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CHAPTER 1
Tending the Body
The History of Economics
The Beginnings of Economics
The idea that part of life is "economic" has prosaic roots. The word economic comes from the Greek oikos, meaning "house," and nomos, meaning "to manage." An early use in English, the Oxford English Dictionary tells us, would be in a phrase such as "Doth employ her Oeconomick Art ... her Household to preserve (1697)." The good household manager acts to preserve the household by making sure it stays provisioned with food and the other necessaries of life.
For much of human history, household economics for most of the population was largely a matter of self-provisioning, with the tasks ordered by slow-changing customs. The few in the ruling classes measured their wealth by land and gold. Economics came to be about provisioning and perhaps, secondarily, the taxation that provided the support for the ruling class. The merchant class was small.
The Industrial Revolution, beginning in England in the mid-eighteenth century, dramatically changed things. As it progressed, the organization of factory production and the development of markets for factory-produced goods brought a whole new dimension to provisioning relations. The use of money and markets broadened, and wage employment became increasingly important. The new role played by financial and physical capital in sustaining industrial production transformed what had been a largely stagnant situation into one of massive, ongoing change. Wealth became increasingly identified with business production and profit making. Trade between European countries and their colonies boomed. New classes formed: entrepreneurs and factory owners, on the one hand, and wage workers, on the other.
The "classical school" of economics arose from a desire to understand these emerging relations. The Scottish philosopher Adam Smith (1723–1790), by far the most prominent of the classical economists, was fascinated by the process of wealth creation. He wanted to explore how society was going about providing people with, as he wrote in 1776, the "necessaries and conveniences of life." Smith's insights — about how the factory system used the division and specialization of labor and about the roles played by capital and markets — created the groundwork for understanding the new economic system of capitalism.
Yet the fact that classical economics rose during the time of the Industrial Revolution affected not only the content of what was studied (the capitalist industrial system) but also the form by which it was understood. The era of the rise of the factorywas the era of the rise of the machine, predicated upon the somewhat earlier rise of science and technology.
This was a time of change in fundamental ways of perceiving the world. Up through the sixteenth century in Europe, the predominant conception of the relationship between humans and nature was primarily religious or, some might say, superstitious. People felt themselves to be embedded in a liv-ing cosmos. Religious rituals accompanied the sowing of seeds, the reaping of harvest, or the entry of a mineshaft into the living earth. Painting the picture in broad strokes, we can say that provisioning activities were shot through with understandings of the sacred. The fear of hell drove a preoccupation with the moral implications of every act. Scholarly study was primarily a matter of studying religious texts.
But then, starting with Galileo's (1564–1642) early work in mechanics, through René Descartes's (1596–1650) philosophical and mathematical elaborations, and finally Isaac Newton's (1643–1727) culminating work, the idea of the world as a sort of giant clockwork mechanism gained force. The physical aspects of the world were seen as reducible to components and forces describable in terms of laws and mathematics. Newton's Second Law of Motion summarized the relation of force, mass, and acceleration in a tidy calculus formula. The rise of science fomented the technological innovation that led to industrialization. It also radically changed the way people thought about the material world and how they thought about knowledge.
Not surprisingly, when Adam Smith described economic and political life in the eighteenth century, he used the popular mechanistic metaphors of his day. "Power and riches," he wrote, are "enormous and operose machines." The "wheels of the political machine," he continued, can be made to move in harmony when one attends to "the connexions and dependencies of its several parts."
Smith is most known — as was mentioned in the introduction to this volume — for a passage in which he seemed to suggest that individuals' pursuit of their own self-interest is converted, by the mechanism of a self-regulating market system, into service to the good of others: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner," he wrote, "but from their regard to their own interest." An individual acting from self-interest would be, he said, "led by an invisible hand" in the marketplace into the promotion of the social good. A fuller reading of Smith's work would actually reveal that he was much concerned with morals and saw important roles for regulation of commerce. But historical legacies often have little to do with historical persons, and these few thoughts of Smith's have caused him to be lauded as the originator of laissez-faire (free-market) economics. Since Smith, self-interest has been assumed to be the "energy source" driving the "gears" of economic life.
As hard as it may be to believe from our contemporary standpoint, early scientists and economists generally did not see (or at least, given the power of the Church of their day, did not acknowledge) any conflict or even break of subject matter between science and the sorts of questions addressed by religion and philosophy. To most Enlightenment thinkers, the notion of nature as a clock was inseparable from the notion of God the Clockmaker. The world could be both mechanical and full of purpose and value, they thought, because it had purpose and value in God's eyes.
