Evolution of Economic Philosophy: From Smith to Keynes
Adam Smith and Economic Liberalism
Scientists and philosophers have long sought to identify the characteristics of a natural order applicable to human thought and politics. Adam Smith posited that this natural order manifests as economic liberalism.
Key Principles of Adam Smith’s Economic Liberalism
- Inner Order (Small State): Smith advocated for a limited state with four primary functions:
- Defense
- Justice
- Foreign Policy
- Public Administration
- Outer Order (Free Trade): He argued for free trade, devoid of obstacles, which, if conditions for the natural order are met, would automatically lead to economic equilibrium.
Smith’s concept of the social good does not rely on a common good. Famously, he stated: “by pursuing his own interest, the individual promotes that of the society more effectually than when he really intends to promote it.” For Smith, society exists for man, and not vice versa.
Karl Marx: Critique of Capitalism and Dialectics
Karl Marx built upon concepts from Smith and Ricardo, adopting a strictly materialistic perspective that rejected other forms of reality. He viewed the prevailing state of affairs as exploitation of the rich over the poor, characterizing capitalism as an irrational and inhuman system. Marx believed that political revolution should be sought not merely in men’s brains, but in fundamental changes to the models of production.
Marx’s Vision of a Post-Capitalist Society
His analysis is rooted in a dialectic vision: historical circumstances (the thesis) confront an opposing project (the antithesis). From this friction, a mixed situation (the synthesis) emerges, verifiable through time, as neither side has full control or can prevent change. History, in Marx’s view, is accelerated by friction and confrontation.
The ultimate goal is a society without exploitation, where institutions like the state, family, and private property – which he argued perpetuate capitalism – would no longer be necessary. Marx’s Labor Theory of Value explains the injustices inherent in capitalism, demonstrating how capitalists exploit the fruits of others who participated in actual production, leading to evident abuses in commodity pricing.
Neoclassical Economics: Individualism and Market Focus
Neoclassical economics places the individual at its theoretical core, emphasizing powerful individualism. Society is analyzed from the perspective of the market, with different components of power. Neoclassical economists generally maintain a liberal position, advocating for less government intervention.
Core Characteristics of Neoclassical Thought
- Individualism: While central to neoclassical theory, the Church has often reiterated the importance of acting and reasoning with solidarity.
- Scientism and Positivism: This philosophical notion refuses to admit validity unless derived from the positive sciences, thereby relegating religion, ethics, and aesthetics. Now termed scientism, it often dismisses values as mere products of emotions. We are currently experiencing a new wave of positivism driven by technology, where valid knowledge is primarily found a posteriori.
- Utilitarianism: The best action is defined as the one that maximizes utility.
- Mechanism: Adopting Isaac Newton’s system as a model, pure science is seen as a method for achieving production and guiding human progress towards an undefined perfection.
John Maynard Keynes: State Intervention for Stability
John Maynard Keynes critically addressed the inefficiency of solutions proposed by the neoclassical model, advocating for a fundamental change in economic reasoning. He argued that the old liberal model was unable to solve the problems arising from the 1929 crisis and failed to meet society’s expected capacity.
Keynesian Solutions to Economic Crises
Keynes proposed an alternative: the action of the State should guarantee a minimum level of stability. This involved renouncing a central belief of classical economics – that the actions of social agents alone would resolve crises. Instead, he championed the socialization of investment as a means to generate employment.
His seminal work, The General Theory of Employment, Interest and Money, was published after the 1929 crisis, at a time when authoritarian regimes, rather than liberal economies, had demonstrated an ability to stabilize their economic situations. Reasoning for state action, particularly after World War II, is often justified today with Keynesian principles, though sometimes leading to what some consider excessive or doubtful interventionism.