Nine

When the historian Thomas Carlyle characterized economics as “dismal,” he was responding to the admirably specific predictions of Thomas Malthus, who in his 1798 Essay on the Principle of Population argued that human population growth was unsustainable. Malthus’s thesis was that a well-nourished population would grow geometrically (1, 2, 4, 8, 16…) while the cultivation of crops to feed all those new mouths, limited as it was to available land, could only grow linearly (1, 2, 3, 4…). A “gigantic inevitable famine” thus stalked the human future, concluded Malthus, who conceded that his prediction had “a melancholy hue.”

Needless to say, our planet still faces many economic problems. Nearly 900 million people struggle to get by on less than a dollar a day, while Europe and the United States spend more on pet food than it would cost to feed them all. The world’s three hundred richest individuals have more money than the entire bottom half of humankind, while the per capita GDP of wealthy countries like Luxembourg, Switzerland, and the United States runs to fifty times that of poor countries like Sierra Leone, Tanzania, and Congo. But there have also been remarkable gains. In the past quarter century, the number of people in the developing world living on less than a dollar a day has been cut almost in half—down from nearly 1.5 billion to 900 million between 1981 and 2008, despite a simultaneous increase in world population—and the proportion of the world’s population living on under two dollars a day was halved between 1983 to 2003, although by 2009 a global slump had begun eating into some of those gains.

Confronted with this dynamic, it is important to understand not only what went wrong but what is going right. To continue to reduce hunger we need to identify its causes (they include civil war, bad government, and bad roads) rather than just feeling guilty about it or blaming the rich. (Soaking the rich to aid the poor wouldn’t work. If the entire wealth of all the world’s millionaires were confiscated and doled out to everybody else, the one-time giveaway would yield each person less than a year’s wages, while the global economy sank into depression for want of investment.) Until recently, science was of only marginal help in understanding such processes, involving as they do billions of people living in many different cultures. But the much-maligned science of economics has now begun to have a substantial impact. Indeed, economics has done so much to analyze problems and identify remedies that it may one day be ranked with the agricultural and medical sciences when it comes to saving lives and improving their quality.

To appreciate the dimensions of the change, consider how our predecessors thought about wealth and poverty before economics came along.

For nearly a thousand years after the fall of Rome, Europe was poor and stayed poor. It was a time, in the words of the historian William Manchester, of “incessant warfare, corruption, lawlessness, obsession with strange myths, and an almost impenetrable mindlessness,” a time when societies typically were “anarchic, formless, and appallingly unjust.” Per capita GDP long remained flat, at less than five hundred dollars per person per annum, and when it finally started to grow did so very slowly, by perhaps a tenth of 1 percent annually from around AD 1000 to 1600. (The American economist J. Bradford DeLong estimates that it took twelve thousand years for humanity worldwide to rise from the $90 annual “income” of the ancient hunter-gatherer to $180 by 1750. Thereafter it climbed to a global average of over $7,000 today.) Crop failures brought famine one year in four, and even in good years only the most prosperous farmers harvested enough grain to keep their families fed until much past Easter, whereupon many were reduced to foraging for herbs and roots. Malnutrition was so persistent that in the eighteenth century, when the Brothers Grimm set about collecting old fairy tales, they encountered hauntingly recurrent themes of people going hungry and happy endings in which the hero or heroine for once has enough to eat. The median life expectancy of Europeans overall was thirty years of age; that of females, who were apt to die in childbirth, only twenty-four. Ignorance was ubiquitous: Few could read, write, do sums, or recount the history of the hamlet in which they were born and were likely to die. Innovation was almost unheard of. Waterwheels, introduced in the 800s, and windmills, which appeared in the 1100s, were the only two medieval inventions of any consequence. As Manchester describes the prevailing mindset, “The Church was indivisible, the afterlife a certainty; all knowledge was already known. And nothing would ever change.” Europeans were not only unaware of any prospect of improvement, “They were convinced that such a phenomenon could not exist.”

This long economic ice age began to thaw—spottily, with the Italian Renaissance and the rise of the Dutch Republic, then more widely by the eighteenth century—thanks to four principal innovations: readier access to capital, once religious prohibitions against moneylending were relaxed; the growth of human rights and the rule of law; improved communications and transportation (beginning with the advent of reliable steamships in the early nineteenth century and competitive land transport a half century later); and the rise of science, which demonstrated how people could, as Descartes had dreamed, become “masters and possessors of nature.”

Encouraged by Bacon and other prophets of scientific progress, a few creative agrarians began experimenting. These “improving” farmers tried crop rotation, seed selection, and new tools that made farming less labor-intensive, freeing young men and women to try their hand at trades and factory work. Technological innovations and job specialization gradually amplified the productivity of the swelling industrial labor force until a growing class of merchants, capitalists, and tradesmen began to attain real wealth. The English “gentleman” whose cultivated manner, elegantly understated dress, and tasteful country house are still being imitated today belonged not to the aristocracy but to the gentry.

When British weavers’ guilds protested to the king about competition from an innovative, mass-production wool factory, the factory was shuttered and its operating techniques outlawed. Sixteen thousand people were executed—many of them hanged, others broken on the wheel—in France in 1666 for unauthorized trading in imported calicoes. Clerics complained that a lust for gold was sullying their parishioners’ love of God. “This new unwanted society,” writes the historian Robert L. Heilbroner, was “at every step…misconceived, feared, and fought. The market system with its essential components of land, labor, and capital was thus born in agony—an agony that began in the thirteenth century and had not run its course until well into the nineteenth.”

