I just read the book The Worldly Philosophers and to consolidate the ideas I wanted to write a summary here.
It is composed of many chapters that talk about different periods of the economic thinking focused on the personality and historical context of relevant economists, therefore it provides a more personal view behind the writters of economic theories.
Adam Smith
is the first that introduced the idea of accumulated wealth and the effects over the production of goods that would have. We thought about the market supply and demand. For example, there are many bourgeoisie that were competing against each other for the market demand of certain products, they in consequence require more workers to produce more and be able to sell the products at a lower price, so to win a higher market share. That implies hiring more workers, nevertheless, given that others are competing for producing those products at lower prices too, they also want more workers, therefore, the labor market forces to a rising of salaries paid to the workers. That implies higher earnings for that social class. This would hinder the benefits of the bourgeoisie. Nevertheless, there is a limit to the number of goods that the population required, and bourgeois families could only buy that much for their needs. Therefore, that imposed a limit to demand of certain products, diminishing the demand for employees and therefore aliviating the pressure of rising salaries, because less work force was required to satisfy the current demand of the product. For Smith, overall, there was a net increment in the produced goods and total wealth in the system via accumulation of wealth.
David Ricardo and Malthus
were actively collaborated and discussed their views about economics. The main difference in their viewpoint compared to that one Adam Smith is that the accumulated wealth would be limited, there was a boundary to the development of the economic machine: It was reach because of the tendency of this social class of workers to increase its number with each rising of salary, therefore, balancing the laboral offer in the market and reducing in consequence the salary offered by the bourgeoisie. It was not even desirable for it would lead to a Tragedy of the Commons. More mouths to feed would imply more production of goods, but the land can only offer a limited amount of goods that can be extracted and satisfy the demand given a period of time. Thus, the economic growth was capped. (A net-zero game).
John Stuart Mill
was a well educated (he started to study greek at the age three and by 6 years old he already had read Plato's Dialogues and many other greek poets and writters) English economist, he also learnt latin very young. His father raise him with a strict and elite education, that had the negative impact of Mill having crisis in his twenties where while other discovered that there could be beauty in intelectual work, Mill found that there could beauty in beauty. His main statement was the idea to separate production and distribution. He stated that the economic laws are only concerned with production, the distribution is completely separate from those laws. He said:
"The distribution of wealth depends on the laws and traditions of sociaty. The rules that determine it are the opinions and feelings of those who govern the community; they are very different in distinct periods and distinct countries."
This reasoning has its flaws, distribution policies can have impacts over production. For example, if we tax 100% of the benefits, that will change where the money goes but also hinder the desire to produce more, therefore a distribution policy affects production! Also, as Marx pointed out, we cannot separate distribution from production completely, because how different sociaties organize their payment modes is a constitutive element of their production modes.
So the critics that Mill made concerning the freedom with which sociaties can reestructure their distribution of wealth has its limits. Nevertheless, its approach has importance, for the time, its ideas were considered a bit socialist (utopic socialism) but the concept of having the freedom to distribute wealth implied that government or other institutions could have an influence over the economic machinery and help to stabilize it, for example, via taxes on heritage and land rent. Also, in opposition to Ricardo and Malthus, he didn't considered that the economic growth would reach a maximum and then decrase as a consequence of an increase in population that exerted a negative impact over the benefitis of accumulated wealth. Instead, he believed that with education, people could be informed about the negative impacts of non-controled natality, so population could be controled so salaries would only increase and reach a maximum of wealth accumulation. Therefore, in Mills model, the economy would reach a high stationary phase where we would see an end to the capitalism and the economic process and start a phase or stage of beingn socialism, where humanity would focus his energy towards higher ideals like justice and freedom. At the present time we can think of Netherlands or the three scandinavias (Norway, Sweden, Denmark) and see the elevated level of social responsability.
