Is the economy a rationalist discipline or an empiricist discipline?

The answer to that question is important because it might contribute to a better comprehension of the current economic reality

Index

1. Overview
2. Premise
3. Development of the thesis
4. Objective
5. The rationalist influence on the economy
6. The orthodoxy rationalist
7. Theory and practice
8. Historic antecedents
9. Conclusions

1. Overview

To understanding the behavior of the economy it is necessary to take in account the philosophical, political, social and religious evolution of the world, because to see in isolated form the economic affairs is not enough.

Of the consideration of those facts arise three interesting questions:

Is the economy a rationalist discipline or an empiricist discipline?

How has been the evolution of the economic concepts?

Are just and right the measures of austerity that limit the economic growth?

2. Premise

I think that the current economic crisis is a consequence of the rationalist posture of the leaders of the most important nations, which continue attached to rationalist concepts and do not take in account the true reality. A typical concept of the rationalist logic is, for example, the concept of the budget balance, in other words, that the public spending should not be superior to the income and, in consequence, that must be avoided the deficit in the public finances.  The strict application of this concept is the cause of the economic crisis in Europe, because the troika composed by the European Central Bank, the European Union and the International Monetary Fund are requesting to the countries a deficit not superior to 3% of the GDP for the coming years. The problem is that the troika does not consider a logic and true fact: if the countries are suffering a deficit it is because their economies grew or are growing and this fact is something positive and not something negative. The solution, then, must not be to reduce the public spending but to increase it for attending the needs of the economy. The governments have the freedom for to increase the public spending of their countries. But the rationalist, orthodox position does not let this. And that conceptual inflexibility is the cause of the crisis. The solution is to change the way of thinking and to consider the deficit in its just dimension: the deficit reveals that exists a process of economic growth and this is something good; the deficit, per se, it is not bad. Only it is necessary to adjust the financial means to the real needs of the economy, it mean, to print more money; that is the empiricist, practice and logic answer.

The world population has the right to a better life. The measures of austerity are an injustice. It is true that the pattern of population growth and consumption of natural resources followed until now is unsustainable; but the answer to those challenges should not be the economic restriction, because it generates unemployment and poverty, even in the industrialized nations.

For the year 2011 the world population was estimated in 7,000 millions of inhabitants.

Therefore it is necessary to create a new model of development that consider the need of reducing the population growth rate, the natural resources scarcity, especially the scarcity of water and petroleum and to keep the few forests that still survive in the world, like the Amazonia.

The problem is that some leaders are more worried about the money of budgets than of the true problems that threat the humanity survival at mid and long term.

3. Development of the thesis

The economic practice preceded the study of the economic ideas. Man was first harvester, hunter, fisherman, organized the society, discovered agriculture,  construction,  ceramics, metals, commerce, created the tools, created a mean of interchange, first of all the barter and after the currency and many centuries later began to study why, for what and how does the economy work. In the Antiquity, the Greek’s philosophers gave the first steps; later, in the Middle Age, highlighted figures as Saint Thomas of Aquino and the Scholastics and also the priest Nicholas Oresme, but it was since the 16^th century, in the Modern Age, when really the economy began to be studied formally as intellectual discipline.

The reality as a whole and the economic reality specifically, that encompasses the human work, production and distribution of the fruits of that work existed and exist independently of man thinking.  There is not an absolute identity between the economic reality and the economic thought. The identity between the economic reality and the economic thinking, it means, between theory and practice is relative; theory and practice not ever coincide.

The economic reality is empiricist; it exists in all the societies, since the most primitive to the most advanced. What is different in the reality is the method of study; the method to understanding the reality. That led to the philosophers to make a distinction between Rationalism and Empiricist. Rene Descartes (1595-1650), the father of Rationalism, in its essay Rules for the Direction of the Mind (1684), published posthumously, said that the discovery of the appropriate method is the key for the advance of science.

Rationalism assures that knowledge come from the ideas. Empiricism argues the contrary thesis; it means that knowledge comes from practice. But exists a dialectic synthesis between those opposite that is the Intellectualism, which estimates that knowledge come from the conjunction between ideas and practice. Intellectualism represents an advance toward the epistemological truth because the true knowledge cannot be absolutely rationalist or absolutely empiricist. The true knowledge has a support in theory and practice together but not in one or other as exclusive.

