The Sex Lives of Great Economists
One of the cardinal rules of science is, "Thou shalt not get personal," and scientific etiquette is designed to remove controversy from the sphere of the individual. Hence the impersonal tone and passive voice of technical papers, the complete absence of resort to anecdote and personal experience. Even first names are omitted; initials are enough. "Ad hominem" arguments-those that respond not to the merits of a claim, but rather to the fact that it comes from such-and-such a person -- are strictly out of bounds. This principle is especially important in economics, where arguments can get personal all too easily.
So it is unusual, to say the least, that two major biographies of John Maynard Keynes have appeared recently, and both dwell at some length on his bisexuality. This is partly in reaction to Sir Roy Harrod's lengthy hagiography of his friend, published in 1951, which omitted any mention of it. Dozens of books on Keynes have rolled off the presses since then without so much as hinting at the fact.
But mostly, today's attention to Keynes' sexual makeup represents a determined attempt to come to grips with the man, to finally figure him out, to assign him to his proper place in the intellectual firmament of the century.
To be sure, Keynes is not exactly yesterday's child. He was born 101 years ago, the son of a prominent economist father and a mother who would eventually become mayor of Cambridge, England. It was nearly half a century ago, in 1936, that he launched -- with the publication of his General Theory of Money, Interest and Employment -- the intellectual "revolution" that bears his name. And it was just 10 years after the publication of that difficult book that he died. Yet his claim on our attention has hardly relaxed over the years; if anything, it has grown. All the talk about "needing a new Keynes" notwithstanding, the old one is all we've got.
Charles H. Hession's book -- John Maynard Keynes: A Personal Biography of the Man Who Revolutionized Capitalism and the Way We Live, -- is "addressed to the very question" of his bisexuality, the author says. It is a workmanlike job in which Hession occasionally lays aside the biographer's mantle to speculate on the relationship among homosexuality, androgyny and creativity.
The first volume of Robert Skidelsky's biography, John Maynard Keynes: Hopes Betrayed 1883-1920, is by far the more painstaking effort, though. It was published last year in England, and when the second volume (The Economist as Prince) is completed next year, the two will be published as one in the United States by The Viking Press. The picture it paints of the young Keynes is of a fairly promiscuous, always intense denizen of a hothouse society in which homosexuality was far from shocking or even uncommon.
According to Skidelsky, Keynes loved boys at first from highest principles, then turned during World War I to dating girls (all the young men were away at the front), and eventually married the ballerina Lydia Lopokova -- which led John Vincent to crack in the Sunday London Times that "the Higher Sodomy turned out not to be the ultimate truth but a matter of supply and demand."
Meanwhile, the disagreement over what Keynes really meant continues in full flower. For 15 years, economists have argued about whether his message was fundamentally mistaken by those neoclassical economists who were eager to bend Keynes' insights about government to their more conventional analytic purposes.
Recently, Meier Kohn, a Dartmouth theorist, has made a strong argument that the portion of the General Theory that was quickly assimilated was mostly methodological -- and that a lengthy attempt must be made now to restore his analytic approach to the financial system. Economists are in no danger of agreeing on the real Keynes, at least any time soon.
When making ad hominem judgments about Keynes, the broader context of Cambridge university life may have been far more to the point than his bisexuality, according an essay by the late Harry Johnson, a scholar who went back and forth between England and Chicago with ease. Johnson maintained that it was crucial to understand the influence that English college life had as an economic institution on Keynes' worldview.
For one thing, the sense that the world was somehow like a college colored Keynes' attitude toward the working class, whom he thought of in terms of jolly servants deserving of plenty of fringe benefits, according to Johnson. For another, it meant he viewed entrepreneurs and businessmen as failed undergraduates. "These were people for whom some reputable non-academic, non-governmental employment should be found, but who should not be rewarded on an inordinate scale for success in their second-rate activities," he wrote.
"It would also be natural for such academics [as Keynes] to believe that the messes that the practical world of business and politics got itself into resulted from the defect of inferior intelligence or, alternatively, the lack of a system of corporate decision-taking comparable to that of a college fellowship body and its council."
Is the sex life of great economists ever relevant? Well, yes and no. Certainly not in any everyday sense, but overall, there may be an element of sexual style involved in theory choice. At least Joseph Schumpeter thought so. He never remarked on Keynes' habits, at least not publicly, but in his great history of economic analysis, published posthumously, he observed of Adam Smith, "a fact I cannot help considering relevant, not for his pure economics, of course, but more for his understanding of human nature that no woman, excepting his mother, ever played a role in his existence. In this, as in other respects, the glamors and passions of life were just literature to him." And indeed, there is something about general equilibrium analysis, which Smith can be said to have founded, that is, well, ultimately unconsummated.
