Economic growth is a fluid and unpredictable process – over the course of human history, people have attempted to predict its ebb and flow with varying results. From the early economists (Plato) to those attempting to determine the future direction of today’s economies (Keynes), there are many economic theories and thoughts that have cropped up over the years. These economists and philosophers have dealt with the specific economic problems of their time, addressing the concerns as they saw them then, and proposing radical new solutions according to how they imagined economies should run. As societies have changed, so have the way economies need to be dealt with and addressed; all the same, many of these principles, even the older ones, hold some sway even to this day. In this essay, the major economic theories of Plato, David Ricardo and Maynard Keynes are examined, as well as how they may apply to today’s economies.
The concept of economic growth was first started by Plato, as an indicator of how to expand an existing government to get the most out of its economy. Plato’s first notions of economy were closely tied with philosophy – he saw economy first and foremost as a component of a society, not as its own individual unit of governance. In his eyes, the government needed economy and vice versa; Plato saw fit to make sure that economics was conducted in an ethical manner, making sure that the whole of the populace was given everything they needed to succeed, thus making Greece the powerful nation it became at the time.
Plato was a huge proponent of the division of labor – as a state’s population has a great variety of needs that must be fulfilled, the population of these states must perform certain duties. “Well then, how will our state supply these needs? It will need a farmer, a builder, and a weaver, and also, I think, a shoemaker and one or two others to provide for our bodily needs. So that the minimum state would consist of four or five men…” (Plato, p. 103). It was Plato’s thought that everyone needed to serve the state, particularly in an economic and labor-based manner. As a result, everyone could contribute to everyone else’s good fortune, making the state of Greece much stronger as a result. The people would be given what they needed, and thus would work harder to achieve Greece’s goals.
Plato, in this instance, speaks to a very specific idea of how goods should be created and delivered to the people. In his thoughts, there is a natural inequality of humanity, wherein some people do some jobs and some do others. Industries then create specializations, where people are very skilled at one specific task, making them invaluable workers for the creation of a certain product, or the performance of a service. With labor divided into industries or disciplines, a person only needs to become good at one thing, and provide it to the rest of the population. When this is accomplished, everyone provides a certain product or service to everyone else, seeing to it that everyone’s needs are met. As a result, a sustainable economy presents itself, where everyone is useful in some industry or another, and no one needs to be a jack of all trades. In fact, a jack of all trades would not flourish in a division of labor-based economy, as everyone involved would be more skilled in any of these trades than he.
Plato’s Republic is often viewed more as a set of guidelines than a practical ideal for good governing, but there are quite a few principles that carry over even to this day. Political causes and effects are made very clear in the work, as Plato denotes the economic consequences of political actions, such as alliances and following certain leaders. The allegory of the cave is a particularly potent one, in which the members of a community are depicted as people chained to a cave, never seeing the light. A leader or philosopher is depicted as the person who sees the true reality of the shapes that the others merely see as shadows, never understanding their true form. Thus is true of economies as well; economists are the only ones who truly see the ins and outs of the way their economy works – they must be trusted to run the economy in the government’s stead. Governments and economies are inexorably linked, economies dictating the power and resources the government can bring to bear, and as such those who can control the economy can wield significant power over the government.
David Ricardo was an economist who developed the theory of comparative advantage. According to this theory, two countries with different economies can produce goods at different prices. It might be more advantageous for a company to produce extra of a particular good, and export it to other countries who find it harder to produce that good, in order to earn more money. This way, certain goods are only made in the countries where it is easiest to produce them – the comparative advantage is to, for example, Portugal, where it would be easiest to make wine and cloth. They could then make more of it, and make more money by exporting it to England, for example, in order to make the most amount of money. In this analogy, England would benefit from getting more wine and cloth without having to spare the toil of making it, which would be more than Portugal would have to go through. In exchange, England would pay more for importing this good, and/or could possibly offer Portugal something in exchange that is easier for them to produce. In essence, comparative advantage comes from the idea that some countries and governments are better at doing things than others, and trade is the best way in which everyone can get everything they want. It is the concept of division of labor writ large, on a national scale.
David Ricardo had a great many more things to say about comparative advantage, especially where they fit amongst corn laws of the time in Great Britain. At the time, the Importation Acts of 1815 and 1846 introduced the Corn Laws, wherein foreign imports of corn and grains were abolished and prevented from importation in order to increase the sale of domestic corn. As it was cheaper to import foreign corn and wheat, this had become the primary means of getting it, however, the British government did not like that, as it prevented the domestic corn industry from growing. Thus, the Corn Laws were born (Griffin, 2009).
Ricardo saw this as a direct opposition to the philosophy of comparative advantage, and as a result spoke against it. According to him, free trade was the answer, allowing Britain to import goods that other countries could make cheaper (corn, wheat, etc.) in order to save money and reserve room for goods it could make more affordably for export on its own terms. Comparative advantage would not function in the presence of the Corn Laws, and as such they needed to be repealed. They were eventually repealed in 1849, after significant opposition from a large number of economists and businessmen, including Ricardo himself (Griffin, 2009).
