The Worldly Philosophers

“Thus it was neither their personalities, their careers, their biases, nor even their ideas that bound them together. Their common denominator was something else: a common curiosity. They were all fascinated by the world about them, by its complexity and its seeming disorder, by the cruelty that it so often masked in sanctimony and the success of which it was equally often unaware. They were all of them absorbed in the behavior of their fellow man, first as he created material wealth, and then as he trod on the toes of his neighbor to gain a share of it.” 

The thinkers Heilbroner calls “the worldly philosophers” were united by their desire to understand how market society solved (or didn’t solve) the problem of survival, as well as their drive to grapple with what the future of capitalist society would look like. Heilbroner is attracted to thinkers who challenged the economic orthodoxy with radical theories, many of which later became accepted as common sense. 

“When men and women no longer work shoulder to shoulder in tasks directly related to survival—indeed when two-thirds of the population never touches the earth, enters the mines, builds with its hands, or even enters a factory—or when the claims of kinship have all but disappeared, the perpetuation of the human animal becomes a remarkable social feat.”

The problem of survival is central to the emergence of the market system and to economics as a discipline. Under the tradition or command systems, it was obvious how humanity survived, and a field known as economics was unnecessary. When the market system evolved, generating a world on which society survived despite its members’ pursuit of self-interest, the field of economics spawned in an effort to understand it.

“The arrangement was called the ‘market system,’ and the rule was deceptively simple: Each should do what was to his best monetary advantage. In the market system the lure of gain, not the pull of tradition or the whip of authority, steered the great majority to his (or her) task. And yet, although each was free to go wherever his acquisitive nose directed him, the interplay of one person against another resulted in the necessary tasks of society getting done.” 

The market system forms the core of capitalist society and is a key component of Heilbroner’s analysis throughout the book. Unlike the tradition or command systems, in which individuals served the interests of either their predecessors or autocrats, the market system enables survival even when people follow their individual rational self-interest. 

“Nonetheless, 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.” 

Heilbroner draws an explicit link between economic autonomy and political freedom. The market system is inherently democratic because of its emphasis on the individual, as well as its insistence that anyone can become rich. Although the remnants of the tradition and command systems persist in modern capitalism, its basic philosophical core is one of liberty and freedom.

“And this meant that accumulation might go safely on. The rise in wages which it caused and which threatened to make further accumulation unprofitable is tempered by the rise in population. Accumulation leads to its own undoing, and then is rescued in the nick of time. The obstacle of higher wages is undone by the growth in population which those very higher wages made feasible. There is something fascinating in this automatic process of aggravation and cure, stimulus and response, in which the very factor that seems to be leading the system to its doom is also slyly bringing about the conditions necessary for its further health.” 

According to Smith, the market system possessed automatic self-righting mechanisms based on the principles of supply and demand. Demand drove up prices in the short run, but supply naturally increased in response, pushing demand back down. Although Smith made this assertion in the 18th century, the assumption of the self-righting system persisted until the days of Keynes, Schumpeter, and the Great Depression. 

“Unlike Smith, Ricardo saw that the escalator worked with different effects on different classes, that some rode triumphantly to the top, while others were carried up a few steps and then were kicked back down to the bottom. Worse yet, those who kept the escalator moving were not those who rose with its motion, and those who got the full benefit of the ride did nothing to earn their reward. And to carry the metaphor one step further, if you looked carefully at those who were ascending to the top, you could see that all was not well here either; there was a furious struggle going on for a secure place on the stairs.” 

Heilbroner uses the metaphor of the escalator to draw distinctions between the optimistic, utopian Smith and the pessimistic Ricardo. Smith thought capitalism would inevitably lead to utopia as the division of labor deepened as far as possible. Ricardo, writing 40 years later, argued that capitalism would never lead to utopia because it was dominated by class conflicts and a desire to compete for as much wealth as possible. 

“For Ricardo saw the landlord as a unique beneficiary in the organization of society. The worker worked, and for this he was paid a wage; the capitalist ran the show, and for this he gained a profit. But the landlord benefited from the powers of the soil, and his income—rent—was not held in line either by competition or by the power of population. In fact, he gained at everyone else’s expense.” 

