Economics – 1. History

The history of economics coincides with the story of human societies, driven by sociological dynamics largely dictated by desires and an abiding unwillingness to share in a familial way. Economics is a fulcrum for activity, and so woven into its gyre has been the rise and fall of civilizations.

Economics will ultimately prove the fate of humanity. Life is short and art is long, but since the earliest societies economics has endured in calling the shots, casting an inauspicious pale on human prospects.

A mind-set of materialism got the economic ball rolling, abetted by surpluses from agriculture. Trade grew in the transition from hamlets to societies which increasingly practiced specialized crafts.

Another consequence of agriculture was being able to support a larger population. Division of labor and food surplus concentrated people so that villages grew into towns when they succeeded in ramping production and trade.

Jericho, the oldest continuously occupied site in the world, was settled by 9000 BCE. Within a thousand years, it had a huge stone wall around it: a monumental testament to the materialist mind-set and the concomitant need for defense.

The power of organized labor was quickly appreciated in the ancient world. The city-states of the Sumer civilization in southern Mesopotamia, Egypt, and other empires, all depended upon mobilized masses under someone’s thumb. All early civilizations were based on social and economic inequality. Slavery was rife in the ancient world, and the population masses otherwise mostly serfs.

Trade was the lubricant which invariably led to concentrations of economic and political power into a small minority of hands. Rulers came to rely up economic growth as a means to maintain and augment their supremacy. When internal limits were hit, expansion created conflicts with neighbors which often led to war and conquest. This trend was ubiquitous.

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Material exchange for personal benefit predates hominids by billions of years. Bacteria have profitably swapped gene packages for eons. Yet commerce has long been morally suspect. The predatory character of ancient empires and the natural inclination to profit from trade cast a pall for any who cared to view commerce through a moral lens.

The ancient Greeks tolerated commerce as a necessity but feared that the specialization it engendered would lead to a differentiation of interests that would destroy any sense of common purpose, and thereby rent the social fabric.

Classical writers attuned to societal interests expressed anathema to profiteering, Aristotle among them. This condemnation came to occupy a locus in the writings of Christian theologians and lawyers up to early modern times, until the ascent of commercial interests so overwhelmed political leaders that the morality of money withered to an ethical arcanum.

Trade as inimical to communal cohesion was long a staple of European intellectual thinking. In writing at the onset of the 18th century that trade and wealth extinguish virtue, British establishmentarian Charles Davenant was reciting a hoary civic cliché.

Mercantilism – the idea that the military security of a country depended upon its balance of trade – dominated western European political policy from the 16th century to the end of the 18th century. Mercantilism motivated both colonial expansion and frequent wars in Europe, as well as co-opting the political class into acting as a plutocratic patsy, favoring the concentration of wealth by keeping wages low.

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By the beginning of the 18th century, European businesses had increased productivity. There were sizable concentrations of rural industry in western Europe, mostly in textile manufacture.

With the advent of industrialization, life for workers became dire, both in the factory and at home. British cotton textile workers succumbed to lung diseases from the dust generated during production. This was typical of working hazards, which were multifarious.

Under the crushing wheel of industrializing capitalism, those with craft skills lost their livelihoods; replaced by poorly paid, unskilled workers at unsafe machines. 70-80 hours per week labor was the norm, and many worked over 100, with just half of Sunday off.

Laws to protect workers were nonexistent. Men rebelled so frequently that factory owners took to hiring women and children, subjecting them to horrendous working conditions.

The urban working class lived in crowded hovels, sometimes 15 to 20 in a room. Hundreds typically shared a single toilet.

Workers died off like flies. In poor areas of Manchester England, life expectancy was 17 years: 30 years less than what it had been for the English before the Norman conquest, 9 centuries earlier.

This privation was according to plan. The economic thinking that dominated Europe from the 16th century was that poverty was instrumentally beneficial. Albeit miserable for those caught in the merciless grip of the market system’s “invisible hand,” plentiful cheap labor was what kept the economic engine humming – to the great benefit of investors and industrial masters.

Not until the 1990s did economists manage to fashion a coherent theoretical framework which suggested that high levels of poverty might be an economic drawback.

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Industrialization sparked trade. The most rapid growth was from the early 1840s to 1873, when the volume of trade went up over 6% per year. In 1913, on the cusp of the 1st World War, worldwide foreign trade was over 25 times what it had been in 1800.

Migration and foreign investment flowed across borders. By the onset of the 20th century, world economy was a meaningful term. At the time, Europe was the epicenter of the international trade gyre.

Petty politics got in the way of economic prosperity. Ill governance resulted in 2 horrendous world wars in the 20th century and many other senseless regional conflicts.

As the United States was the acknowledged world leader following the 1st World War, a goodly portion of the blame lies at its doorstep. After the Great War, the US allowed the impoverishment of Germany which fostered the rise of Hitler. The US baited Japan into attacking it by trying to economically strangle Japan from the early 1930s, after Franklin Roosevelt took office.

What governments did not do was protect working people or act to preserve the environment. By the end of the 20th century, governmental neglect meant that humanity would extinguish itself from economic excess within the next century.

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In 1914, pioneer industrialist Henry Ford observed that “a business that makes nothing but money is a poor kind of business.” In the century that followed, this poor kind of business made many men rich through sheer speculation.

Industrialization brought the need for capital to the fore. In the century and a half since, making money from money has grown into an industry that dominates developed economies. From a historical perspective, it is as if the cart is the force before the horse.

Cyclical booms and busts came to dominate the post-industrial economic gyre. The cause was financial conniptions.

The money parade is solely guided by the expectation of liquidity. Speculators place their bets. When the prospects of getting their money out sour, speculators panic, causing a crash through herd behavior.

Almost every decade since the late 18th century has seen financial panics and artificial economic contractions; sometimes 2 crashes in a single decade. This is an inherent feature of an economic system which runs as a confidence game which plays like musical chairs during panics.

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Technology has always been the driver of the economic surpluses that enabled the inequalities which inevitably accumulated. For the working class, industrialization was simply feudalism in a machine age.

Industrialized economic growth was ever only possible because their were people who could afford to buy the products manufactured. Yet, to maximize their profits, employers universally wanted to pay as little in wages as possible.

This irony illustrates the social counterproductivity of capitalism. Pursuit of self-interest does not yield societal well-being.