We cannot obtain a vision of the economic thought evolution without consider, moreover, the influence of the great philosophers in the ontological, epistemological, political and social fields. Those elements constituted the determinant factor of the later economic thought development. Hence, it is necessary to underline the contribution of the philosophers of the Antique, Middle and Modern Ages, among them, Xenophon (430-355b.C), Plato (427-347 b.C), Aristotle (384-322 b.C), Saint Augustine (354-430), Saint Thomas of Aquino (1225-1274) and the Scholastics, Francis Bacon (1561-1626), Thomas Hobbes (1588-1679), Rene Descartes (1595-1650), jean B. Colbert (1619-1683), John Locke (1632-1704), Baruch Spinoza (1632-1677), Gottfried Leibniz (1646-1716), George Berkeley (1685-1753), Francis Hutcheson (1694-1746) y David Hume (1711-1776).

Really should not be attributed to one thinker or to a specific group of thinkers the paternity of the economic studies; the economy evolved in the time and many thinkers made its contribution, among them the following:

a)      Nicholas Oresme (1320-1382), who is considered the founder of the studies of monetary economics by his book Treatise on the Origin, Nature, Law and Alterations of Money (1360);

b)      The businessman Thomas Mun (1571-1641), founder of the economy,  by his book England’s Treasure by Forraign Trade (1664), published posthumously,  in which realize a broad work that encompass his concept on wealth, monetary theory, trade balance, financial capital, doctrine of the work export, theory of prices, theory of the internal distribution of cash, among other aspects. Mun is the most important exponent of Mercantilism, doctrine which considered the preeminence of the government in the direction of the economic affairs of society. Mercantilism postulated that the main wealth of nations was gold and silver. They created the concept of trade balance and considered that a positive balance was the other component of the wealth of nations. In its study about the Mun’s work, the researcher E.A. J. Johnson wrote the following: “It is in extreme singular the impressive similarity in the organization of the Mun’s book and the Wealth of Nations of Adam Smith.” This book of Smith was published in 1776, 112 years later; therefore may be considered the influence of Mun.

c)      William Petty (1623-1687), founder of the economy, who contradicted the mercantilists postulates and assured that the intervention of the government in the economy cause negative effects; Petty thought that for the comprehension of the economy it is necessary to measure their principal elements and therefore he wrote his famous book Political Arithmetic (1676) published posthumously.

d)      Richard Cantillon (1680-1734), who wrote a pioneer economical work, Essay on the Nature of Trade in General (1755). Founder of the economy, the work of Cantillon encompass important issues like his vision on wealth, price, value and interest, money circulation, the increase and diminution of cash in a country, the demographic situation, foreign trade and the utility of a national bank, among other important ideas. Cantillion coincided with the mercantilists in the importance of gold and silver like a cause of wealth and coincided also with the physiocrats in the idea that earth is the principal source of the wealth of nations.

e)      Francoise Quesnay (1694-1774), founder of the Physiocratic School by his book Tableau Economique (1758). The physiocrats considered that agriculture was the source of the wealth of nations. The Physiocratic School is considered like the first school of economic thought, which adopted the concept created by Vincent de Gournay (1727-1739, laissez faire et laissez passer, that became later in one of the basic ideas of the Economic Liberalism.

f)       Petty and Quesnay, in different epochs, combined the practice observation of the economic reality with their practical knowledge’s of physiology and anatomy and deduced that the economy works like the human body.

g)       Anne Robert Jacques Turgot (1721-1781) is the most distinguished figure of the Physiocracy after Quesnay. His book, Reflections on the Formation and Distribution of Wealth (1776) and its philosophical works on the evolution of knowledge occupy an important place in the economic thought history.

h)      Antoine Montchréstien, who employ for first time the concept of political economy in his book Treatise of Political Economy (1868).

i)        Precursors of the Economic Liberalism: Jean Bodin (1530-1596), by his book The Six Books of the State (1576) where made a hard defense of the private property. William Petty, Francoise Quesnay and Richard Cantillon were, moreover, the pioneers of the liberal ideas in the economy, ideas that would develop later Adam Smith (1723-1790). Petty and Quesnay considered that the economy must enjoy of the same freedom that exist in processes of nature. Both made opposition to the economic controls that in that time imposed the dominant doctrine of the epoch, Mercantilism. Cantillon was also an intellectual of liberal ideas, as was confirmed by W. Stanley Jevons in his Essay entitled Richard Cantillon and the Nationality of Political Economy. Other precursor was Thomas Hobbes (1588-1679)) and his work Leviathan (1651).