To Ricardo, the landlord was an obstacle that prevented Smith’s version of capitalism from functioning correctly. Unlike the worker and the industrialist, who both labored for their income, the landlord produced nothing of value but still received a large share of social wealth. Even worse, the nature of land as a commodity meant that the automatic self-righting mechanism inherent to the market system did keep their income in line, enabling the landlord to act a saboteur to the whole market system.

“For quite without intending it, Malthus and Ricardo did one astonishing thing. They changed the viewpoint of their age from optimism to pessimism. No longer was it possible to view the universe of humanity as an arena in which the natural forces of society would inevitably bring about a better life for everyone. On the contrary, those natural forces that once seemed teleologically designed to bring harmony and peace into the world now seemed malevolent and menacing. If humanity did not groan under a flood of hungry mouths, it seemed that it might suffer under a flood of commodities without takers. And in either event, the outcome of a long struggle for progress would be a gloomy state where the worker just barely subsisted, where the capitalist was cheated of his efforts, and where the landlord gloated.”

A key component of the book is how Heilbroner characterizes the economic world as seesawing between optimism and pessimism, influenced by each worldly philosopher’s personal history and the political and cultural norms of the day. Unlike Smith, Ricardo and Malthus argued that society, defined by constant conflict, would not inevitably get better over time. Their pessimism set up a dilemma that Heilbroner returns to throughout the book: the future of the market system and whether or not capitalism can be saved. 

“He was not, by any stretch of the imagination, an economist. But he was more than that; he was an economic innovator who reshaped the raw data with which economists have to deal. Like all the Utopian Socialists, Owen wanted the world changed; but while others wrote, powerfully or otherwise, he went ahead and tried to change it.” 

This quote captures the importance of the Utopian Socialists, who are generally thought of as political reformers rather than economists. Heilbroner groups them with the other worldly philosophers because they argued that if capitalism would inevitably be inhumane, then it needed to be replaced with something better: worker-led cooperative communes. The Utopian Socialists wanted not only to understand the world but also to better it with their own hands. 

“No wonder the Utopians went to such extremes. The laws did look inviolable—and yet the state of society for which they were held responsible was intolerable. So the Utopians took their courage in both hands and said, in effect, the whole system must change. If this is capitalism—with a nod at Robert Blincoe chained to a machine—let us have anything else—Villages of Cooperation, moral codes, or the delightful resort atmosphere of a phalanstère. The Utopians—and there were many besides those mentioned in this chapter—were reformers of the heart rather than the head.” 

The worldly philosophers often questioned whether the laws of market society were fixed or mutable. The Utopian Socialists believed that these laws should and must change when they threaten the welfare of society. If the laws could not be fixed, then the market system was not worth keeping and should be discarded. Their idealism stood in stark contrast to Smith, as well as Ricardo and Malthus, who argued that the laws of the market system were fixed—they could not and should not be changed. 

“The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined are what the opinions and feelings of the ruling portion of the community make them, and are very different in different ages and countries, and might be still more different, if humanity so chose.” 

John Stuart Mill found the middle ground between Smith, Ricardo, and Malthus on one side and the Utopian Socialists on the other. He took some of Utopian Socialist ideas and brought them into the mainstream. He argued that economic laws only applied to production and that societies could choose to distribute wealth as they saw fit. This argument has loomed large in both economics and government policy to this day, as societies argue about how much the government should intervene to rectify inequality. 

“But the superstructure of thought cannot be selected at random. It must reflect the foundation on which it is raised. No hunting community would evolve or could use the legal framework of an industrial society, and similarly no industrial community could use the conception of law, order, and government of a primitive village. Note that the doctrine of materialism does not toss away the catalytic function and creativity of ideas. It only maintains that thoughts and ideas are the product of environment, even though they aim to change that environment.” 

