Influential Economic Theorists in History

Biographies of Selected Organizational Theorists

1. ADAM SMITH (Wealth of Nations, 1723-1790)

Born on June 5, 1723 in Kirkcaldy, Scotland, Adam Smith’s father died before his birth and he survived being briefly kidnapped by “gipsies” when he was just 4 years old to become one of the most prominent and influential economist theorists in history who is known today as the “Father of Economics” (Rae, 2009). Although his contributions were multiple, Smith is most famous today as being the author of An Inquiry into the Nature and Causes of the Wealth Of Nations (1776) which maintained that a laissez faire approach to commerce was in everyone’s best interests and the extent to which governments intervened is the extent to which the numerous benefits of free trade are diminished (Butler, 2019).

In sum, Smith did not conceptualize international commerce as a zero-sum enterprise but rather an opportunity for all stakeholders to benefit. For instance, according to one of Smith’s many biographers, “Because trade benefits both sides, it increases our prosperity just as surely as do agriculture or manufacture [and] a nation’s wealth is not the quantity of gold and silver in its vaults, but the total of its production and commerce” (Butler, 2019, para. 3). In addition, it was Smith’s now-famous view that marketplace forces would invariably sort out what types of activities were profitable and therefore worth pursuing while simultaneously weeding out those activities that were not through the influences of an “invisible hand.” In this regard, Butler reports that Smith believed that, “Freedom and self-interest need not produce chaos, but – as if guided by an ‘invisible hand’ – order and concord [and] as people struck bargains with each other, the nation’s resources would be drawn automatically to the ends and purposes that people valued most highly” (2019, para. 6).

The fundamental economic principles that were set forth in Smith’s Wealth of Nations were not only highly influential among his contemporaries, they remain salient today. As Butler points out, “Even today the common sense of free trade is accepted worldwide, whatever the practical difficulties of achieving it” (2019, para. 5). Indeed, while the “practical difficulties” of conducting modern international trade today extend to many factors that Smith could not envision, his basic economic tenets are still relevant despite the profound changes that have taken place in the global marketplace during the intervening three centuries. As Butler concludes, “Smith had a radical, fresh understanding of how human societies actually work. He realized that social harmony would emerge naturally as human beings struggled to find ways to live and work with each other” (2019, para. 7). This also means that Smith’s contributions drew on empirical observations concerning how the real-world operated rather than drawing on abstractions.

2. KARL MARX – The conflict of capital and labor (Communist Manifesto, 1848)

Born on May 5, 1818 in Trier, Germany, Karl Marx was a friend and collaborator with other influential economists of the era, including Friedrich Engels (Mihalache, 2015). Together with Engels, Marx co-authored the enormously influential Communist Manifesto in 1848 which was prefaced with the prescient caution that, “A specter is haunting Europe—the specter of Communism” and which concluded with a call to action for the “Working men of all countries [to] unite!” (as cited in Mihalache, 2015, para. 6). These two formative statements would become a clarion call for working people around the world in the years to come, but given their highly controversial nature, it is little wonder that Marx has attracted his share of admirers and detractors. For example, according to one biographer, “Much of Marx’s comprehensive view is wrong, in some cases catastrophically wrong. But, the ‘redeemable parts’ of Marx show some profound insights into the problems of capitalism in democratic states” (Munger, 2020, p. 509).

It is important to note, though, that Marx built on the earlier work of other influential theorists. For example, according to one biographer, “Picking up where Kant and Hegel left off, Marx reformulates the theory-praxis problem in a revolutionary way. For him, change is no longer introduced by dogmatic assumptions; rather, it is through the critique of the old that the new becomes possible” (Mihalache, 2015, para. 7). In other words, it is essential to continuously question the status quo and its antecedents to identify social, political and economic constraints and opportunities.

Although the conflict of capital and labor that is explicated in the Communist Manifesto has been interpreted in different ways over the years, most authorities agree that the main thrust of Marx’s economic principles concern the fundamental struggle between social classes that tends to make the rich even richer while simultaneously keeping the downtrodden masses trodden down. In this regard, Munger (2020) advises that the key point made by the Communist Manifesto is that “the motor animating historical change is class struggle” [wherein] “two large-scale social phenomena condition class struggle: institutions and ideologies” (p. 510).

In this context, the institutions to which Marx refers are not necessarily physical entities per se but are rather comprised of both formal and informal rules, typically politically based, that serve as the framework which creates class-based struggles. Conversely, ideologies represent the shared consciousness and accepted set of norms that serve as the rationale for the aforementioned institutionally generated class-based struggles (Munger, 2020). Consequently, one of the key point to emerge from a close reading of the Communist Manifesto concerns the manner in which the capitalist system’s commodification process operated to place workers at a continuous disadvantage by separating them from the full benefits of their labor (Munger, 2020).

