The Intersection of Political and Economic Thought

The Intersection of Political and Economic Thought explores the dynamic relationship between politics and economics, examining how political ideologies shape economic policies and how economic realities influence political decisions. From classical theories to contemporary debates, this insightful analysis highlights the interplay between power, wealth, and governance, offering a deeper understanding of how societies organize and manage resources within political frameworks.

Contributions of the Natural School

The signs of the intersection between economic and political thought began in the early 18th century and were influenced by the previous trends of classical liberalism, the first liberalism that emerged during the transitional period between feudalism and capitalism, reaching its peak at the beginning of the industrial period of the 19th century.

Classical liberalism added a conception of freedom that significantly distinguished between the state and the individual. The state is a tyrannical entity that has the power to punish citizens, confiscate their property, fine them, deprive them of their freedoms, or even execute them. Therefore, the establishment of the state, even through a social contract, necessarily requires the sacrifice of individual freedom, who will inevitably lose the ability to do everything they desire.

Classical liberalism was influenced by major theories about human nature, which were developed by utilitarian thinkers, with Jeremy Bentham and James Mill at the forefront. However, the classical economic theory primarily crystallized in the works of Scottish economists, founders of the natural school, most notably Adam Smith (1723-1790), David Ricardo (1770-1823), and Robert Malthus (1766-1834).

01- Adam Smith’s Contribution to Classical Liberal Theory:

Adam Smith became famous through his book “An Inquiry into the Nature and Causes of the Wealth of Nations,” in which he considered that production resulting from the use of labor and resources is the source and the only way to wealth. The increase in this wealth is contingent upon skill and efficiency in the use of labor, according to the proportion of society members participating in the economic process.

Smith is known for his economic theory that bears his name, which is based on the idea that every nation or people has the ability to produce a good or raw material at a significantly lower cost than other countries. If countries exchange these goods, prosperity will prevail for everyone. He mocked the “mercantilist doctrine,” which favored protective tariffs, trade monopolies, and other government measures aimed at ensuring an increase in exports over imports and hoarding precious metals as the fundamental wealth of the nation.

The young revolution in America against the restrictions imposed by Britain on colonial trade was part of the background of Smith’s thinking. If the British government had followed the free trade advocated by him, it is possible that the year of the American “Declaration of Independence” would not have been witnessed. Smith had opinions on the conflict between Britain and America, considering the English monopoly on colonial trade as one of the “vile expedients used by the mercantile system.” He proposed granting America independence without further conflict, as long as the colonists refused to pay taxes to support the expenses of the British Empire.

Smith described the separation and independence he favored for the United States from Britain as a separation, and he called it the separation of agreeable friends. The natural affection between the colonists and their mother country would quickly revive, and it might lead them to favor Britain in war as they favor it in trade. He said in this regard, “Instead of being troublesome and turbulent subjects, they would become our most loyal… and generous allies.” He then added:

“The rapid progress made by that country has reached such a great amount of wealth, population, and improvement, that it may not take more than a century or so for America to exceed the revenue from British taxes, and then the seat of the empire will be transferred to that part of the empire that contributed the largest share in defending and supporting the whole.”

Smith defined the wealth of a nation not by the amount of gold or silver it possesses, but by the land, its improvements, and its yields, as well as the people, their efforts, services, skills, and goods. His theory was that the greatest material wealth results from the greatest economic freedoms – the regulated and conscious freedoms – and the pursuit of personal gain is common among all people. However, if we allow this strong motive to operate with the utmost economic freedom, it would stimulate activity, boldness, and competition, yielding more wealth than any other system known in history.

Adam Smith focused on the organization of labor, specialization, and the use of machines. He also emphasized the importance of transportation and communication means in distributing production, upholding his principle of “let him work, let him pass.” He believed that the economy reaches its peak activity in the absence of government intervention, considering that the economy is a series of interconnected markets that operate according to the desires of individuals, following the law of supply and demand. The market regulates itself through the mechanism of self-regulation, which is the “invisible hand.”

According to Smith, the individual, while pursuing their personal interest, often promotes the interest of society. He believed that the significant disparity in the distribution and quantity of wealth is only evident in backward societies. Smith also focused on the issue of increasing national income by imposing high customs duties on imported goods of the type produced by the state and using this measure as a means of bargaining for quantitative export of production.

Smith considered industry as the basis of national defense power, and it is the government’s responsibility to pay attention to this aspect and highlight its effective role in the strength of the state and the protection of foreign trade. There should be a proportion between the tax burden and the size of income.

The ideas put forth by Smith laid a solid foundation for determining the policies of modern capitalist states. They also served as a strong support for European colonial thought in the pursuit of resources and markets, then for the idea of economic dominance, by acquiring the largest possible share of resources and markets in the world.

02- Economic Thought and its Political Dimensions according to Robert Malthus (1766-1834):

Robert Malthus is considered one of the pioneers of free economic thought and became famous through his essay titled “Principles of Population” in 1798. In this essay, he pessimistically discussed the relationship between population growth and economic sufficiency. He stated that a man who has no one to support and cannot find work in society will find that he has no share of food on his land. He is an unnecessary member at nature’s banquet, and where there is no plate for him among the plates, nature orders him to leave the time.