Marx distinguished between a society’s base—production—and its superstructure—its religion, customs, and other uniting characteristics. To Marx, the key element to understanding history and society was understanding how production is organized; upon this base of production, the superstructure of ideas is erected. Because these ideas necessarily flowed from the base of production, economists tended to be conservative and to resist changes in the status quo. Marx viewed history as dynamic: The market and the factory, born amidst feudal life, were incompatible with capitalism and so demanded a new sociocultural context. 

“For what Marx has set for his goal is to discover the intrinsic tendencies of the capitalist system, its inner laws of motion, and in so doing, he has eschewed the easy but less convincing means of merely expatiating on its manifest shortcomings. Instead he erects the most rigorous, the purest capitalism imaginable, and within this rarefied abstract system, with an imaginary capitalism in which all the obvious defects of real life are removed, he seeks his quarry. For if he can prove that the best of all possible capitalisms is nonetheless headed for disaster, it is certainly easy to demonstrate that real capitalism will follow the same path, only quicker.” 

Marx’s method in Das Kapital resulted in startlingly accurate predictions about the course of future capitalism. Instead of pointing out the shortcomings of capitalism in his time, Marx met defenders of capitalism on their own ground by arguing that, even in the most perfect form possible, capitalism would still collapse. 

“For if economics was defined to be the study of human pleasure mechanisms competing for shares of society’s stock of pleasure, then it could be shown—with all the irrefutability of the differential calculus—that in a world of perfect competition each pleasure machine would achieve the highest amount of pleasure that could be meted out by society.”

The incorporation of mathematics shaped how the philosophical view of political economy transitioned into the field of economics today. Mathematics placed an emphasis on static equilibrium, pushing aside questions of politics, power, and history in favor of pursuing mathematical formulas for human and market behavior. Heilbroner argues that economics should not be thought of as a science; instead, economists should, like the worldly philosophers, ask big questions about how the economy influences society and history. 

“It was this basic conception that was lacking in the new concentration on equilibrium as the most interesting, most revealing aspect of the system. Suddenly capitalism was no longer seen as an historic social vehicle under constant tension but as a static, rather historyless, mode of organization. The driving propulsion of the system—the propulsion that had fascinated all its prior investigators—was now overlooked, ignored, forgotten.” 

The worldly philosophers, unlike modern economists, attempted to understand social history rather than merely tinkering with small mathematical problems. They also pointed out conflicts that occurred within the market system rather than assuming static equilibrium. From Heilbroner’s perspective, modern economists, by limiting themselves to small questions and relying on purely mathematical models, have not lived up to the impact of the worldly philosophers. 

“They saw a whole new direction to the drift of capitalism; in fact, they saw imperialism as signaling a change in the fundamental character of capitalism itself. Still more significant, they divined in the new restless process of expansion the most dangerous tendency that capitalism had yet revealed—a tendency that led to war.” 

Mainstream Victorian economists barely considered colonialism, and when they did, they only considered its impact on trade. Only the “underworld” of economics had the courage to question colonialism’s virtue because of how entrenched pro-imperial attitudes were in society. Apologists for colonialism argued that colonialism allowed the great powers to civilize the so-called primitive world, while the underworld argued that colonialism was driven by greed. 

“The worst that Marx had claimed was that the system would destroy itself; what Hobson suggested was that it might destroy the world. He saw the process of imperialism as a relentless and restless tendency of capitalism to rescue itself from a self-imposed dilemma, a tendency that necessarily involved foreign commercial conquest and that thereby inescapably involved a constant risk of war.” 

Hobson went beyond Marxist pessimism about capitalism’s future. He argued not only that capitalism possessed internal contradictions that could lead to its collapse but also that it could possibly destroy the world through war. Although Hobson’s dire predictions did not fully come to pass, he was one of the first to understand the internationalization of capitalism, which has become even more important in the modern world, here globe-spanning multinational companies exist uneasily with old national borders. 

“The leisure class had changed its occupation, it had refined its methods, but its aim was still the same—the predatory seizure of goods without work. It did not, of course, any longer seek for booty or women; that barbaric it was no more. But it sought for money, and the accumulation of money and its lavish or subtle display became the modern-day counterpart of scalps hanging on one’s tepee.”

