Economics, Entrepreneurship and Utopia

The Economics of Jeremy Bentham and Robert Owen

Estrella Trincado, Manuel Santos-Redondo

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781317287735
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In the early 1800s, Robert Owen was a mill owner, political figure, and an advocate for social reform, and his publications attained considerable circulation. He believed that people need good working conditions in order to be encouraged to work and motivated to learn. Despite the higher costs associated with this kind of operation, compared to the traditional ones, Owen's management resulted in increased productivity and profit. His results caught the attention of men of wealth who were interested in social reform. In particular, at a similar time, Jeremy Bentham was developing his own theories. Owen and Bentham seemed to be based on some similar ideas that the greatest happiness creates the greatest results. Their ideas developed against the backdrop of the Industrial Revolution, and growing social and economic problems in England.

Owen and Bentham were forerunners of highly relevant current theories of economics – marginalism, entrepreneurship, personnel management, and constructivism. They were acquainted with such important authors as James Mill, Malthus, Ricardo and John Stuart Mill. However, their economic theories were ruled out by classical economists, who actively tried to silence perspectives different from the orthodoxy. This book presents an innovative study of these two social thinkers and reformers, who have rarely, if ever, been studied together. This comparative study provides new context both on the social debate taking place during the Industrial Revolution, and on the development of modern social thought, in particular, the relationship between socialism and utilitarianism.

Economics, Entrepreneurship and Utopia will be of great relevance to scholars with an interest in the history of economic ideas, the history of entrepreneurship, and social reform in both historical and contemporary contexts.

Part I
Bentham, Owen

Utopians and entrepreneurs

1 Introduction

The story of this book begins during a business visit to Glasgow by Robert Owen (May 1771 – November 1858), a young and successful Manchester industrial manager. He met David Dale, a prosperous Scottish businessman, the owner of New Lanark mills. It was the biggest factory in Great Britain. The meeting seemed to be a part of the love story of Owen with David Dale’s daughter, Caroline, finally Owen’s wife, but actually it was something quite different. Owen and his partners bought the estate from David Dale, and he became manager, as well as part owner, of the mills in January 1810.

Being an Englishman among Scottish people, at first Owen was regarded with suspicion as a stranger. It took him six years to win the confidence of employees, even after continuing Dale’s policy of treating the workforce much better than workers were treated in any other factory.

Some of Owen’s schemes entailed considerable expense and this displeased his partners. The expenditure they most objected to was the establishment of new education methods in schools instituted for children in New Lanark. After 1809, Owen frequently sought new partners.

By that time, Owen had become a political figure and an advocate for social reform and his publications attained considerable circulation. They caught the attention of men of wealth who were really interested in social reform. Among other intellectuals with whom Owen associated was James Mill (1773–1836), a philosopher and he was a close friend of the philosopher Jeremy Bentham (February 1748 – June 1832).

After some persuasion, Bentham and other philanthropists, such as the Quaker William Allen, invested some money in New Lanark’s cotton mills a remarkable business not only from the humanitarian point of view but also in a strict business sense. In particular, according to Bentham’s nephew, George Bentham, Jeremy invested some 10,000 pounds in January 1814 when he was 65 (Bentham, 1997, pp. 184–188).¹ It was a considerable amount of money.² New Lanark’s shares paid Bentham 500 pounds annually, and in 1814 he rented a large place, Ford Abbey, outside London, for which he paid £315 a year. Years later he had to give the place up because it was too expensive for his income. So, at the time, a £10,000 investment and a £500 return were substantial sums. This investment yielded Bentham at least 5% a year on capital for many years.

Owen said that “his friends have stated that it was the only successful enterprise in which he [Bentham] ever engaged. He, like Mr. Walker, never saw New Lanark” (Owen, 1857, pp. 95–96, 129; see Cole, 1953, p. 169). Indeed, Bentham’s own investments were something of a failure. An inheritance received in 1796 provided him with financial stability and, with that acquired money, Bentham invested in the bankrupt James Grellier and Co., a manufacturer of Roman Cement; and in September 1800, he tried to build a ‘frigidarium’ or ice-house for the preservation of fish, fruits, and vegetables (Bentham, 1838, vol. x, p. 346; see Cohen, 1997). At the same time, Bentham was writing his papers on the Panopticon (Bentham, 1791). For some 20 years Bentham pursued – fruitlessly and at great expense – the Panopticon idea (Bentham, 1838–1843, vol. x, p. 9, p. 144, Griffiths, 1884). Another of Bentham’s plans was devised in 1815 for a ‘Chrestomathic school’. The scheme never came to fruition. He also devoted a lot of time and effort trying to interest the Treasury in currency schemes, he suggested to the Americans that they should build a canal through Panama and he told the Bank of England how to create an unforgeable banknote. Finally, he also invested in real estate (Bentham, 1838, vol. 10, p. 479, p. 573). As Hazlitt (1969) says, “Mr. Bentham… is a little romantic or so, and has dissipated part of a handsome fortune on impractical speculations”.

