Economics Explained: Everything You Need to Know About How the Economy Works and Where It's Going - Softcover

Heilbroner, Robert L.

Softcover

ISBN 10: 0671884220 ISBN 13: 9780671884222

Publisher: Touchstone, 1994

Synopsis

Two of America's most respected economists clarify the basics of economics for everyone who wants to understand the nature of the economic forces that seem to rule our lives. "Clarity triumphant, whether the topic is inflation or government, markets or Marx."--Newsday.

About this title

About the Author:

Robert Heilbroner is the Norman Thomas Professor of Economics, Emeritus, at The New School for Social Research. He is the author of over twenty books, among them The Worldly Philosophers. He lives in New York City.

Excerpt. © Reprinted by permission. All rights reserved.:

Chapter 1

Capitalism: Where Do We Come From?

We live in a capitalist economic system. Politicians constantly talk about capitalism, or if they don't like the word, about the free-enterprise system. We are constantly being told that capitalism is the wave of the future, or would be the wave of the future if only it were left alone, or sometimes that capitalism is in decline and will fall on its own weight, like the Roman Empire.

Perhaps there is no more important economic question than the future of capitalism, none that affects more deeply our private destinies and those of our children. As we will see in our next chapter, the great economists of the past were vitally concerned with this issue. Modern economists are wiser or blinder, depending on how you look at it, and say relatively little about our long-term prospects. Nonetheless, we feel that it is impossible to understand capitalism without at least some understanding of its roots. So we are going to begin the study of our economic system rather the way a doctor begins to become acquainted with a patient -- by taking its history.

Many people speak about capitalism as if it were as old as the hills, as ancient as the Bible, implying that there is something about the system that accords with human nature. Yet, on reflection, this is clearly not the case. Nobody ever called the Egyptian pharaohs capitalists. The Greeks about whom Homer wrote did not comprise a business society, even though there were merchants and traders in Greece. Medieval Europe was certainly not capitalist. Nor would anyone have used the word to describe the brilliant civilizations of India and China about which Marco Polo wrote, or the great empires of ancient Africa, or the Islamic societies of which we catch glimpses in The Arabian Nights.

What made these societies noncapitalist was not anything they possessed in common, for they were as different as civilizations could be, but rather, some things they lacked in common. To become aware of these lacks will give us a sharp sense of the uniqueness and special characteristics of capitalism itself.

To begin with, all these noncapitalist societies lacked the institution of private property. Of course, all of them recognized the right of some individuals to own wealth, often vast wealth. But none of them legally accorded the right of ownership to all persons. Land, for instance, was rarely owned by the peasants who worked it. Slaves, who were a common feature of most precapitalist systems, were only rarely permitted to own property -- indeed, they were property. The idea that a person's property was inviolate was as unacknowledged as that his person was inviolate. The Tudor monarchs, for example, relatively enlightened as sixteenth-century monarchies went, could and did strip many a person or religious order of their possessions.

Second, none of these variegated societies possessed a central attribute of capitalism -- a market system. To be sure, all of them had markets where spices, gold, slaves, cloth, pottery, and foodstuffs were offered for sale. But when we look over the expanses of ancient Asia, Africa, or the Egyptian and Roman empires, we can see nothing like the great web of transactions that binds our own economy together. Most production and most distribution took place by following the dictates of tradition or the orders of a lord. In general, only the small leftovers found their way to the market stalls. Even more important, there was no organized market at all to buy and sell land, or to hire labor, or to lend money. Markets were the ornaments of society, tradition and command its iron structure.

Under such conditions, the idea of economic freedom was held in little regard. When peasants were not free to move as they wished, when artisans were bound to their trades for life, when the relations of field-workers to their masters were that of serf to lord, who could worry about the right of contract or the right to withhold one's labor? The distinction is crucial in separating capitalism from what came before: A capitalist employee has the legal right to work or not work as he or she chooses, and whereas this right may seem to count for little under conditions of Dickensian poverty, it must be compared with the near-slavery of the serf legally bound to his lord's land and to the work his lord assigned him.

