I've chosen three economic philosophers whose theories are often challenged. I find a common denominator as to why the theories of each don't work in today's world, but it's not a problem with the theories they presented. The common denominator is 'human nature.' Each presumed that human elements of greed, power, sloth, vanity, et al would somehow diminish into some sort of utopic world in which people would live at a 'conscience,' not 'conscious,' level.
The three economic philosophers I've chosen are David Ricardo, Karl Marx, and John Maynard Keynes. Marx is possibly the only recognizable name, so I'll start with him. (Sorry to those who think I should start with the first name in the series - that's chronologically ordered.)
Karl Marx
Many people I talk to think of Marx as 'the father of communism,' and, in ways, he is. His idea of a 'communist economy,' however, was one in which everyone's needs would be met from the labor of all. There would be no need for ownership for, in Marx's concept, each would produce what they could, consume what they need, and share the excess as common wealth. It's a seriously flawed theory in that it inherently requires absence of challenge. Marx's utopia manifests in totalitarianism, and vast individual separations in both wealth and power.
The genius in Marx isn't in his economic concept, but in his prediction that this was about to happen. Marx didn't draw up a very good blueprint for an economy, but, where ever all the factors that he said were essential for 'Marxism' to happen, it has happened.
In gross oversimplification, he said that anywhere a true capitalist economy exists, and the mass of those who 'don't have' grows sufficiently, that the mass of 'don't haves' will rise in revolt and take that which those 'who have' have and commonly own it.
Testing it: consider you, and a hundred other people, were told to take your families and starve to death, by one person who had plenty for all: would you (a) take your families and go starve to death or (b) gang up on him, take that which he has, and share the spoils? If I were a gambling man, I think I'd put my money on you all working cooperatively and eating. It seems to be true.
What I derive from Marx's genius: society needs to care for the welfare of its least, ideally to the point of no need, but, to the very least, sufficiently to prevent the mass from growing to the point that gravity shifts to thoughts of revolt becoming 'common sense.'
What I do: every once in a while, I give a bum a buck. I give the mail man food on postal food drive day. I produce sufficiently for my own family, and help out when I can.
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David Ricardo
Ricardo is, by those who know of him, regarded as 'the father of free trade theory.' He, like Marx, failed to take into account that those who 'have' really don't concern themselves too much about those who 'don't have.' In his defense, Marx's e=mc2 factor had not yet begun, so Ricardo didn't get that 'historical perspective' that we now enjoy.
If one can neutralize his or her 'protectionist instinct,' we can get to the math. If two countries each produce two things its people consume, there is economy in each focusing on one that will result in reduced costs or increased production, and by trading what the other doesn't produce for that which it produces at reduced cost or increased production, both economies get more than if they had each produced both. Even in disproportion, a country that is superior in both will benefit by focusing on that which it values most accepting back that which it could have produced more efficiently.
Testing it: if two countries both consume and produce milk and bread at the same rate and for the same cost, the increased production/reduced cost of each focusing on one or the other will create 'lower cost' or 'more to consume' for people in both countries. That seems to be true. If one country produces milk and bread more efficiently than another country can produce either, but that country produces bread more efficiently than milk, the increased production of milk will remain for that country's people to consume, and sufficient bread would be traded for sufficient milk. That also seems to be true.
The lesson I derive from Ricardo's genius: if we can rise above our instinctal level, and look at results for all concerned rather than just our own wealth and consumption, we can create greater efficiency resulting in growth in overall wealth from which we all consume.
What I do: I trade things I have for things I want or need more, and I (minus-sign) shop at Wal-Mart. I am more inclined to help those who are willing to help themselves than to do something for somebody (unless there is sufficient other reward to justify compromising that principle). I don't consider only my own personal reward, but also how I best contribute to the benefit of the whole.
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John Maynard Keynes
To say 'last but not least' about Keynes is not to give him sufficient gravity. If Marx and Ricardo together comprise the mass of the moon, Keynes is Jupiter; he's that much more significant regardless of how you compare them.