Later scientists and philosophers, however, increasingly noticed that, in fact, the study of the clockwork seemed to move along just fine without any notion of purpose, value, or ethics. The notion of a Clockmaker became increasingly irrelevant to scientific work. Darwinian evolutionary theory accelerated this process, by positing a mechanism other than once-and-for-all divine design by which the living parts of the clockwork might have been elaborated. Economists followed the same course, increasingly seeing their work as the objective study of the "drives" and "mechanisms" that run the economic "machine," rather than a study having anything to do with questions of a moral or spiritual nature.
Contemporary Probusiness Views
When you come across contemporary probusiness, promarket, and procapitalism arguments, you usually find that the highest priority is given to values such as those given in List I.
List I
· Production of goods and services that support survival and flourishing.
· Creation of employment opportunities.
· Self-support and financial self-responsibility.
· Opportunities for creativity, innovation, and growth in the enjoyment of life.
That is, such views emphasize the tremendous increases in material wealth that have come about in capitalist, market-oriented economies over the last two hundred or so years. Proponents of for-profit business see the opportunities and competitive discipline provided by relatively free-market economics as the driving forces behind this boom in prosperity. Business leaders are often — and often justly — proud of thegoods they supply and the jobs their enterprises create. They often sincerely believe that the economy provides opportunities for every person to gain a good income and contribute to society — as long as he or she is willing to work. They put a high value on achieving autonomy and mastery. Superior rewards, probusiness advocates believe, go to those who not only labor but who also innovate and take risks. A number see the work of business as "value creation," in the sense of creating benefits for customers, workers, suppliers, and communities as well as shareholders.
Taken only this far, the values in List I themselves are hard to completely dismiss, even if you disagree with the chain of thought that ties them to a particular economic system. Whether your ideal system is corporate capitalism or some other, perhaps more socialistic or smaller-scale style of economy, doesn't there seem to be something positive about valuing the items in List I? Don't we need at least some goods and services to live and be happy? Aren't we distressed — often psychologically, by a feeling of uselessness, as well as financially — if we become unemployed? Don't we feel that it's appropriate and fair that people "pull their own weight," contributing to the community in some way, to the extent they are able? Don't many of us often yearn for a creative outlet in our working life? I think the values promoted by this view are ones we can all endorse to some extent, if we think about them.
Probusiness values become probusiness ideology when advocates assume that all these good things are produced by the automatic functioning of the market system. That is, taking their cue from those few comments by Adam Smith, they assume that issues of ethics need not be directly addressed: the "invisible hand" will make even greed work for good. The free-market system, they believe, is inherently fair and meritocratic, justly rewarding those who are most productive. Some business leaders and scholars of business are much more sophisticated in their thinking (I will discuss their work in chapter 3), but the promarket zealotry that currently pervades much of popular discourse is exactly of this simplistic sort. Probusiness advocates often join with Smith in their admiration of this magic of markets. As Smith wrote, "The perfection of [policy], the extension of trade and manufactures, are noble and magnificent objects. ... We take pleasure in beholding the perfection of so beautiful and grand a system, and we are uneasy till we remove any obstruction that can in the least disturb or encumber the regularity of its motions."
The "obstructions" that many contemporary free-market advocates seek to remove include governmental financial and environmental regulations, business taxes, and restrictions on international trade that, they believe, create a drag on the creation of wealth. They also oppose redistributive taxation and social welfare payments that, they believe, make less perfect the mechanism that leads from individual effort to individual reward. Since everyone is presumed to automatically receive their "just deserts," low incomes and poverty are interpreted as signs of inferiority, laziness, or bad choices. While free-market advocates may acknowledge a role for private charity, taking care of unmet needs through taxes and transfers is considered unfair to those who work hard and is said to encourage the vice of dependency among recipients. Even deliberate actions on the part of corporations to be socially responsible may be seen as gumming up the works, since they take energy away from the drive for profits that leads to the best of all possible worlds. Poverty, unemployment, social distress, and environmental damage, they believe, arise not from the workings of the system, but from obstructions put in its way. Take away government "interference" and other encumbrances, they say, and the free-market system will create wealth for all.
