(This is less a review than an opinionated exegesis on the four main economists, Smith, Malthus, Marx and Keynes, that Heilbroner covers.  It is long and sort of wonky, if I’m capable of such a thing.  But I highly recommend the book, especially for anyone that is new to economic thought and theory). 

As incredible as it seems to me today, I graduated with an Economics degree from the University of Alabama without ever having been asked to read any of the philosopher-economists Mr. Heilbroner covers in this excellent primer on the inception and early history of economic thought.  The faculty apparently thought students could understand economics without understanding the history of its thought.  All I ultimately achieved was a rudimentary training in economics that would make its jargon intelligible, and that allowed superficial analysis of immediate cause and effect relationships within its realm.

I only haltingly started to remedy the problem a few years back when personal tragedy in the form of my son’s leukemia diagnosis revealed the costs that wholesale ignorance can impose.  In my subsequent, meandering journey of discovery, I’ve realized the value of reading old texts like The Worldly Philosophers, which is a superbly well-written survey of economic history.  Though reading Smith, Malthus, Marx and Keynes had not been required to get a slip of paper that implied my familiarity with their ideas, I had gained a workable understanding of the men and their thoughts through the years, mostly by osmosis.  The Worldly Philosophers extended and clarified my understandings of Smith, etc., and of a good many more, in its grand tour of economic thought.  The book is second on the all-time best seller list for economic texts, behind Paul Samuelson’s introductory textbook, Economics.  Its seventh (and last) edition was published in 1999. 

Heilbroner calls the subjects of his inquiry “worldly philosophers” because, though the world called them economists, he recognizes that economics is just one manner of dissecting and understanding the human condition that philosophers have been investigating since the beginnings of civilization and earlier.  Economists focus on the material aspect of the human condition to tease out nature’s truths, but their impetus is much the same as that which compelled Aristotle’s Nicomachean Ethics or Plato’s Republic:  To understand human beings such that the most equitable, just and harmonious society could be devised.

The problem with economists and philosophers alike has been, at least until Darwin resolutely cleared the air of any ambiguity, that economics and philosophy should be considered a sub-category of biology.   Man can never be understood without understanding and acknowledging that he is an animal, a living creature, subject to all the same pressures as any living creatures are subject, not least the compulsions of nature to select only its fittest for survival and propagation.  Likewise, any organization that man contrives among his fellows is subject to the same selective pressures.  The benefit of a particular behavior, at either the individual or group level, must outweigh the costs, else, ultimately, survival and propagation can’t obtain.  Nature relentlessly exposes and eliminates inefficiencies.  This relentless culling of inefficiencies is, or should be, the stuff of the economic philosophers.  There is no morality in nature, except perhaps that a thing is good (from the perspective of the creature) that aids in survival and bad that impairs survival, yet many of these worldly philosophers get tripped up in believing there is a moral imperative to devising economic systems, while Nature cares not in the least whether a thing be fair or not, only that it enhances or impairs survival.

Thus everything that philosophers, worldly or otherwise, propose must always be evaluated from the perspective of an indifferent Nature operating its impersonal will on her subjects; a Nature that wishes nothing and believes nothing; a Nature that cruelly ignores the desires of its creatures in their survival and propagation imperatives.  The prognostications that these worldly philosophers offer about Homo economicus must always be evaluated in reference to the life or death struggle with which the creature, like all others, is forever engaged. 

The first and most compelling economic question to answer is that of how man gets his food and water, i.e., the first economic question resolves to how the immediate needs of life are to be met.  Until the advent of agriculture, man was a hunter/gatherer/fisher.  He roamed far and wide over the landscape, killing animals, gathering fruits, nuts and berries, and fishing in streams and along the ocean shore.  Each man was a generalist, responsible for accomplishing whatever he, his family, and/or clan needed in order to ensure survival.  Three centuries or so into the industrial revolution, it is easy to forget that nothing of the manner with which society is now organized would be possible were the first problem of attaining food not already solved.  The Neolithic agricultural revolution made possible civilizations that could feed a great many more than were employed directly in the acquisition of food.  Each subsequent technological advancement in agriculture, from bronze spades to steel plows to massive combines, freed more and more of mankind from direct involvement with obtaining the calories needed to survive.   It is perhaps this freedom from hunger that deceives so many economists and philosophers about the nature of Homo economicus.  Without the ability to feed the masses, there would have been no masses to feed, and the problem of modern economics—how to apportion the massive wealth amongst the massive populations that agricultural surpluses engendered—would never have materialized. 

