The following summarizes the key ideas that shape the manner in which the concept of nature and biology as actual or metaphorical factors governing economics. Hobbes began to distinguish between artificial and natural aspects of human behaviour.
John Locke
In the modern era, Keynes said that capitalists and labour make inefficient economic decisions so government is needed to make corrective actions. He also established the modern principles of international banking, one of the important infrastructures in building wealth by moving wealth from one area to another quickly and easily. Friedrich Hayek was a contemporary of Keynes, but had different ideas and also was enamored of the concept that Darwin had proposed in his lifetime — the concept of evolution. This was always at the back of his mind as he pursued a view that centrally planned economic decisions lead to tyranny and that both individual and market libertarianism are needed to keep tyranny at bay. Hayek mentored Milton Friedman whose extreme ideas in favour of extreme free-market conditions were based on minimal governmental intervention in any business and not offering any social services that were not themselves self supporting. Friedman was a strong believer in the metaphor of biological evolution as a predictor for the economy. He screwed up and should have been able to correct the metaphor to be with ecosystems not evolution. Interestingly, he correctly identified one variable that is similar in both biological ecosystems and economic systems based on capitalism (although not in some centrally controlled systems): that there exists what he called a natural rate of unemployment. This is akin to the overproduction of young by organisms. The extra in both cases is needed. In the case of biology, to compensate for natural mortality in the young as they grow and as adults die by predation or disease. In the case of economy the extras are needed in case something happens to an employee and the position needs to be refilled.
This is the backdrop for examining how to both understand how the present models exist and how to make some corrective suggestions.
Thomas Hobbes of Malmesbury (5 April 1588 – 4 December 1679)
Thomas Hobbes was an English philosopher, best known today for his 1651 book “Leviathan” on political philosophy. This work became the foundation for much of Western political of social contract theory.
Despite Hobbes’ belief in the absolute power of a sovereign ruler, he enunciated the foundations of European liberal thought. These included the right of the individual; the natural equality of all men; the artificial character of the political order (which led to the later distinction between civil society and the state); the view that all legitimate political power must be “representative” and based on the consent of the people; and a liberal interpretation of law which leaves people free to do whatever the law does not explicitly forbid. He was one of the founders of modern political philosophy. His understanding of humans as being matter and motion, obeying the same physical laws as other matter and motion, remains influential; and his account of human nature as self-interested cooperation, and of political communities as being based upon a “social contract” remain major topics of political philosophy. (Paraphrased from Wickipedia)
John Locke 1632 – 1704
Locke’s political theory was founded on social contract theory. Unlike Thomas Hobbes, Locke believed that human nature is characterised by reason and tolerance. Like Hobbes, Locke believed that human nature allowed men to be selfish. This is apparent with the introduction of currency. Locke held that in a natural state all people were equal and independent, and everyone had a natural right to defend his “Life, health, Liberty, or Possessions”. This became the basis for the phrase in the American Declaration of Independence: “Life, liberty, and the pursuit of happiness”.
Like Hobbes, Locke assumed that the sole right to defend in the state of nature was not enough, so people established a civil society to resolve conflicts in a civil way with help from government in a state of society. This is in sharp contrast to Hobbes notion of absolute power in a sovereign leader. Locke advocated governmental separation of powers and believed that revolution is not only a right but an obligation if the government failed to uphold its part of the bargain. While these ideas were part of the development of the US Constitution and the Declaration of Independence the right of citizens to revolt was not entrenched in the constitution.
Another foundational presumption of economic theory is stated very early on by Locke. Locke uses the word property in both broad and narrow senses. In a broad sense, it covers a wide range of human interests and aspirations; more narrowly, it refers to material goods. He argues that property is a natural right and it is derived from labour. Locke argues that the individual ownership of goods and property is justified by the labour exerted to produce those goods or utilise property to produce goods beneficial to human society. He went on to say that nature on its own provides little of value to society; he provides the implication that the labour expended in the creation of goods gives them their value. This is used as supporting evidence for the interpretation of Locke’s labour theory of property as a labour theory of value, in his implication that goods produced by nature are of little value, unless combined with labour in their production and that labour is what gives goods their value.
He further contends, that ownership of property is created by the application of labour. In addition, he believed property precedes government and government cannot “dispose of the estates of the subjects arbitrarily.” Needless to say, this is in contradistinction to the views of Hobbes, and later of Karl Marx.(Paraphrased from Wickipedia)
Adam Smith 1723-1790
Adam Smith created the foundation for modern economies with his enormous book, the 1776 Wealth of Nations. This book profoundly influenced the rising bourgeois of Europe and the freshly independent United States of America. Feudalism may have lasted in Europe, but the United States, revolt in 1776 totally rejected the concept. Smith’s huge work provided a foundation for a philosophical platform including a vision of a democratic government. Smith was convinced that the only correct way to practice economics was to do it by the dictates of capitalism. His opus laid out the first coherent thesis of economic behaviour in a non-centralized system.