Before I turn to the subject of how this popular worldview has been buttressed by work in academic economics, let me take a moment to explain how these probusiness folks are likely to perceive their critics. They tend to perceive anyone who questions their arguments as an unrealistic idealist who doesn't recognize the value of what the economy has created — the value of those things laid out in List I. They assume that you don't adequately appreciate how the economy has lifted many people from poverty, or that you are a nonindustrious person — a granola-eating hippie-type, perhaps — not willing to shoulder your load. Your desire to make economic outcomes approach equal offends their notion of fairness as just deserts. They may — perhaps with some reason — think that you are naive if your base is in the ivory tower of academe or the hallowed halls of a religious or service-oriented nonprofit institution. There you rest on money raised by taxes or donations, walled off from the hurly-burly of the practical business world.
If you don't agree with them about the priority that should be given to the items in List I, they assume, in short, that you must display characteristics like those on List II.
List II
· Passivity about provisioning of goods and services.
· Otherworldliness, with little attention to practical needs or constraints.
· Financial nonresponsibility, leading to dependency.
· Fear of money and power.
Some business groups express anger toward academic institutions and departments that they consider to be hotbeds of left-leaning, egg-headed, out-of-touch, antibusiness (and thus "anti-American," in this country) intellectuals. These List II characteristics generally play a role in their list of complaints. Business leaders see the conflict as one of values — of activity and provisioning that lead to betterment of human life, versus characteristics of laziness and idealistic otherworldliness that undervalue and undermine all that they have accomplished.
Needless to say, the low opinion many probusiness people hold of their opponents does not create a good foundation for dialogue. But my own life experiences have urged me to look for more adequate ways of thinking about economic life.
Entering the World of Economics
I didn't know, growing up, that I wanted to be an economist. My dream as a little girl, in the early 1960s, was more along the stereotypical ballerina line. I stumbled into taking economics at college — although, for a while, I was not sure I would be going to college at all.
My mother had come down with rheumatoid arthritis when she was in her twenties, and, by the time I was in grade school, she relied on crutches to get around. My two older sisters, each in turn, took on the routines of helping my mother dress, doing the shopping, cooking dinner for the family, and running errands. Once my sisters were both away at college, the routines fell to me. But since I was the youngest, if I went away to college, who would take over? As it turned out, my education was not a subject on which my parents were prepared to make compromises. A female cousin was recruited as my replacement. I was off the hook and off to St. Olaf, a Lutheran college in Minnesota.
As was typical in those precomputerized days, we freshmen were herded en masse onto the floor of the new athletic center to register for classes. Folding tables had been set up, each with a cardboard sign raised on a dowel advertising the name of a department. Chalkboards behind each table listed the classes that had already filled. I had put down "undecided" on the forms where I was supposed to list a major and had been, rather arbitrarily, assigned a historian as an advisor. I sat across from him on a cold metal chair with the blank registration form in front of me. We easily filled in classes to meet requirements in math, religion, and language.
"What about your social science requirement?" my advisor asked. "Any idea what area interests you?"
"I'm kind of interested in psychology," I replied.
No luck. The introductory psychology classes were all filled up and closed.
"I think you'd enjoy trying economics," my adviser said and more or less frog-marched me over to the Economics table. All the introductory classes that would fit my schedule were filled, I saw with a tinge of relief. I associated economics with business, and business with greed, and — as a Lutheran minister's daughter — this didn't exactly fit my values or my self-image. But my advisor was a friend of the faculty member who taught an intro economics class that, though full, did fit my schedule. After some chatting between them, I found myself signed into the course on an override.
Like many of the other students at that church-associated school, I entered it aspiring to a life of service of one kind or another. St. Olaf produces many doctors, nurses, and ministers. My father had wanted me to go into pre-med and become a medical missionary. I was unsure about the medical aspect of this plan but felt drawn to it in principle. My economics professors at St. Olaf were largely warm, humane, and intelligent people who believed that teaching this subject was consistent with such values. After I found out that economics was a social science — a way of understanding in broad terms how human social behavior might be organized — I came to drop my association of it with business management. I thought that perhaps it would help me contribute to solving problems of global poverty. Now I developed a vague idea that, perhaps, instead of going into medicine I could help figure out why there were so few good hospitals in poor countries and how economic systems could be changed to increase people's health. I also liked the fact that the study of economics allowed me to use my skills in mathematics.
(Continues…)
Excerpted from "Economics for Humans"
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