It is repeatedly remarked by economic commentators and theorists (as does Heilbroner), as if by repeating the platitude it would foster agreement on its probity, that man is a social animal.  But where is the evidence?  Do social animals routinely slaughter tens of millions of their own kind?  Do social animals subjugate and enslave their own kind?  If man is a social animal, what sort of social animal is he?  It seems that what is really meant in proclaiming that man is a social animal, is that man generally believes it beneficial to his prospects for survival and propagation to cooperate and coordinate tasks incidental to accomplishing those ends with other humans that are striving for the same ends.  But “generally” doth not a true attribute of man’s nature make, and it is nigh well impossible to understand Homo economicus without understanding how it is he is equipped to survive in Nature.

Can man survive alone, or is he mammalian version of a social insect?  The answer is that man is perfectly capable of surviving alone in Nature.  Even today, when every corner of the habitable globe seems to be teeming with human life, there are still some few brave souls that get along just fine outside of human society.  Can he propagate alone?  Technically, no.  As a sexually-reproducing creature, he (in this context, the male of the species) must “socialize” with a mate at least long enough to consummate the transaction, after which, he is free to leave his mate for the gestation and nurturing of the newborn to adulthood, as men have often done, and still do.  Men may be inclined to live social lives.  They are not commanded by nature to do so.  Men are not ants.  It must always be remembered when evaluating human economic systems that man chooses whether or not to interact with other humans in order to survive.

Given that man has no necessary compulsion to society, why then does he most often choose to live in society?   Whatever answer is offered must ultimately resolve to the efficiencies demanded of Nature.  Men choose to live in society because the benefits to living in society outweigh the costs.  Put another way, solitary living is a generally more expensive means of ensuring survival and propagation than is communal living.  What does man give up by living in society?  The freedom to do as he pleases in securing the means of his subsistence.   What, then, does he gain?  Safety in his personage, and security in his food supply.  Some men will always prefer, if the choice is even remotely practicable, to live outside of society.  The cost-benefit calculus for any endeavor is a subjective matter, and man is a most variable creature.  But most men live in society because the loss in freedom is more than offset by the advantages to survival and propagation that living in society provides.

With this preliminary sketch of Homo economicus as a man compelled to action by the yearnings in his gut and loins, and the understanding that these yearnings generally, but not necessarily, point him in the direction of communal living (even before there was agriculture, men generally lived in families and clans for the same reason he now lives in cities and suburbs) it is time to turn the attention to a few of these giants of economic thought that Heilbroner  covers to see if their analyses ring true, or miss the point because of flawed assumptions or understandings.

Adam Smith described the benefits of specialization and trade, the thing economists now call the law of comparative advantage, which basically works like this:  If one person can do one thing very well, e.g., bake bread, then it will behoove him to bake as much bread as is possible, and trade his bread with others who have a comparative advantage in creating the products he (the baker) needs for survival, e.g., cutting wood or digging coal, for his furnace.    This law of economics only gradually came in to view over the course of human civilization.  As men left the nomadic life of hunting and gathering, where each man was more or less a generalist in the tasks required of aiding the clan’s survival (except that tasks were undoubtedly apportioned according to ability, i.e., the fastest runner would be assigned duties as lead tracker, the surest aim would take the first throw of the javelin, the females would do most of the gathering and leave the hunting to the men, etc.), the advent of agriculture, and particularly of agricultural surpluses, allowed for the specialization (and its corollary, stratification) of society.  Some men managed the irrigation canals.  Some men harvested the crop.  The women separated wheat from chaff and prepared the resultant for the baking oven.  A few men kept check of the moon and the stars and the seasons, so that everything was done according to schedule.   Fewer still read the signs, from goat entrails to star formations, to advise the society on what the future might hold.  Everyone ate from the bounty of the fields.