To Thorstein Veblen, the leisure class was not inherent to capitalism and the market system; it could appear in any society. In Veblen’s worldview, the value-creating class would not seek to overthrow the leisure class, but rather to emulate them. This desire to emulate and become a part of the leisure class explained how society hung together despite being plagued by a visibly parasitic group.

“And so, on top of the machinelike dependability of the actual production apparatus in the world, the businessman built a superstructure of credit, loans, and make-believe capitalizations. Below, society turned over in its mechanical routine; above, the structure of finance swayed and shifted. And as the financial counterpart to the real world teetered, opportunities for profit constantly appeared, disappeared, and reappeared.” 

Veblen distinguishes between the “real” world of production and the “fictitious” world of financial speculation. The modern leisure class used the financial system to seize wealth from productive members of society by causing a constant string of economic crises and perpetuating financial fraud, which they capitalized on, not caring that they disrupted the real work of producing wealth for society.

“The jobless millions were like an embolism in the nation’s vital circulation; and while their indisputable existence argued more forcibly than any text that something was wrong with the system, the economists wrung their hands and racked their brains and called upon the spirit of Adam Smith, but could offer neither diagnosis nor remedy. Unemployment—this kind of unemployment—was simply not listed among the possible ills of the system; it was absurd, unreasonable, and therefore impossible. But it was there.” 

The key paradox of the 1930s was that, according to contemporary economic thought, mass unemployment coexisting with underuse of factories and machinery was impossible. In theory, savings in excess of investment during depressions should push down interest rates (i.e., the price of acquiring capital), which would make it profitable to invest and thus end the depression. But this did not occur; Keynes argued that the economy’s automatic righting mechanism did not necessarily operate in extreme cases such as depressions, and that in such cases, government needed to spend to rescue capitalism from itself. 

“A peculiar state of affairs, indeed a tragedy without a villain. No one can blame society for saving, when saving is so apparently a private virtue. It is equally impossible to chastise businessmen for not investing when no one would be so happy to comply as they—if they saw a reasonable chance for success. The difficulty is no longer a moral one—a question of justice, exploitation, or even human foolishness. It is a technical difficulty, almost a mechanical fault.” 

Keynes described the Great Depression as a tragedy without a villain. Both savers and investors behaved rationally according to the laws of the market system: Savers saved what money they did not spent, and capitalists only invested when they saw a profitable opportunity. Even though everyone followed their rational self-interest, the system still broke down. Keynes’s theories marked a major challenge to the two centuries of economic thought that had dominated since Adam Smith.

“For of all the forces leading to disruptions in routine, one stands out. This is the introduction of technological or organizational innovations into the circular flow—new or cheaper ways of making things, or ways of making wholly new things. As a result of these innovations a flow of income arises that cannot be traced either to the contribution of labor or of resource owners.”

Schumpeter argued that profit was always temporary and only came when entrepreneurs disrupted given ways of doing business. Their innovation led to a cycle of creative destruction. Entrepreneurs introduced a disruptive innovation, which generated profits in the short run, and then profit was gradually eliminated as everyone else mimicked those innovations. The concept of creative destruction has become a key component of modern economics. 

“But now comes the Schumpeterian contradiction: capitalism may be an economic success, but it is not a sociological success. This is because, as we have already seen, the economic base of capitalism creates its ideological superstructure—rational rather than romantic, critical rather than heroic, designed for men in lounge suits, not armor. In the end it is this capitalist frame of mind, this capitalist mentality, that brings down the system.” 

Schumpeter argues that capitalism inherently breeds a critical and rational attitude, causing the bourgeoisie to eventually turn on itself. This leads to a capitalist ennui and a gradual shift from capitalism to a benign socialism. To Heilbroner, Schumpeter’s view reinforces his distaste for narrowly defined economics; to explain real-world market collapse as occurred in the Great Depression, economists like Schumpeter had to consider sociocultural factors.