In 1789 a
revolutionary book was published which changed moral and political thinking –
an introduction to the principles of morals and legislation, written by Bentham
which founded utilitarianism.
Bentham had
strong views on the English legal system and thought it to be ‘cumbrous,
artificial and incoherent’ and that should be recreated from the ground up in
the light of sound principles of jurisprudence.
He based his
own ideas on utility on Hume’s ‘treatise of human nature’ – utility was the
test and measure of all virtue and the sole origin of justice. After reading an
essay of John Priestley’s, he interpreted utility to mean the happiness of the
greatest number of citizens and was the standard by which the affairs of a
state should be judges –the true goal of legislation was the greatest happiness
to the greatest number. Bentham’s book outlines the purposes and limits of
punishment, along with the principle of utility.
Economics is
considered a science which analyses the production, consumption and distribution
of products and services, and could be considered to be biased around the ideas
of utilitarianism in that economic theories and systems aim to give the
greatest happiness to the greatest number.
Adam smith
was one of the first economists, during the enlightenment and wrote the book
‘The Wealth of Nations’ this questioned why one country was richer than
another. He believed that a wealthy
nation needs to be free – free trade and individuals. Our morality leads us to
be pleasure seeking and selfish individuals, but our free will adds to the
wealth of a nation. Our will drives the hidden hand of the market which drives
production through competition. Smith’s views on morality link to Bentham’s
idea of utilitarianism and our constant drive for pleasure, even if it means
causing someone else pain.
David
Ricardo believed in the spirit of values of things and believed that raw
materials have no real value. It’s once we apply conscious effort to it then
becomes valuable. This is a rejection of Smith’s ideas as he believes value is
created through trade – hence his emphasis on the hidden hand of the market.
Thomas
Malthus like Smith and Ricardo, Malthus believed that we are selfish beings and
that this caused an economic problem of its own; our recourses are limited and eventually we
will all starve to death because of our wants, as well as our constant fear of
poverty and starvation.
Karl Marx
believes that the only source of value comes from labour and that wages will
keep decreasing because of the constant growth in population. For Marx the idea
of profit and capitalism had fundamental flaws; eventually we won’t be able to
afford to buy what is being produced because the labour force will not be
earning enough money – they will be exploited - which would lead to an economic
bust. In some ways, Marx’s theory came true in the great depression and as
wages dropped, unemployment did also and the price of products rose.
A solution
to this, though it has its downfalls, was suggested by John Keynes who used his
criticisms of classic economics to form his modern principles.
‘The General
Theory of Employment’ was written by Keynes to find a solution to the problem
of mass unemployment during depression; it was clear from the slump in the
economy that capitalism was failing and he believed that the only way to
correct mistakes of previous economists was to make institutional changes to
restore the economy. Keynes strongly believed that the faults which lead to
such dramatic depressions had ‘narrow’ and ‘technical’ causes, arguing that the
solution would also be narrow and technical and emphasised that there was no
need for state socialism – despite many at the time believing this was the
answer. But a shock to many economists who believed strongly in a self-regulating
free market, Keynes suggested that a range of less intrusive government
policies could revive the market.
Paul Krugman
highlighted four main conclusions of Keynes’ ‘The General Theory of
Employment.’
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The
first, economies can and often suffer from an overall lack of demand, which
leads to involuntary unemployment.
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The
second, the economy’s automatic tendency to correct shortfalls in demand, if it
exists at all, operates slowly and painfully.
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The
third, government policies to increase demand, by contrast, can reduce
unemployment quickly.
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And
the fourth, sometimes increasing the money supply won’t be enough to persuade
the private sector to spend more, and government spending must step into
breach.
The purpose
of Keynes theory was to make the above points thinkable, but this proved
difficult because they stepped away from the previous theory of the economy and
involved the intervention of the state.
The first
book of The General Theory of employment outlines Keynes’ manifesto, taking
conventional views of the relationship of wages and employment and outlines the
mistakes in its structure. This led him to the conclusion that cutting wages
made no sense as a method of reducing unemployment – book five emphasises this
idea; his theory suggested that solving the problem was easy.
Keynes had a
huge struggle in turning people’s thoughts away from classical economics, in
this case Say’s law, which suggest that products pay for products because
income must be spent and that booms and busts are natural and inevitable. Controversially,
Keynes called the ‘law’ a tautology because people can save the money rather
than spend it on goods and service.
Many
economists before Keynes chose to explain the workings of the economy, when
discussing business cycle, rather than provide answers the important questions
like how to increase employment – Gottfried Haberler’s book is an example of
this, as it explains why booms are followed by busts. Keynes analyses the
reasons for the economy staying depressed, rather than explaining how it got
there.
Among modern
macroeconomists there is a divide in opinion of whether or not the ideas of
Keynes have been left behind for better or for worse. Krugman argues that this is because they have
misunderstood or have not read The General Theory of Employment and because of
John Hick’s review of the book, suggesting Keynes failed to give monetary
policy. The theory doesn’t dismiss it, it is discussed and is similar to modern
theory.
Keynes’
skepticism about adding money to restore full employment was not a
demonstration of his own ignorance – instead it was an observation determined
by the state of the economy at the time; that interest rates were so low that
little that could be done by increasing the money.
The biggest
criticism of Keynes’ theory of employment is that he mistook the episode of the
depression in the 1930’s to be part of a trend and would be the norm from then
onwards. Keynes’ theory is considered wrong because his idea of ‘euthanasia of
the rentier’ was based on a presumption and didn’t take into account the
possibility of persistent inflation which lead to his pessimism in monetary
policy.
In some ways
Keynes system can be linked to the ideas of John Stuart Mill in terms of
government intervention; Keynes saw the government as a method of increasing
employment, aiming to maximise happiness to the greatest number of people and Mill
believed that the government could give individuals a stepping stone to improve
their happiness, by reducing the gap between those more well off. Though, he did emphasised limits to social
systems which appeared to cause threat to individual independence.
Mill also
believed that to safeguard individual rights the monarchy must remain in place
because democracy alone holds the potential of tyranny of the majority and government
authority should not be limited because society is capable of exercising other
means of coercion. But this should only be acted on when the issue involves a
group – not the individual. This relies
on liberty of thought, speech and writing, Mill believes that no level of
authority has the right to suppress freedom of expression. This relies
massively on the concept of toleration, which is dependent on the individual.
Someone may feel that what another expresses effects their liberty.
Though Mill
is out to make sure the greatest number of individuals are happy, Bentham’s
views around utilitarianism disregard the individual. He concerned himself with
offering guidance to rulers and legislators on the management of community. But
there is an issue with the principle - whether or not the aim is to maximise
happiness or maximise the number of happy people – it needs limits for example,
cutting the gap of inequality in-between the worst and well off or limiting the
misery those worse off.