Later on, it was discovered that this stratified specialization could work in a more general way to enrich society, by dividing tasks into ever-thinner slices, each man trading his expertise in one single task for the right to eat at society’s table.  Thus in the sewing needle factory, one man cut the metal rods that were to be made into needles; one man pressed the eye into the needle; one man scoured the tip to an acceptable sharpness, until the aggregate production of needles of the men acting together far exceeded that of several men acting independently.  This organization of labor only worked if each man could trust that his contribution to the task of making needles would be compensated sufficiently for him to survive and propagate, and his compensation depended on the ability of the needle factory to trade its needles for things its workers needed in order to survive.  Money paid to the factory for its needle output and then to its laborers for their efforts was the medium through which the needle-tip sharpener achieved the resources through which he secured his survival and propagation.   But trade was the coin of the realm.  Without the ability to transmit the value the needle-tip sharpener added to the process of making needles through trade, the whole thing was an exercise in efficient futility. 

Adam Smith made the startling observation that though the needle factory enriched society by its operation, it did not manufacture needles for the benefit of society, but for its own benefit, in order that by meeting a need, it might be made rich enough that it and its workers could survive and propagate (those two words will be used countless times in this review).  In other words, Adam Smith, like the fictional Gordon Gecko a little over two centuries later, proclaimed that greed is good.

But there were a great many assumptions that Smith had to make in order to fathom the beneficence of the market for meeting society’s needs.  First is that trade must be more or less frictionless, i.e., without steep government tariffs or regulations barring or complicating its occurrence.  This is not so strong an assumption.  Tariffs and regulations, customarily enacted to protect existing businesses from competition, routinely make trade prohibitively expensive.  Smith couldn’t foresee that the capitalist ideal of trade that enriched everyone by dint of the law of comparative advantage would be thwarted by those very capitalists he so admired, as they commandeered the apparatus of the state for protecting their industries from the improved efficiencies of their competitors; efficiencies that could only be rewarded through free and unfettered trade. 

Neither did Smith foresee the force of organization to thwart the efforts of the individual.  As individuals in society organized to take advantage of the law of comparative advantage that mass production represented, men were thrust into consort with large aggregations of other men and capital necessary for the enterprise.  It was necessary that a few individuals be charged with leading the enterprise, and Smith’s selfish man being what he is, these few individual leaders, more often than not, turned the organization’s purpose to their own, siphoning away as much profit from the efforts of the laborers as they were able, leaving just enough to barely meet their survival and propagation needs.   The leaders of the capitalist organizations leveraged their leadership into what amounted to peonage for the laborers.  

In the light of the survival and propagation imperatives of the capitalists, it makes perfect sense that they would do things tending to impair the society’s survival and propagation needs for their own.  Capitalists, like Smith observed, do not act out of beneficence in producing necessaries for the greater society, but act out of their own selfish compulsions.  If engineering market protection through state action is in their interest, then that is exactly what capitalists will do.  If the capitalists could turn the mass-producing organizations arranged to benefit from the law of comparative advantage to their own selfish ends, that too, was what they would do.  Smith understood the nascent workings of the market economy and the benefits that might thereby accrue, but failed miserably to understand the how the efficient bounty of comparative advantage would intersect with the monopoly of violence exercised by the state, and the selfish impulses of men in consort with one another.  Smith understood economics in the abstract, but not economics as it was actually practiced by individuals and organizations of individuals compelled to employ any means necessary to ensure their survival and propagation imperatives. 