And can it be entirely beside the point that Schumpeter admired the theorizing of the highly transitive Karl Marx, a fine husband and loving father who at a certain point in his trials impregnated the family maid -- and then permitted Friedrich Engels (the "Lieber Fred" of later days) to take the blame?
After all, Schumpeter himself liked to brag enigmatically that he had entertained three great ambitions in his youth -- to be a great horseman, a great lover and a great economist -- and that he had achieved two of them.
Keynes, too, scored on two of the three counts, then -- and since he had no interest in horses, perhaps he can be judged the greater man. The fundamental point about Keynes remains undoubted. It is that he changed, probably forever, the way we think about the government's responsibility for the behavior of the economy.
As Robert Skidelsky has written, he was at first "the only professional economist in Britain and the United States who grasped the point that unemployment could be seen as a technical problem in economic analysis to be solved by economic means." Or as Michael Stewart has put it, he showed that the Great Depression was the result of ignorance too deep to be borne.
May 6, 1984
Adam Smith: The Canniest Scot
When the 250th anniversary of his birth was celebrated quietly in 1973, Adam Smith was, by and large, an afterthought, at least in the public realm of newspapers and magazines. OPEC was in the saddle and rode mankind. Twenty years of extraordinary worldwide growth were abruptly ending, for reasons that are still not well understood today. Economics, at least as Smith had framed it, was widely said to have somehow lost its explanatory snap.
This month the 200th anniversary of Smith's death is being celebrated in Scotland with a good deal more ballyhoo and grandeur. First it was a band of businessmen and politicians who flocked to Edinburgh for a Wealth of Nations 1990 symposium that its organizers, the World Business Forum, billed as "the most important conference to be held anywhere in the world this year." It ended last week, about the same time as the Group of 7 economic summit in Houston.
This week it is the economists' turn to make the pilgrimage to Scotland. No fewer than 11 Nobel laureates are on a two-day program beginning tomorrow to honor the man who put the concepts of the free market and the "invisible hand" at the center of modern technical economics. Not all will come, but all have made a living elaborating the insights of the scholar who wrote: "Where competition is free, the rivalship of competitors...obliges every man to endeavor to execute his work with a certain degree of exactness....Rivalship and emulation render excellency, even in the mean professions, an object of ambition, and frequently occasion the very greatest exertions."
The differing atmospheres surrounding the two meetings are instructive. Led by former British Prime Minister Edward Heath; Salomon Brothers' John Gutfreund; investment banker Lord Roll of Ipsden; Jack Kemp, the U.S. Secretary of Housing and Urban Development; and others, the celebrants of The Wealth of Nations tended to be veterans of the recent battles of the global Turn to the Right, fought during the 1970s and 1980s. Uppermost in the minds of participants seemed to be the sudden tilt toward markets of the Eastern European economies. Within the hearing of Rachel Johnson of the Financial Times, for example, Jack Kemp bubbled: "More people are queuing up to buy hamburgers in Moscow than to view Lenin's tomb."
The invited economists, on the other hand, had made a much longer march to Smith's grave at Canongate Kirk. The most senior among them were men who began their journey in the early days of World War II, when in the heat of general mobilization a whole slew of probabilistic methods became the catalyst that produced a lofty new vision of a thoroughly "scientific" economics, shorn of drama and surprises. They included Paul Samuelson, who as a young man began the encoding of economics in mathematical language as a post-doc hidden away at Lincoln Labs in Cambridge; Laury Klein, the father of econometric modeling, who began his career about the same time as a committed Marxist; and Maurice Allais, who spent his war writing up an impenetrable tract on the price system that went virtually unnoticed outside of France. That is, until he was awarded the Nobel Prize in 1988 for having made simultaneously in isolation many of the same discoveries of the mathematical properties of general equilibrium systems that had occasioned great excitement when made in slightly different form in America during World War II.
These two disparate realms, the highly practical and the deeply theoretical, were emblematic of the enormous complexity of a field in which politicians and philosophers seek both to change the world and to understand it. But with the economies of the Soviet Union and Eastern Europe collapsing at the end of a disastrous 70-year experiment in central planning, a certain unavoidable pride of place now belongs to Smith, the man who identified competition as a natural and desirable state of affairs, who analyzed its ins and outs with dry wit and memorable skepticism.
