Chapter 2 The World Philosopher: The Economic Revolution
“Market system” à Each should do what was to his best monetary advantage (before that, people
did what they were assigned to or to what they were born). The lure of gain, not the pull of tradition
or the whip of authority steered the great majority to his/her task.
- Although each was free to go wherever he wanted, the interplay of one against another
resulted in the necessary tasks of society getting done.
à This solution to the problem of survival called forth the economists.
- However, human unpredictability, therefore society faces the possibility of breaking down
any moment. Three ways of guarding against this:
o (1) Organizing society around tradition; i.e. born into ones social task.
o (2) Authoritarian rule to get tasks done.
o (3) Before no economist needed. Society ensured own existence by allowing each
individual to do that what they fit. By guiding rules in the market system. Rule: do
the best to your monetary advantage, the lure of gain.
- It was not obvious that, each person out only for his own gain, society could in fact endure.
o It was not clear that even the “bad” jobs would be done if custom and command
would no longer run the world.
o Economists wanted to explain this puzzle à but until the idea of the market system
itself had gained acceptance, there was no puzzle to explain. Until a few centuries
ago, men were not at all sure that the market system was to be viewed without
suspicion, distaste, and distrust (people were comfortable with tradition and
command). .
o To abandon this security for the dubious workings of the market system, nothing
short of a revolution was required.
- Most important revolution, from the point of view of shaping modern society.
France (1305) -> World trade, yet notebooks of transactions, very little.
Germany (1550) -> Customs toll. Different currencies, rules and regulations. A lot of markets,
customs, own money rules and regulations, law & order.
Boston (1639) -> Can’t make too much gain, would be a sin. Profit is a crime.
England -> Trading organization; Articles of incorporation (no indecent language, no card playing, no
keeping of hunting dogs).
France 1666): Too much initiative, regalement to get away from this.
- Common: (1) the idea of the propriety of a system organized on the basis of personal gain
has not yet taken root; (2) a separate, self-contained economic world has not yet lifted itself
from its social context. The world of practical affairs is mixed up with the world of political,
social, and religious life.
- Until the two worlds separate, there will be nothing that resembles the tempo and the
feeling of modern life. And for the two to separate, a long and bitter struggle must take
place.
- It may strike us as odd that the idea of gain is a relatively modern one; we are schooled to
believe that man is essentially an acquisitive creature and that left to himself he will behave
as any self-respecting businessman would. The profit-motive is, however, not that old, it is
only as old as “modern man”.
, o Even today the notion of gain for gain’s sake is foreign to a large portion of the
world’s population.
o The idea that gain might be a tolerable -or useful- goal in life would have appeared
as nothing short of a doctrine of the devil.
- William Petty: People will not work harder if wages rise; it will simply take more time off.
- Wealth, of course, there has always been. But there is a difference between the envy
inspired by the wealth of a few mighty people and a general struggle for wealth diffused
throughout society.
o The early capitalists were not the pillars of society, but often its outcasts (Fuggers:
no one wanted to take over the huge banking empire, for example because it was
too much work).
o As long as life on earth was only a ‘trying’, the business spirit neither wasn’t
encouraged.
o Most people—serfs, village craftsmen, even the masters of the manufacturing guilds
—wanted to be left alone to live as their fathers had lived and as their sons would
live in turn.
- The absence of the idea of gain as a normal guide for daily life created a huge difference
between the strange world of the tenth to sixteenth centuries and the world after that (our
own). But there was an even more fundamental difference: the idea of “making a living” had
not yet come into being. Economic life and social life were one and the same thing. Work
was not yet a means to an end – the end being money and the things it buys. Work was an
end in itself, encompassing money and commodities, but engaged in as a part of a tradition,
as a natural way of life. The great social invention of “the market” had not yet been made.
- Markets are not the same as the market system. Market system is not just a means of
exchanging goods; it is a mechanism for sustaining and maintaining an entire society.
- The broader notion that a general struggle for gain might actually bind together a
community would have been held as little short of madness.
o There was a reason they could not see the market system: Land, Labor, and Capital –
the basic agents of production which the market system allocates- did not yet exist.
Land, labor, and capital as “agents” of production, as impersonal, dehumanized
economic entities, are modern conceptions (middle ages, renaissance, reformation,
until 16th/17th century).
Land: 14th/15th century there was no such things as land in the sense of
freely salable, rent-producing property. There were lands, but these where
not just to be bought and sold. They formed the core of social life, provided
the basis for prestige and status. Someone in good standing would not think
of selling his land.
Labor: There was no labor market/network. Most labor never entered a
market to be bought and sold. The peasant lived tied to his lord’s estate: he
baked at the lord’s oven, etc. He was rarely if ever paid for any of his
services. There was little or no bargaining between servant and master
except for sporadic strikes when conditions became intolerable. Not yet job
seeking individuals who sell their services to the highest bidder. Serfs and
guilds led.