Smith’s greatest contribution to understanding Homo economicus was in his identification of the selfish motivations for all that economicus does.   Smith tried to portray selfishness as a virtue, but it is neither virtue nor vice.  Selfishness in organisms concerned with their survival and propagation imperatives just is.  Nature abhors altruism in its reproducing organisms.  It could be argued that the social insects have altruistic members willingly sacrificing their lives for the organism, except that the individuals in a colony of social insects are incapable of reproducing individually.  Individual insects in an ant colony are analogous to individual cells in a human body.  Reproduction takes place at the level of the colony, or as in a human, at the level of the body.  Individual cells in a body and individual insects in a colony exist solely for the benefit of the body or the colony so their selfish imperatives are necessarily discarded for the good of the organization and its survival and propagation needs.  Again, men are not ants.  Any method of organizing economic systems that fails to account for the selfish imperatives of the individual are destined to fail.

After Smith’s Panglossian assessment of capitalism’s future, it was time for a more dour consideration of the economic future awaiting mankind.  Enter Thomas Robert Malthus, who famously predicted, in 1798—about two decades after the publication of Smith’s instant classic, The Wealth of Nations– that food supplies can only grow arithmetically, while human population grows geometrically, so humanity was doomed to a future, if not of starvation, at best, of living nasty, brutish and short lives (the borrowing from Hobbes is me, not Malthus) of bare subsistence existence.  The arithmetic was unassailable.  The population would increase, and the food supply would find it impossible to keep up.  But it was all wrong.  Malthus got his cause and effect relationship backwards.  Human population, just like the population of E.coli bacteria, or any other living organism, increases in response to an increased ability to feed itself.  Humanity would not outstrip the food supply because humanity was limited by the food supply, not the other way around. 

But math is not the only arena in which Malthus was wrong.  He also mis-analysed human compulsions and motivations.  Malthus believed that the lower classes would automatically respond to an increase in income with an increase in fertility that would siphon away all the additional income, leaving them as poor as they were before.  This is not true, as the experiences of the developed world attest.  As human populations extricate themselves from subsistence living, their fertility rates plummet, not increase.  Riches beget fewer, not more, mouths to feed.  Ironically, it is this non-Malthusian drop in fertility rates that most endangers the economic future of today’s developed world, not impoverished masses breeding indiscriminately to subsume any increase in wealth.

Malthus also got the arithmetic wrong on the growth of the food supply.  While food supply can only, ceretis paribus, increase arithmetically, Malthus did not envision the day when crop yields would dramatically rise due to increased agricultural efficiencies, both in the development of new strains of crops and in their cultivation. 

Malthus was only correct in his proposition that human beings will always tend towards subsistence living, no matter their relative ability to feed and clothe and shelter themselves.  Humans were designed, from their evolution as hunter/gatherers, to live a life of subsistence.  It requires great cultural or environmental pressure to compel them to abandon the hand-to-mouth style of life of their ancestors.   In cases where the cultural or environmental pressure is lacking, humans, even in the face of plenty, continue to scrape to get their daily bread.   In the US, the phenomenon is evident in the lower classes that don’t seem to suffer so stridently under the yoke of Puritanism, always seeming one paycheck away from disaster, even if their paychecks are more than sufficient to meet their daily needs and then some.  In the tropics, where happily getting by on a daily basis is not fouled by the specter of the coming winter, vast populations seem incapable or unwilling to rise above subsistence living.  Malthus was so wrong about everything else, it is little comfort that he identified, if only by accident, a propensity of a great number of humans to apparently seek nothing more than subsistence, but to give him his due, he was the first of the economic philosophers to account for man as a creature of Nature, subject to the same compulsions and limitations as all of her creations.  Malthus’ view of humanity’s future made economics the “dismal science”.  His unlimited population potential and limited food dynamic provided Charles Darwin the kernel of insight that would flower into the theory that nature exacted change on its populations by selecting only its fittest for survival.  Malthus was heading in the right direction, but would have done better to lean closer on general biological principles.