Who was Adam Smith? The son of a customs inspector, born in 1723, Smith took quickly to university life at 14, traveled widely on the continent, became an admirer of Isaac Newton, a friend of David Hume and, with the publication of The Theory of Moral Sentiments, a principal of the Scottish Enlightenment. As a Fellow of the Royal Society in London and a private tutor in Paris, he spent his evenings with the best minds of his generation, including Samuel Johnson, Edmund Burke, Edward Gibbon and Voltaire. When An Inquiry into the Nature and Causes of the Wealth of Nations was published in 1776, it was at first taken simply to be a massive critique of mercantilism, as the system of close governmental regulation of economic and social affairs was then called.
Knocking mercantilism was one thing. Smith, however, offered something to put in its place, a "system of natural liberty" (his phrase for what we today routinely try to capture in the word "capitalism"). It was built on "the natural effort of every individual to better his own condition," and was capable of "surmounting a hundred impertinent obstructions with which the folly of human law too often encumbers its operations." The miracle of the "invisible hand" of competition, Smith wrote, was such that the competitive struggle among persons seeking the greatest advantage induced both capital and labor to forever move from less profitable to more profitable employment -- and so regulated economic society like some smooth-running machine.
Smith lived 13 years after his masterpiece was published. But his project to analyze the effects of universal competition soon was taken up by others, notably David Ricardo. It was refined and reduced to a series of "iron laws" and dire forecasts of slowing growth and subsistence wages that soon enough earned economics the sobriquet "the dismal science" and touched off two centuries of intellectual struggle.
But competition is only part of the story of The Wealth of Nations. An equally important theme in Smith is the contribution of accumulation, investment and the growth of knowledge -- thus, the significance of entrepreneurs, research and development, wars and systems of property rights. In recent years, interest in these mechanisms have begun to regain center stage in technical economics, as a new generation of economists have come forward to put forth formal models of earlier glimpses of the significance of imperfect competition.
In a recent paper, "Increasing Returns and New Developments in the Theory of Growth," economist Paul Romer of the University of California at Berkeley traced the history of this second, less-well-known proposition that is at the heart of the Gospel according to Smith -- and that is the basis for something of a revolution among the young in technical economics today.
Romer wrote: "Ultimately...the factor that is most likely to move the profession toward acceptance of models with increasing returns and even departures from price-taking is the incongruity between what economists actually believe and what their models of growth predict. A very large majority of economists believe that private-sector research and development expenditure is an important determinant of long-run potential for growth and that the presence or absence of intellectual property rights is important as well. Discussions of the economics of the firm or industry typically reflect this belief. It is only in formal models of growth for the economy as a whole that these effects have been absent."
Revolution in growth theory or no, economics will go on as before, sorting through Smith's reputation and the consequences of his views. As Paul Samuelson says: "They had thought he was mainly a practical fellow with a lot of wisdom. They found out there was a complete system in there." Andrew Skinner, the University of Glasgow professor who has spent the last 20 years on Smith, editing a comprehensive edition of his works and preparing various celebrations, has said in contemplation of the end of the apparently endless festivities: "Next I'm going to take on James Steuart. He was the Scottish philosopher who wrote down some of these ideas for the first time, even before Smith." And individual researchers will, of course, go on constructing precise mathematical models of mechanisms that Smith captured in single paragraphs here and there of beautiful English prose.
So in the end, then, Adam Smith may be remembered best as a voice who warned, more persuasively than any other, against the impulse of those reformers who seek to do everything at once. "The man of systems seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces of a chess-board; he does not consider that the pieces of a chess-board have no other principle of motion besides that which the hand impresses on them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own different from that which the legislature might seem to impress on it."
That doesn't mean that Smith was a government-basher, though. "No government is quite perfect," he wrote, "but it is better to submit to some inconveniences than to make attempts against it."
July 15, 1990
Redeeming Karl Marx
May day has come and gone. The great old international holiday of labor used to be marked in Moscow by daylong parades of workers, great shows of military might beneath towering banners of Karl Marx hung from the Kremlin walls. This year the authorities rented out Red Square to foreign companies to set up billboards for the day -- "to raise money for the cash-strapped municipal coffers," as Deborah Seward put it in a dispatch from Moscow for the Associated Press.
"The government declared it a day of 'spring and labor,' with an emphasis on spring," she wrote, adding that participants in the celebration planned to observe a minute of silence for the victims of industrial accidents. "The Russian Information Agency said more than 8,000 people died and 12,000 were crippled in Russian industrial facilities in 1991. About 420,000 people were injured and the agency said there have been no improvements in job safety standards."