Malthus’s theory, proposed in 1798, can be summarized as follows: population growth occurs according to a geometric sequence, which depends on doubling the last number in the arithmetic series “1 – 2 – 3 – 4 – 8 – 16 – 32,” and so on. On the other hand, the rate of food production, expressed economically as the gross domestic product, increases according to an arithmetic sequence, which depends on doubling the first number in the sequence: “1 – 2 – 3 – 4 – 5 – 6 – 7 – 8,” and so on.

Malthus formulated his theory based on a known economic law called the law of diminishing returns. This law means that as the use of one productive factor increases while the other factors remain constant, the additional output begins to decrease. Applying this law to the issue of population here, it is natural that a day will come when the increasing numbers will not find sufficient economic resources, as long as population growth exceeds the annual growth rate of the gross domestic product. Malthus called for dealing firmly with what he saw as excessive population growth, even if it required sterilization. According to Malthus, contemporary political systems are unable to meet the increasing needs, leading to a gap and problems in healthcare and livelihood coverage. This gap also leads to wars, which are a factor that adjusts population growth. However, Malthus later retracted this pessimistic view in an essay titled “The Crisis,” where he called on states to pay attention to social assistance for large families and utilize population growth in the production process.

Malthus’s merit lies in formulating a comprehensive theory on population, which he imposed on economics when he indicated the existence of a factor that must be studied alongside production, distribution, and exchange. This is because there is a close relationship between the development of population numbers and the development of production quantities. Malthus thus introduced the elements of time and motion in the study of economic activities at a time when these activities were still studied and analyzed on static and stagnant foundations. The inclusion of the population factor in the core of economic policy formed a special science closely related to economics, which is the science of population.

03- David Ricardo’s Economic Thought:

David Ricardo (1772-1823) belongs to the old classical school of thought, to which Adam Smith and Malthus also belonged. He supported free economic thought with his contribution. Reading Adam Smith’s book “The Wealth of Nations” motivated him to study the theories of political economy. He created a link between political thought and economic activity, resulting in his theory on the distribution of wealth, starting from agricultural ownership, focusing on the concept of rent (what an individual receives in exchange for owning a type of resource). Despite not dedicating himself to teaching economics and writing numerous files on it like his teacher Adam Smith and his colleague Malthus, he wrote a single book titled “Principles of Political Economy and Taxation” in 1817, which earned him the title of “the complete theoretical economist.” He left a deep impact on economics, and it is enough to say about him that he gathered many scattered principles of the classical school, forming a coherent fabric of economic analysis.

Ricardo was also pessimistic about the future of the human race, following the broad line that Malthus drew for himself. However, Ricardo’s pessimism was of the cautious kind, based on a complete understanding of the principles of economic theory, especially the law of diminishing returns. Ricardo followed Malthus’s research, particularly regarding wages, to invent what he called the “iron law of wages,” considering that high wages lead to an increase in labor resources.

The economic and social environment that surrounded Ricardo in the last quarter of the 18th century and the first and second decades of the 19th century influenced his thinking and shaped his views. He spent his youth in the cities and witnessed the tremendous changes that occurred in British society during and after the industrial revolution. He then came up with the idea that the capitalist system, despite its many flaws, is capable of driving the wheel of economic activity and pushing it forward without the need to replace it with another system.

Ricardo discussed the concept of value, declaring that the value of something is what was expended in it in terms of labor. Commodity (A) is more expensive than commodity (B) because the former required longer working hours to produce than the latter. Here, he affirms a principle that later became important in socialist thought, which is that labor is the basis of value. This is the same fundamental idea of Marx’s views on labor. However, Ricardo wrote it thirty years before Marx.

Ricardo announced his theory on international trade, meaning the theory of comparative costs, which remains to this day an original theory and a fundamental principle of international trade principles. This theory of comparative costs is the basic theory in international trade, but it is no longer fully valid to express international trade today. However, it is studied within international trade studies as a historical step that has passed and expressed international trade theory at the time. Ricardo has another famous theory based on:

First: Rent is an economic return for using the natural gifts of the land, which do not exhaust their powers.

Second: High rent does not indicate an abundance of land resources but, on the contrary, indicates a scarcity and stinginess of natural land.

Ricardo considered rent as an aggression on profit and a threat to the level of profits, especially if it led to the landowners seizing the economic surplus.

Ricardo’s propositions led to a campaign by the new industrial class against the landowning class and formed the basis for updating tax laws and nationalizing taxes.

In his book “Principles of Political Economy and Taxation,” Ricardo specified the conditions that help in the economic rise of the state. He believed that the accumulation of capital is the basis of rapid economic growth, and this accumulation is achieved by giving free rein to commercial and economic activities in achieving large profits. Ricardo’s theories had an impact on political economy, and his theory on superiority and competition remains the basis of modern international trade.

Karl Marx was influenced by Ricardo’s theory on labor value, which states that the value of a commodity is determined by the labor time required to produce it. It can be said that the path of socialism in England began after Ricardo, and Marx started where Ricardo stopped.