Of the three, Marx had the least range of influence in life; Ricardo had influence in his local area; Keynes had global influence.
Marx exiled himself and wrote what he wrote; Ricardo was elected and argued against opposing views; Keynes was included in those who would negotiate the Treaty of Versaille, and resigned his position as Chief Economist of England proclaiming that which would happen would be worse than which we just resolved.
Marx's genius was recognized after his death; Ricardo was recognized during his lifetime, but opposed by others who were similarly recognized; Keynes was recognized as a genius such that he had celebrity-like fame, and his opinions were sought by heads of states.
Marx couldn't get anyone to listen; Ricardo couldn't get people past instinctal arguments; Keynes got people to listen and he got people to conceive, but he couldn't get people off the lineal concept that 'if one is good, two is better.'
He resolved the Great Depression - sort of.
The common thought that economies rise and fall, similar to a pendulum swing or a bouncing ball, fails to account for gravity: eventually the pendulum or ball comes to rest. It was Keynes who arrived at the conclusion that the economy was in 'perfect balance' in total depression: there is no supply and there is no demand.
Keynes suggested to FDR that 'anything to create some artificial demand' could be the outside force to nudge the economy out of inertia. He said it, something to the effect of, 'if you make some bank notes, and bury them in mines filled with rubbish, the overall demand for those few notes would create true supply and, as consequently, true demand. However, there are probably better ways to do it than burying money in mines filled with garbage.'
After listening to, applying Keynes' theory, and seeing the slow swing start up again, FDR ran wild with it. Keynes spent the rest of his life trying to persuade FDR that he was using it far in excess of what he had intended. They don't teach you that part in history.
Keynes, who is easily one of the hundred most influential people of the 20th century, is today regarded as somewhat mad or insane. He was so brilliant that Bertrand Russell would discuss philosophy with him! He amassed his own personal fortune with the time from waking until going to work. Then he would go to work running England's economy before finally relaxing to intellectual discussions with the world's greatest minds of the day!
Lesson I derive from Keynes' genius: everything is affected by physical laws; reducing it beyond that is not necessary.
What I do: I often, and I mean really often, wonder why people don't get that. Plus I'm amazed at how few people, even economists, understand what Keynes had discovered for us about physical laws and economies (or life if you care to go 'outside the box' of economies).
2 comments:
Unfortunately, Keynes did not understand that the very cause of the Great Depression was the outrageous expansion of the money supply by the Fed in the 20's. The boom of the 20's was had in place of a prosperous 30's. While the recession that turned depression would have been cleansed within a couple of years, the Keynesian applications of government meddling in the market brought the depression/recession to the Great Depression that lasted for the decade.
Keynes' economics were blown out of the water in the 70's due to similar government intervention in the markets in the 60's.
If you would like to discuss this, I would like to invite you to a forum for people who like to think. You seem intelligent and I am sure that you would enjoy the forum. It is at http://thethinkingchair.forumakers.com/forum.htm .
Thank you for the link, Enron. I have joined the group, and look forward to both learning from it, and contributing to it.
Keynes definitely thought in terms of "the short run," as eximplified by his quote that "in the long run, we are all dead." However, to not consider the changes Keynes made throughout his life, notably his pleading with FDR to cease government programs and let the economy recover, is like saying someone who answers a math question incorrectly in the first grade forever believes that to be true. It is more probable that his understanding would have continued to grow, and his philosophies would have changed, as they apparently did.
I am not impressed with Keynes because what he said would work then will work today, but, rather, that he seems to have been the economist to identify that economies are subject to universal laws.
If we disregard the "what he said then will work today," and consider instead "what he identified then is true today," we can look at economies more with the eyes of philosophers who understand that the universe works in spheres, and less with the eyes of economists who see economies as lineal.
By doing so, we can better anticipate consequences rather than suffering from unintended consequences.
Keynes is still "the man" as far as I'm concerned. It is not because he did everything correctly all the time, but because he seemed to have left for us the lesson that economies, like everything else in the universe, are subject to universal laws.
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