By Robert L. Heilbroner THE WORLDLY PHILOSOPHERS BEHIND THE VEIL OF ECONOMICS THE ESSENTIAL ADAM SMITH THE NATURE AND LOGIC OF CAPITALISM THE FUTURE AS HISTORY MARXISM, FOR AND AGAINST AN INQUIRY INTO THE HUMAN PROSPECT THE GREAT ASCENT BETWEEN CAPITALISM AND SOCIALISM THE LIMITS OF AMERICAN CAPITALISM THE ECONOMIC PROBLEM (with James Galbraith) ECONOMICS EXPLAINED (with Lester C. Thurow) THE DEBT AND THE DEFICIT (with Peter L. Bernstein) THE MAKING OF ECONOMIC SOCIETY (with William Milberg) 21ST CENTURY AMERICAN CAPITALISM THE CRISIS OF VISION IN MODERN ECONOMIC THOUGHT (with William Milberg) THE ECONOMIC TRANSFORMATION OF AMERICA (with Aaron Singer) VISIONS OF THE FUTURE TEACHINGS FROM THE WORLDLY PHILOSOPHY TOUCHSTONE Rockefeller Center 1230 Avenue of the Americas New York, NY 10020 www.SimonandSchuster.com Copyright © 1953, 1961, 1967, 1972, 1980, 1992, 1999 by Robert L. Heilbroner Copyright renewed © 1981, 1989, 1995 by Robert L. Heilbroner All rights reserved, including the right of reproduction in whole or in part in any form. Updated Seventh Edition TOUCHSTONE and colophon are registered trademarks of Simon & Schuster Inc. Manufactured in the United States of America 19 20 18 Library of Congress Cataloging-in-Publication Data Heilbroner, Robert L. The worldly philosophers : the lives, times, and ideas of the great economic thinkers / Robert L. Heilbroner.—Rev. 7th ed. p. cm. “A Touchstone book.” Includes bibliographical references and index. 1. Economists—Biography. 2. Economics—History. I. Title. HB76.H4 1999 330’.092’2—dc21 [b] 99-14050 CIP ISBN 0-684-86214-X eISBN 978-1-4391-4482-4 To my teachers Preface to the Seventh Edition This is the seventh revision of a book I wrote some forty-six years ago, making The Worldly Philosophers today a good deal older than I was when I wrote it. The altogether unforeseen life span of this venture, undertaken when I was still a graduate student, serves as an excuse briefly to tell its story, before saying a word with respect to important changes that have been made in this latest, and, I expect, last edition. While pursuing my graduate studies in the early 1950s, I earned my living as a free-lance writer, ranging very far from economics when the need or the occasion presented itself. As a consequence of one or another such piece, Joseph Barnes, a senior editor at Simon & Schuster, asked me to lunch to explore various book ideas. None of them seemed quite right, and a pall fell as the salad arrived and I realized that my first publisher’s lunch was not likely to result in a book contract. Barnes, however, was not so easily discouraged. He began asking me about my graduate studies at the New School for Social Research and I found myself talking with enthusiasm about a particularly fascinating seminar on Adam Smith that I was taking under the inspired teaching of Adolph Lowe, of whom the reader will learn more later in this book. Before dessert had arrived we both knew that I had found my subject. After my next class I hastened to tell Professor Lowe of my determination to write a history of the evolution of economic thought. The very exemplar of German scholarship at its formidable best, Lowe was aghast. “That you cannot do!” he declared with magisterial finality. But I had the strong conviction that I could do it— born, as I have written elsewhere, of the necessary combination of confidence and ignorance that only a graduate student could have possessed. Between free-lance assignments and further studies, I produced the first three chapters and with some trepidation showed them to Professor Lowe. It is a measure of that remarkable man (who remained, until his death at 102, my warmest and severest critic) that after he read the pages he said, “That you must do!” With his help, that is what I did. The book written, it was necessary to find a title. I was aware that the word “economics” was death at the box office, and I racked my brains for a substitute. A second crucial lunch then took place with Frederick Lewis Allen, editor of Harper’s magazine, for whom I had done a number of pieces, and who had been extraordinarily kind and helpful to me. I told him about my title difficulties, and said that I was thinking of calling the book The Money Philosophers, although I knew “money” wasn’t quite right. “You mean ‘worldly,’” he said. I said, “I’ll buy lunch.” My publishers were not as pleased with the title as I was, and after the book to everyone’s surprise began to sell, they suggested retitling it The Great Economists. Fortunately nothing came of this. Perhaps they anticipated that the public would not be able to master “worldly,” which has indeed been misspelled “wordly” on a thousand students’ papers, or perhaps they foresaw difficulties such as one about which I heard many years later. A student inquired at his college bookstore about a book whose author’s name he could not remember, but whose queer title was, to the best of his recollection, “A World Full of Lobsters.” Over the years The Worldly Philosophers has sold more copies than I could have imagined possible, and has lured, I am told, tens of thousands of unsuspecting victims into a course on economics. I cannot answer for the pains that may have been experienced as a consequence, but I have had the pleasure of hearing from a number of economists that their interest was first aroused by the vision of economics conveyed by the book. This edition differs from previous editions in two respects. The first is that, as before, a fresh look at its pages