As Ross Emmett pointed out in his article, free-market economists have erroneously been quick to criticize Thomas Malthus over his “Malthusian Catastrophe” demographic theory. In pointing out that such criticism is based on a misconception of what Malthus said, Emmett makes a wonderful case presenting exactly why free-market economists should embrace rather than detest the classical economist. Given that there are those who criticize the free-market on the basis of the existence of business cycles, there is an additional reason why Thomas Malthus is right. It is here that we see the potential for free-market economists to utilize Malthusian theory to strengthen the philosophical basis of their arguments.
Almost for as long as economics has existed, economists have criticized capitalism because of the existence of business cycles, taken here to mean significant fluctuations in output over a prolonged period of time. Karl Marx was the most prominent of economists who made such an argument, contending in his Manifesto of the Communist Party that capitalism was like a “sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells”. Marx was referring to the apparent turbulence within capitalism that gives the impression that it is on the verge of imploding. He further elaborates, likening economic downturns to a state of “momentary barbarism”, “famine” and a “universal war of devastation”. Combining Hegelian philosophy with classical economics as he knew it, Marx proceeded to argue that the existence of business cycles would undermine capitalism and usher in a new economic and social order known as socialism.
Ever since Marx ended his Manifesto with the bold exclamation “Workers of the world, unite”, the greatest attacks launched against capitalism have been arguments against the existence of business cycles. Indeed, John Maynard Keynes started out his General Theory of Employment, Interest and Money with challenges to the postulates of classical economics and from there proceeded to argue that the existence of business cycles meant that capitalism was inherently unstable, and only government intervention could act as a palliative (in doing so, undermining capitalism!). Hyman Minsky, Paul Krugman and a number of other economists have all attacked capitalism on this ground, and this ground alone: Capitalism is inherently unstable and it requires extensive government intervention to ensure that it can run smoothly.
Taking a philosophical approach, we need to ask ourselves: “Why”? Why exactly is the existence of business cycles a bad thing? In economic discourse, it is just taken as a given to be a bad thing. Not only do we need to ask ourselves “why”, but we need to imagine an alternative world where there are no recessions and the economy perpetually grows.
Whilst Keynesians, adhering to an economic school of thought that is devoid of any meaningful philosophical underpinning, would praise such a state of affairs, classical economist Thomas Malthus considers this to be a bad thing. He noted in his An essay on the principle of population that: “The general tendency of an uniform course of prosperity is rather to degrade than exalt the character”. To Malthus, an everlasting state of prosperity was bad. It meant that individuals could not develop their character along the virtues that we look upon with awe such as charity and piety. Malthus goes further to say that: “The heart that has never known sorrow itself will seldom be feelingly alive to the pains and pleasures, the wants and wishes, of its fellow beings”.
This has parallels with the idea expressed by Adam Smith in his The Theory of Moral Sentiments, namely, that we form a conception of others by bringing it home to ourselves: “As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation”.
Recessions are useful in that they enable individuals within an economy to understand the transitory nature of wealth, and thus forcing them to contemplate on the deeper meaning of life. We sometimes need suffering to cultivate our character. Recessions reverse the selfishness and the greed that may have existed in the economic boom that preceded it and almost certainly would have persisted in a state of perpetual economic prosperity. Capitalism, through the business cycle, maintains a “Golden Mean” between social pleasure and social pain. Those who are well-off have to cut back. They form an awareness within their own minds about those who are less well off. It is in this sense that we can also regard capitalism as “self-regulating”, not just through economic transactions, but also through regulating the moral character of each individual.
The great theologian St. Thomas Aquinas maintained that although only good (as opposed to evil, which is merely a privation of good) existed in the universe, he nonetheless argued in his Summa Theologica that “the perfection of the universe requires that there should be some which can fail in goodness, and thence it follows that sometimes they do fail.” Likewise, following the argument of Thomas Malthus, the perfection of the economy requires that sometimes it can fail in goodness (i.e. recessions) and sometimes it does fail. Recessions ought not to be looked upon with fear, but as an opportunity for each individual to contemplate on what exactly life is about. St. Augustine phrased it best when he likens God to a “physician”, with “suffering as a medicine for salvation”. As He presides over the universe it follows that He can utilize even recessions for the greater good.
Thomas Malthus’ theodicy – an explanation of why evil exists in the world – can be utilized by free-market economists to develop a philosophical basis on the benefits of economic downturns. Recessions are not an anomaly or an “act of nature” or an inherent defectiveness of capitalism, but an outcome with the benefit of ensuring that everyone has the opportunity to further cultivate their character.