Economic Policy in the Classical Period
Many of today’s prominent economists have attained a great deal of respect by applying economic theory to economic policy. But if we look at history, this is not a new phenomenon. All of the early economists sought to apply their theories to economic policy at that time. The 17th and 18th centuries in Europe, and Great Britain in particular, were a time of great economic advances. The industrial revolution was taking place due to great technological innovations and new ideas on running businesses were being thought. In addition, colonialism was on the rise due to the widespread need for resources in the new economy.
Three prominent economists of this classical period in economics were Nassau Senior, John Stuart Mill and Sir Edwin Chadwick. All three were British economists who sought to improve the economic output of their country by improving the conditions of the working classes. In a sense, they were the pioneers of modern economists who seek to change society through economic ideas.
At the time of these economists, Great Britain was undergoing the aforementioned economic changes in its landscape. Mercantilism was vanishing (thereby leading to massive deregulation) and political power was passing into the hands of the Parliament and elected officials from the royal family. One of the many acts passed by Parliament during this period was Althorp’s Act in 1833. This act banned employment of children under nine years of age and restricted the hours and conditions of work for those between the ages of nine and eighteen. Nassau Senior was at the center of the discussion of this act as he was called upon by the British government to assess the economic impact of this and other Factory Acts (the collective name given to various laws passed at the time pertaining to factory work).
According to Senior, the basic provisions of the act were ethical, but he questioned whether or not the act was passed due to self-interest. Senior argued that a reduction in the number of hours worked caused an economic loss not only to the parents and families of the children not working, but also to the economy as a whole. This was because the work reduction would force plant and equipment to be idle thereby increasing the fixed cost of the factory even though variable costs would go down. This in turn would decrease the marginal efficiency of capital. Industrialists would not allow such a decrease in output at a time of great industrialization, so they would invariably hire eligible workers to replace these children. These eligible workers turned out to be adult men who were losing out to women and children in factory work because of new technology that did not need brawn to operate. This was what led Senior to think that maybe it was the self-interest groups of adult male workers who caused these Factory Acts to be passed instead of selfless ethics. This formed the basis of what is known as Senior’s Interest-Group Theory of Economics.
John Stuart Mill was another classical economist. In 1848 he published his Principles of Political Economy. Mill is considered one of the greatest economic influences on public policy for a number of reasons. In his book, Mill covered a whole range of economic theory and applied all of it to economic policy at the time. Much of Mill’s work is still relevant today. One of Mill’s ideas was the establishment of a flat income tax for the entire population barring the poorest people. Mill believed that taxing people in proportion to their wealth mounted to punishing people for doing well in life. This proportionate taxation would cause a decrease in people’s appetite for work since the incentive would be tarnished. Much of what Mill wrote on this is still a topic of great debate in places like Washington D.C.
Another of Mill’s ideas was the inheritance tax. He believed that the reason for inequality in the world was a lack of opportunities among the people and saw no reason why some people should get a head start in life just because their families had money. So Mill championed the inheritance tax as a way of creating a more equal playing field for the lower classes in particular. Coupled with a flat tax rate, Mill hoped to make the working classes realize that they could get rich as well if they worked hard.
Arguably Mill’s greatest idea was the reformation of the welfare system. He believed that it was “right that human beings should help one another; and the more so, in proportion to the urgency of the need…” But, Mill also believed that if people are helped beyond what is needed, they become dependant on the state for their well-being and stop trying to improve their state. This would cause a great burden on the state’s economy since it would be supporting a proportion of the workforce that is not working from its limited budget. This is why Mill proposed a change in the welfare system which advocated help for the truly needy, while helping the able-bodied get back on their feet and join the workforce. In addition, he also advocated a minimum wage for the working classes. Putting together all his ideas, we can see that Mill was trying to bring about social equality through changes in public policy in a time of great economic and political change.
Another great classical British economist was Sir Edwin Chadwick. Chadwick was a trained lawyer who made a career in the civil service instead. He was a domineering man who had few friends but many admirers. Chadwick focused on the economics of things like law and order. For example, some of his research involved the studies of prison inmates that tried to ascertain what benefits these criminals sought while committing the crimes they did. He also condemned the British prison system at the time as inhuman, and brought about great change in the condition of the convict shipping methods to Australia. He did this by getting the government to pay the convict ship captains according to the number of convicts disembarked in Australia as opposed to the number embarked in England. This is a good example of how Chadwick used economics to bring about social change.
Both John Stuart Mill and Sir Edwin Chadwick got their inspiration from Jeremy Bentham. Bentham was a British thinker who proposed the theory of utilitarianism. Basically, this theory proposes those acts that cause the greatest good for the greatest number of people. As we can see from both Mill and Chadwick’s ideas and works, they tried to cause the greatest good for the greatest number of people. They also realized that if the workers were not happy, productivity would be affected in the long run and so the working classes need to be catered to as well. This was revolutionary thought in a world wracked by the class system.
Though Mill and Chadwick had a great deal in common, they differed in some regard. Mill believed in the intervention of the state to create social equality but not in the power of the state to meddle in the daily lives of the people. In essence, Mill believed in the goodness of people, and believed that government could provide great assistance, but basically it was the individuals who had to help themselves. Chadwick, on the other hand, believed that people could not be trusted to keep the momentum of social change going and so a central government should be more involved in the daily lives of the people.
But regardless of their differences, all the great classical economists sought to bring about social change through economic theory, and in so doing set the stage for many of today’s socially-aware economists.
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