3. EMILE DURKHEIM – The role of organizations in society (Paris, 1890s)

The increasingly divisive and heated rhetoric that is being bantered at the highest levels of American society today makes it clear that there is a wide array of interests involved in any type of debate about the appropriate role of organizations in a modern civil society. In this regard, Horgan (2014) notes that Durkheim emphasized that, “Any understanding of civil society at the local scale requires that we look at when, where, how and why actors come together to discuss, argue about, and assert their positions and visions for the place in which they live” (p. 749). Not surprisingly, perhaps, many local citizens may be frustrated and even dismayed at the actions that are taken by their civic leaders which are purportedly intended to benefit taxpayers but which operate to unjustly enrich those with the right connections in the public and private sectors.

In a political context, the respective views of taxpayers that contest these actions can be advanced in a number of venues. For instance, Horgan points out that, “Beliefs and assertions about what is good or bad for the area are expressed in local media and in materials produced by groups with varying degrees of formal organization that intervene in the debate” (p. 749). In an organizational context, however, employees typically lack these forums and only promote their contrary arguments on platforms such as social media at the risk of jeopardizing their jobs, especially in at-will employment situations. Moreover, unlike the social contract that characterized much of the 20th century wherein many people understood that they would receive a guarantee of full-time work for the rest of their careers followed by a comfortable retirement in exchange for their loyalty and hard work, the relationship between employees and employers is far less dependable. For example, Lincoln and Guillot (2004) make the point that, “The employment relation in advanced societies, perhaps the U. S. most of all, has become a tenuous one, which neither party expects to last and either can readily walk away from” (p. 6).

The fact that many of the January 6 insurrectionists have subsequently been fired as a direct result of their involvement as publicized in high-profile social media postings underscores the significant power that organizations of all sizes and types can exert over their employees based on highly subjective reasoning which is almost always in the organization’s best interests. Although there has been some effort to improve employees’ work-life balance in recent years, the organizational culture that Durkheim profiled makes it clear that in the vast majority of cases, the priority remains squarely on profitability rather than social and economic equity (Lincoln & Guillot, 2004).

4. MAX WEBER – Rational bureaucracy (series of essays from 1905-1920)

The historical record indicates that the origins of the term “red tape” date back at least two centuries, but the inefficiencies that characterize many bureaucracies today suggest that far more needs to be done in order to realize the full range of advantages that the bureaucratic model can provide if it is properly implemented, administered and overseen as advocated by Max Weber, who based many of his concepts on the work of Adam Smith (Max Weber and the idea of bureaucracy, 2021).

The research also makes it clear that Weber would firmly object to the types of nepotism that ran rampant in the most recent U.S. executive administration. In this regard, Weiss (1983) notes that, “Weber argued for the maximization of organizational efficiency as a consequence of legitimate, rationally-based authority [and] had little regard for favoritism based on status (especially family connections) and hiring of personal friends and saw bureaucratic organizations as correcting such practices” (p. 242). Furthermore, it is especially noteworthy that Weber’s series of essays during the period from1905 through 1920 was based primarily on his views about the manner in which human societies tend to marginalize some demographic segments at the expense of others, mirroring the debate advanced by other early economic and political theorists of the era. For instance, as Weiss (1983) points out, “The central purpose in Weber’s essays on bureaucracy was not to provide advice to managers. Rather, he wished to address a long-standing theoretical debate carried on by Rousseau, Hegel, and Marx concerning the basic nature of domination in society” (p. 242).

From Weber’s perspective, the “basic nature of domination in society” was one of the major downsides of bureaucracies, but bureaucracies required several attributes in order to actually effect domination over others in a social context. For instance, Weiss (1983) advises that, “Domination requires, in addition to an administrative staff, a perceived consistency with widely held values, which he called legitimation [and] presented three modes by which a system of domination might stake a claim to legitimacy: the now-familiar categorization of traditional, charismatic, and rational-legal authority” (p. 243).

Building on the work by Marx concerning the manner in which workers were systematically disassociated from the means of production as well as the fruits of their labors, Weber maintained that these processes were actually part of a broader process he termed rationalization and this outcome was essential for modern societies in order to avoid the dominating effects of bureaucracies. As Weiss (1983) concludes, “Weber’s writing on bureaucracy is understood most appropriately as an examination of the characteristics of a system of domination (a central requisite of which is an administrative staff) employing rational-legal legitimation” (p. 244).

5. FREDERICK TAYLOR – Scientific Management (1856-1915)

A common dictum seen in many organizations and hallways of higher learned advises business practitioners to “work smarter, not harder,” but this guidance is certainly not new. Indeed, it was just after the fin de siècle when Frederick Taylor realized that the workplace lacked the standardization of methods that was needed to help workers earn as much as possible rather than working as hard as possible. In this regard, Dowding (2019) reports that, “Taylor’s philosophy focused on the belief that making people work as hard as they could was not as efficient as optimizing the way the work was done” (para. 4). Drawing on his inspiration after watching men shovel coal all day, Taylor experimented with different sized shovels and broke the steps down that were required to move coal from one place to another in order to achieve the optimal outcomes.

These and other empirical observations provided Taylor with the data he needed to reengineer the American workplace to enhance efficiencies and promote productivity which he codified in his 1909 seminal work, The Principles of Scientific Management. As one biographer points out, “In this, he proposed that by optimizing and simplifying jobs, productivity would increase. He also advanced the idea that workers and managers needed to cooperate with one another” (Dowding, 2019, para. 5).