enables me to rectify the errors that inevitably creep into manuscripts or that are revealed by research after publication. It is a chance, as well, to alter emphases and interpretations that reflect my own evolving views. These changes are small, noticeable perhaps only to scholars in the field, and not of sufficient significance in themselves to warrant a new edition. A second change is more important. For some time I had been considering whether there might not be an important thread missing from my book—a thread that would tie together its chapters more firmly than a mere chronology of remarkable men with interesting ideas. Then, a few years ago, I became convinced that precisely such a thread existed in the changing concepts—the “visions”—that lay behind all social analysis. That idea was broached in the 1950s by Josef Schumpeter, one of the most imaginative of the worldly philosophers. Insofar as Schumpeter himself did not apply his insight to the history of economic thought, I hope I may be forgiven for having missed it myself for so many years. In this preface I do not want to discuss further this new view of the evolution of the worldly philosophy—that would be like announcing the plot of a mystery novel before the action had even begun. Hence, although the role of social vision will be mentioned many times as we go along, not until we reach our last chapter will we stop to consider its relevance for our own time. That leads to a final remark. A reader who has already turned this page may have noted that that concluding chapter has a strange title: “The End of the Worldly Philosophy?” The question mark makes clear that this is not a pronouncement of doom, but it certainly implies a change in the character of our subject. As to what that change may be, we will have to wait until the very end of the book, not to tease the reader, but because only at the end—which is to say, today—does that change challenge the nature and significance of economic thought itself. But all that remains to be demonstrated. Let me conclude this very personal salutation by thanking my readers, especially students and instructors, who have been thoughtful enough to send me notes of correction, disagreement, or approval, all equally welcomed, and to express my hope that The Worldly Philosophers will continue to open the vista of economics to readers who go on to become lobster fishermen or publishers, as well as to those braver souls who decide to become economists. ROBERT L. HEILBRONER New York, N.Y. July, 1998 Contents I Introduction II The Economic Revolution III The Wonderful World of Adam Smith IV The Gloomy Presentiments of Parson Malthus and David Ricardo V The Dreams of the Utopian Socialists VI The Inexorable System of Karl Marx VII The Victorian World and the Underworld of Economics VIII The Savage Society of Thorstein Veblen IX The Heresies of John Maynard Keynes X The Contradictions of Joseph Schumpeter XI The End of the Worldly Philosophy? A Guide to Further Reading Notes Index i Introduction This is a book about a handful of men with a curious claim to fame. By all the rules of schoolboy history books, they were nonentities: they commanded no armies, sent no men to their deaths, ruled no empires, took little part in history-making decisions. A few of them achieved renown, but none was ever a national hero; a few were roundly abused, but none was ever quite a national villain. Yet what they did was more decisive for history than many acts of statesmen who basked in brighter glory, often more profoundly disturbing than the shuttling of armies back and forth across frontiers, more powerful for good and bad than the edicts of kings and legislatures. It was this: they shaped and swayed men’s minds. And because he who enlists a man’s mind wields a power even greater than the sword or the scepter, these men shaped and swayed the world. Few of them ever lifted a finger in action; they worked, in the main, as scholars—quietly, inconspicuously, and without much regard for what the world had to say about them. But they left in their train shattered empires and exploded continents; they buttressed and undermined political regimes; they set class against class and even nation against nation—not because they plotted mischief, but because of the extraordinary power of their ideas. Who were these men? We know them as the Great Economists. But what is strange is how little we know about them. One would think that in a world torn by economic problems, a world that constantly worries about economic affairs and talks of economic issues, the great economists would be as familiar as the great philosophers or statesmen. Instead they are only shadowy figures of the past, and the matters they so passionately debated are regarded with a kind of distant awe. Economics, it is said, is undeniably important, but it is cold and difficult, and best left to those who are at home in abstruse realms of thought. Nothing could be further from the truth. A man who thinks that economics is only a matter for professors forgets that this is the science that has sent men to the barricades. A man who has looked into an economics textbook and concluded that economics is boring is like a man who has read a primer on logistics and decided that the study of warfare must be dull. No, the great economists pursued an inquiry as exciting—and as dangerous—as any the world has ever known. The ideas they dealt with, unlike the ideas of the great philosophers, did not make little difference to our daily