52 pages • 1 hour read
Robert HeilbronerThe Worldly Philosophers
Nonfiction | Biography | Adult | Published in 1953A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
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Class
In economics, the term “class” refers to groups of individuals who share a common relationship to the form of production. The capitalist class, or the bourgeoisie, own the means of production, i.e., the equipment and factories used to produce goods. They pay workers to operate this equipment and take the finished goods to market, where they sell them for a profit; they then reinvest profits in the business in order to produce even more goods.
The working class, or proletariat, has little to sell except for their labor. Workers exchange time and effort for a wage, which they spend as they see fit. The landowning class, both relics of agrarian societies and amassers of land-based wealth today, receive a rent for the use of their land, which can influence the price of food for workers, and which bleeds profits from capitalists.
Conflict between classes plays a major role in the market system’s dynamics. Ricardo wrote about the conflict between the rising industrialist class and the entrenched landowning class, arguing that the landlords’ quest to keep food prices elevated stymied economic growth by cutting into the profits of the hardworking capitalist class. The Utopian Socialists re-envisioned the relationship between the working class and capitalist class, arguing that workers did not have to work in inhumane conditions for the system to function. Marx examined this same conflict, but decided capitalism could not be reformed, viewing class conflict as the defining feature of history. Veblen saw a leisure class that survived by expropriating wealth from productive members of society. Schumpeter introduced the concept of the entrepreneurial class, which generated disruptive innovations that changed the course of capitalism.
Factors of Production
The basic factors of production are land, labor, and capital—the core components of the market system—which are allocated by the market and used to produce goods. Until the 17th century, these three elements did not exist as impersonal, dehumanized economic entities. The worldly philosophers explored how the market system allocated these three production factors as a result of different activities.
Tradition, Command, and Market Systems
Heilbroner posits three solutions that human society has developed to solve the problem of survival. The first, the tradition system, organized society around customs, passing down necessary survival tasks from generation to generation. In the second, the command system, the necessary tasks for humanity’s survival were executed because a supreme authority commanded it, under the threat of punishment.
The market system allows each person to do as they see fit, assuming they follow their rational self-interest and make decisions to their monetary advantage. When the market system originated, it was not immediately clear how every person acting as they see fit would accomplish the necessary tasks for society’s survival. The worldly economists sought to explain this paradox, to understand the laws of the market system, and to predict whether or not it would survive.
Profit
In accounting, profit is the excess of revenue (monetary gain) over expense (monetary costs). Within the market system, profit compels individuals to pursue rational self-interest. Within the market system, the free action of profit-seeking men and women, bound together by the market, solves the problem of survival. This pursuit of profit, so central to the market system, is now assumed to be an eternal and omnipresent part of human nature.
Smith argued that profit accrued to capitalists who responded to the demands of the marketplace, but profits were only temporary because the forces of competition eliminated excess profits after other capitalists copied innovations. Ricardo also saw profits as generated by the clever action of the capitalist, but he criticized how the idle landowning class ate into the profits created by the hardworking bourgeoisie.
Marx argued that the working class, not the capitalist class, was society’s source of profits. Profit only occurred when the worker produced more value for the capitalist than the worker received in wages. Similarly, Veblen saw the modern capitalist class as a leisure class that did not generate profit, instead expropriating wealth from capitalists and workers.
Hobson argued that when profits fell at home, imperial powers looked to secure profits through colonialism, at the risk of starting wars. Schumpeter saw entrepreneurs as the source of profits because they invented disruptive innovations in either technology or the organization of work. Entrepreneurial creativity ensured the innovating firm could produce goods more cheaply and more efficiently than its competitors, thus generating profit.
