The Worldly Philosophers

As working conditions improved and wages rose, Marx’s revolutionary fervor subsided for a time; for non-Marxist economists, the great Victorian boom filled the world full of hope and promise again. Professional economists of this era no longer doubted the market system’s basic merits or its survival. They focused on smaller, specific topics, examining the workings of the system in great detail. In opposition to these economists and to Victorian intolerance of arguments that capitalism needed major reform, an underworld developed for those who wanted to study human behavior in relation to the economy.

Francis Edgeworth, working to translate economic laws into mathematical form, published Mathematical Physics in 1881. Such a characterization required simplistic assumptions: All people were pleasure seekers that constantly arranged their lives to maximize personal happiness, and in a world of perfect competition, each person would seek the highest amount of pleasure possible, creating market equilibrium. This view marked a major change from the earlier political economists who saw capitalism as dynamic and expansive: “Suddenly capitalism was no longer seen as an historic social vehicle under constant tension but as a static, rather historyless mode of organization” (177). Edgeworth was part of a growing class of professional economists that focused less on philosophy and more on transforming economics into mathematical dogma.

In contrast to economists like Edgeworth, underworld economists focused on the sociopolitical context of economics, often expressing their ideas comedically. Frederic Bastiat deployed ridicule and humor to point out the absurdities of contemporary capitalism, particularly how greed was rationalized under the cover of improving the public good. Henry George argued that economics failed to solve the problem of poverty. In his book, Progress and Poverty, he mocked those whose incomes came not from work, but from having the good fortune to hold productive land. He proposed a single massive land tax that would encompass all rental income, thus removing the need for any other taxes and giving the government the means to abolish social ills.

In addition to underground mockery of capitalism, this period saw a massive change in attitudes towards colonialism and empire, which were now regarded as “the greatest secular agency for good the world has ever known” (191). The race for empire brought prosperity for European powers, which trickled down to the working class. Professional economists ignored colonialism, writing only about the impact it had on trade, but those in the underworld recognized imperialism as a fundamental change in the character of capitalism, one which demonstrated capitalism’s tendency to provoke war.

John Hobson, excluded from the respectable world of professional economics for arguing that economic depression was caused by excess saving, turned his attention towards Africa and colonialism. Marx had argued that capitalism would destroy itself; Hobson feared that it would destroy the world. He defined imperialism as capitalism’s relentless tendency to rescue itself from domestic economic troubles through foreign commercial conquest, creating a constant risk of war.

Hobson argued that capitalism’s fatal flaw was the unequal distribution of wealth, a problem most people viewed as a shortage of individual and public morality rather than as an inherent defect of the market system. Neither rich nor poor could consume enough: the poor because their incomes were too small, and the rich because they had insufficient capacity to consume what was left over. The rich saved money, not because they wanted to, but because they could not spend or invest their full incomes.

The only way to reinvest these savings without worsening overproduction problem was to invest overseas—thus, the genesis of imperialism. Countries raced to seize the richest colonial markets, creating conditions for war “not by swashbuckling adventures of high tragedy, but through a sordid process in which capitalist nations compete for outlets for their unemployed wealth” (197). Thinkers like Lenin would later integrate Hobson’s ideas into their interpretations of Marxism, arguing that imperialism violently extracted wealth from the colonies and gave it to a parasitic class at home.

The most renowned economist of the Victorian world was Alfred Marshall who, unlike Hobson and other members of the underworld, was middle-of-the-road, official, and socially respectable. His commercially successful book, The Principles of Economics, combined mathematical precision with an accessible style easily understood by business owners and professionals. Marshall saw time as the essential element in restoring market equilibrium. He believed equilibrium changed in meaning depending on the contextual adjustment period; demand determined short-term pricing, but in the long term, production costs ultimately determined market value. He emphasized the individual in economic analysis, ignoring the political context of economics; power and obedience were not relevant to the study of a society comprised of individuals maximizing their own happiness.

Unlike most Victorian economists, Thorstein Veblen carried on the worldly philosophers’ tradition of examining why things were as they were: the nature of economic man, his rites, his rituals, and his customs. Born to an immigrant farming family, he completed a Ph.D. but, lacking job prospects, spent the next seven years living at home. He eventually took a job at the University of Chicago, where his peers recognized his intellect but disliked his personality; he similarly delighted in driving students away from his classes.

Veblen’s first book, The Theory of the Leisure Class, published when he was 42, became an unexpected sensation. A satire on the ways of the rich and aristocratic classes, it also delved into how and why people allowed the existence of a leisure class. Classical economists thought those who rose to the top used their fortune to minimize their own labor; Veblen disagreed, believing neither that rational self-interest bound society together nor that people inherently preferred leisure to work.

Veblen based his ideas on a study of primitive communities. In some, members took pride in work, and they worked out if concern for future generations, often looking on leisure with derision. In other communities, such as in feudal Japan, the leisure class also worked hard—at seizing wealth from productive members of society, often with the full support of the community itself. In these societies, labor, not leisure, invited derision. Unlike Marx and Hobson, who saw natural enmity between capitalists and workers, Veblen saw none. As in feudal Japan, the modern leisure class wanted “the predatory seizure of goods without work” (232), and the modern lower classes sought not to abolish the leisure class, but to emulate it.

Veblen then published The Theory of Business Enterprise in 1904, portraying the businessman as the saboteur of the system. Machines produce goods, not value and profits; therefore, the capitalists were inherently part of the leisure class because they contributed nothing to the functioning of the machine. The capitalist sought not to help make goods, but to cause breakdowns, leverage the confusion, and make a profit. The capitalist’s medium, the financial system, sat above the real world of production and constantly disrupted it.

Veblen concluded that capitalism would eventually decline at the hands of the engineer, rather than at the hands of the worker, as the communists had asserted. He believed those who come in contact with machines, which Veblen foresaw would increasingly dominate every aspect of life, tended to think like machines and thus reject the leisure class: “And so society divided; not poor against rich, but technician versus businessman, mechanic against warlord, scientist opposed to ritualist” (239). Veblen saw the introduction of machinery into every aspect of life as a revolution comparable to the domestication of animals. Businessmen would become mere bureaucrats managing the machine, owing to “the emergence of technology and science as the leading forces of social change in modern times” (245).