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Economics: A Historic Look.

The arrangements within any relationship, whether between individuals or social groups, are underpinned either by force or persuasion. War, slavery, and government coercion are examples of force. Commerce is the great example of intercourse which comes about and which is maintained by persuasion.

Commerce is the exchange between men of their products or the products of others which they have come to legitimately own. It is the buying and selling of merchandise and the whole of all the necessary arrangements which is therein involved. For any nation, as history will show, commerce enriches its people. It not only enriches people because it brings to them the wanted goods and services; but, also, because of the intercourse which accompanies commerce, it spreads valuable ideas. It was commerce that "spread civilisation and sweet manners to the barbarians."1 No other answer fits to explain the phenomenal civilizing effect that men have had on one another. The fact is that civilisation came about, being guided by their past experiences, as a result of men conducting themselves so to advance the welfare of themselves and their families.

The system of "the production and distribution of material wealth" is entirely natural. It did not come on the scene in full blossom; it evolved along with man. Though the economic system is complex, it is driven entirely by one guiding principle: people do things because they calculate that in the doing, it will be to their advantage. There is a broad range of desires and/or fears that might motivate a particular individual to want to do a particular thing; but the motivation, in respect to a rational person, is regulated by that one guiding principle: Is what I am about to do in my best interest? The trick is for the person to figure out what action or actions are in their best interest, learnt only with the passage of time, with experience, with education. For the rational person who desires to keep himself and his family safe and fed the answer is that a person will proceed in life in a way which he contemplates will advance his objects. The general proposition is this: a person proceeds in life to do things which he contemplates will be to his or his own family's advantage or welfare: there is no other motive of action that can carry us. This is the unchangeable nature of man; as true today as it was in the days of the Phoenician traders.

In spite of what we have been led to believe, the oldest profession is that which we all find ourselves involved in, on a daily basis, the business of trade: we are all traders. As archaeological evidence will show our trading habits go back a long, long time. In Europe there is evidence (Herskovits) that trade was carried over very great distances at least 30,000 years ago. It was the great expansion of trade that made possible, at a later point, the growth of the classical civilisation of Greece and Rome. The development of human life became wholly dependant on a regular market process, which in the age of barter was readily intelligible, but which in the age of indirect exchange (money) has become an abstract interpersonal process which transcends even the most enlightened individual's perception.

A system, particularly the economic system, we see from a look at the dictionary2 is "the organized whole, government, constitution, a body of men ..." It is a "set or assemblage of things connected, associated, or interdependent, so as to form a complex unity ..." Because it is described as an "organized whole" we should not conclude that there is a designing mind who did the organizing. Indeed, like most all things, the economic system evolved on its own. The development or growth of our social institutions, viz. the establishment of law and other elements in the political or social life of a people subservient to the needs of an organized community or the general ends of civilisation, came about through evolution.3 What is to be understood, in any discussion of the evolved economic system, is the state of the high complexity of the causes at work, as is the case for all social institutions. This complexity might be somewhat resolved by a look at the social systems of the past.

Let us briefly touch on the ancient economies, or social structures of the Greeks, the Egyptians and the Peruvians through certain of the classic writers. First, Wells on the Greeks:

"The epics showed the Greeks a barbaric people without iron, without writing, and still not living in cities. They seem to have lived at first in open villages of huts, around the halls of their chiefs, outside the ruins of the Aegean cities they had destroyed. Then they began to wall their cities, and to adopt the idea of temples from the people they had conquered. It has been said that the cities of the primitive civilizations grew up about the altar of some tribal god, and that the wall was added; in the cities of the Greeks the wall preceded the temple. They began to trade and send out colonies. By the seventh century B.C. a new series of cities had grown up in the valleys and islands of Greece, forgetful of the Aegean cities and civilization that had preceded them; Athens, Sparta, Cornith, Thebes, Samos, Miletus among the chief. There were already Greek settlements along the coast of the Black Sea and in Italy and Sicily. The heel and toe of Italy was called Magna Graecia. Marseilles was a Greek town established on the site of an earlier Phoenician colony."4
The French writer Bastiat on the Egyptian economy:
One of the things most strongly impressed upon the minds of the Egyptians was patriotism ... No one was permitted to be useless to the state. The law assigned to each one his work, which was handed down from father to son. No one was permitted to have two professions. Nor could a person change from one job to another ... But there was one task to which all were forced to conform: the study of the laws and of wisdom. Ignorance of religion and of the political regulations of the country was not excused under any circumstances. Moreover, each occupation was assigned to a certain district ... Among the good laws, one of the best was that everyone was trained to obey them. As a result of this, Egypt was filled with wonderful inventions, and nothing was neglected that could make life easy and quiet.
An example of early totalitarianism, if not that of Egypt, would be Peru. Herbert Spencer observed that Ancient Peru evidently had a society that was, "elaborately regimented in groups of 10, 50, 100, and 1000, ruled by officers of corresponding grades, and tied to their districts, were superintended in their private lives as well as in their industries, and toiled hopelessly for the support of the governmental organization."5

We come quickly through the years to the times of feudalism. The simple vision of it, and, mostly accurate, is that of mailed barons and defenceless serfs. The feudal system was a system that arose out of the wreak of the Roman Empire. It was a system of social organization whereby those at the top, the kings or lords in their castles, were absolute rulers; and those below him, through the vassals down to the serfs, were completely beholden to him. Everyone in the feudal system owed his body to the temporal lord, and, to the spiritual Lord, he owed his soul. The system was not near as harsh as it has been portrayed; and, indeed, suited the times very well.