working lives; the experiments they urged could not, like the scientists’, be carried out in the isolation of a laboratory. The notions of the great economists were world-shaking, and their mistakes nothing short of calamitous. “The ideas of economists and political philosophers,” wrote Lord Keynes, himself a great economist, “both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.” To be sure, not all the economists were such titans. Thousands of them wrote texts; some of them monuments of dullness, and explored minutiae with all the zeal of medieval scholars. If economics today has little glamour, if its sense of great adventure is often lacking, it has no one to blame but its own practitioners. For the great economists were no mere intellectual fusspots. They took the whole world as their subject and portrayed that world in a dozen bold attitudes—angry, desperate, hopeful. The evolution of their heretical opinions into common sense, and their exposure of common sense as superstition, constitute nothing less than the gradual construction of the intellectual architecture of much of contemporary life. An odder group of men—one less apparently destined to remake the world—could scarcely be imagined. There were among them a philosopher and a madman, a cleric and a stockbroker, a revolutionary and a nobleman, an aesthete, a skeptic, and a tramp. They were of every nationality, of every walk of life, of every turn of temperament. Some were brilliant, some were bores; some ingratiating, some impossible. At least three made their own fortunes, but as many could never master the elementary economics of their personal finances. Two were eminent businessmen, one was never much more than a traveling salesman, another frittered away his fortune. Their viewpoints toward the world were as varied as their fortunes—there was never such a quarrelsome group of thinkers. One was a lifelong advocate of women’s rights; another insisted that women were demonstrably inferior to men. One held that “gentlemen” were only barbarians in disguise, whereas another maintained that nongentlemen were savages. One of them—who was very rich—urged the abolition of riches; another—quite poor—disapproved of charity. Several of them claimed that with all its shortcomings, this was the best of all possible worlds; several others devoted their lives to proving that it wasn’t. All of them wrote books, but a more varied library has never been seen. One or two wrote best- sellers that reached to the mud huts of Asia; others had to pay to have their obscure works published and never touched an audience beyond the most restricted circles. A few wrote in language that stirred the pulse of millions; others—no less important to the world—wrote in a prose that fogs the brain. 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. Hence they can be called worldly philosophers, for they sought to embrace in a scheme of philosophy the most worldly of all of man’s activities—his drive for wealth. It is not, perhaps, the most elegant kind of philosophy, but there is no more intriguing or more important one. Who would think to look for Order and Design in a pauper family and a speculator breathlessly awaiting ruin, or seek Consistent Laws and Principles in a mob marching in a street and a greengrocer smiling at his customers? Yet it was the faith of the great economists that just such seemingly unrelated threads could be woven into a single tapestry, that at a sufficient distance the milling world could be seen as an orderly progression, and the tumult resolved into a chord. A large order of faith, indeed! And yet, astonishingly enough, it turned out to be justified. Once the economists had unfolded their patterns before the eyes of their generations, the pauper and the speculator, the greengrocer and the mob were no longer incongruous actors inexplicably thrown together on a stage; but each was understood to play a role, happy or otherwise, that was essential for the advancement of the human drama itself. When the economists were done, what had been only a humdrum or a chaotic world, became an ordered society with a meaningful life history of its own. It is this search for the order and meaning of social history that lies at the heart of economics. Hence it is the central theme of this book. We are embarked not on a lecture tour of principles, but on a journey through history-shaping ideas. We will meet not only pedagogues on our way, but many paupers, many speculators, both ruined and triumphant, many mobs, even here and there a grocer. We shall be going back to rediscover the roots of our own society in the welter of social patterns that the great economists discerned, and in so doing we shall come to know the great economists themselves —not merely because their personalities were often colorful, but because their ideas bore the stamp of their originators. It would be convenient if we could begin straight off with the first of the great economists—Adam Smith himself. But Adam Smith lived at the time of the American Revolution, and we must account for the perplexing fact that six thousand years of recorded history had rolled by and no worldly philosopher had yet come to dominate the scene. An odd fact: Man had struggled with the economic problem since long before the time of the Pharaohs, and in these centuries he had produced philosophers by the score, scientists, political thinkers, historians, artists by the gross, statesmen by the hundred dozen. Why, then, were there no economists? It will