Then, a half-century later, along comes Marx to proclaim that capitalism is inherently unstable because it is inherently inequitable.  Marx said that capitalism would always end in a revolution of the proletariat (the working classes) against the bourgeoisie (the owners of capital, i.e., the rich). 

Systems are stable or not according to how much external energy must be supplied to keep them functioning.  Life can be aptly described as a state of metabolic disequilibrium.  It is inherently unstable.  Energy must be constantly supplied to the organism in order to keep it balanced on the precipice between existence and demise.  In Adam Smith’s view of the living organism that is an economic system, very little energy need be supplied to keep it humming along, for the baker willingly baked his bread to trade with the coal miner that willingly dug his coal.  What Smith left out of his analysis was the looming apparatus of the State that was necessary in order that the baker and the coal miner alike might enjoy the fruits of their labors.  The baker’s right to his bread and the miner to his coal were meaningless without the power to protect those rights.  The system only hummed along if the State kept continually vigilant in protecting the property interests of its participants and provided the infrastructure for trade; Smith’s archaic economy of individual artisans and small manufacturers and miners was stable only to the extent the State was stable and powerful enough to create and maintain the infrastructure necessary for it to exist.  Well before Marx pointed out the relative instability of capitalistic economic systems due to class warfare, the underlying Lockean premises of capitalism—i.e., of defensible property rights—made the system inherently unstable.  It could not exist except that a strong mechanism for protecting property rights and providing transactional infrastructure existed.

Marx recognized that the de facto distribution of private property necessary to Smith’s capitalistic ideal would be inherently inequitable, which itself made the system inherently unstable.  As wealth accumulated in the  hands of a concentrated few (Smith’s selfish imperative at work in the bowels of human organizations contrived to exploit the law of comparative advantage), the apparatus for protecting the rights attendant to such wealth would have to commensurately grow, until the State was forced to infuse ever larger amounts of energy into the system to keep it stable.  Because the State was necessarily comprised of both laborers and capitalists, the laborers were effectively providing for their own peonage through supporting the State’s protection of the capitalists’ booty gained at the expense of their labors.   Marx’s observation rang true.  The system, as it developed was inherently unstable because it was inherently inequitable.

How is this so, practically speaking?  Recall the sewing needle factory.  Each worker contributed only a trifle to the manufacture of the sewing needle, but through working together, efficiently produced several orders of magnitude more sewing needles than the aggregate that could be produced by each working individually.  The State provided the infrastructure that protected the sewing needle factory’s interest in its output, allowing it to trade its output for the goods and services its laborers needed to survive.  If the factory were a communal organization, the gross revenue received of the factory for its output would be divided, after expenses, among the individuals that helped produce the needles that it sold.  The distribution of wealth would equitably reward each man’s labors. 

But Smith’s property-interest-protecting infrastructure also provided a property interest to the capitalist organizer and owner of the implements used for the production.  In so far as the capitalist’s selfish aim was to provide for his own survival and propagation imperatives, he would necessarily compensate the laborers in his factory with the minimum wages the market forced him to pay, paying no mind to the economic value of the laborer’s output.  Agricultural surpluses meant laborers were cheap to create and sustain.  The capitalist accumulated ever-increasing piles of capital that required ever-more activist State interventions to protect, while the vast accumulations meant there were fewer and fewer places in which it could be profitably employed.   The workers got little more than their daily bread.  This inequity is the root of capitalism’s instability which Marx predicted would cause class warfare.  The workers in the factory had agreed to enter a social compact to produce sewing needles because they believed that doing so would enhance their welfare.  It turned out that their abandonment of freedom for selfless production was a one-way street.  They unselfishly subordinated their desires in order to produce.  The factory owner turned their production to his own selfish ends.  Something had to give. 