"In reality it [the feudal system] came as salvation of Europe from Anarchy, and sustained it for nearly a thousand years. The essential point was that it offered a fix setting for social life - answering to some extent our age-long prayer -- 'give peace in our time, O Lord.' For under its organization the lord and the priest, the vassal and the liegeman and the serf, lived in a settled order in which each had his allotted place. There was no question of equality, or of equal rights, but every man had a status or lot of his own, descending from father to son. What seems to most of us in America to-day the grossest social injustice was accepted as a matter of course by those who lived under it."6 (Stephen Leacock.)
We think of feudalism as a social institution peculiar to mediƦval times, that it existed in the Middle Ages7 and that it came to an end by 1500. Generally, in referring to Europe, that is so; though if we take the world as a whole, then it yet continues in certain places. In Scotland it existed right to 1800, the last hold out of European feudalism.
"When the Laird could only eat the produce of his lands, he was under the necessity of residing upon them; and when the tenant could not convert his stock into more portable riches, he could never be tempted away from his farm, from the only place where he could be wealthy. Money confounds subordination, by overpowering the distinctions of rank and birth, and weakens authority by supplying power of resistance, or expedients for escape. The feudal system is formed for a nation employed in agriculture, and has never long kept its hold, where gold and silver have become common."8 (Dr. Johnson.)
What brought the feudal system down, it is commonly said, were the changes in the art of war; in a word, gunpowder. Prior to A.D.1300, during the middle ages "the defence beat the attack." "A feudal baron in a castle on a rock, with water from deep wells and a store of food, could defy a king for a year; indeed he could defy the whole world. Dover castle, the most complete example of a medieval fortress in England, covered thirty-four acres. In 1216 it defied all attempts of the French to take it."9 With the fall of the feudal system the matrix of power shifted from "the castle to the bourse." And soon the day of the strong central leader arrived with the resultant (as did arise throughout the European world) new national states. A period of two or three hundred years were to pass as these new states (England, France and Spain) consolidated their power under their monarchies and extended their sphere of influence, even, as Spain first did, to the New World; and, thereby these nation states, excepting the times that they battled one another, grew prosperous. There then followed along the first stirrings of great social and economic changes.

George Macaulay Trevelyan:

"It is not, therefore, surprising that the greatness of England during the epoch that followed the Revolution [1688] is to be judged by her individual men, by the unofficial achievement of her free and vigorous population, by the open competition of her merchants and industrialists in the markets of the world, rather than by her corporate institutions, such as Church, Universities, Schools, Civil Service, and town Corporations, which were all of them half asleep. The glory of the Eighteenth Century in Britain lay in the genius and energy of individuals acting freely in a free community - Marlborough, Swift, Bishops Butler and Berkeley, Wesley, Clive, Warren Hastings, the Pitts [father, son], Captain Cook, Dr Johnson, Reynolds, Burke, Adam Smith, Hume, James Watt, Burns, William Blake, and a score of others, to whom our later age will find it hard to show the equals, though we have indeed reformed and rationalized our corporate institutions."10
Scientific curiosity, as we have seen, was to lead to The Industrial Revolution. In its wake was to come profound social changes. Up to the mid 19th century, or more certainly up to the 18th century, the manor and the church still continued to have great influence of the people; things were run yet by "Custom and Command." Driven by tradition, or the whip of authority, sons did as their fathers did. With the dawning of the modern era, thinking men wondered on how things might work, in the absence of temporal and spiritual leaders.

Not much before the 18th century was it thought that anyone should spend much time getting theories together that might explain the workings of society, viz. the study of political economy. It was during the 18th century, in France that Economistes appeared. The most noted one was Francois Quesnay (1694-1774) who founded an 18th century French school of thinkers who evolved the first complete system of Economics. Being a physician to Louis XV, Quesnay came fully under the protection of the royal court. He began his economic studies in 1756, when he wrote for the Encyclopedie. His chief work is The Economical Table (1758), which he and his followers (the physiocrats) believed summed up the natural law of economy. The physiocrats stressed that absolute freedom of trade was essential to guarantee the most beneficial operation of economic law, which they considered immutable.

The study of economics was but one study of many which were first to be made during the Age of Reason which burst upon the stage during the 18th century. The reasons for these studies were touched upon by the historian, T. S. Ashton:

"In 1700 there were fewer men searching the Scriptures and bearing arms than there had been fifty years earlier, and more men bent over ledgers and busying themselves with cargoes. There were fewer prophets and more projectors, fewer saints and more political economists. And these economists were concerned less with principles of universal application than with precepts derived from experience, less with what was ultimately to be wished for than with what was immediately expedient."11
As the century progressed, brilliant thinkers fed on the writings of those who preceded them, and extended the horizons even further with their own publications. The year, 1776, was a monumental year: in history, it was a year when Washington forced General Howe to evacuate Boston and when the Continental Congress carried a motion for the independence of the 13 states on the East coast of America and adopted the Declaration of Independence. A monumental year, 1776, too, because of books which were then first published and which forever will be treated as classic expositions: Gibbon gave forth with his first volume of The Decline and Fall of the Roman Empire; Bentham, Fragments on Government; Paine, Common Sense; and, of course, Smith, The Wealth of Nations.

