Short History of Economics
It is easy to
assume that the way we understand the economy today is the
way it has always been understood. However, the ideas of economics
have evolved over time. Let's meet some of the people whose
ideas about how the economy should work have dominated economic
thinking. Be sure to stay with us until the end when we will
(finally) meet a female economist.
In his book The Wealth of Nations, published in 1776
just as the industrial revolution was getting underway, economist
Adam Smith laid the groundwork for what is termed laissez-faire
economics. Laissez-faire is simply French for 'let it be,'
which is what Smith wanted the government to do. His ideas are
often referred to as classical
Smith asked one
central question: How, in an increasingly complex and global
society, in which people are increasingly dependent on the
actions of others for their survival, can the economic activities
of independent producers,
shippers, merchants and consumers
be best coordinated? His answer was simple. He said there
was no need for coordination. Left to themselves, competitive
markets would create order, not disorder. Trouble would
only arise if a market was monopolized.
He went on to argue that if every member of society simply
pursued his or her economic self-interest, all of society
would benefit. As Smith put it, "It is not from the benevolence
of the butcher, the brewer, or the baker that we expect our
dinner but from their regard to their self-interest."
Smith's ideas ruled
economic thinking in Canada up until the 1940s.
Karl Marx, who lived in Europe in the middle of the nineteenth
century, identified the existence of conflict in economic
life. He pointed out that just because two parties reach agreement,
they are not both benefiting equally. In other words, the
amount of power you have going into a negotiation influences
that western societies were made up of classes which act to
defend and advance their interests. The two central classes
in a modern economy he argued were the workers and the employers,
who were in conflict with one another. He thought that economic
systems were constantly evolving as a result of this conflict.
Marx encourages us to ask who is on top and who benefits from
economic policy. Marx's ideas have never dominated Canadian
economic thinking, but they provide a useful set of questions
to ask about economic activities, since he reminds us to ask
who gains and who loses. Perhaps the most important thing
for us to remember about Marx is that he argued that the goal
of intellectual work such as his was to change the world.
This focus has led to a rich political legacy.
John Maynard Keynes, a British economist of the middle twentieth
century, attacked then prevailing ideas about unemployment.
Laissez-faire economists had argued that unemployment was
largely voluntary. If the unemployed dropped their wage demands
to a low enough level they would be able to find work. Keynes
argued that unemployment is often caused because there is
not enough demand
for goods. In other words, the way to reduce unemployment
might be to raise wages,
allowing workers to buy more goods. There is a radical conclusion
to this idea: Keynes was arguing that the invisible
hand could not cure unemployment, instead it would take
the visible hand of government to raise wages. Keynes' ideas
formed the basis of government economic policies from the
1940s to the 1970s. The visible hand could spend money on
a wide range of goods: it could simply cut corporate taxes,
it could build nuclear bombs and bombers, or it could invest
in social programs. Keynesianism is associated with the practice
of governments running deficits
in lean times to balance the economy.
Milton Friedman is a neo-classical (the name simply means
they are giving a slightly new twist to Adam Smith's classic
ideas) economist who favoured a return to laissez-faire economics.
His idea, that unregulated
markets - on a global scale - will produce benefits for
all, has come to dominate government thinking since the early
1980s. In the 1960s he began calling for an end to government
regulation and intervention in the economy (including the
end of minimum wage laws and most forms of social security).
Neo-classical economists rejected government deficit spending
and believed that high rates of unemployment were needed to
control wages and inflation.
Once the deficit was eliminated and social programs reduced,
wages and prices would decline and the economy would grow.
The neo-conservatives (or neo-classicals) also believed that
government spending was the result of pressure by special
interest groups, particularly unions, and therefore it was
necessary to curb their power.
Marilyn Waring is a lecturer, writer and development consultant.
She is also a farmer and she says herself that it is this
calling that has had the most profound influence on the way
she understands the economy. Unfortunately, Waring's ideas
have never seriously influenced the way our Canadian economic
system works. However, Marilyn Waring has been a great inspiration
to many people, especially women, who feel that the current
economic system excludes much of life.
Waring says that
when economy includes only activities which involve monetary
much of women's productive and reproductive work is excluded.
Bearing children, mothering, tending a garden, feeding one's
family, milking a family cow, raising sheep for wool you use
yourself, all of these are excluded as economic activities
and do not find their way into any country's System
of National Accounts. In other words, through a traditional
understanding of the economy, much of the work of half of
the population becomes invisible. (See Julie's story.)
According to Waring,
mainstream economics has also not found a way of counting
the resources on which valued
production is based, namely the earth. For example, activities
which involve monetary transactions count as production even
when they involve the degradation of the earth's resources,
such as strip-mining. A sunset has no value, nor a mountain,
and trees only count when they have been chopped down and
sold. At the same time, Waring criticizes traditional economics
for not finding a way to value community well-being. By current
thinking, war and disaster are 'good for the economy' because
they create jobs such as arms production and clean-up.
Who's Counting? is available at public libraries and
universities across Canada as are her books, Counting for
Nothing: What Men Value and What Women are Worth and Three
Masquerades: Politics, Work, and Human Rights.
Material in this section including "Adam Smith", "Karl Marx",
"John Maynard Keynes", and "Milton Friedman" has been used
with permission from Show Us the Money: The Politics and
Process of Alternative Budgets published by CHO!CES: A
Coalition for Social Justice and the Canadian Centre for Policy
Alternatives (Arbeiter Ring Publishing). Available at Mondragon
Bookstore and Coffeehouse in Winnipeg.
History Of Economics
Banking & Debt