CityReads│How Could Humanity Escape Poverty?
How Could Humanity
Escape Poverty?
This book describes the often heroic efforts of economic genius in seeking the thinking apparatus in order to solve the poverty problem of humanity.
Sylvia Nasar,2011. Grand pursuit: the story of economic genius, New York: Simon & Schuster.
Picture source: http://www.vox.com/2015/8/13/9145467/extreme-poverty-global-poverty
In most of human history, nine parts in ten of the whole race of mankind drudged through life. A long-standing question besets human society: how could humanity defy the dictate of nature and escape poverty?
"The desire to put mankind into the saddle is the mainspring of most economic study", wrote Alfred Marshall, the father of modern economics.
All economists are seeking a thinking apparatus in order to solve the political problem of mankind: how to combine three things: economic efficiency, social justice and individual freedom.
Grand Pursuit: the Story of Economic Genius by Sylvia Nasar takes us on a journey through modern history with the men and women who changed the lives of every single person on the planet. It’s the epic story of the making of modern economics, and of how economics rescued mankind from squalor and deprivation by placing its material fate in its own hands rather than in Fate.
She describes the often heroic efforts of Marx, Engels, Alfred Marshall, Beatrice and Sydney Webb, Irving Fisher, Schumpeter, Keynes, Hayek, Friedman, Robinson, Samuelson, and Amartya Sen, to put those insights into action—with revolutionary consequences for the world.
Marx and Engels in the 19th London
For a dozen centuries, as empires rose and fell and the wealth of nations waxed and waned, the earth's thin and scattered population had grown by tiny increments. What remained essentially unchanged were man's material circumstances, circumstances that guaranteed that life would remain miserable for the vast majority.
Within two or three generations, the industrial revolution demonstrated that the wealth of a nation could grow by multiples rather than percentages. It had challenged the most basic premise of human existence: man's subservience to nature and its harsh dictates.
Engels and Marx perceived more clearly than most of their contemporaries the newness of the society in which they came of age, and tried to work out its implications more obsessively. Modern society was evolving faster than any society in the past.
Marx and Engels had no doubt that England’s capacity to produce would continue to grow by multiples. But they were convinced that the distributive mechanism was fatally flawed and would cause the whole system to collapse. Despite the extraordinary accession of wealth, the abysmally low living standards of the three-fourths of the British people who belonged to the laboring classes had improved only a little.
In the Manifesto, Marx and Engels had offered two reasons for capitalism’s dysfunction. First, the more wealth that was created, the more miserable the masses would become: “In proportion as capital accumulates, the lot of the laborer must grow worse.” Second, the more wealth that was created, “the more extensive and more destructive” the financial and commercial crises that broke out periodically would become.
Alfred Marshall: Must there be a proletariat?
Alfred Marshall was born in one of London’s most notorious slums. Later the Marshalls moved to the lower-middle-class Clapham. Thanks to his precocious intelligence and his father’s efforts to convince a director of the bank to sponsor his education, Marshall was admitted to Merchant Taylors’, a private school in the City that catered to the sons of bankers and stockbrokers.
From the age of eight, he commuted daily by omnibus, ferry, and foot through the most noxious manufacturing districts and slums bordering the Thames. Marshall had been looking into the faces of poor people all his life.
The sight of “so much want” amid “so much wealth” prompted Marshall to ask whether the existence of a proletariat was indeed “a necessity of nature,” as he had been taught to believe.“Why not make every man a gentleman?” he asked himself.
He did not doubt that the chief cause of poverty was low wages, but what caused wages to be low? Contrary to Marx’s claim that competition would cause the wages of skilled and unskilled workers to converge near subsistence level, skilled workers were earning “two, three, four times” as much as unskilled laborers. The fact that employers were willing to pay more for specialized training or skill implied that wages depended on workers’ contribution to current output. Or, put another way, that the demand for labor, not only the supply, helped to determine pay. If that was the case, the average wage wouldn’t be stationary. As technology, education, and improvements in organization increased productivity over time, the income of the workers would rise in tandem. The fruits of better organization, knowledge, and technology would, over time, eliminate the chief cause of poverty.