4. Objective

The purpose of this thesis is to demonstrate:

a)      That the first developments of the economic thought in the Antiquity, in the Middle Age and in the 18^th century had a rationalist origin essentially. The first economists Saint Thomas of Aquino, Nicholas Oresme, Thomas Mun, William Petty, Antoine Montchréstien y Francoise Quesnay, among others, created the theorist base of the modern economy. Some of them, like William Petty and Francoise Quesnay employed mathematics to support their ideas and, so, they developed a new method for the study of the economy. Its contribution was essentially a methodological contribution; they taught how to apply the mathematical calculation, the mathematical logic and the statistics to the study of the economic phenomenon. The economists of the Classic School, Adam Smith, Thomas Malthus, David Ricardo, Jean Baptiste Say, John Stuart Mill and Karl Marx employed also the rationalist method. But two of them, Adam Smith and Karl Marx made a most advance and used, moreover, the Intellectualist method, it means, the combination of the theory and economic practice. That is the main cause of the big influence of the Smith’s and Marx’s theories.

It is necessary to underline that while the economy was advancing in the time toward the 20^th century, the economic thought followed its traditional rationalist trend. Three facts confirm this appreciation: a) the separation, in the 20^th century, of the politics of the economy and its conversion in an ascetic discipline with concepts and proper method, b) the attachment to the rationalist orthodox logic and the incapacity for accepting that other solutions are possible. They were some of the main causes of the economic problems of the 20^th century and they are the cause of the current problems, because the economy has ignored that its mission should be the wellbeing of the entire humanity and not only the wellbeing of a minority. The poverty of the most part of the world population is a clear demonstration of that injustice.

For the economy of the 20^th and 21^st century the most important is the numbers and not the people’s wellbeing. For reaching that objective, during the year 2011, in Europe, the governments reduced the salaries of the workers, the pensions, restricted the public spending in education, health and other public services, generating a big unemployment, because for the rationalists rulers the most important is the budget balance, an orthodox concept that really is not useful in the reality of the life. It is only a useless concept.

b)      That the economic thought had its most evolution between the centuries 16^th and 19^th. The two political-economic doctrines that have dominated the world, Capitalism and Communism/Socialism, arose between those centuries. In the 20^th century the economic thought had a limited development compared with the past, though the number of economists and works might be superior. The exception of the 20^th century is the great influence of John Maynard Keynes, which theories impacted the world economy. In opposition to the Keynes’s postulates, since the 70s years of the 20^th century appeared the work of Milton Friedman (1912-2006) and the Chicago Boys, which Neoliberal conception exerted other important influence at global level, because it was adopted as political policy by the governments of England and the United States and imposed to the rest of the world through the International Monetary Fund and the World Bank. Keynes and Friedman, then, are the most emblematic economists of the 20^th century by the practical influence of their theories.

c)      That the paternity of the economy cannot be attributed only to Adam Smith (1723-1790), because as it was commented in previous paragraphs, before Smith other philosophers made important contributions to the study of the economy and to the liberal idea.

d)      In the opposite philosophical field, it means, in the Communist/Socialist field, occurred something similar. The historians attribute to Karl Marx the foundation of the Scientific Socialism, but before Marx other socialists thinkers made important works, among them, Francoise Babeuf (1706-1797), J.J. Rousseau (1712-1778), William Godwin (1756-1836), Henri Saint-Simon (1760-1825), Robert Owen (1771-1858), Charles Fourier (1772-1837), Pierre Proudhon (1809-1865) y Louis Blanc (1811-1882).

5. The Rationalist influence in the economy

Some important economic concepts do not exist in the reality. Important economic concepts are those that exert direct influence over many people in the entire world, like the concept of free market and perfect competition, base of the Economic Liberalism. But the free market and perfect competition are only ideas, something inexistent in the reality. This inconsistence between ideas and reality does not occur in the natural sciences, because the natural sciences postulates coincide clearly with the facts: hot causes objects to expand, the Earth rotation is each 24 hours, anatomy study the structure of human body, etc, and all those ideas are perfectly verifiable;  but the laws of economy no. The laws of economy are not exact neither inexorable. The laws of market, supply and demand, are ignored by the economic agents; for example, when in a market a product reach a level of overproduction the speculators eliminate the overproduction and provoke scarcity to maintaining or to increase the prices; so that the market do not work according to laws. The market is a chaos generated and used by the economic agents for its own benefit. You can ignore the laws of market but you cannot impede the laws of nature. That is the basic difference between the natural sciences and disciplines like the economy. The economy is not a science by a simple reason: because their postulates are not permanent neither verifiable true’s. The economy is a subordinated discipline of the politics, because in all the nations the economic decisions, it means, the economic policy, is decided by the politicians and the governments in base to political concepts essentially.