Benjamin Franklin was an influential contemporary of Adam Smith and one of the founding fathers of the US. He is famous for many things of course, but one that highlights a capitalist view definitely isolates the poor and has no truck with a welfare proposition. He said: “I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer . . . In short, you offered a premium for the encouragement of idleness, and you should not now wonder that it has had its effect in the increase of poverty. Repeal that [welfare] law, and you will soon see a change in their manners. St. Monday and St. Tuesday, will soon cease to be holidays. Six days shalt thou labor, though one of the old commandments long treated as out of date, will again be looked upon as a respectable precept; industry will increase, and with it plenty among the lower people; their circumstances will mend, and more will be done for their happiness by inuring them to provide for themselves, than could be done by dividing all your estates among them.” — Benjamin Franklin
Karl Marx 1818 – 1883
Marx’s theories about society, economics and politics, which are collectively known as Marxism, hold that all societies progress through the dialectic of class struggle; a conflict between an ownership class which controls production and a lower class which produces the labour for such goods. Heavily critical of the current socio-economic form of society, capitalism, he called it the “dictatorship of the bourgeoisie”, believing it to be run by the wealthy classes purely for their own benefit, and predicted that, like previous socioeconomic systems, it would inevitably produce internal tensions which would lead to its self-destruction and replacement by a new system, socialism. He argued that under socialism society would be governed by the working class in what he called the “dictatorship of the proletariat”, the “workers state” or “workers’ democracy”. He believed that socialism would, in its turn, eventually be replaced by a stateless, classless society called communism. Along with believing in the inevitability of socialism and communism, Marx actively fought for the former’s implementation, arguing that both social theorists and underprivileged people should carry out organised revolutionary action to topple capitalism and bring about socio-economic change.
John Maynard Keynes 1883- 1946
Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936. The interpretations of Keynes are contentious and several schools of thought claim his legacy.
Keynesian economics advocates a mixed economy — predominantly private sector, but with a significant role of government and public sector — and served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought.
Friedrich Hayek 1899-1992
The Road to Serfdom is a book written by the Austrian-born economist and philosopher Friedrich von Hayek (1899–1992) between 1940–1943, in which he “warned of the danger of tyranny that inevitably results from government control of economic decision-making through central planning,” and in which he argues that the abandonment of individualism, classical liberalism, and freedom inevitably leads to socialist or fascist oppression and tyranny and the serfdom of the individual. Significantly, Hayek challenged the general view among British academics that fascism was a capitalist reaction against socialism, instead arguing that fascism and socialism had common roots in central economic planning and the power of the state over the individual.
The Road to Serfdom is among the most influential and popular expositions of market libertarianism and remains a popular and influential work in contemporary discourse, selling over two million copies, and remaining a best-seller.
Milton Friedman (July 31, 1912 – November 16, 2006)
was an American economist, statistician, and author who taught at the University of Chicago for more than three decades. He was a recipient of the Nobel Memorial Prize in Economic Sciences, and is known for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy. As a leader of the Chicago school of economics, he influenced the research agenda of the economics profession. A survey of economists ranked Friedman as the second most popular economist of the twentieth century behind John Maynard Keynes, and The Economist described him as “the most influential economist of the second half of the 20th century…possibly of all of it.”
Friedman’s challenges to what he later called “naive Keynesian” (as opposed to New Keynesian) theory began with his 1950s reinterpretation of the consumption function, and he became the main advocate opposing activist Keynesian government policies. Although even in the late-1960s he described his own approach (along with all of mainstream economics) as using “Keynesian language and apparatus” albeit rejecting its “initial” conclusions. During the 1960s he promoted an alternative macroeconomic policy known as “monetarism”. He theorized there existed a “natural” rate of unemployment, and argued that governments could increase employment above this rate (e.g., by increasing aggregate demand) only at the risk of causing inflation to accelerate. He argued that the Phillips Curve was not stable and predicted what would come to be known as stagflation. Though opposed to the existence of the Federal Reserve, Friedman argued that, given that it does exist, a steady, small expansion of the money supply was the only wise policy.
Friedman was an economic advisor to conservative President Ronald Reagan. His political philosophy extolled the virtues of a free market economic system with minimal intervention. He once stated that his role in eliminating U.S. conscription was his proudest accomplishment, and his support for school choice led him to found The Friedman Foundation for Educational Choice. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, and education vouchers. His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s. His monetary theory influenced the Federal Reserve’s response to the global financial crisis.