Capital: No impetus to put them to new and aggressive use. Instead of risk
and change, the motto was “Safety first”. Not the shortest and most
efficient, but the longest and most labor-consuming process was the
, preferred technique of production. Advertising was forbidden, and the idea
that one master guildsman might produce a better product than his
colleagues was regarded as treasonable.
o The lords gave orders, and production waxed and waned accordingly. Where no
orders were given, life went on in its established groove.
o No economics, because who would look for explanation if the it was all like an open
book.
- There would be nothing for any economist to do for several centuries—until this great self-
reproducing, self-sufficient world erupted into the bustling, scurrying, free-for-all of the
eighteenth century -> not a peaceful evolution; a revolution.
o It required the creation of a frightened disoriented class called the proletariat.
Nobody wanted this commercialization of life, it was resisted.
o Capitalists face change (everything was very strict) -> government fears change,
impose on every change -> Wool new profitable commodity -> commons lands
became private property (enclosure) -> riots broke out against it (1820)-> peasants
could not maintain themselves as “farmers” -> since no factories were available, he
could not metamorphose into a factory workers -> became agricultural proletarian,
and where agricultural work was lacking, a beggar, sometimes a robber, usually a
pauper. -> Increase in pauperism, the English Parliament tried to deal with the
problem by localizing it. It tied paupers to their parishes for a pittance of relief and
dealt with wanderers by whipping, branding, and mutilation -> failed to understand
fluid labor force that seek work wherever work was to be found according to the
dictates of the market. At every step, the commercialization of labor, like the
commercialization of capital, was misconceived, feared, and fought. (Government
stopped opposing, so they could find jobs now).
- The market system with its essential components of land, labor, and capital was thus born in
agony—an agony that began in the 13 th century and had not run its course until well into the
19th. Never was a revolution less well understood, less welcomed, less planned. But the great
market-making forces would not be denied; insolently they tore away the usages of tradition
-> Transactions and gain provided a new and startlingly powerful motive force.
- There was no single massive cause. It was not great events, individual laws, or powerful
people that brought about the economic revolution; but a process of spontaneous, many-
sided change.
o First, there was the gradual emergence of national political units in Europe.
The isolated existence of early feudalism gave way to centralized
monarchies. And with monarchies came the growth of the national spirit; in
turn this meant royal patronage for favored industries, rules and
regulations, national laws, standardized currencies…
An aspect of the political change that was revolutionizing Europe was the
encouragement of foreign adventure and exploration; from private to
national life; causing society more oriented toward gain and chance,
activated by the chase after money.
o A second change was to be found in the slow decay of the religious spirit under the
impact of the skeptical, inquiring, humanist views of the Italian Renaissance.
Life on earth became more important and so did the notion of material
standard and ordinary comforts.
, Rise of Protestantism, preaching that it is okay to make the most of what
God gives us.
o Material changes that eventually made the market system possible.
During middle ages, towns were creating familiarity with money and
markets. Power went to those who understood money matters (and not
nobility).
There was also technical progress, people started accounting and only then
could large-scale business operations run successfully.
o Rise in scientific curiosity
The Industrial Revolution could not have taken place had not the ground
been prepared by a succession of basic sub industrial discoveries. The idea
of invention itself took hold; experimentation and innovation were looked
on for the first time with a friendly eye.
- The problem of survival was henceforth not to be solved by custom or command, but by the
free action of profit-seeking men bound together only by the market itself -> capitalism.
- Philosopher concerned themselves with the political rather than the economic side of life.
o the central argument of Leviathan is that an all-powerful state is necessary to
prevent human beings from falling into a condition described by Hobbes as “solitary,
poor, nasty, brutish, and short.”
o Emphasis on gold, later on commerce and wealth.
o To make society happy, the poor need to stay poor and ignorant (or wages will rise,
etc.).
o Man insisted on some sort of intellectual ordering to help him understand the world
in which he lived.
o Especially trade was hard to be described by philosophy, therefore the time for
economists had arrived.
- After Adam Smith’s The Wealth of Nations, men began to see the world about themselves
with new eyes; they saw how the tasks they did fitted into the whole of society, and they
saw that society as a whole was proceeding at a majestic pace toward a distant but clearly
visible goal.
Adam Smith (the PE reader) pp. 27-41
Chapter 1: Of the division of labor
- The division of labor has had a great effect on the productivity of labor.
o By dividing large production processes into several separate, distinct tasks
performed by different people, the production time as a whole will decrease.
o Laborers who have been accustomed to producing a certain good will be able to
work quicker, in comparison to those who are unfamiliar with producing the same
good. Thus being able to produce more of it. In addition, focusing on completing one
specific task will make laborers better at the task that they are assigned to do.
- Labour is divided in manufacturing houses (around 10 people). If country more
improvement, more division of labour. Only agriculture knows no subdivision, all countries
produce same products (depends on climate).
- Why is division of labour more productive?
o (1) Increase dexterity/mastery level.
o (2) Sparing time in passing different work forms on (also mentally).
