In 1710, Leibniz did so. He was the most wide-ranging polymath of his day, combining outstanding contributions to philosophy, theology, mathematics, linguistics, physics, and jurisprudence with his role as a courtier in Hanover. He started from a truth traditionally expressed and witnessed in everyday experience: good and evil are inseparable. Freedom, for example, is good, but must include freedom to do evil; altruism is good only if selfishness is an option. But of all logically conceivable worlds, ours has, by divine decree, said Leibniz, the greatest possible surplus of good over evil. So – in the phrase Voltaire used to lampoon this theory – ‘all is for the best in the best of all possible worlds’. In Voltaire’s satirical picaresque novel, Candide, Leibniz is represented by the character of Dr Pangloss, the hero’s tutor, whose infuriating optimism is equal to every disaster.
Leibniz formulated his argument in an attempt to show that God’s love was compatible with human suffering. It was not his purpose to endorse progress, and his ‘best world’ could have been interpreted as one of static equilibrium, in which the ideal amount of evil was inbuilt. But, in alliance with the conviction of human goodness, which most thinkers of the Enlightenment shared, Leibniz’s claims validated optimism. They made a secular millennium possible, toward which people could work by using their freedom to adjust the balance, bit by bit, in favour of goodness.21
Economic Thought
Optimism breeds radicalism. As we saw when exploring the political thought of the first millennium bce (see here), belief in goodness commonly precedes belief in freedom, liberating people to exhibit their natural good qualities. If they are naturally good, they are best left free. Or do they need a strong state to redeem them from natural wickedness? In the eighteenth century, it proved hard to get a consensus about the value of freedom in politics. In economics it was an easier sell.
The previous two centuries of economic thinking in the West, however, had first to be overturned. The orthodoxy known as mercantilism was a major obstacle. A Spanish moralist, Tomás de Mercado, formulated it in 1569: ‘One of the principal requisites’, he wrote, ‘for the prosperity and happiness of a kingdom is always to hold within itself a great quantity of money and an abundance of gold and silver.’22 The theory made sense in the light of the history people were aware of. For centuries, at least since Pliny made the first relevant calculations in the first century bce, European economies laboured under the burden of an adverse balance of payments with China, India, and the Near East. It was a matter of concern in ancient Rome. It drove late-medieval explorers to cross oceans for new sources of gold and silver. By the sixteenth century, when European travellers were able, in relatively large numbers, to cast envious eyes on the riches of the East, the adverse balance of payments induced two obsessions in Western minds: that bullion is the basis of wealth, and that to grow rich an economy must behave like a business and sell more than it buys.
According to Mercado, what ‘destroys … abundance and causes poverty is the export of money’.23 All European governments came to believe this. In consequence, they tried to evade impoverishment by hoarding bullion, trapping cash inside the realm, limiting imports and exports, regulating prices, defying the laws of supply and demand, and founding empires to create controllable markets. The consequences were woeful. Overseas investment, except in imperial ventures or in purchases for onward sale, was unknown. Protection of trade nourished inefficiency. Resources had to be squandered on policing. Competition for protected markets caused wars and, consequently, waste. Money drained out of circulation. Two concerns from the mercantilist era abide. The first, which few economists treat as an infallible index of economic propriety, is with the balance of payments between what an economy earns from other economies and what is paid out to external suppliers of goods and services. The second is with ‘sound money’, no longer pegged to gold and silver in the coinage or in promises printed on promissory notes, but rather – in fiscally responsible governments – to the total performance of the economy.24 We still unthinkingly overvalue gold – which is really rather a useless material, undeserving of its privileged position as the commodity in terms of which all other commodities, including money, are still commonly reckoned. But it is hard to say whether this is a relic of mercantilism or of gold’s ancient, magical reputation as an untarnishable substance.25
Even while mercantilism reigned, some thinkers advocated an alternative way of understanding wealth, in terms of goods rather than specie. The idea that price is a function of money supply was the starting point among theologians known as the School of Salamanca in the mid-sixteenth century. Domingo de Soto and Martín de Azpilcueta Navarro were particularly interested in what we might now call problems of the morality of capitalism. While studying business methods, they noticed a connection between the flow of gold and silver from the New World and the inflation of prices in Spain. ‘In Spain’, observed Navarro, ‘in times when money was scarcer, saleable goods and labour were given for very much less than after the discovery of the Indies, which flooded the country with gold and silver. The reason for this is that money is worth more where and when it is scarce than where and when it is abundant.’26 In 1568 the same observation was made in France by Jean Bodin: he thought he was the first but the Salamanca theorists anticipated him by some years. Three explanations were current for the phenomenon they observed: that value was a purely mental construct, reflecting the irrationally different esteem the market applied to intrinsically equivalent products in different times and places; or that price depended on the supply and demand of goods rather than of money; or that ‘just’ value was fixed by nature and that price fluctuation was the result of greed.
