Summary and Analysis
Chapter 7 - The Victorian World and the Underworld of Economics
Karl Marx's prediction that the working class would suffer increasing misery did not come to pass during the Victorian Age (the reign of Queen Victoria, 1837-1901), for wages climbed upward while the working day grew shorter. Even Marx and Engels were forced to admit that the English proletariat was becoming more bourgeois because of the Victorian world's prosperity and optimism. The recognized economists of the day expressed that optimism with little reference to Marx, who was dismissed as a crank. His theories, along with those of Malthus, the utopians, and three of the five Victorian Age economists, were confined to the underworld of economics.
Francis Ysidro Edgeworth (1845-1926)
Edgeworth, a shy, retiring professor and brilliant scholar, became interested in economics because it dealt with quantities. He applied mathematics to economics and derived his Mathematical Psychics (1881). Its thesis stated that every man, based on mathematical formulas, lives for pleasure, leisure time, and material goods. Of course, skilled and talented people are better "pleasure machines" than others; likewise, males are more endowed with sensibility than females. In developing his thesis, Edgeworth justified the divisions of sex and status numerically and denounced the future of trade-unions, which he considered imperfections.
What was unique about Edgeworth was his use of mathematical formulation to prove his contentions. Essentially, he was conservative and defended his philosophy through the use of long, complicated algebraic expressions. He won a conservative following among fellow Victorians, and his book achieved immediate success. While perhaps helpful in focusing attention on the use of scientific inquiry as an aid to economics, much of Edgeworth's work is worthless. His weakness lies in ignoring the human factor, but the fact that he was not ridiculed by his contemporaries gives significant insight into his era.
Frederic Bastiat (1801-50)
In sharp contrast to Edgeworth, the French eccentric Bastiat heaped ridicule on the economic policies of his age. He failed at farming and estate management, but succeeded in adding deft touches of humor to economics. In his Economic Sophisms, he attacked Socialists, defended free trade, and launched his most acerbic barbs for those who selfishly supported a protective tariff. Beneath his wit lay the truth of his criticism — yet, in the Victorian world, he was labeled a crackpot.
Henry George (1839-97)
With Henry George, the underworld of economics gained an American recruit — a rugged but unschooled individual who had been an adventurer, gold prospector, sailor, printer, pamphleteer, journalist for the San Francisco Times and Post, lecturer, bureaucrat, tramp, and politician. At one time, the University of California considered him for the chair of political economy, but he ruined his chances by declaring in a speech that "logical thinking was all that was needed for a study of economics."
Unlike his fellow dwellers in the underworld, during his lifetime he gained popularity — more in England than in the United States. An active proponent for his beliefs, he was almost elected mayor of New York City, barely losing to Tammany Hall's candidate and running ahead of Theodore Roosevelt. Drafted to run a second time in 1897, he died on election eve.
His best known work is Progress and Poverty (1879), a passionate commentary which professes that the true cause of poverty is land rent. To Henry George, it was the height of injustice that landowners should enjoy huge incomes while they contribute nothing to society. Not only does rent work a hardship on the capitalist, it also straps the worker and leads to speculation in land values, as was evident in his time in California. Worst of all, rent is the cause of depression, George claimed.
Part of his naive thesis contains a solution: a single tax on land equal to its rent. By negating rent with one tax, all other taxes could be eliminated. Wages would rise, and capital earnings would increase, for money would circulate more freely with no taxes for the non-landowner to pay. In short, the single tax would be society's magic cure.
Regardless of George's lack of logic, his book became a bestseller; he achieved overnight fame. Progress and Poverty received praise as the worthy successor to Smith's Wealth of Nations. George won an international reputation after a lecture tour to England. The single tax became an obsession with him. However, the official world of economics decried his ideas, so Henry George was exiled to the underworld of economics.