Now, I need not here go into details of Adam Smith's life and his work (I have done so on a separate page), except, to say this: Adam Smith was steeped in history and philosophy and was exposed to both the English and French political-economic systems of the day, ones which stood in stark contrast. His book was considered to be revolutionary, as it did not deal with the class structure of the age, and the eternal questions of who had what, - And why? But rather, as Robert L. Heilbroner was to write:

"... it is not his aim to espouse the interests of any class. He is concerned with promoting the wealth of the entire nation. And wealth, to Adam Smith, consists of the goods which all the people of society consume; note all - this is a democratic, and hence radical, philosophy of wealth. Gone is the notion of gold, treasures, kingly hoards; gone the prerogatives of merchants or farmers or working guilds. We are in the modern world where the flow of goods and services consumed by everyone constitutes the ultimate aim and end of economic life."12
What Adam Smith did in his book was to explain how self-interest was the engine of the economy and competition its governor. He set forth the great lesson that all economists come to, sooner or later. Again, Professor Heilbroner:
"First, he [Adam Smith] has explained how prices are kept from ranging arbitrarily away from the actual cost of producing a good. Second, he has explained how society can induce its producers of commodities to provide it with what it wants. Third, he has pointed out why high prices are a self-curing disease, for they cause production in those lines to increase. And finally, he has accounted for a basic similarity of incomes at each level of the great producing strata of the nation. In a word, he has found in the mechanism of the market a self-regulating system which provides for society's orderly provision."13
The economic theory as was pronounced by Smith was true, in 1776; and, true today; and will always be true: for it is underpinned by an appreciation of the unchangeable nature of man. Many strange theories have since sprung up such as was espoused by the likes of Marx and Veblen, but not a one has tested out as have those of Adam Smith.14

Before closing, it remains for me to deal with one more economist, one of more modern times -- John Maynard Keynes. With the world wide slump, post 1929, Keynes set himself to the task of explaining and of coming up with new methods to control trade-cycles. In the result two books were spawned: A Treatise on Money and The General Theory of Employment, Interest and Money. In these books Keynes pronounced that there should be both national and international programs that would lead to a unified monetary policy. Further, Keynes came to the view that a national budget was to serve not only the purpose of good financial planning for government revenues and expenditures; but, that, it ought to be used as a major instrument in the planning of the national economy. What was needed, in Keynes' view, were policies that would regulate the booms and slumps of the trade cycle, viz. that it was the responsibility of government to regulate the levels of employment and investment. He was of the view that economic equilibrium could, and should, be restored and maintained by official action. In such a scheme there was not much room for the classical theory as was pronounced by Adam Smith.

Keynesian theory, of course, was to be very appealing to politicians. What occurred, and this is its great defect, was that politicians not only spend in the slumps (as is called for by Keynesian theory), but they also spend during the boom years. In any event, Keynes' General Theory was to throw economists into two violently opposed camps. However, as it turned out, and principally because of its appeal to free spending politicians, the Keynesians, up to the 1980s, were to have their way. The fact is, that Keynesian economics applied during good times, - bring on bad times. Countries, such as Canada and Great Britain, in the 1960s and 1970s, went about setting up massive government systems based on the Platonic visions had by the "liberals" among us; in the process these social designers imposed on the working citizens an ever increasing debt; and in the process profaned Keynes.

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NOTES:

1 Montesquieu.

2 I use the Oxford English Dictionary (OED).

3 Evolutionary theory (see Darwin) deals with the natural development or growth of anything as distinguished from its production by a specific act: growing as opposed to being made. It certainly applies to living organisms, as it does to our most important social institutions such as language and law. The evolutionary process, it is believed, is a process where a rudimentary matter develops from influences, both from within and from without, to a more mature or more complete state.

4 A Short History of the World.

5 A Plea for Liberty.

6 Our Heritage of Liberty.

7 The Middle Ages is often used without precise definition but are commonly taken as extending from c.500 to c.1500. There are three periods, certainly as applied to art: Classical, extending to the fall of the Roman empire; MediƦval, extending from that fall to the close of the 15th century; and Modern.

8 A Journey to the Western Islands, circa 1775.

9 Leacock, op. cit.

10 Shortened History of England

11 An Economic History of England: The 18th Century.

12 Worldly Philosophers.

13 Ibid.

14 The battle of competing economic theories continue as is represented by the writings of Galbraith of the "left," and those of Friedman of the "right." However, in the light of the experiences of the last quarter of the century, most all of the field has been given up to those on the "right," those who embrace classical economics as expressed in the ideas of Adam Smith.


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2012

Peter Landry

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