Other concepts like wealth, value and price have different interpretations. What is wealth? What is value? What is price? The answers to each one of those questions can be different, which set in evidence that they are relative concepts.

Forms of production apparently disappeared, like the slavery, still exist and constitute the base of the economy in many nations in plenty 21^st century, for example in China and other regions of Asia, Africa and America. It also happen in the industrialized nations, where a part of the own population and the illegal immigrants are maintained in conditions of slavery.

6. The rationalist orthodoxy

The rationalist thought do not let to the rulers and economists to accept new ideas; they maintain orthodox concepts like the concept of balanced budget and positive interests rates, which do not resolve the economic problems of the world.

The fiscal deficit has a solution: to print more money.

The rationalist thought impedes to see other horizons because it assumes dogmatic positions. Rulers and economists believe in traditional concepts learned in the school. This kind of concepts has led Europe to the current financial crisis.

Rationalism is dogmatic, go through only one way and is unable of changing; on the contrary, the method of science is empiricist and in constant test.

7. Theory and practice

There is an important difference between theory and the economic practice. Some economical concepts do not coincide with the reality because they are supported in the rationalist, subjective appreciation of phenomena that suffer a permanent process of change; changes not only of form but structural changes and that fact impedes the formulation of permanent and universal laws in the economic field. Each economist or each school of thought has its own vision; there are different thoughts and schools. Notwithstanding, in the last three centuries, three great trends has ruled the world: they are the Economic Liberalism, conceptual base of Capitalism; Marxism, conceptual base of Communism/Socialism and the Keynesian thought, which might be considered like a synthesis between the two big opposites, Capitalism and Socialism. A fourth trend of thought has exerted an important world influence since the 70s years of the 20^th century, Neoliberalism, created to recover and strengthening Capitalism.

Capitalism and advanced forms of Socialism like the existents in the Nordic countries have dominated the western world, while Communism ruled The Soviet Union and Eastern Europe until 1989 when disappeared. However, the communist regime still exists in China, Vietnam, North Korea and Cuba; so that the big economic concepts, Liberalism, Communism and Socialism have dominated the world and maintain its influence.

Capitalism has survived because has been able of to correct its own errors; on the contrary, Communism disappeared because was not able of abandoning their orthodox concepts and to adapt its behavior to the requirements of society. Communism adopted a dogmatic attitude and did not take political neither economics measures to save itself. In change, Capitalism overcame the Great Depression of the 30s years of the 20^th century and the following crisis adopting interventionists measures proper of the socialists regimes; in other words, discarding temporarily the capitalist orthodoxy. Nevertheless, it is important to highlight that as a consequence of the financial crisis of the year 2008, the capitalist’s nation’s population has expressed a big discontent, in the United States, Europe and even in Israel. The problem is that Capitalism of the 21^st century has not had the same capacity of rectification of the past and maintains the capitalist orthodoxy; this has deepened the crisis. As a consequence of its unlimited wish of wealth, the bankers took the money of the clients and also the money of the bailouts given by the governments. The weak supervision of the governments provoked the financial crisis of the year 2008 in the main capitalist’s Western nations.

The Soviet’s leaders lived a similar situation in 1989 and they were not able of adopting liberal measures, capitalists measures when began the crisis; hence, the Communism disappeared in the Soviet Union and Eastern Europe. On the contrary, the communist Chinese regime has survived because it has realized important economic changes, adopting capitalist’s measures. This set in evidence that the extremism in any of the two senses, the extreme Capitalism or the extreme Communism or Socialism cannot not survive at long time; this reveals also that the societies look freedom and economic justice.

8. Historic antecedents

8.1   Antiquity

Prehistory begins in the Stone Age and last until the moment of the invention of writing. The Antique Age begins with the invention of writing and concludes with the Roman Empire fall in the year 476. Since Prehistory man has realized economic activities, because always he has produced and distributed material goods. But only in a superior stage of knowledge, in the Antique Age, man began to create and to study economic concepts, not in a systematic form to develop a science, but as a part of the general philosophic inquietude of the epoch. In the Ancient Greek began that superior stage of knowledge because of the great philosophers. For example, the term economy is attributed to an ancient Greek philosopher, Xenophon (430-355 b.C), who gave the first steps in the knowledge of the economy like administration of home and its relation with the agriculture. It is attributed to other Greek philosopher, Aristotle (384-322 b.C), the first reflection on the concept of economic value. Years before, Plato (427-347 b.C) had studied the concept of wealth. A fundamental institution of the Ancient World was the slavery, institution that survived in the following historic periods and that still exist.