Robert Owen ran the New Lanark’s cotton mills until December 1824, when he went to America to start a new colony, after a long period of friction with Allen and some of his other partners. In 1828, another Quaker, John Walker and his family bought the shares of Robert Owen and his sons William and Robert Dale. He began to run the business, which continued being a successful company and a model social system.

It looks evident that New Lanark seemed to fit Bentham’s ideas of the business entrepreneur and his ideals of social reform. Actually, at the moment of the investment, Bentham had developed a clear theory of entrepreneurship. He gave a definition of “business managers” and “entrepreneurs” (“projectors”), presented in his first works, in particular in 1787’s Defence of Usury.³ Owen’s experiment could have reinforced Bentham’s theory, as well as proving in some way the importance of innovation, which is a central idea in Defence of Usury (see Bentham, 1818). Owen had made some important innovations in management practice. As he did not wish to conduct the business along ordinary lines, since he believed that people need good laboring conditions to be encouraged to work, he supported education and labor reform, and housing of his employees.

Actually, the conditions at New Lanark for the workers and their families were idyllic for the time. In Owen’s time, some 2,500 people lived at New Lanark, many from the poorhouses of Glasgow and Edinburgh. Of those 2,500, 500 were children for whom there was no room in overcrowded poorhouses and charities in Glasgow and Edinburgh. Many of these children worked in the mills and had been well provided for by David Dale, but Owen extended Dale’s precedent and in 1816 opened at New Lanark the first infant school in Great Britain. Owen also improved the housing at New Lanark, encouraged the people in personal order, cleanliness, and thrift, and opened a store with fair prices and limited sales of alcoholic beverages. Even given the much higher costs associated with this kind of operation, compared to the traditional ones, Owen’s management, based on the wellbeing of the workforce, resulted in increased productivity and profit.

Based largely on his successes at New Lanark, Owen emerged as a leader of social reform, although his successes in New Lanark would contrast with later failures in New Colonies.⁴ New Lanark became one of the best known industries of the time and was a place of pilgrimage for social reformers, statesmen and royal personages, including Nicholas, the future emperor of Russia.⁵

However, in his works, Bentham never quoted New Lanark as an example of business. He never visited New Lanark. The fact that an investor so interested in education who was also interested in entrepreneurship took no serious intellectual interest in New Lanark is a strange circumstance. Was there any contradiction between both Bentham’s and Owen’s management theories, or was the problem a question of Robert Owen and Bentham not getting along?

It is true that Bentham had an odd relationship with Owen; however, after 1824, although New Lanark was then run by Walker’s family, Bentham still took no interest in the business. For everybody, New Lanark continued to be linked to Owen’s name, but Benthamś lack of curiosity is somewhat baffling. Maybe Bentham failed to recognize Owen’s importance because he disregarded Owen’s role as successful entrepreneur, misguided by Owen’s messianic personality, and his relevance as an advocate of social reform and communism. However, this public image was not so strange to Bentham as both Owen and Bentham were seen with hostility by the general public at their suggestions for greater sexual and religious freedom. By the time of his business success, Robert Owen was an open atheist, not a socialist. His views on religion and philosophy were presented in A New View of Society (1813).

Bentham’s mistake has been a common mistake, or bias, among historians ever since: there are plenty of books and articles about “Owen the socialist and the social reformer”; but just a few papers on Owen as a successful manager and entrepreneur in the textile sector during the industrial revolution, in Manchester and New Lanark.⁶ And the problem is that this is still true for historians today.

This book is a theoretical and factual explanation of these riddles that compares the theories and practices of these two leading figures, Robert Owen and Jeremy Bentham, trying to understand their influences in the political economy circles and the lessons that we may draw from them for our present society. Although in their living period Owen and Bentham were considered similar in their reformation aims and in their readiness to defend the principle of the greatest happiness to the greatest number, as Semple (1993, p. 307) points out, too much weight should not be put on the similarities between them; the differences between them are more substantial. Those differences are the basis for two different views of institutions and two different philosophies of life, which nowadays are also a part of the different theories of the social phenomena that economists use in their economic models and explanations. Differences are also part of the contemporary debates, which may shed some light on twenty first century worries. As Leavis says talking about Bentham and Coleridge, both men, dissimilar in almost everything, renewed a lesson given to mankind by every age. Bentham’s and Owen’s theories seem more similar than those of Bentham and Coleridge; and for that very same reason, lessons taken from their differences are much more interesting and go into the farthest depths of human understanding.