John A. Hobson (1858-40)
Of greater importance than the theories of Edgeworth, Bastiat, and George is the theme of the fourth economic heretic of the age — imperialism. The Victorian Era was a time when Great Britain, France, Germany, Belgium, Portugal, Holland, Italy, and Russia grabbed up colonies and economic concessions in Africa and Asia. The spirit of imperialism swept through the Western world, including the United States. Between the Napoleonic Wars (1803-15) and 1870, the laissez faire doctrine of free trade dominated.
From 1870 onward, however, various factors caused a drastic change in attitude and policy relating to colonial expansion. Notably, as a result of the rise in Europe's population, the desire for military bases, nationalism, and the Industrial Revolution, imperialism became an extremely popular policy with virtually all classes of society; its chief spokesman, Rudyard Kipling, praised its virtues.
Into this setting appeared John A. Hobson, a nervous, stuttering little man who took a critical look at capitalism and imperialism, in particular. He adopted John Ruskin's humanistic viewpoint toward economics, which stressed human values over cold statistics. By coauthoring an economic treatise which suggested that savings might lead to depression and unemployment, he lost favor with orthodox economists and was banished from London University Extension Lectures. As a result, he became a social critic, examining topical questions.
The chief topic of interest to England was Africa, where the Boer War between Dutch colonists and the English in South Africa was brewing. Hobson journeyed to Africa, and his research there convinced him that his warning of the results of oversaving was justified. Returning to England, he quietly prepared a major work, in which the effects of savings and imperialism were combined to form his thesis. He published Imperialism, a Study (1902), a devastating attack on capitalism as well as imperialism.
Hobson, a non-Marxist, went even further than Karl Marx. Whereas Marx predicted that capitalism would destroy itself, Hobson declared that imperialism would become the road to war, leading to the destruction of the world. In his view, capitalism has an insolvable problem: the rich get richer and the poor get poorer. Because of the vast inequality in the distribution of wealth, neither the rich nor the poor can consume enough goods.
Because the rich are few, they can consume only so much. The poor, while large in number, lack the income to purchase more goods. Therefore, the rich — both individuals and corporations — must invest the bulk of their income in savings, which are useless unless spent on further production of goods. Otherwise, purchasing power dries up. But since there is no market for more goods, production leads to a glut on the market.
Here, Hobson injects his comment on imperialism, for the only obvious answer to the problem is the utilization of savings in overseas investment. Foreign investments take off the excess capital, and foreign markets use the excess goods. This problem of excess, then, is the reason for modern imperialism, which is a direct outgrowth of the capitalistic system. But dire consequences lie ahead, he warns. Capitalistic nations each suffering the same glut, race each other to partition the world. With each nation trying to grab the biggest slice, bitter competition and rivalry promote the possibility of war.
Needless to say, Hobson's indictment of capitalism hardly dented the official economic thought of his day. He was dismissed into the same backwater with Bastiat and Henry George. Yet, from one quarter there came a warm response. Lenin, a Russian exile, read Hobson's work and appropriated its thesis, augmenting it and wrapping it in a glittering package — Imperialism, the Highest Stage of Capitalism (1916).
The antithesis of Lenin, Hobson disdained communism; his book analyzed capitalism and imperialism through logic. Hobson avoided class favoritism and refrained from turning thesis into dogma. He was puzzled over periods of history when capitalism showed little interest in imperialism. Further, even though his thesis points to the likelihood of war, he did not maintain that imperialism inevitably leads to war.
On the other hand, Lenin declared that war was a certainty if capitalism and imperialism remained unchecked. He carried Marx's prediction of the doom of capitalism even further, showing that imperialism is the final stage in a downward spiral. For Lenin, imperialism is capitalism's death knell. Not only did Stalin share this view, but hard-line communists today still hold to its truth. During the height of the Cold War, Communist countries charged that all U.S. interest in underdeveloped countries was actually motivated by imperialistic designs, whether that interest was shown by private corporations or the Peace Corps.