In the US, the death knell of exploitative capitalism sounded in October of 1929.  Decades of capital accumulation–of capitalists’ skimming the cream off the laborer’s crop–left a proletariat that was in many cases too poor to buy the output of the factories in which it worked (with some notable exceptions; Henry Ford explicitly paid his workers enough that they might afford to buy the vehicles which they produced).  Capitalists continued to plow their winnings into production, as Smith had predicted they would, but their strategy of paying their workers as little as the market demanded instead of the economic value of their efforts meant that demand did not expand along with supply, and soon enough, excess supply forced a near-total market collapse.   Smith’s beneficent capitalist greed proved to be its fatal flaw.

With demand so excessively oversupplied, laborers were no longer needed, which exacerbated the supply excess by crimping demand even more.  Economic activity plummeted.  Workers that had once been barely eking out an existence at a factory job could not even find work enough to feed themselves and their families, and no longer had the farms of their ancestors on which to fall.  Government was forced to transition from protecting the property rights of capitalists to providing for the hungry masses their capitalist masters had discarded.  Marx’s revolution came with a whimper, but it came.  Government eventually abandoned capitalist protectionism for outright appropriation of the wealth their protections had helped create. 

Enter John Meynard Keynes, perhaps the greatest of all the worldly philosophers.  Among quite a few other prescriptions, his remedy to get the idle capital and labor moving again was to prime the economic pump with government investments and programs.  With a crude sort of morality, this made sense.  It was the government infrastructure that had allowed capitalists to exploit the masses; it should be government action, of every sort, that saved them from the iniquities of their exploitation. 

Government expanded into every sphere of economic activity.  Farmers were told what they could grow and how much, no matter if growing for the market or for personal consumption.  Merchants were told the levels below which their prices could not drop.  The capitalist baby was thrown out with the bath water. 

Things seemed to get better for a time, but the massive losses due to overinvestment and speculation kept the animal spirits subdued, until a second collapse hit eight years after the first, in 1937.  Keynes had yet to see in action his theory of government investment replacing capital investment, but that was coming.  (Incidentally, there was fortunately no real consideration at the time given to the French economist of the late nineteenth century, Jean-Baptiste Say’s, contention that supply creates its own demand.  If ever a more ridiculous observation in economics was made, it would be hard to imagine.  Demand is driven by human needs, wants and desires, not what is made available, and is profoundly limited by the law of diminishing returns.  Supply all the ice to Eskimos you wish, it will not create in them a demand for your ice).

Finally, in 1939, the government was forced to do as Keynes advised, and ran fantastic deficits in order to invest in the infrastructure necessary for waging war.  By 1942, the economic system was clearly on its way out of its doldrums.  The only question remains is whether capitalism was saved by Keynes or by the war.  Regardless, everyone became a Keynesian.  Even monetarism, which garnered increasing attention after the war, is a species of the Keynesian idea that government action, properly applied, can take the capitalist economic system from inherent instability to a benign equilibrium of steady growth.

Had World War Two not been victoriously concluded for the US, it is quite possible that US capitalism would have suffered another body blow like the Great Depression, from which it might have never recovered.  As it was, capitalist fervor returned after the war with a flourish, and the State became again the protector of capital and capitalists.  Great Depression New Deal legislation had imposed upon the capitalists a number of limitations and responsibilities.  Though no government statute or regulation mandated that men should have a share of the profits generated by the enterprises in which they worked—as a truly equitable and harmonious capitalism might compel—union protections and minimum wage laws meant that not all of the excess value created by labor was captured by their employers.  The protections gradually fell away as capitalists again accumulated profits and power.

