people
who need or want to consume
them.
b. Personal: The division of income among persons.
c. Functional: The categorization of income according to type — wages, rent,
interest, and profit.
Basic Agents of Production of the Market System
Land: Natural resources.
Labor: Human effort.
Capital: The physical necessities for production — buildings, machinery, tools,
equipment, and supplies.
Economists call these basic agents "factors of production." They include a fourth
factor — management, which plans, coordinates, and directs production,
although some economists label this factor a specialized high-level form of labor.
The market system involves a high degree of economic activity, revolving around
the production of goods and services. It is significant that the basic agents of
production — land, labor, and capital — did not exist as abstract ideas until the
Economic Revolution. Of course, there was land used for agriculture, and labor in
the form of human workers doing physical tasks, and capital that provided funds
for buying tools and maintaining the land. However, society as a whole did not
consider these terms as impersonal ideas in the modern sense of "Let's start a
business — we need land for the location of the factory, we need a labor force to
do the work, and we must have the capital to finance our efforts."
During the Middle Ages, land existed in the form of estates, manors, and
principalities, but it was not "for sale" in the modern sense. Instead, the
ownership of land provided the prestige and status around which social life
revolved. There were serfs, apprentices, and journeymen who worked, but there
was no labor market — that is, people who were looking for jobs. The serfs were
bound to the land of their masters, the lords. The apprentices and journeymen
served the master and were rigidly controlled by guild regulations. Capital funds
in the sense of private wealth existed, but not with any idea of investing,
expanding, or taking risks. The goal of medieval landholders was to stabilize and
protect the nation by financing wars and conquests and by underwriting the
household expenses of kings. A good example is the Fugger banking family of
Bavaria, which failed to pursue the amassing of wealth begun by their patriarch,
Anton Fugger. Under the medieval system, advertising was unheard of; the basis
of price was the just price. People lived as their ancestors had lived — off the
output of the family land.
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