The Worldly Philosophers

Both economists’ views of the market system’s basic and their predictions about capitalism’s future are shaped by their personal histories and by the sociopolitical events that influence their lives. Adam Smith wrote when the market system was still replacing the command and tradition systems across Europe; as a pioneer in the field as political economy, his training as a moral philosopher guided his initial analysis. In contrast to the seeming chaos around him, Smith saw the order, design, and purpose of the newborn market system and its basic laws. Because he lived before the Industrial Revolution, he did not foresee how forces like the factory system would disrupt his model.

The pessimism of Malthus and Ricardo sprung forth from a different environment: They saw capitalism not as a harmonious system moving towards utopia, but as a camp split into hostile warring groups fighting for resources. The Utopian Socialists, who also lived during these troubled times, focused on elevating the working class in response to the factory’s inhumane working conditions. Rather than pessimistically viewing such conditions as necessary for the market system, they sought alternatives that benefited both society and the individual.

Marx and Engels looked at the chaos and inhumanity that capitalism produced in the 19th century and argued that the market system was doomed to fail and generate its own replacement: communism. Marx was not dismayed when the revolutions of 1848 failed to overturn the existing order, arguing that even the most perfect version of capitalism was fated to collapse—all workers had to do was wait. Hobson was less optimistic. Observing the race for empire, he argued that capitalism had an inherent tendency towards imperialism and colonialism as a means of dealing with economic troubles at home. As such, imperialism always carried the risk of war, as competition for profitable colonies brought the imperialist powers into inevitable conflict. Veblen, who lived during the Gilded Age, argued that market society was dominated by a leisure class that seized goods without work. He believed that the working class would not overthrow this parasitic class but would attempt to emulate them instead.

Keynes and Schumpeter, who lived during the Great Depression, responded with different ways of understanding the market system. Keynes was optimistic that a properly managed capitalism would thrive over the long run, eliminating the problem of scarcity. Schumpeter argued that capitalism was dynamic over the short run, but doomed to collapse over the long run as the bourgeoisie lost faith in itself.