In essence, Ricardo believed in the tenets of free trade – that everyone had something that someone else wanted, and that the world as a whole could benefit from this trade. People only had to then focus on the things that were easy to make, that they could specialize in – their comparative advantage. An absolute advantage (an economy where a country could feasibly and uniformly make everything it needed) is a rare thing, and as a result cooperation between economies is required in order to have a complete and effective economy. This was Ricardo’s primary belief, and it spoke greatly to the possibility of a global economy, as it stands today.
Maynard Keynes is a modern economist who has carried the notions of economic growth forward to the modern day. According to Keynesian economics, modern economies often shoot themselves in the foot by performing small, deliberate errors in order to further the individual aims of certain people operating within it. A general glut of goods would occur when there would be too much of a certain type of good, more than was demanded – as a result, the economy would experience a downturn, making for higher unemployment and turning people out of jobs they did not need. After all, if too much of a thing is made, there is no call for making more unless what has been made has been sold.
In essence, Keynes’ economics came out of a fear of the unknown, and the future in particular; a future where people were freer to create automatic economies that would run with little oversight or thought to longevity. Efficiency needed to be brought into the modern economic scheme, and Keynes sought to do that himself, with his theories of Keynesian economics. Many of his worries revolved around unemployment and currency instability – he did not want the dollar to go under, as he saw that as the death knell of the American economy. As a result, he turned to a reduction of the quality of life for the American people for the short-term, in order to equalize the economy into evening out their spending in the face of economic depression (Skidelsky, 1983).
His notions on economic crises have been instrumental in getting the modern economy to where it is today. During the Great Depression, he came to prominence by decreeing that “inducement to invest” was the way out of the current trouble; interest rates needed to be reduced and government needed to invest in economic infrastructure – only then would the appropriate amount of income be inserted to dig the United States economy out of the rut it was in at the time. Keynes wished to avoid having too much government control, and instead wished to ask for a minimum amount of help with the issues of the Great Depression. “The authoritarian state systems of today seek to solve the problem of unemployment at the expense of efficiency and freedom. It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated – and in my opinion, inevitable associated – with present day capitalistic individualism. But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom” (Keynes, 1936).
In essence, what Keynes did was concentrate on “institutional obstacles which prevented the adjustments called for by classical theory”; namely, tightly wound interest rates and wage costs that kept the working force and those in debt from finding a way to better their own means (Skidelsky, p. 17). They would work at the same level of pay or keep the same high interest rates day after day, and this led to overly high interest rates that could never be paid down. As a result, Keynes felt that government influence needed to come to bear in this special case, in order to regulate businesses and lower their overhead, as well as increase worker’s welfare and lower unemployment to acceptable levels.
One of Keynes’ more famous defenses of his definition of economic growth came when he was challenged to a debate with Friedrich Hayek, an Austrian economist who believed that Keynesian economics were inherently flawed. According to Hayek, they were reckless and dangerous, discouraging reliable capital investment and encouraging business cycles, which makes economies more inclusive. This would leave a great deal of the private sector out of the loop, as many of Keynes’ suggestions would involve government involvement in the economy. This can create systems of governmental control that may never go away, thus shooting the economy forever in the foot. This creates a microeconomy that is primarily controlled by the government, taking it out of the hands of private citizens and businesses.
In conclusion, the idea of economic growth has gone through many permutations, and has evolved over centuries to bring itself to its modern iteration. In Plato’s world, economy was closely tied to philosophy, wherein people needed economists to see them through the uncertain nature of how their business world worked. Then, Ricardo sought to fight for equality and simplicity in the world economy, seeking to find the path of least resistance for getting the goods an economy needed, even if that meant looking elsewhere. Lastly, Keynes sought to solve economic crises by strengthening the economy through government control and oversight, taking control out of the hands of ostensibly greedy businessmen, who would take the profits for themselves any way they can. Despite this being a potentially stifling prospect for private economies, it managed to drag the American economy out of the Great Depression.
With these things in mind, the future of economic growth is open to many possibilities. A Keynesian system can continue unabated, as it has since the 1930s, or a new way of working the economy could come about from the ashes of the economic recession of 2008. With so many clear instances of executives lining their pockets while not paying taxes and receiving government bailouts, perhaps it is time for a change from Keynesian economics, and a return of some of Plato’s more equitable and philosophical ideas of economy, where the economy is meant to serve the people, and everyone is meant to divide labor equally amongst each other. However, it would take an economic shift of substantial power and influence in order to derail such an institutionalized and cannibalistic economic system, as there is already too much money and power invested in the existing system to make these kinds of significant changes.
Evers, Williamson. "Specialization and the Division of Labor in the Social Thought of Plato and Rousseau." Journal of Libertarian Studies 4, no. 1 (1980): 45-64.
Griffin, Carl. "Placing political economy: organising opposition to free trade before the abolition of the Corn Laws." Transactions of the Institute of British Geographers 34, no. 4 (2009): 489-505.
Keynes, John Maynard. The general theory of employment, interest and money . New York: Harcourt, Brace, 1936.
Plato. The Republic. London: Hodder Murray, 2007.
Skidelsky, Robert. "THE ECONOMIST AS PRINCE: J.M KEYNES." History Today 33, no. 7 (1983): 11.