So, in the first part of this book we will study personal and intellectual connections between Owen and Bentham, and also their mutual distrust and fundamental differences, which lead us to talk about different philosophies of life. In a second part, we are going to study the performance of Owen and Bentham as entrepreneurs or projectors, and their contribution to the theory of entrepreneurship, which is quite important for both authors. Part III will deal with their proposals of social reform, one put into practice in Owen’s New Lanark; and the other constituting the basis for the modern social and economic theory. In this case, main differences are seen in their theory of education, although both may be considered forerunners of present theories such as constructivism and behaviourism. In the last section of this part we will deal with social circles of the time and personal and theoretical links of Owen and Bentham with James Mill, Malthus, Ricardo, Mill, utopian socialism and others. In this very relevant section we see that Owen was being cornered by political economist circles and prominent figures such as David Ricardo more for his image as an extreme communist who put the status quo in jeopardy than for his proposals. Finally, some concluding remarks will be presented that show the importance of having compared such relevant leaders of entrepreneurship and thought.

Notes

1These figures are not clear. Owen wrote (much later, in 1857), that he told Walker, his leading partner, “to form a partnership of thirteen shares, each share to be ten thousand pounds; and I intend to hold five of those shares”. Walker took three shares, and the other 6 partners – Bentham, Foster, Allen, Fox, and Gibbs – took £ 10,000 each. By 4th July 1820, Bentham had £5,491 invested in New Lanark (Letter from Jeremy Bentham to Samuel Bentham, 4 July 1820, Bentham 1994, pp. 5–8).

2A craftsman’s annual salary at the time was no more than 50 pounds (Harte, 2005), and an established doctor or lawyer may have received about 600 pounds.

3In Defence of Usury Bentham talks about managers in modern Schumpeterian terms, as “the prudent and well grounded projector, if the existence of such a being were to be supposed”, probably the sober people in Adam Smith’s terms. Bentham talks about entrepreneurs (projectors) as “all such persons as, in the pursuit of wealth, strike out into any new channel and, more especially, into any channel of invention’”, actually “prodigals and projectors” in Smith’s terms. See Pesciarelli (1989), Hébert and Link (2006) and Trincado (2004b).

4Obviously, it was not only Owen’s control of the firm that had influence in its success, but also some economies of localization. However, his success in Manchester and New Lanark was mainly due to personal leadership, technical expertise in cotton spinning and textile marketing, and self-confidence. And we know this because his failure in later enterprise and experiment was also due to some excesses of the same virtues: excess of self-confidence and extreme individual leadership in the field for which Owen lacked the “technical” expertise: intellectual and political training.

5Even quite recently, in December 2001, New Lanark’s importance was recognized by UNESCO (2001).

6On Owen as an industrial manager and entrepreneur, see Chaloner, 1954, Chatterji, 2009, Cooke, 1979, Gorb, 1951, Robertson, A. J., 1971.

2 The connection between Bentham and Owen

2.1 The meeting between two personalities

Around 1800, both the Enlightenment and the Industrial Revolution had led to new labour relations and social proposals. Debates on poor laws and unemployment were in fashion after the Napoleonic wars (see Lees, 1998, Quigley, 1996). The new social reformers and utopian socialists were usually far away from industrialists and businessmen, in terms of ideas, lives and characters (see Taylor, 2013). But some of them do mix. That was the case with Saint-Simon and Saint-Simonianism in France with the Suez Canal Company and the bank Credit Mobilier (see McWilliam, 1993) and with Robert Owen and Jeremy Bentham in England and Scotland. We start then with a particular and documented confluence of Owen and Bentham, who were both innovators and reformers of the new labour relations, one by a practical man – Owen – and the other by a man of books – Bentham – but close to a real entrepreneur, his brother Samuel. Then, in this chapter we describe the meeting between both philosophers and we try to assess if similarities may lead us to talk about the same philosophies.

We have started the story of the relationship of these great thinkers during a business visit to Glasgow by a young businessman, Robert Owen (see Trincado and Santos, 2014). Owen courted Caroline, the eldest daughter of David Dale. Owen (1857, pp. 51–52) explains that his meeting with David Dale was arranged by Caroline. He met David Dale, owner of the biggest factory in Great Britain, New Lanark mills. Then in 1784 he started a partnership with Richard Arkwright on the Clyde River. Owen at once asked Dale if New Lanark was for sale. Dale was astonished, as Owen was only 28 years old and looked even younger, but he nodded and let him e...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Part I Bentham, Owen: utopians and entrepreneurs
• Part II Entrepreneurs
• Part III Social reformers: utopians and utilitarians
• Part IV Conclusion
• References
• Index