Britain was colonizing the world, as well as trading with it, leaching seemingly unending products for their domestic markets from all corners of its world.5 Quite fairly, the more organized and wealthier colonies objected to the UK’s imposition of taxation upon them, arguing “no taxation without representation.” The prime example is the iconic 1773 Boston Tea Party, when Britain’s violent reaction precipitated the American Revolution. The empire was indeed fighting back and the modern era of economics had begun.
Almost simultaneously with this, the Scots philosopher and polymath Adam Smith (1723–90) was writing The Wealth of Nations,6 which became foundational, leading to Smith being described as “the father of modern economics.” I first read Smith nearly forty years ago when I spent five years (before seminary) working for a regional unit of the UK’s national industrial relations/mediation organization, ACAS.7 There, several of the “fast-trackers” were informally tutored by a senior colleague, an Oxford economics graduate, through a reading program to understand the economic world and strategies that underpinned our daily work. Just as then, if we are now to analyze economic ills and advocate alternatives, we must do the same and learn something of the development of economic theory.
Learning from economic theory
The jury remains out on Adam Smith. There are those who believe The Wealth of Nations is intentionally theological, with the social order built upon the concept of God acting within nature; others view him as skeptically deistic, because he never explicitly mentions God. Classical economists argue that Smith’s “wealth of nations” concept is supreme, promoting a “free market economy,” effectively dog-eat-dog, when only the most competitive will survive. Neoclassical economists emphasize Smith’s “invisible hand” concept, which presumes that when an individual acts in their best self-interest, it will benefit the whole society. However the faces of those spinning coins fall for you, Smith is still important because he mapped out the ground for economic discussion, while also stating:
• The existence of obvious inequalities in bargaining power between workers and masters (capital holders);
• That wages cannot be statutorily regulated because different market forces—such as supply and demand of labor—occur;
• That all “subjects” should contribute towards the upkeep of the state, thus advocating progressive personal taxation and not just taxes upon goods and services.
Alfred Marshall (1842–1924) is our next key player as his book Principles of Economics8 critiqued Smith and others, but drew together a threefold woven cord of cohering theory. First, he reaffirmed the principle of supply and demand, particularly for labor and goods (including natural resources). Second, he realized the need to pass on the “costs of production” to the consumer or buyer. Third, he recognized that the consumption or use of either a “service” or an item may increase or decrease as a second or subsequent such unit is purchased; this is known as the “marginal utility cost.” Alongside this Marshall delineated an ongoing principle of economic geography, known as “Marshall industrialization,” showing that industries become most profitable if those of the same type are geographically colocated, thus able to utilize local natural resources or the pool of skilled labor. Marshall’s Principles became the standard textbook for decades to come.
Western society was rapidly changing, from and around that First World War era. So-called laissez-faire economics, akin to Smith’s classical dog-eat-dog position, saying let the market decide who survives, was the favored model of the rich and/or politically powerful. During the 1920s boom, most Western governments agreed to link their currency rates (e.g., the US$–UK£ rate) to the price of gold, effectively tying their own currency to a particular value while also agreeing not to print more money than for which they had hard gold equivalence. This became known as “the gold standard,” creating a federalized money system without political union (akin to today’s Eurozone)—a voluntary straitjacket.
One of Marshall’s Cambridge students was John Maynard Keynes (1883–1946), who was part of London’s “Bloomsbury set.” Despite critique and counterpoint theories, Keynesian economics are still important today for their influence upon the development of twentieth-century capitalism. Basically, Keynes argued for clear, direct state intervention to moderate the effects of so-called boom-and-bust economies. Keynes challenged the neoclassical view that that in a “free market economy” there can always be full employment providing that all workers are flexible both in their wage rates and demands. I would simply question whether such neoclassical advocates can morally accept the consequent poverty of the lowest paid workers’ families.9
Keynesians needed to, and did, provide a strong working model for the West, in marked contrast to the rise of the “communist system” of economics and state control, so evident in post-Revolution Russia and other Soviet republics. What non-economists often fail to appreciate is the breadth and depth of Karl Marx’s comprehensive analysis of capitalism,10 yet how cursory is his initial advocacy of communist-style political systems. A key concept in Marx’s thinking was “value.”
• Was a worker paid a proper value for their labor, or were they just paid the minimum necessary for survival?
• Was the value of a commodity recognized? E.g., food had huge human and market value whereas money had only metallic value as gold or silver and paper money should be regarded as simply state promissory notes (with little real value!).
• How the mode of production created fresh “value,” dependent upon both the product (e.g., coal, clothes, etc) with direct benefits for people or “labor” when the productive workers may actually need far more practical skill than the overseers just shouting at them to produce more.
Marx (1818–83) became a penniless German émigré, finally arriving in England where his writing, life, and family were supported by a philanthropic Manchester factory manager, Friedrich Engels (1820–95), who had been appalled by the social conditions that he was witnessing.11 Engels believed the world needed Marxian economics to change itself, and therefore funded Marx’s analysis and writing for years. Only later did they write together The Communist Manifesto.12
Simultaneously, the dying days of the British Raj in India attempted to control occupied peoples in restricting access to food, raw materials, or naturally occurring salt. Note the challenge by Gandhi in leading the Indian “salt marches” nonviolently as but one expression of indigenous protest against the oppressive nature of such colonial economics. Gandhi’s own adoption of wearing only khadi, the Indian homespun cloth, and his encouragement to his supporters to do the same, rejecting the reimportation of Western-style clothing, emphasized the importance of newly emerging nations to support their own economic practices.13 Later historically, we see similar encouragements about economics, clothing, and land reform made by Ho Chi Minh in Vietnam as a way of rejecting French Indo-Chinese colonialism and the laissez-faire American-styled exploitative economic system imposed upon them.