The U.S. reply to this charge has been that foreign investment and foreign trade alone do not represent imperialism, for there must be political interference and economic exploitation to justify a claim of imperialism. In point of fact, American foreign policy results from a defense of ideology — to protect less sophisticated nations from the intrusions of socialism. The U.S. differentiates between profit and plunder, noting that the best example of a powerful country looting weaker nations is given by the Soviet Union itself, especially in the cases of Hungary and Afghanistan.
Another aspect to consider in the internationalization of capital is the fact that cheap goods manufactured in Hong Kong, Taiwan, Korea, or Mexico undersell similar products produced by the motherland. Such an intensification of competition ironically threatens American interests. The problem of imperialism has proven that it inevitably lashes back against the nation which created it.
Alfred Marshall (1842-1924)
Alfred Marshall, a refined academician and the most famous economist of the Victorian Age, was both accepted and respected for his Principles of Economics (1890), a tremendous success that is still used as a textbook. His thesis was equilibrium — the self-adjusting and self-correcting nature of economics; the foundation of his economics was the concept of time. For Marshall, there is a short period and a long period to consider. Both have to be weighed in answering the question of value. With diamonds, for example, in the short-run, it is demand which makes them expensive; in the long-run, it is the cost of production. To determine price, the economist must consider both supply and demand as equally important as two blades of a pair of scissors.
To Marshall, a remarkably compassionate scientist, economics was an engine for the discovery of truth concerning the cause and cure of poverty. He contrived an elaborate system of economics which delighted established thought and which satisfied business. Introductory economics courses in England and the U.S. incorporate his system. Even more important is the fact that his most brilliant pupil, John Maynard Keynes, made a large splash in the world of economic thought.
Yet, brilliant as Marshall was, nothing that he said went far enough. The time which he wrote about is an abstract. His economics, therefore, is a world of theory, and those theories are hopelessly unrelated to reality.
Imperialism refers to the extension of authority or control, either directly or indirectly, of one people over another. In this sense, imperialism is as old as history. During the early days of Western civilization, Greece and Rome furnished worthy examples. In modern times, the Age of Discovery ushered in a period when the nation-states of Europe raced to stake out colonies and to monopolize overseas trade. Portugal, Spain, Holland, France, and England formed a keen rivalry which provoked colonial wars in the early part of the eighteenth century and continued through the Napoleonic Era. Then interest weakened as the doctrine of laissez faire replaced that of mercantilism.
A new period of imperialism, referred to as new imperialism, or economic imperialism, took place from 1870-1914. This was Europe's golden age of imperialism, motivated by the effects of the Industrial Revolution and characterized by economic and political domination of underdeveloped nations. Western Europe, which controlled most of world finance, commerce, military might, and intellectual life, extended its power over the peoples of Asia and Africa. The entire continent of Africa was so partitioned that only two nations remained independent by 1944 — Ethiopia and Liberia. Asia was a fertile hunting ground for Europe, and vast but weak China soon became known as a "ripe melon." By 1914, some 283 million whites controlled over 900 million non-Europeans, mostly in Africa and Asia. This staking out of colonies led to bitter rivalry among European nations and was a strong factor leading to the outbreak of World War I.
The basic question raised by Hobson was whether this stage of imperialism is inseparably related to capitalism. In other words, do capitalism and imperialism naturally go together? Communists charge that they do. The U.S. and Western Europe say otherwise. Current developments today differ, for practically every form of imperialistic holding has reverted to the original owners. At the height of imperialism, five-sixths of the world was needy and defenseless. Today, the poor five-sixths are still impoverished, but they are independent and defiantly aggressive, as was evident in South Africa's struggle against apartheid. The formerly rich one-sixth is still rich, but on the defensive. The key question — and the reason for Hobson's importance to economics — is whether the defiantly aggressive majority will be swayed by Marxism.
The Victorian Age The period associated with the reign of Queen Victoria of Great Britain, 1837-1901.
Imperialism The extension of authority, or control, of one nation over another.
Economic Imperialism The economic and/or political domination of underdeveloped countries by powerful nations. The period between 1870 and 1914 is known as Europe's "Golden Age of Imperialism."