take us a chapter to find out. Until we have probed the nature of an earlier and far longer- lasting world than our own—a world in which an economist would have been not only unnecessary, but impossible—we cannot set the stage on which the great economists may take their places. Our main concern will be with the handful of men who lived in the last three centuries. First, however, we must understand the world that preceded their entrance and we must watch that earlier world give birth to the modern age—the age of the economists—amid all the upheaval and agony of a major revolution. ii The Economic Revolution Since he came down from the trees, man has faced the problem of survival, not as an individual but as a member of a social group. His continued existence is testimony to the fact that he has succeeded in solving the problem; but the continued existence of want and misery, even in the richest of nations, is evidence that his solution has been, at best, a partial one. Yet man is not to be too severely censured for his failure to achieve a paradise on earth. It is hard to wring a livelihood from the surface of this planet. It staggers the imagination to think of the endless efforts that must have been expended in the first domestication of animals, in the discovery of planting seed, in the first working of surface ores. It is only because man is a socially cooperative creature that he has succeeded in perpetuating himself at all. But the very fact that he has had to depend on his fellow man has made the problem of survival extraordinarily difficult. Man is not an ant, conveniently equipped with an inborn pattern of social instincts. On the contrary, he seems to be strongly endowed with a self-centered nature. If his relatively weak physique forces him to seek cooperation, his inner drives constantly threaten to disrupt his social working partnerships. In primitive society, the struggle between self-centeredness and cooperation is taken care of by the environment; when the specter of starvation can look a community in the face—as with the Eskimos— the pure need to secure its own existence pushes society to the cooperative completion of its daily labors. Under less stringent conditions, anthropologists tell us, men and women perform their regular tasks under the powerful guidance of universally accepted norms of kinship and reciprocity: in her marvelous book on the African Bushmen, Elizabeth Marshall Thomas describes how a gemsbok is divided among relatives and relatives’ relatives, until in the end “no person eats more than any other.” But in an advanced community this tangible pressure of the environment, or this web of social obligations, is lacking. 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. So remarkable, in fact, that society’s existence hangs by a hair. A modern community is at the mercy of a thousand dangers: if its farmers should fail to plant enough crops; if its railroad men should take it into their heads to become bookkeepers or its bookkeepers should decide to become railroad men; if too few should offer their services as miners, puddlers of steel, candidates for engineering degrees—in a word, if any of a thousand intertwined tasks of society should fail to get done—industrial life would soon become hopelessly disorganized. Every day the community faces the possibility of breakdown—not from the forces of nature, but from sheer human unpredictability. Over the centuries man has found only three ways of guarding against this calamity. He has ensured his continuity by organizing his society around tradition, by handing down the varied and necessary tasks from generation to generation according to custom and usage: son follows father, and a pattern is preserved. In ancient Egypt, says Adam Smith, “every man was bound by a principle of religion to follow the occupation of his father, and was supposed to commit the most horrible sacrilege if he changed it for another.” Similarly, in India, until recently, certain occupations were traditionally assigned by caste; in fact, in much of the unindustrialized world one is still born to one’s social task. Or society can solve the problem differently. It can use the whip of authoritarian rule to see that its tasks get done. The pyramids of ancient Egypt did not get built because some enterprising contractor took it into his head to build them, nor did the Five Year Plans of the Soviet Union get carried out because they happened to accord with hand-me-down custom or individual self-interest. Both Russia and Egypt were Command societies; politics aside, they ensured their economic survival by the edicts of one authority and by the penalties that supreme authority saw fit to issue. For countless centuries man dealt with the problem of survival according to one or the other of these solutions. And as long as the problem was handled by tradition or command, it never gave rise to that special field of study called “economics.” Although the societies of history have shown the most astonishing economic diversity, although they have exalted kings and commissars, used dried codfish and immovable stones for money, distributed their goods in the simplest communistic patterns or in the most highly ritualistic fashion, so long as they ran by custom or command, they needed no economists to make them comprehensible. Theologians, political theorists, statesmen, philosophers, historians, yes—but, strange as it may seem, economists, no. For the economists waited upon the invention of a third solution to the problem of survival. They waited upon the development of an astonishing arrangement in which society assured its own continuance by allowing each individual to do exactly as he saw fit—provided he followed a central guiding rule. 