The Salmantine thinkers showed that money is like other commodities. You can trade it, as Navarro put it, for a moderate profit without dishonour. ‘All merchandise’, wrote Navarro, ‘becomes dearer when it is in great demand and short supply, and … money … is merchandise, and therefore also becomes dearer when it is in great demand and short supply.’27 At the same time, the theory reinforced ancient moral prejudices about money: you can have too much of it; it is the root of evil; the wealth of a nation consists in goods produced, not cash collected. Today’s disquiet over the way services displace manufactures and financial finagling seems to beggar factories and mines is an echo of such thinking. In the sixteenth century critics denounced empire, not only for injustice against indigenous peoples but also for impoverishing Spain by flooding the country with money. Martín González de Cellorigo, one of the subtlest economists of the period, coined a famous paradox:
The reason why there is no money, gold or silver in Spain is that there is too much, and Spain is poor because she is rich … Wealth has been and still is riding upon the wind in the form of papers and contracts … silver and gold, instead of in goods that … by virtue of their added value attract to themselves riches from abroad, thus sustaining our people at home.28
Ironically, economic historians now mistrust the observations of the School of Salamanca and suspect that sixteenth-century inflation was rather the result of increasing demand than of the growth of the money supply. The theory, however, irrespective of the soundness of its foundations, has been immensely influential. Modern capitalism would hardly be imaginable without awareness that money is subject to laws of supply and demand. In the late eighteenth century, the doctrine helped to displace mercantilism as the key common assumption of economic theorists, thanks in part to the influence the School of Salamanca exerted on a Scots professor of moral philosophy, Adam Smith, whose name has been linked with the cause of economic freedom ever since he published The Wealth of Nations in 1776.
Smith had a lofty view of the importance of the relationship between supply and demand. He believed that it affected more than the market. ‘The natural effort of every individual to better his own condition’29 was the foundation of all political, economic, and moral systems. Taxation was more or less an evil: first, as an infringement of liberty; second, as a source of disto
rtion in the market. ‘There is no art which one government sooner learns of another than that of draining money from the pockets of the people.’30 Self-interest could be trusted to serve the common good. ‘It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest … In spite of their natural selfishness and rapacity’, Smith declared, the rich ‘are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal portions among all its inhabitants.’31 In the long run, this expectation has proved false: the Industrial Revolution of the nineteenth century and the knowledge economy of the twentieth have opened glaring wealth gaps between classes and countries. It was formerly possible to believe that the market could correct wealth gaps, just as it could adjust supply to demand, because for a long time in the twentieth century the gaps shrank; it was as if bosses realized that prosperous workers were in business’s best interests, or that they sensed that only by being fair could they avert the menace of proletarian revolt. It seems, however, that capitalists are incapable of long-term restraint: war, not market forces, was responsible for the temporary trend towards fair rewards and in the late twentieth and early twenty-first centuries the wealth gap widened anew to levels unknown since before the First World War.32
In his day, of course, Smith’s predictions could not be falsified. To his contemporary admirers, as Francis Hirst observed, Smith ‘issued from the seclusion of a professorship of morals … to sit in the council-chamber of princes’.33 His word was ‘proclaimed by the agitator, conned by the statesman, and printed in a thousand statutes’. For a long time, Smith’s formula seemed only slightly exaggerated: the rich of the industrializing era, for instance, increased their workers’ wages to stimulate demand; for a while, economists seriously hoped to eliminate poverty, as medical researchers hoped to eliminate disease.
The Wealth of Nations appeared in the year of the US Declaration of Independence and should be counted among that nation’s founding documents. It encouraged the revolution, for Smith said that government regulations limiting the freedom of colonies to engage in manufacture or trade were ‘a manifest violation of the most sacred rights of mankind’. The United States has remained the homeland of economic liberalism ever since and an only mildly tarnished example of how laissez-faire can work. Meanwhile, wherever planning, government regulation, or the command economy have displaced Smith’s doctrines, economic progress has failed. Capitalism, to judge from the evidence available so far, is the worst economic system, except for all the others.
Or is it? In most respects Smith’s influence was benign. On the other hand, to represent self-interest as enlightened is like speaking of greed as good. Smith made no place for altruism in economics. He thought that merchants and usurers served their fellow men by buying cheap and selling dear. This was one defect of his thought. The other was to assume that people can be relied on to predict their own best interests in the marketplace. In reality, people act irrationally and impulsively far more often than rationally or consistently. The market is more like a betting ring than a magic circle. Its unpredictability breeds lurches and crashes, insecurities and fears. Smith’s principles, strictly interpreted, would leave even education, religion, medicine, infrastructure, and the environment at the mercy of the market. In some respects, especially in the United States, this has come to pass. Gurus have become entrepreneurs, so-called universities now resemble businesses, conservation is costed, highways are ‘sponsored’, and you can buy health even in systems expressly designed to treat it as a right. The world is still seeking a ‘third way’ between unregulated and overregulated markets.34
Political Philosophies: The Origins of the State
The benefits of economic freedom always seem easier to project convincingly than those of political liberty – as we see in our own day in China and Russia, where illiberal politics have persisted despite the relaxation of economic controls. Smith’s doctrine was widely acceptable because it could appeal equally to liberators, who believed in human goodness, and restrainers, who mistrusted human nature. His argument, after all, was that economic efficiency arises from self-interest: the morals of economic actors are irrelevant.