The Ancient Rome gave some attention to the economy but its principal objective was the political and military dominium of the Western World; therefore, to assure its power, they conceded great importance to the study of law, which is its main intellectual legacy to the world. Since the economic point of view must be highlighted the paper of personages like Cicerone (106-43 b.C) and the emperor Diocletian (245-316). Cicerone, in its writings, expressed the thought of the Roman elite, which considered the work in general and the handwork like menial activities no honorable. Despite this, Rome reached a high level of material progress and left works (buildings) and art that still exist. Diocletian is remembered in history by its famous Edict on Maximum Prices, Edictum de Pretiis Rerum Venalium, issued in December of the year 301; through that Edict Diocletian controlled the speculation and inflation and the punishment was the death penalty.

In times of Diocletian Rome began a monetary policy to combat the inflation and to guarantee the money to finance its military force growth. In that time, the coins were of gold and silver. The historians reveal that control of prices of Diocletian was success but this policy was abandoned by their successors.

Diocletian thought that inflation was not a strict economic problem but that it was provoked by the merchant’s avarice. The biggest empire of history, the Roman Empire, finally cannot survive; this was a consequence of its growing economic weakness, promoted by the luxuries of emperors and nobles, the disdain by the productive work, the slavery and disdain for the poor people, among other causes. The importance of inflation in the economic life of nations are recognized by the historian Ludwig Von Mises (1881-1973), in his work “Observations on the Causes of the Decline of Ancient Civilizations”, where he assures that inflation was one of the causes of the Roman Empire fall.

Many important economics concepts like the word economy, the first reflections on the theory of value, the economic concept of wealth and the first anti-inflationary policy come from the Antique Age.

8.2  Middle Age

The Middle Age begins in the year 476 until the year 1453 with the Byzantine Empire fall. Some authors say that the end was in the year 1492 with the discovery of America; I agree with the last appreciation.  The main characteristic of this historic period is the domain of the Catholic Church on all the institutions of the Western World: the symbiosis Church-State. It is the time of the Inquisition. Since the economic point of view, in this period was substituted the slave mode of production by a new political-economic model: feudalism.

This time is considered the dark stage of history and the economic thought had also a limited advance. Only three figures of that epoch made relevant economic contributions: Saint Augustine (345-430), Saint Thomas of Aquino (1125-1274) and the Scholastics and Nicholas Oresme (1320-1382). Saint Augustine is a theologian which teachings influenced their successors, like Saint Thomas of Aquino and the Scholastics who applied the Church’s doctrine to the economic and social life. Saint Thomas of Aquino leaved his immortal Summa Theological, where he set out a key matter for the economy: the problem of the just price, interest and usury. 

Other important economic work of the Middle Age is the thesis of the priest and mathematician Nicholas Oresme (1320-1382), who is considered the father of the monetary economy. In his book Treatise on the Origin, Nature, Law and Alterations of Money (1360), he assures that the issuance of money must be in the hands of the private people and not in the hands of the governments. He rejected the devaluation of the currencies by mean of the reduction of the amount of gold and/or silver. He thought that the unique function of the governments in the monetary field should be to certify the quality and the amount of gold or silver of the coins. Oresme was the first thinker that explained why the less valued coins stay in circulation while the most valued coins are molten or amassed by the people. In the 19^th century this discovery of Nicholas Oresme was attributed to Thomas Gresham (1519-1579). Indeed, Thomas Gresham in a letter to the Queen Elizabeth I in the year 1558 wrote the same. But really was Nicholas Oresme who 200 years before said for first time the concept.

8.3  Modern Age

The Modern Age begins in 1492 with the discovery of America until the year 1789 with the French Revolution. The duration of Modern Age was only 297 but in that time occurred some events that changed the history, like the Scientific Revolution and the creation of the modern state. In this historic period disappear the domain of the Catholic Church over all the institutions of the society and was opened the door to the secular, the lay state. The Renaissance occurs not only in politics, art and the sciences but also in the philosophy and the economy.

The main economic characteristic of the Modern Age is the vanishing of the feudal model and the birth of the Commercial Capitalism, first, and of the Financial Capitalism later; it means, the Commercial Revolution of the 16^th century and the First Industrial Revolution of the 18^th century. Since that moment the economic thought began to experiment a superior level of development. International trade and the monetary and tax affairs were the first issues that occupied the attention of the most lucid minds of the epoch, because of the impact of those affairs on the society. The feudal tax mode was substituted by the tax system of the modern state.

