Reflections on Economic Theory


Economic theory is intimately bound up in how the poor are perceived and treated. Thomas Malthus published his hugely influential Essay on the Principal of Population in 1798. It went through a number of reprints and revisions but basically suggested that an increase in population must result in an increase in suffering of the poor via a depression in wages and decrease in food production. The book had a direct influence on how government treated the poor: famously, Pitt the Younger withdrew his bill for the extension of Poor Relief, something that Malthus advocated. Malthus was criticised for only applying his principals of reducing birth rates to the poor and, by extension, being uncaring of the poor. He replied:

I have written a chapter expressly on the practical direction of our charity; and in detached passages elsewhere have paid a just tribute to the exalted virtue of benevolence. To those who have read these parts of my work, and have attended to the general tone and spirit of the whole, I willingly appeal, if they are but tolerably candid, against these charges … which intimate that I would root out the virtues of charity and benevolence without regard to the exaltation which they bestow on the moral dignity of our nature…. (p. 607)

Malthus is clear that individual charity is necessary but doesn’t retract his stance that the population of the poor must be checked if the entire population is not to suffer starvation. Victorian responses, heavily influenced by Malthus, to poverty are well recorded by authors like Dickens. Scrooge in A Christmas Carol speaks for the general consensus:
Are there no prisons? And the Union workhouses? Are they still in operation? The Treadmill and the Poor Law are in full vigour, then? I was afraid, that something had occurred to stop them in their useful course. If [their occupants] would rather die they had better do it, and decrease the surplus population.

The pre-Christmas Scrooge is a Hard Working Tax Payer who feels he personally pays for the prisons and workhouses and so believes that he has done all he should for the poor.

The Industrial Revolution occurred around the same time as a further increase in farm size and a resulting decrease in numbers of farm workers. There were fewer jobs in rural areas but a massive increase in industrial jobs. Housing was at a premium and the simple economics of this situation resulted in huge areas of slums. Factories swallowed men, women and children at subsistence wages and with no employment rights.  Abject destitution, starvation and disease flourished.

Adam Smith is best known for his Wealth of Nations, an economic model that has been interpreted in various ways. Before Wealth came a paper on the Theory of Moral Sentiments which seems to go against the popular concept of of Utility (The greatest pleasure for the greatest number) to suggest that:

The ability to appreciate other people’s agony is achieved by the same parts of the brain that we use to experience pain for ourselves.  (Chapter 1)

Smith describes empathy in a curious, if unknowing, precognition of modern neuroscience.

He also famously advocates the free market. It’s well worth reading his work and commentaries on it, since his work has been ill-interpreted to suit political agendas. He absolutely does not promote a ravenous form of free market in which the sole aim is for the individual to become as rich as possible as quickly as possible without any concern for the consequences. Smith was deeply concerned with poverty.

. . . poverty, though it does not prevent the generation, is extremely unfavourable to the rearing of children… It is not uncommon… in the Highlands of Scotland for a mother who has borne twenty children not to have two alive… In some places one half the children born die before they are four years of age; in many places before they are seven; and in almost all places before they are nine or ten. This great mortality, however, will every where be found chiefly among the children of the common people, who cannot afford to tend them with the same care as those of better station.
1:8 para 37.

Charity, that is, the sympathetic involvement of the individual who is better off in the lives of the less well off, is a central aspect of his economic theory. Whilst individual charity was a central part of his own life and one that he advocated he also understood that

Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.
part 6, section 2, chap. 3, para. 18

He suggested, therefore, that the nation should also use its wealth to provide public works and in support of vulnerable groups.

He was also very suspicious of corporations, which manipulated huge amounts of what he called ‘Other people’s money.’

The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private company frequently watch over their own…. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

Ruling groups, whether monarchy or government, have to be seen to be addressing popular political issues and are not obliged to rely on facts. We see it in our own time, with asylum seekers and a debate about unemployment that is more propaganda than rhetoric. In the 1970’s when jobs in industry and manufacturing were decimated it was important for the unemployment figures to be reduced by almost any means necessary and a large number of the long-term unemployed were put onto sickness benefit. Today, we see the unemployed vilified, even though we know that there are far fewer jobs than people seeking employment. A Hard Working Tax Payer today is a Scrounger and a Shirker tomorrow. He doesn’t need any change in attitude, just for his employer to make cuts or for him to become ill.


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