Beyond the innovative scientifically based techniques that were developed by Taylor to promote efficiency and productivity, this latter idea was especially significant since it ran contrary to the prevailing views of the day which held that workers and employers should not collaborate and workers should be left to their own devices to achieve a given organizational mission (Paris, 2019). It is also clear from Taylor’s writings that he fully expected his concepts to be widely embraced and applied throughout the workplace as well as the American home in order to improve the quality of life for the average American (Paris, 2019).

One of the unfortunate outcomes that has been associated with Taylor’s work since the publication of The Principles of Scientific Management, however, has been the tendency to apply his methods to such an extreme that workers are relegated to an assembly-line mentality that discourages innovation, diminishes employee morale and exacerbates job dissatisfaction. Nevertheless, understood and applied as originally conceptualized by Taylor, the scientific management principles he outlined have been one of the major driving forces behind shaping the workplace of the 21st century.

6. CHESTER BARNARD – Theories of Authority and Incentives (1886-1961; Functions of the Executive, 1938)

Mainstream anthropologists believe that early humans first learned how to cooperate with each other in gathering food and hunting prey as a survival strategy, and Chester Barnard likewise maintained that modern humans also found cooperation as valuable approach to minimizing their own limitations while simultaneously maximizing the effects of their labor. For example, according to Scott and Mitchell (1987), “Cooperation was the countervailing social act in which people engaged in order to offset their individual limitations. Barnard viewed cooperation as arising spontaneously from the processes of human interaction, at first involving just a few individuals” (p. 35). It was this “what’s in it for me” aspect that served as the primary motivating factor when humans were still living in caves just as it remains relevant today.

Indeed, cooperation between management and workers was at the core of his Functions of the Executive wherein Barnard stressed the importance of the role played by executives in forging win-wn compromises that take all stakeholders’ best interests into account. In this regard, Donnelly (2014) points out that from Barnard’s point of view, “The capacity of the executive is ‘the strategic factor in cooperation.’ It is not found in a simple acceptance of the codes of the organization but requires ‘the creation of moral codes for others’” (p. 65). While it may seem disingenuous and even sinister to attempt to inculcate a moral code for others, Barnard held that the positive organizational culture that is capable of being created and maintained by corporate executives can serve as the framework that is needed to ensure that employees recognize the “what’s in it for them” aspects of their labor.

Over time, the cumulative effects of this cooperative approach to achieving organizational goals creates a synergistic effect. For example, according to Scott and Mitchell (1987), “In general Barnard believed in an interactive relationship between effectiveness and efficiency. The more people were satisfied, the more they would contribute to the cooperative enterprise; the more effective the enterprise, the more it would be able to distribute satisfaction to its participants” (p. 36). In other words, similar to Taylor, Barnard wanted to improve the ability of workers to earn a living through a cooperative approach that maximized their efforts towards achieving a common goal. On a final note, though, it is also important to point out that Barnard was a pragmatist who recognized that even the most efficient and productive organizations were temporary and would only persist so long as all stakeholders viewed the system as equitable (Scott & Mitchell, 1987).

References

Butler, E. (2019). About Adam Smith. Adam Smith Institute. Retrieved from https://www.adamsmith.org/about-adam-smith.

Donnelly, D. G. (2014, February). The basic theoretical contribution of Chester I. Barnard to contemporary administrative thought. Doctoral Dissertations 1896 – February 2014. 3816.

Dowding, M. (2019). Frederick Taylor and scientific management. MindTools. Retrieved from https://www.mindtools.com/pages/article/newTMM_ Taylor.htm.

Horgan, M. (2014, October 1). Durkheim, development and the devil: A cultural sociology of community conflict. Canadian Journal of Sociology, 39(4), 741-752.

Lincoln, J. R. & Guillot, D. (2004). Durkheim and organizational culture. IRLE working paper no. 108-04, 1-15 Retrieved from https://www.irle.berkeley. edu/files/2004/Durkheim-and-Organizational-Culture.pdf.

Max Weber and the idea of bureaucracy. (2021). Science. Retrieved from https://science.jrank.org/pages/8499/Bureaucracy-Max-Weber-Idea-Bureaucracy.html.

Mihalache, D. (2015). Karl Marx biography. United Architects. Retrieved from https://danassays. wordpress.com/encyclopedia-of-the-essay/marx-karl/.

Munger, M. C. (2020, April 1). Was Karl Marx a public-choice theorist? Independent Review, 24(4), 509-515.

Paris, I. (2019). Between efficiency and comfort: the organization of domestic work and space from home economics to scientific management, 1841–1913. History and Technology, 35(1), 81-104.

Rae, J. (2009). Guide to John Rae’s life of Adam Smith. The Floating Press.

Scott, W. G. & Mitchell, T. R. (1987, Spring). The universal Barnard: His macro theories of organization. Public Administration Quarterly, 34-49.

Weiss, R. M. (1983). Weber on bureaucracy: Management consultant or political theorist? Academy of Management Review, 8(2), 242-248.