Karl Marx and Friedrich Engels
had opposite different personalities. Marx was a German Scholar par excellence, slow, meticulous, exhaustively perfeccionist. Engels was happy, clever, energetic, communicative; he was fond of bourgeois pleasures and had a good palate for wine. Engels could quickly writte a treatise, Marx could get back over and over the same theme, endlessly. Engels talked multiple languages, Marx after twenty years of practice could only talk a horrible Teutonic English. Nevertheless, with all its weight, Marx was the most powerful mind of the two. Wherever Engels introduced amplitude, Marx contributed deepness.
Now, Marx was influenced by Hegel with its dialects theory, loosely speaking, Hegel's dialect says that change is permanent, every idea, every force helps to grow its opposite, then after a tension they both get fused into one unity, which in turn produced its own contradiction. History, was the expression of that flux of contradictory forces and ideas in conflict.
In the dialectical materlialism, the root principle to understand the history is that the production of goods, and its subsequent distribution, determines the order of the society. As we saw with the counterexample for Mills' complete separation of production and distribution, the distribution has an impact in the production too. Given that the dialectical materialism proposes that the architecture of social order (in hierarchical classes) is determined by the distribution of goods that in turn is determined by what is produced and how it is produced, we see that it is all connected. The distribution allocates resources to certain members of society (which in turn create a new social class) is dependent on the relation that those members have with what is produced and how it is produced. Depending on the nature of that relation is the position that the newly created social class will have in its society and will or not maintain. Therefore, given that what is produced is related to how it is produced, then new products can be created when new techiniques and technological and scientifical advancements happen. For example, a new kind of mineral can be extracted from deeper places if there is the technical capacity to do it and perhaps a new class of technical positions will be created, perhaps, the more disruptive the changes in production the odds of allowing a new social class to emerge are greater. Or an existing way of producing wheat using manual grinders will be improved using vapor grinders or electrial grinders, therefore if there was an existing guild of manual operators of grinders, with the development of electrical grinders, that guild could be displaced by others or even just disapear exerting pressure over other sectors of society to emerge.
Dialectical materialism does not say that ideas are not relevant, but it says that people originate their ideas based on the production and distribution and society order they happend to live in, and the influence of those ideas were primarely originated from those afromentioned aspects.
In times of Marx and Engels, the prediction or natural consequence of the structure and operation of capitalism indicated that it had to finish. Its base class (proletariat) was beign oppressed by the middle top class (bourgeoisie, aristocrats) who had the means of production, the proletariat only had its work force to produce.
The ideal model of capitalism that Marx proposed is one that does not have monopolies and that the value of a product is the accumulated work required to produce it (being the same view that David Ricardo had in that aspect). Then given those conditions (among others, for formal details read Das Kapital), an equitative relation between the value of the proletariat's work force and the value that should be paid for that is equal to the required subsistance of a proletarian, therefore if 6 hours of a man's work is required to pay for its subsistance requirements, then that is what is going to be paid by the capitalist. If that were the case, the capitalist would not get any accumulated gains, but they get it by what Marx called surplus value, that is, they hired the proletarian to work for 8-10 hours per day and only pay them what they need to subsist. Then the capitalist can sell the product and obtain an extra accumulated gain. This is possible given that they own and monopolize the production modes according to the legal ordering of private property. Given that all the capitalist try to get benefits but are all in competition. Given that to generate benefits they have to expand, to grow, they require more workers, therefore they also have to compete for the labor force. This rise salaries. This rising of salaries have a negative pressure over the benefits the owners of the production modes, therefore, the way they find the way out of that is to buy machines that can substitute the labor force of living workers. With these machines they can satisfy the market demands that pressures them to expand and also diminished the negative pressure of the rising salaries of the labor market on their benefits. This machines will throw out into the street to many workers, so accomplishing the same function that the increment in population had for Smith and Ricardo, i.e., to compete for jobs in the labor market. Now, this only solves one problem but generates other, given that the surplus is only obtainable via the living proletariat, (machines in Marx model cannot produce surplus, if you bought the machine at 10,000, then you can only get 10,000 of equivalent work force from the machine). And even then, the benefits would decrease given the reduced population adquisitive power, and reducing the demand for products. So the end result is a reduction in the rate of benefits, this produces a capitalist crisis, the smaller go into bankrupt. This is not the end, just one cycle, the bigger companies can adquire the machines at lower prices from the smaller bankrupting companies, the works are forced to accept devaluated salaries and then slowly, the surplus begins to appear again and with it big benefits. Each crisis exists to renovate the expansion capacity of the system.