While it may well be the case that Keynesian pump-priming by the government saved the capitalist from the consequences of his greedy capital accumulations (we’ll never know for sure), Keynes, Marx and Smith all ignored the fallacy of a critical assumption upon which they built their economic models.  They assumed that populations and markets could and would necessarily and incessantly grow, which is clearly not the case.  Wants and desires that markets are intended to serve get satiated; populations reach stasis and decline.  It is the way of Nature.  It is forgivable the worldly economists would fail to see the fallacy, given what they had been taught by Malthus and his predecessors, but their assumption is false, so their analyses are flawed.  Malthus never bothered to carry his logic to its natural end; that populations growing geometrically, as they do, must always have a long-term growth rate of zero, else the entire universe would soon enough contain nothing but whatever population never ceased growing.  It is a fact of biological life that populations do not incessantly grow. It is also a fact of biological life, pursuant to the law of diminishing returns, that more is not always better.  Had these giants of economic thought considered the ramifications of these simple truths, their analyses might have changed considerably. Thus Keynesian fiscal deficits that otherwise could be expected to lessen as a relative percentage of income as the population and income swelled, would instead be expected to enlarge as a share of total wealth as populations grew old and died.  Keynesian deficit spending would simply dig a deeper hole out of which the shrinking population had to climb.  Smith’s capital-accumulating capitalists that could always find new markets and laborers to serve them would face fewer choices for investing accumulated capital, and a lessening accumulation capacity, as markets and populations shrank instead of expanded.  The swelling population of the proletariat relative to the bourgeoisie that made revolution and abolishment of property rights inevitable could no longer be trusted to provide the rope with which the capitalists would hang themselves. 

A colorable argument could be made that it was a decline in the population growth rate in the US due to the enactment of severe immigration restrictions (the Immigration Act of 1924) in the early twenties that led to the capitalist collapse by the end of the decade.  The situation was exacerbated by the Smoot-Hawley Tariff Act of 1930 that restricted trade in goods in much the same manner as immigration laws restricted trade in labor.  Capitalists depend upon free trade to make possible the exploitation of competitive advantage; exploiting competitive advantage (particularly in labor costs) is necessary to make possible capital accumulations; an expanding market (i.e., population) base makes possible the profitable application of those accumulations to the further exploitation of competitive advantage.  Immigration and trade laws enacted during the era were akin to the capitalist biting off his nose to spite his face, and ultimately, destroyed as well the welfare of the laborers, as Smith’s virtuous cycle ground to a halt.

It could also be argued that the expansion in markets that victory in the Second World War represented, more than anything else, saved capitalism from itself, at least for a time.  After the war, all of Western Europe excluding the Soviet Union and its client states, and much of East Asia, became client states of the now fully-internationalized American Empire.  With only American factories and farms operating to capacity for a time after the war, capitalists in America had a bounty of demand to be supplied, so much so that the competition for labor allowed wages to capture enough of the capitalist’s surpluses that the Marxian reforms in the labor markets were rolled back.  The protections provided to organized labor in the Wagner Act of 1935 were severely limited by the Taft-Hartley Act of 1947.  The State became again a tool of the capitalists.  Marxist revolutionism died in the US with a whimper after the guns of the age fell silent. 

Smith didn’t foresee that capitalism would come to depend on imperial expansion, which is somewhat hard to understand, given his perch in geography and time as a citizen of an empire girdling the globe, upon which it was claimed the sun never set.  Inherently unstable, capitalism depends on relentlessly expanding markets, which in turn depend on relentlessly expanding populations.  When native populations and markets can’t or won’t expand sufficiently, the capitalist’s only hope is to seek markets and population elsewhere.  The State that provides the necessary property protections at home is enlisted by the hungry capitalist beast to open new markets abroad.  This capitalist compulsion to expand its markets and populations is what drove European states to a head-long rush for empire in the late nineteenth and early twentieth centuries, culminating in two world wars.  Smith’s virtuous selfishness belies a barbarism, red in tooth and claw, unmatched in the natural world. 

It took about three decades for American capitalism to burn through the expansion in markets and population coincidental to victory in World War Two.  Another Keynesian stagnation about then set in, but was this time mainly doctored with a derivative form of Keynesian stimulation.  Economic wizards peddling the new magical elixir of monetarism tried to engineer an expansion by tinkering with the medium (money) through which transactions take place.  It miserably failed, but again the capitalists were saved by American re-engagement and focus on a non-shooting war against the only remaining impediment to world-wide expansion.  The arms race of the eighties against the Soviet Union, along with the huge cohort of hippies settling into the wealth-acquiring and reproduction stage of their lives, set the stage for the expansion in markets and population upon which capitalism depended.  The fall of the Soviet Union a decade later pushed capitalism’s day of reckoning for its inherent instability further into the future. 