The Webbs and the Welfare State
Beatrice Potter was born into Britain’s “new ruling class”. Like the path taken by her old sisters, she had the prospect of becoming one of the fashionable Miss Potters who live in grand houses and beautiful gardens and marry enormously wealthy men.“You are young, pretty, rich, clever, what more do you want?” Beatrice’s cousin Margaret Harkness, had asked with a trace of exasperation.
It is almost axiomatic that behind every extraordinary woman there is a remarkable father. Potter encouraged Beatrice and her sisters to read and gave them free run of his large library. He made no effort to restrict their discussion or friendships. Beatrice had been brought up with an unusual freedom to travel, read, form friendships, and satisfy her “great desire for knowledge” and “immense curiosity about life.” Beatrice longed for work as well as love.
Among the intellectuals who frequented the Potter house were the biologist Thomas Huxley; Sir Francis Galton; and Spencer, who had become the dominant intellectual influence in the household.
Beatrice once had a big crush on Joseph Chamberlain, the most important politician in England and the most commanding and charismatic man she had ever met. Chamberlain was twenty-two years older than Beatrice and twice widowed, but he radiated youthful vigor and enthusiasm. Beatrice half expected Chamberlain to declare himself before the end of the London season, but no offer of marriage was forthcoming. He never proposed to Beatrice.
Toward the end of April 1886, Beatrice joined her cousin Charlie Booth, a wealthy philanthropist, in the most ambitious social research project ever carried out in Britain. She began to publish in the journal and newspaper.
Beatrice became aware of Sidney Webb months before she met him. She read a book of essays published by the Fabian Society. She told a friend that “by far the most significant and interesting essay is by Sidney Webb.” Sidney returned the compliment in a review of the first volume of the Booth survey: “The only contributor with any literary talent is Miss Beatrice Potter.”
Their first encounter took place in Maggie Harkness’s rooms in Bloomsbury. For Sidney, it was love at first sight.“She is too beautiful, too rich, too clever,” he said to a fiend. Sidney pursued Beatrice for a year and Beatrice finally said yes to his proposal. But Beatrice insisted that the engagement was to be a secret as long as her father was alive. Beatrice and Sidney got married after her father died.
A think tank is exactly what Beatrice and Sidney were—perhaps the very first and certainly one of the most effective—from the moment they married. The Webbs shrewdly realized that experts would become more indispensable the more ambitious democratically elected governments became. They found the London School of Economics, intended as a training ground for a new class of social engineers, and the New Statesman weekly newspaper.
The think tank became a political salon at night. Once a week, the Webbs had a dinner for a dozen or so people. Once a month, they had a party for sixty or eighty. Guests did not come for the food. The price of attendance was “participation in one of the famous exercises in asceticism described by Mrs. Webb as dinners.” Yet everyone angled for invitations.
In 1908, the Webbs wrote a document called The Minority Report, envisioned a cradle-to-grave system designed to "secure a national minimum of civilised life ... open to all alike, of both sexes and all classes, by which we meant sufficient nourishment and training when young, a living wage when able-bodied, treatment when sick, and modest but secure livelihood when disabled or aged".
They argued that destitution was preventable and that providing education, sanitation, food, medical, and other forms of in-kind assistance would increase private sector productivity and wages more than taxing would decrease it. The post–World War II British welfare state was“stemmed from what all of us had imbibed from the Webbs”.
Irving Fisher and the Control of Money Supply
Fisher was born in Saugerties, a farming community in New York’s Hudson Valley. His father, George Fisher, was a high-minded Evangelical minister. His father died of tuberculosis when Fisher was 17.
Fisher’s grief was compounded by his disappointment at almost certainly having to postpone college, if not give it up altogether.
A $500 legacy that his father had invested with a friend in Peace Dale and designated for Irving’s education was discovered. Together with his scholarship and the legacy from his father, this measure would just suffice to allow him to enroll at Yale as planned.
Tuberculosis was the nineteenth-century AIDS. At the turn of the twentieth century, one in three deaths in major cities was due to consumption, and most of the victims of the “white plague” were young adults. The course of the illness was ghastly, and recovery rates were depressingly low.