This is the concept Marx called laws of movement of historical development. The process of depressions (economic recession) or crisis is the way the capitalism system works, it is not a flaw it is the way it functions.
But each crisis is worse than the last one, given that the bigger firms absorb the smaller ones and when these industrial monsters fall, the harm to the society is stronger. This would lead to the colapse of capitalism in the end.
It's great that Marx was able to predict economic cycles and consequences of those cycles over the long run of big industries, i.e., benefits tend to go down always. The only way to solve this is that the whole economy grows. This requires innovation, techonological progress. Companies are obliged to innovate. To sum up the model of dialectical materialism was great at predicting future process and events.
Hobson and Marshall.
Then the Victorian Age started and almost all the formal economist saw the economy from the cold and static academic side. Alfred Marshall in his "Principles of Economics" described the economic machinery as a system of weights and counter-weight that balanced and allows to reach an equilibrium in the economy. It also considered for the first time the economic ideas separated from political economics, this is, the separation of economy from the ideas that related the distribution of power in hierarchical societies that ended up in creating a particular social order and their associated production and distribution of resources and goods.
On the other hand Hobson, was an english economist that worked on the concept of Imperialism as a new form of capitalism drived by the requirement of finding new markets to sell national products and avoid excesive offert and low demand if those products were only to be sell in their original national markets. The desire to find new markets to expand the earnings coupled with the searching of row materials (gold, silver, oil, etc.) prompted invasions of new territories and the period of colonialism that characterized the XIX century and the initial years of the XX century, actually this hunger for new colonies (opening up new markets and access to profitable commodities) led to wars between nations like Germany, Italy, England and France, this was part of the reasons that originated the first world war. Hobson's works influnced Vladimir Lenin's theory of underconsumption.
John Maynard Keynes
One of the most imporatant economists of the 19-20th centuries. "The economic consequences of peace" was influencial because in it he discussed the economic aspects of The Treaty of Versailles. Where he exposed that the winning nations did not seek to impose good treaties for the economic of even their own countires but the clauses were mainly motivated by resentment. In his book "The General Theory of Employment, Interest, and Money" one key aspect he mentioned was the notion of the economic machinery to require intervention from the government to release itself from economic stagnations due to the lack of private investment by businessmen and the related lack of economic activity (less flow of money => less income => less expending => less income (as the expenditure of someone is the income of someone else) => less capacity to save money => less money to invert => less economic activity => stagnation). So traditionally, government would decrease the price of borrowing savings, i.e. it would decrease the interest to incentive private inversion and incentive the economic overall. Nevertheless, Keynes pointed out that it is possible that given a certain gap in the cycle, there could be stagnations that would require further intervention from the governement to reactivate the economy, such as: creating jobs for public affairs as sweeping leaves from the streets and such. And also lending money and making arranges with private parties to incentivize inversion and reactive the economy.
Joseph Alois Schumpeter
Was the cause of giving the current understanding of the concept and social figure of a "entrepreneur": A individual from a sociaty that independently of its original social stratum, given its exceptional leadership capabilities, it would excel and innovate the markets or create even new ones with its inventions or optimizations of productions processes. Among other things, he also stressed the importance of considering different periods of economic business cycles. One long of about 60 years, one more short of about 10 years and smaller ones within the formers. He also considered that Capitalism would collapse but for different reasons as those posited by Marx. One masterpiece to read about is his book titled: "History of economic analysis"