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. It was this paradoxical, subtle, and difficult solution to the problem of survival that called forth the economists. For unlike the simplicity of custom and command, it was not at all obvious that with each person out only for his own gain, society could in fact endure. It was by no means clear that all the jobs of society—the dirty ones as well as the plush ones—would be done if custom and command no longer ran the world. When society no longer obeyed a ruler’s dictates, who was to say where it would end? It was the economists who undertook to explain this puzzle. But until the idea of the market system itself had gained acceptance, there was no puzzle to explain. And until a very few centuries ago, men were not at all sure that the market system was to be viewed without suspicion, distaste, and distrust. The world had gotten along for centuries in the comfortable rut of tradition and command; to abandon this security for the dubious and perplexing workings of the market system, nothing short of a revolution was required. It was the most important revolution, from the point of view of shaping modern society, that ever took place—fundamentally more disturbing by far than the French, the American, or even the Russian Revolution. To appreciate its magnitude, to understand the wrenching that it gave society, we must immerse ourselves in that earlier and long-forgotten world from which our own society finally sprang. Only then will it be clear why the economists had so long to wait. First stop: France. The year, 1305. It is a fair we visit. The traveling merchants have arrived this morning with their armed guard, have set up their gaily striped tents, and are trading among themselves and with the local population. A variety of exotic goods is for sale: silks and taffetas, spices and perfumes, hides and furs. Some have been transported from the Levant, some from Scandinavia, some from only a few hundred miles away. Along with the common people, local lords and ladies frequent the stalls, eager to relieve the tedium of their boring, drafty, manorial lives; they are eagerly acquiring, along with the strange goods from Araby, new words from that incredibly distant land: divan, syrup, tariff, artichoke, spinach, jar. But inside the tents, we meet with a strange sight. Books of business, open on the table, are sometimes no more than notebooks of transactions; a sample extract from one merchant reads: “Owed ten gulden by a man since Whitsuntide. I forgot his name.” Calculations are made largely in Roman numerals, and sums are often wrong; long division is reckoned as something of a mystery, and the use of zero is not clearly understood. And for all the gaudiness of the display and the excitement of the people, the fair is a small thing. The total amount of goods which comes into France in a year over the Saint Gothard pass (on the first suspension bridge in history) would not fill a modern freight train; the total amount of merchandise carried in the great Venetian fleet would not fill one modern steel freighter. Next stop: Germany. The year, 1550 odd. Andreas Ryff, a merchant, bearded and fur-coated, is coming back to his home in Baden; he writes in a letter to his wife that he has visited thirty markets and is troubled with saddle burn. He is even more troubled by the nuisances of the times; as he travels he is stopped approximately once every ten miles to pay a customs toll; between Basle and Cologne he pays thirty-one levies. And that is not all. Each community he visits has its own money, its own rules and regulations, its own law and order. In the area around Baden alone there are 112 different measures of length, 92 different square measures, 65 different dry measures, 163 different measures for cereals and 123 for liquids, 63 special measures for liquor, and 80 different pound weights We move on: we are in Boston in the year 1639. A trial is in progress; one Robert Keayne, “an ancient professor of the gospel, a man of eminent parts, wealthy and having but one child, and having come over for conscience’ sake and for the advancement of the gospel,” is charged with a heinous crime: he has made over sixpence profit on the shilling, an outrageous gain. The court is debating whether to excommunicate him for his sin, but in view of his spotless past it finally relents and dismisses him with a fine of two hundred pounds. But poor Mr. Keayne is so upset that before the elders of the Church he does “with tears acknowledge his covetous and corrupt heart.” The minister of Boston cannot resist this golden opportunity to profit from the living example of a wayward sinner, and he uses the example of Keayne’s avarice to thunder forth in his Sunday sermon on some false principles of trade. Among them are these: I. That a man might sell as dear as he can, and buy as cheap as he can. II. If a man lose by casualty of sea, etc., in some of his commodities, he may raise the price of the rest. III. That he may sell as he bought, though he paid too dear ... All false, false, false, cries the minister; to seek riches for riches’ sake is to fall into the sin of avarice. We turn back to England and France. In England a great trading organization, The Merchant Adventurers Company, has drawn up its