Yet free-market capitalism survived and grew, as an acquired taste for profits, personal freedoms, and the material benefits of scientific and technological innovation spread from Europe to America and beyond. The capsizing of the old order called for new insights: “There is nothing,” wrote Samuel Johnson, “which requires more to be illustrated by philosophy than trade does.” Johnson had not expected such a work to be produced by Adam Smith—whose interests were primarily scientific, who had no personal experience in business, and whom Johnson thought “as dull a dog as he had ever met”—but it was Smith’s Wealth of Nations that began to make sense of it all.

Smith was a deeply preoccupied character, whose many peculiarities have tempted biographers to portray him as a figure of Newtonian eccentricity. Given to shy silence in social settings, he mumbled to himself in public; walked with a strange, rolling gait; and dictated drafts of Wealth while rubbing his head against a particular spot on the wall of his study, symptoms which suggest to doctors today that Smith suffered from Tourette’s syndrome or Parkinson’s disease. He lectured without notes, in a tangled syntax that made him hard to follow, but his students adored him, James Boswell went out of his way to hear him speak, and his colleagues at Glasgow praised “his happy talent of throwing light upon the most abstract subjects [and] his assiduity in communicating useful knowledge,” calling him “a source of enjoyment as well as of sound instruction.” Nor did his oddities prevent his forming lasting friendships, notably with the philosopher David Hume—himself a critic of the prevailing economic philosophy who had pointed out that hoarding gold only inflated its price. The diffident Smith and the coolly acerbic Hume talked, corresponded, and critiqued each other’s manuscripts for more than thirty years. Upon reading the manuscript of Smith’s Wealth, Hume predicted that it would “fix the attention of public opinion.”

That it certainly did. Smith’s Wealth of Nations may be the one book between Newton’s Principia and Darwin’s Origin of Species that actually, substantially, and almost immediately started improving the quality of human life and thought. Despite its considerable length—380,000 words, more than twice that of the New Testament—Wealth was widely consulted, going through five editions in fifteen years. The prime minister, Lord North, took Smith’s ideas to heart when drafting the British budgets of 1777 and 1778. William Pitt, one of the most powerful figures in the government, is said to have told Smith, “We are all your scholars.”

Smith’s influence has continued to grow across the centuries, but precisely because the liberal-democratic, scientific nations of the twenty-first century evince so much of his program, detailed accounts of it tends to strike us as largely self-evident—as is the case for Newton and Darwin. Nevertheless it may be useful to briefly recount his major findings.

Smith’s approach to economics, if insufficiently quantitative to pass muster today, was scientific in at least three respects. First, Smith was more interested in understanding human affairs as they are than in urging how they ideally ought to be; he sought to establish what is before prescribing what should be. This set him apart from the moralizing and sentimental bent of many prior philosophers, among whom he counted even the rationalistic Descartes. (Smith remarked that the Cartesian philosophy “does not perhaps contain a word of truth,” dismissing it as “one of the most entertaining romances that have ever been wrote.”) He was equally critical of ancient philosophers like Cicero and Seneca, whom he assailed for treating the works of Greek mathematicians and astronomers with “supercilious and ignorant contempt.” This opinion was not unprecedented—Bernard Mandeville too attacked what he called the “sentimental moralists”—but it was sufficiently original that Smith to this day is criticized as amoral or even immoral for refusing to imagine that he could improve people by preaching to them in print. Second, Smith stressed quantitative analysis whenever possible—seeking, as William Petty had put it in his Political Arithmetic of 1690, to “express myself in terms of number, weight, or measure; to use only arguments of sense, and to consider only such causes as have visible foundations in nature” rather than resorting to “superlative words and intellectual arguments.” Third, Smith’s approach was empirical. Rather than reasoning from first principles, as Descartes did, or from pleasing fantasies à la Rousseau, he based his arguments on dispassionate observations of the real world. Wealth is crammed with examples of how bakers, spinners, weavers, rice planters, coal miners, shipbuilders, herring fishermen, masons, bricklayers, clockmakers, road builders, goldsmiths, and landlords actually conduct their affairs.

The eighteenth century being a period of bustling inventiveness, Smith was able to find many examples of how innovations improve the quantity and quality of consumer goods. To make his case as simply as possible he opened Wealth with a very basic example, the division of labor in the manufacture of pins. Smith relates that he visited a small pin manufactory and found that it took “about eighteen distinct operations” to make a pin: “One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top,” etc. Thanks to this division of labor, ten workers could make almost five thousand pins a day; without it, “they certainly could not each of them have made twenty, perhaps not one pin in a day.” Another source of more efficient production was, of course, machinery—“beautiful machines,” Smith exclaims, “which facilitate and abridge labor, and enable one man to do the work of many”—none but the most rudimentary of which could be fashioned without divisions of labor. Writing, money, and financial ledgers were other examples of inventions that increase wealth. Inventions could arise almost anywhere, Smith noting that even children had invented useful devices. “It was probably a farmer who made the original plough,” he muses, and “some miserable slave…grinding corn between two stones, probably first found out the method of supporting the upper stone with a spindle. A millwright perhaps found out the way of turning the spindle with the hand; but he who contrived that the outer wheel should go by water was a philosopher”—that is, a scientist—“whose business it is to do nothing, but observe everything.” There was almost no limit to the potential economic growth of a nation whose people were free to exercise their creativity and to profit from it.