In the political sphere, such doctrines do not work. Freeing people makes sense only if one confides in their basic benevolence. And in the sixteenth and seventeenth centuries in Europe, unfolding evidence accumulated to subvert such confidence. Discoveries of explorers and reports of ethnographers in the Americas and the Pacific suggested to some readers, as to many of the colonists who found an alien adversary baffling, that ‘natural man’ was, as Shakespeare put it, just ‘a bare, fork’d animal’ who could not be relied on to conform to the behaviour empires demanded. Revelations of previously unknown or little-known realms in Asia, meanwhile, introduced Europeans to new models of political power. The best path through the material starts with the effects of the new evidence on thinking about the origins of states; then on how Chinese and other Asian models affected notions of power and founded new schools of absolutism; then on the contrary effects of the discovery of peoples Europeans called savages, whose sometimes surprisingly impressive attainments encouraged radical, even revolutionary ideas, culminating in arguments for equality, universal rights, and democracy.
From the assumption that the state originated in a contract – a tradition that, as we have seen, became strong in the West in the late Middle Ages – presumptions arose about how and why people needed the state in the first place. The condition of humankind in the remote past must have been extremely grim, or so the comfortable European literati supposed: misery induced people to get together and sacrifice freedom for the common good. Early in the second half of the seventeenth century, reflections of these kinds came together in the mind of Thomas Hobbes, who was an extreme royalist in politics and an extreme materialist in philosophy. His natural inclinations were authoritarian: after living through the bloodshed and anarchy of the English Civil War, he retained a strong preference for order over freedom. He imagined the state of nature that preceded the political state as ‘a war of every man against every man’ where ‘force and fraud are the two cardinal virtues’.
This picture, which he confided in 1651 to the most famous passages of his classic Leviathan, contrasted with that of traditional political theory, in which the natural state was simply a time, presumed to have prevailed in the remote past, when man-made legislation was otiose: the laws of nature or the rule of reason supplied all needful regulation. Hobbes provided a refreshing contrast to the myth of a golden age of primitive innocence when people lived harmoniously, uncorrupted by civilization. He believed that, unlike ants and bees, which form society instinctively, people had to grope towards the only workable way out of insecurity. They agreed with one another to forfeit their freedom to an enforcer, who would compel observance of the contract but who would not be a party to it. Instead of a compact between rulers and ruled, the founding covenant of the state became a promise of obedience. By virtue of belonging to the state, subjects renounced liberty. As for rights, self-preservation was the only one subjects retained: they never had any others to renounce in the first place, for in the state of nature there was no property, no justice. People had only what they could grab by force. There was some support for this view in the work of Aristotle, who admitted that ‘man when perfected is the best of animals but when separated from law and justice he is the worst of them all’.35
Hobbes’s idea changed the language of politics forever. Contract theory lost its hold over the power of the state: the sovereign (whether a man or ‘an assembly of men’), in minds Hobbes convinced or enlarged, was outside the contract and so was not bound to keep it. Humans could be equal – indeed, Hobbes assumed that all were naturally equal – and yet be at the mercy of the state: equality of subjection is a fate familiar to subjects of many egalitarian regimes. Hobbes’s doctrine had chilling
implications, finally, for international politics: governments were in a state of nature with respect to each other. There were no constraints on their capacity to inflict mutual harm, except the limitations of their own power. From one point of view, this justified wars of aggression; from another, it necessitated some contractual arrangement – proposals for which we shall encounter in future chapters – to ensure peace.
Asian Influences and the Formulation of Rival Kinds of Despotism
For most of the eighteenth century, debate seemed poised between liberators and restrainers: evidence on the goodness or malevolence of human nature was equivocal. Instead, therefore, of arguing about an unverifiably remote past, contenders focused on the examples of other cultures disclosed by the long-range exchanges of the time. China was the most conspicuous example. Admirers of China advocated limits to freedom and an elite empowered to lead, while enthusiasts for freedom rejected the notion that China could be a model for Western states. Voltaire was, for much of his life, a leading Sinophile.36 Confucianism attracted him as a philosophical alternative to organized religion, which he detested. And he sympathized with the Chinese conviction that the universe is orderly, rational, and intelligible through observation. In the Chinese habit of political deference to scholars, he saw an endorsement of the power of the class of professional intellectuals to which he belonged. In the absolute power of the Chinese state, he saw a force for good.
Out of Our Minds Page 32