In such a setting, moneymaking itself was not much esteemed. Ambitious persons from the better walks of life sought fame and fortune in military exploits, in the service of the court, or in the hierarchies of religion. In this regard, it is interesting to reflect how twisted and grasping are the faces of merchants depicted by medieval artists, in contrast to the noble mien of soldiers and courtiers. Moneymaking was generally considered to be beneath a person of noble blood; indeed, in Christendom it was a pursuit uncomfortably close to sin. Usury -- lending at interest -- was a sin -- in fact, a mortal sin.

As a consequence of all this, society's wealth was not owned by "the rich" -- that is, by those whose main efforts were aimed directly at moneymaking -- but rather by the powerful, who seized it in the struggle for lands and privileges. Of course, the winners in this snuggle became rich, sometimes unimaginably rich, but their riches flowed from their power, not the other way around. Julius Caesar, for example, became rich only because he was appointed governor of Spain, from which he profited fabulously, as all provincial governors were supposed to do and did.

Last, and in some ways most significant, economic life was stable. It may not have seemed so to the peasants and merchants whose lives were constantly disrupted by war, famine, merciless taxation, and brigandage. But it was very stable compared to the tenor of economic life in our own time. The basic rhythms and techniques of economic existence were steady and repetitive. Men and women sowed and reaped, potters and metalworkers turned and hammered, weavers spun and wove -- all using much the same kinds of equipment for decades, generations, sometimes centuries. How similar are the clothes and utensils, the materials of buildings, the means of conveyance that we see in the background of a Renaissance picture to those that we can make out on a Greek vase! How little material progress took place over a thousand years! That gives us a sense of how vast a change capitalism would bring when it finally burst upon the historic scene.

MARKET SOCIETY EMERGES

Thus we see that far from representing an eternal "human nature," capitalism comes as a volcanic disruption to time-honored routines of life. We begin to understand the immense inertia that prevented capitalism from developing in most earlier societies. From one of these societies to another, of course, different obstacles and barriers stood in the way of creating an economic way of life built on principles utterly alien to those that existed. But in all these societies, perhaps no barrier was more difficult to breach than the hold of tradition and command as the means of organizing economic life, and the need to substitute a market system in their place.

What is a market system? Essentially, it is one in which economic activities are left to men and women freely responding to the opportunities and discouragements of the marketplace, not to the established routines of tradition or the dictates of someone's command. Thus, in a market system most individuals are not only free to seek work where they wish, but must shop around for a job; by way of contrast, serfs or tradition-bound artisans were born to their employ and could only with great difficulty quit it for another. In a market system anyone is flee to buy up land or to sell it: a farm can become a shopping center. By way of contrast again, land in most precapitalist societies was no more for sale than are the counties of our states.

Finally, a market in capital means that there is a regular flow of wealth into production -- a flow of savings and investment -- organized through banks and other financial companies, where borrowers pay interest as the reward for having the use of the wealth of the lenders. There was nothing like this before capitalism, except in the very small and disreputable capital markets personified in the despised moneylender.

The services of labor, land, and capital that are hired or fired in a market society are called the factors of production, and a great deal of economics is about how the market combines their essential contributions to production. Because they are essential, a question must be answered: How were the factors of production put to use prior to the market system? The answer comes as something of a shock, but it tells us a great deal.

There were no factors of production before capitalism. Of course, human labor, nature's gift of land and natural resources, and the artifacts of society have always existed. But labor, land, and capital were not commodities for sale. Labor was performed as part of the social duties of serfs or slaves, who were not paid for doing their work. Indeed, the serf paid fees to his lord for the use of the lord's equipment, and never expected to be remunerated when he turned over a portion of his crop as the lord's due. So, too, land was regarded as the basis for military power or civil administration, just as a county or state is regarded today -- not as real estate to be bought and sold. And capital was thought of as treasure or as the necessary equipment of an artisan, not as an abstract sum of wealth with a market value. The idea of liquid, fluid capital would have been as strange in medieval life as would be the thought today of stocks and bonds as heirlooms never to be sold.

How did wageless labor, unrentable land, and private treasures become factors of production; that is, commodities to be bought and sold like so many yards of cloth or bushels of wheat? The answer is that a vast revolution undermined the world of tradition and command and brought into being the market ...

About this edition

• Publisher: Touchstone
• Publication date: 1994
• ISBN 10: 0671884220
• ISBN 13: 9780671884222
• Binding: Paperback
• Number of pages: 288