Two decades later when expansions in markets at home, mainly fueled by incremental expansions in waist lines, vehicles and homes, stalled, and Smith’s virtuous cycle nearly ground to a halt, glimpses of capitalism’s inherent instability were revealed, but few took heed.  In overseas markets, capitalists had been behaving as they had in the US during the late nineteenth and early twentieth centuries, skimming the cream off labor’s crop.  Laborers offshore were too poor to purchase the output of the factories in which they worked.    Markets at home were satiated.  There was nowhere for the capitalists’ accumulations to go.  So, as in the ‘thirties, government stepped in, but this time only to rescue the capitalists from themselves.  The state, not minding whether its investments proved profitable or failed, would itself become the capitalist.  There would be no Marxian revolution because the upper classes were absentee overlords of laborers thousands of miles overseas.  The US government had never bothered to get much involved in the affairs of its client states, except to ensure its capitalists’ property interests were more or less protected.  It cared nothing for the laborers its capitalists exploited because the laborers had no vote in its affairs.  Its capitalists now having nearly exhausted the growth in markets and population attendant to the end of the Cold War, will push for government to open new markets and populations for their exploitation.  Pakistan looks to be a likely candidate.

That’s roughly now where things stand.  Domestic markets across the developed world are saturated and stagnant.  Their population growth has reached stasis or decline.  Developing-world markets are not yet saturated or stagnant, but the people are so poorly paid that they can’t even purchase what they make.  Developing-world population growth rates have generally leveled off, but haven’t yet reached stasis.  The developing- world is primed for a Marxian revolution, but against whom?  The proletariat’s oppressors are in some distant, inaccessible land.

Like Marx observed, capitalism is inherently unstable, and so inherently trends towards socialism.  This is nothing new in the annals of human history.  The question of how many freedoms to afford the individual, and what protections the State should provide to owners of property, has been more or less constantly resonating since Neolithic days.  China’s first experience with collectivism (the Sui Dynasty between 581 and 618 A.D.) came over a millennia prior to its experiment with Marxism.   Yet, too, the collective, i.e., State ownership of the means of production, is unstable because it fails to acknowledge man’s place in Nature as an individual survival and propagation unit.  Economic systems that operate like Mao’s China as something more or less akin to an ant colony don’t operate well to fulfill individual needs and desires, and risk being torn asunder by individuals seeking freedom to do as Nature intended them.   Capitalist systems take better account of man’s individual nature, but result in an unstable stratification of property accumulation, as the animal spirits of the “social” beings within them operate to exploit their fellows for their own selfish purposes.   

No property interest is meaningful that cannot be defended by its owner.  Capitalist systems require tacit and tenuous agreement that the property rights of the individual capitalists within them will be collectively protected, else capitalism becomes simply another word for anarchy.  The State then necessarily becomes powerful enough that all the property effectively belongs to it; no power exists within the society that could protect its property from the State.  There is no hard and fast demarcation line for when State protection of property interests becomes outright State ownership and control of property, but the transition was undeniably complete for a great swath of the US economy during its recent financial troubles.  Time will tell whether the trend reverses or moves further along the road to collectivism.  Its trajectory greatly depends on whether imperial expansion can provide new markets and populations for the capitalists to exploit. 

Heilbroner’s book is a good introduction to economics, but while reading it, one should remain ever mindful that a) man is an animal, not unlike any other of Nature’s creatures; there is nothing so different about his economic issues than those of any other living organism; b) the only distinction between good and evil in Nature is from the perspective of the survival of an individual capable of reproducing; c) Nature takes no note of “progress” or any of the other prejudices and biases with which human organizations are viewed; d) all human systems, like all living organisms, are inherently unstable, some more than others, depending on how constant and voluminous must be infusions of energy to maintain a rough equilibrium.

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