In 1492 America was discovered and this fact changed the theorist perspective of the economy and promoted a new economic thought. The philosophical trends of the epoch: Rationalism and Empiricism exerted an important influence in that sense. The most important rationalists are Rene Descartes (1595-1650), Baruch Spinoza (1632-1677) and Gottfried Leibniz (1646-1716).

The most relevant empiricists are Francis Bacon (1561-1626), Thomas Hobbes (1588-1679), John Locke (1632-1704), George Berkeley (1685-1753) and David Hume (1711-1776).

 As it was explained in previous paragraphs, in the Ancient Age and in the Middle Age the economic thought had a rationalist base essentially: the ideas of Xenophon, Plato, Cicerone, Diocletian, Saint Augustine, Saint Thomas of Aquino and Nicholas Oresme.

But in the Modern Age the trend is impacted by the discovery of America which generated a new material reality like the development of the maritime transport and the international trade growth that obliged to a most realistic consideration of the economy.  The study of the economic phenomenon abandoned the traditional ethical-philosophical trend and became in a more realistic a study, as a consequence of the Commercial Revolution and the First Industrial Revolution.

As a consequence of the mentioned reasons, in the Modern Age arose the most number of great philosophers that dedicated their efforts to the economic issues. Nationalism acquired new impetus and the European nations struggled between them for obtaining the most commercial advantages. The wealth of gold and silver of America was plundered by Spain and Portugal and led to Europe. That immense wealth was the base for the creation of a new political-economy doctrine: Mercantilism, which considered that gold and silver was the main source of the wealth of nations. To strengthen the nationalism, Mercantilism postulated the intervention of the state for controlling the economy. The mercantilists created the concept of trade balance and thought that a positive balance was essential for maintaining the economic supremacy.

In opposition to Mercantilism arose a new political-economic idea: the Physiocracy, or government of nature. The principal exponent of this conception was the French doctor Francoise Quesnay (1694-1774), who thought that the economy must work like the human body in harmonious form; and, therefore, it is not necessary the intervention of the state in the economy. The same as happen in the human body, any disruption in any part of the economic body affects the economic health as a whole. For the physiocrats, agriculture was the cause of the wealth of nations, because this is the unique activity that generates a surplus of resources superior to the employed in production, while industry and commerce only generates the indispensable for recovering the inputs used.

8.4  Contemporary Age

I think that it begins in 1789 with the French Revolution and last 156 years until the detonation of the atomic bombs in Hiroshima and Nagasaki in 1945. In this historic period may be identified seven very important facts: a) development of the Classical Economy, b) Second Industrial Revolution, that starts in 1860 with the discovery of the petroleum, steel and the electricity, c) First World War, d) Great Depression of the 20s and 30s years, e) invention of the Keynesian economy and g) discovery of the nuclear energy in the thirty years of the 20^th century.

Since the politics and economic point of view this the time of the practice application of Capitalism and Communism/Socialism in the world. The three systems have generated big injustices and the poverty of the majority of the world population; the political and economic systems have not avoided the destruction of nature, especially the destruction of the forests, the consequences of the urban chaos and new forms of slavery.

a)      Development of the Classical Economy

The Classical period of the economy begin in England with the publication of The Wealth of Nations of Adam Smith in the year 1776. I set the book in the Contemporary Age because ---though it was published 13 years before the French Revolution--- its influence encompasses the Contemporary Age and the following stages of history. Smith, in his book, contradicts the philosophical positions of Mercantilism, doctrine that promoted the control of the economy by the state. He coincided with the physiocrats regarding the importance of land as factor of production but does not attribute to land the unique cause of the wealth of nations. Smith says that manufacture occupies also a relevant position in the creation of wealth and with their ideas he settled a new alternative: the Economic Liberalism. He believed that the state must reduce its intervention and that the private initiative must enjoy the most freedom. The Smiths’s work combine the rationalist method with empiricist’s nuances and that symbiosis might be settled into the Intellectualism, because he used its deductive capacity and its capacity to appreciate the reality of its time.

Years after the publication of The Wealth of Nations of Adam Smith other important works was published in England, like the Jeremy Bentham’s (1748-1832) writings. Bentham created the Utilitarianism, philosophy that assured that the human behavior is dominated by the desire of pleasure and the rejection of pain. He was a liberal radical and he promoted the complete economic freedom without the intervention of the state. Bentham may be considered a rationalist.