Shortly after his thirty-first birthday, Fisher received a death sentence in the form of a diagnosis of tuberculosis. Fortunately, Fisher was recovered his health. After his survival, Fisher became a crusader for public health and an advocate for healthy living and mind control, to which he believed he owed his recovery.
Charles Dickens, Henry Mayhew, and Karl Marx described a world in which the material conditions that had condemned mankind to poverty since time immemorial were becoming less fixed and more malleable.
In 1848, Karl Marx showed how competition drove businesses to produce more with the same resources, but argued that no means existed for converting production increases into higher wages and living standards.
Then, in the 1880s, Alfred Marshall discovered that an ingenious mechanism of competition encouraged business owners to make constant, incremental improvements in productivity that accumulated over time and, simultaneously, compelled them to spread the gains in the form of higher wages or lower prices, again, over time.
Irving Fisher was the first to realize how powerfully money affected the real economy and to make the case that government could increase economic stability by managing money better. By pinpointing a single common cause for the seemingly opposite ills of inflation and deflation, he identified a potential instrument—control of the money supply—that government could use to moderate or even avoid inflationary booms or deflationary depressions.
Amartya Sen: Freedom and Development
Amartya means “destined for immortality.” Born into a scholarly and cosmopolitan Hindu family, Amartya Sen grew up amid the horrors of the Bengal famine, communal violence, the collapse of British rule, and partition.
As a brilliant student and campus agitator in Calcutta, he overcame a near lethal bout of cancer. Just before his nineteenth birthday, Sen felt a pea-sized lump in the roof of his mouth. A street-corner GP dismissed it as a fish bone that had worked its way under the skin. The lump, however, didn’t disappear and grew larger. After consulting a premed student, he learned that cancers of the mouth were fairly common among Indian men. A few hours with a borrowed medical textbook convinced Sen that he was suffering from stage two squamous cell carcinoma.
The biopsy confirmed his suspicions. At that time, a diagnosis of oral cancer was a virtual death sentence. Surgery generally only accelerated the spread of the cancer, and,as a result, death.
After reading about radiation in medical journals, Sen was finally able to locate a radiologist willing to treat him. The radiologist urged Sen to let him use a maximum dose.
Cancer was a defining moment. It produced a lasting identification with others who were also hurting, voiceless, deprived.
Overcoming the cancer was also empowering. Taking matters into his own hands left him with enormous confidence in his own instincts and initiative.
After he returned to class, he won admission to the Trinity College in Cambridge. Since 1970, Sen has lived mostly in England and America, but his thoughts have never strayed far from India. Drawing on his own experiences, a lifelong study of the disenfranchised, and a deep knowledge of Eastern and Western philosophy, Sen has questioned every facet of contemporary economic thought.
In the 1970s and 1980s, Sen proposed a general theory of social welfare that attempted to integrate economists’ traditional concern for material well-being with political philosophers’ traditional concern with individual rights and justice.
Objecting to the utilitarian creed of his fellow economists, which called for judging material progress chiefly by the growth of GDP per head, Sen argued that freedom, not opulence per se, was the true measure of a good society, a primary end as well as a principal means of economic development.
Epilogue: chart on poverty
In the 19th century, extreme poverty — defined here as living on less than $1.25 a day — was the norm. In 1820, 94.4 percent of humans were below that line. Only a tiny fraction of the world enjoyed standards of living that were remotely bearable. Progress was initially slow. By 1910, the share had only gotten down to 82.4 percent — a 12-point drop over 90 years. But things picked up after World War II, and 89 years after 1910, only 28.9 percent of people were in extreme poverty. To repeat: From 1820 to 1910, there was a 12-point drop. From 1910 to 1999, there was more than a 53-point drop. Progress in the 20th century was just dramatically faster, especially once China and India began growing quickly.
In 2011, the most recent year represented in the chart, the extreme poverty rate had been cut to half its 1999 level: 14.4 percent. There's still much work to be done: 14.4 percent of the world amounts to 1 billion people who still need to be lifted out of extreme poverty.
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