Later appear one of the most criticized works of all the times, the Essay on the Principles of Population (1798) of the priest Thomas Robert Malthus (1766-1834). Malthus thought that the population grows to a superior rhythm than food production. Therefore he assured that the population growth should be controlled. Currently, year 2012, it has passed 214 years since the publication of the Malthus’s book but is now and at midterm when their predictions might be plenty proven. The Malthus’s work was discredited because in its time the population growth did not reach the levels predicted by him. Other critics say that Malthus was not able of to imagine the technological progresses that led to increase the food production. That is true. But the essence of the Malthus idea is also true. Hunger has existed in all the times. Currently, in plenty 21^st century, there are regions where the population dies by lack of food. In other places there is scarcity. There are regions where occurs the opposite phenomenon, there is abundance and the food is wasted. But, if the climatic change continue, if the population follows its current rate of growth, if the destruction of the fresh water sources, the destruction of the forests and the seas continue, it is very likely that the prophecy of Malthus become reality very soon.

The other great classical economist is David Ricardo (1772-1823), who exerted an important influence through his broad intellectual work. On the contrary of the ideas of Adam Smith and other economists that centered its interest in knowing the cause of the wealth of nations, David Ricardo considered that the most important is the form how the wealth is distributed. His main work, Principles of Political Economy and Taxation was published in 1817. Ricardo studied the monetary problems of the epoch; he thought that the banking system must operate through only one bank that must be property of the state and made an intense analysis of the relation between the values of the currencies regarding gold. In opposition to the physiocrats and Adam Smith, who gave preeminence to the agriculture, Ricardo pointed out that manufacture must be the principal support of the economy. He assured that England could produce industrial goods at competitive prices and to import food. He anticipated in this form the Comparative Advantages Theory. Ricardo exposed a theory of value and distribution and accepted the Quantity Theory of Money, the Theory of Decreasing Returns of Turgot and the ideas of Malthus regarding the population. Ricardo was a rationalist.

John Mill (1773-1836), Nassau William Senior (1790-1864) and John Stuart Mill with his famous book Principles of Political Economy (1848) constitute the British economist most recognized after David Ricardo. John Stuart Mill exerted a big influence through of its intense intellectual activity. He taught the principles of the economic freedom and the non-intervention of the state in the economy. Nevertheless, he thought that an exception should be the intervention in the education. He defended the education of the workers and its entrepreneurial participation by mean of the creation of enterprises of workers or by mean of its participation in the benefits of the enterprises. He accepted the theories of Malthus and assured that the demographic control is the unique manner of combating the poverty. Mill was a rationalist.

In France, the Classical Economy has two important exponents: Jean Batiste Say (1767-1832) and Frederic Bastiat (1810-1850). Jean Baptiste Say published its book A Treatise on Political Economy in 1803. He explained that industry was the fundamental economic activity and his idea that “supply creates its own demand” settled him forever in the economic history. He made the distinction between the paper of the capitalist and the paper of the entrepreneur and enhanced the concepts regarding the division of the factors of production in capital, land and work. Say was rationalist. Frederic Bastiat was also a liberal that rejected the intervention of the state in the economy. He denied the Malthus’s principle of population and assured that the natural freedom would create wellbeing the same for capitalists and workers. Bastiat was a rationalist of utopist ideas. It’s most important work was Economic Harmonies (1850).

The other giant figure of the Classical Economy is Karl Marx (1818-1883) with its top work The Capital (1867). Marx, philosopher of intense intellectual work, changed the history of the economic ideas and the history of the world. He contradicted the principles of the Economic Liberalism and his philosophy became years later the support of Communism and Socialism, ideologies that have dominated a part of the world so far.

The cycle is closed by Alfred Marshall (1842-1924), who confirmed the rationalist trend of the economy, separated the politics of the economy and employed the mathematics to support its conceptions. Marshall was a neoclassic and the most influential economist after the big classics. He was professor of John Maynard Keynes, the most distinguished economic figure of the 20^th century.

8.9 Atomic Age

I think that it begins with the discovery of the nuclear energy in the 30s year of the 20^th century until now and encompasses five stellar moments:

a)      the economic recovery of the United States and Europe after the Second World War, b) Cold War, c) massive diffusion of the radio and television since the second half of the 20^th century, d) conquer of the space since the 6Os years of the 20^th century and e)  revolution of Internet since the decade of the 90 years of the 20^th century.

The sixth stellar moment still has not happened but perhaps might occur in any moment and it might be the discovery of extraterrestrial forms of life. When I was a child my grandmother told me that when she was a small girl the people talked about the creation of a machine through which the people would be listened and viewed in the distance; for them that was something impossible, was fiction. But years later the impossible became reality: appeared the television. The moral of the story is that what in this moment seems impossible might be reality in the future.

Since the economic point of view, the Atomic Age is the continuation of the same process of the Contemporary Age, it means, the continuation in the time of the Capitalist and Communist/Socialist model in the world. As it was referred previously, the Communist model disappeared in the former Soviet Union and Eastern Europe in 1989 but still exists in China, Vietnam, North Korea and Cuba. The Capitalist model, with diverse nuances, is applied in the rest of the world.

Between 1900 and 1945 the world suffered an intense economic crisis; in 1929 exploded the big financial crack of the Great Depression. The financial capitalism and the industrial capitalism provoked the crisis and this caused the First and Second World War.

After decades of scarcity because of the poverty and the unemployment of the majority of population, in 1945 the world knew a new economic conception that stopped the crisis: it was the political economy created by the English mathematician John Maynard Keynes, who proposed the expansion of the investment and the public spending, as a formula to reanimate the economy and to increase production and employment. In other words, Keynes proposed to enhance the mass of public money and its distribution through the public works as a way to solve the crisis. The proposal of Keynes was adopted by the President of the United States, Franklyn D. Roosevelt and the rest of the countries of Western Europe and was a success, because it let to recover the economy and combating the jobless. The Keynesian policy was present thirty years, between 1945 and 1975 and this period of the economic history is known like the Age of Keynes. He produced a true transformation in the economic thought and practice.

9. Conclusions

-          The theories of three philosophers determined the economic reality of the work since the 19^th century until now: a) Adam Smith, considered father of the Economic Liberalism, philosophical support of Capitalism, b) Karl Marx, considered father of the Scientific Socialism, philosophy of Communism and Socialism and c) John Maynard Keynes, that may be considered the father of the dialectic synthesis between Liberalism and Socialism.

We most highlight that since the decade of the seventy years of the 20^th century the Neoliberalism arose in scene, promoted by Milton Friedman and the Chicago Boys, which theories exert a big influence in the economic reality of the world, because they search to strengthen the Capitalism.

-          Since its creation, the economy has been a Rationalist discipline essentially. The exception was the work of the big three economists, Adam Smith, Karl Marx and John Maynard Keynes, who employed the Intellectualist method, it mean, the combination of theory and practice and that is the cause of its permanent and broad influence in the world economic reality.

-          In the interpretation of the doctrine of the three big economists there are rulers who consider only the theorists aspects, the orthodox concepts of these thinkers, and do not see their practical postulates. This manner of to tackle the economic issues lead to dogmatism and radical positions in the economic practice of the governments. That is what is happening currently in Europe, where the governments, inspired in strict rationalist concepts, have signed an agreement to reduce the fiscal deficit to maximum 3% of the GDP, without to take in account the negative effects of that policy on the population wellbeing.

-          The Rationalist logic says that the fiscal deficit is bad and the governments do the correspondent actions. The dogmatic orthodox thought do not consider that the deficit might be good and not something bad. Indeed, the fiscal deficit is a sign of growth, a sign of the needs growth and this is something positive. The right way, then, should be to recognize the deficit and to issue the amount of money to overcome the deficit. That is the way to the progress and the population wellbeing. On the contrary, austerity is the way to poverty and unemployment.

-          In the eighty years, Communism disappeared in the former Soviet Union and Eastern Europe because the Soviets leaders adopted an extreme rationalist attitude and applied inflexibly the Marxist-Leninist orthodox.

-           So far, Capitalism has survived because their leaders adopted a flexible attitude, not orthodox in the economic practice. The Keynesian policy is the most relevant example in that sense and that policy saved Capitalism during the Great Depression of the thirty years and in the following crisis.

-          But now, in the 21^st century, Capitalism is in peril and might disappear if the leadership insists in to impose orthodox rationalist ideas, like the policy of austerity in Europe. That policy generate unemployment and poverty nothing else.  The protests in the entire world are a sign of the change in gestation.

-          David Ricardo, in the 19^th century, thought that the profits only might augment reducing the salaries of the workers. Now, the Rationalists Neoliberals think the same and therefore they reduce the salary of the workers, the pensions, the budget for education and health, but they do not touch the budgets for war and weapons. For example, the past February 2012, the chief of NATO went to Greece to request to the politician leaders of that country do not diminish the public spending in defense…

-          Only a change in the manner of thinking, a change that accepts new ideas, might improve the conditions of life of the world population and to guarantee the Capitalism survival.