So much for communism, Russian-style. But what has happened to Karl Marx? In the West, Earth Day has taken over some of the passion and longing once reserved for May Day. "Critical studies" of various sorts have absorbed much of the intellect that once went into Marxism. David Noble's long-awaited study of the history of science, A World Without Women: The Christian Clerical Culture of Western Science, is the new best-seller. You can still find the collected works of Marx and Engels in university book-stores, but it is the standard economics texts that kids are buying. Does that mean that Marx will be consigned to the intellectual scrap heap? Probably not. As a symbol, he'll be around as long as people hunger for justice -- a tarnished but evocative figure, in whose name great crimes have been committed, not unlike other great religious figures, such as Jesus and Mohammed. Within social science, however, he's likely to be remembered for the introduction of the theory of punctuated equilibria.
This seems likely to turn out to be a rather central point. Perhaps the best way to understand it is to work backward from the present.
At the moment the idea of punctuated equilibrium is most familiar to those who follow evolutionary biology. At one level, punctuated equilibrium simply means that once a species evolves, it will usually not undergo great change, says Niles Eldredge of the American Museum of Natural History in New York (he invented the term in a 1972 paper he wrote with Harvard paleontologist Stephen Jay Gould). Such species stability runs counter to the usual expectation going back to Darwin, that there will be mostly gradual and continuous changes in nature, he says.
More largely, the punctuated equilibrium debate is really an argument about the fundamental nature of change. Is it "easy," or is it "hard"? In Eldredge's phrase, punctuated equilibrium offers a picture of "obdurate stability interrupted only rarely by brief spurts of change." The returns are not entirely in; you can still start an argument by bringing up the term with an evolutionary biologist.
A little closer to home, the idea of punctuated equilibrium is to be found embedded in the history of science, where physicist Thomas S. Kuhn firmly placed it when he published his famous book The Structure of Scientific Revolutions in 1962. Kuhn differentiated between occasional sudden breakthroughs in scientific understanding and the long periods between them of consolidation or "mopping up" of the ground that had been won -- between "revolutionary" and "normal" science, as he put it.
The introduction of this idea of sharp shifts and sudden discontinuities interrupting otherwise stately seeming progress was every bit as disquieting when it was introduced to the study of the growth of knowledge in the 1960s as it had been when it was introduced to physics through the study of the quantum jump in the first decade of the century. Classical physicists had suffered the equivalent of a collective nervous breakdown as they wrestled with the "black body radiation problem," retrieving order in their world only when Einstein and others firmly introduced the concept of discontinuity. In each case, punctuated equilibrium seemed to strike at one of the very deepest foundations at our knowledge of the world, namely the conviction that change would always be a matter of smooth little increments at the margin of things.
Marx apparently came to his views about punctuated equilibrium the way many other social scientists form their views; he overheard it in a neigh-boring field, then found it helped explain the pattern of the facts as he understood them. In this case, it was the geologists who were debating the concept: The "uniformitarians," who thought that climate change must have shaped the Earth's surface only gradually, vs. the "catastrophists," who thought that only a long history of change could explain the physical evidence.
In any event, the "punctuated equilibrium" theory of Marx is still well known today to every high school student. It was a historical view of an economic system that is prone to occasional spasms of dramatic change in its underlying principles of organization.
In its most cartoonish version, there had been antiquity; after a long period of stability, it had given way, quickly and completely, to feudalism. Feudalism had reigned in turn for several hundred years until the capitalist revolution brought it to an end. And capitalism would surely be replaced in turn by a great and worldwide paroxysm that would usher in the world of communism. "Society is no solid crystal, but is an organism capable of change, and is constantly changing," Marx wrote.
Marx's opponents recognized immediately the challenge that his views posed to their science not only in the streets, but at the deepest intellectual levels. The marginalists -- Jevons, Menger, Walras -- answered almost immediately with the easily mathematized concepts of marginal utility and equilibrium analysis, in which all elements are kept in place by mutual counterpoise and interaction, that inform our view of economics down to the present day. Alfred Marshall put on the frontispiece of his great textbook Principles of Economics a line penned by Raoul Fornier in 1627 to the effect that Natura non facit saltum, meaning nature does not proceed by leaps. From his Cambridge pulpit, Marshall's star pupil, John Maynard Keynes, also preached against the very concept of revolution, citing the same pieties about the impossibility of discontinuous change that had comforted Darwin 75 years before.
Looking back, it seems queer how great was the fuss about the deeper aspects of Marx's view of change -- except, that whole classes of people were occasionally "liquidated" in its name. Not Max Planck, not Thomas Kuhn, not Niles Eldredge and Stephen Jay Gould would have dreamt of citing Marx as an established authority in their tradition; it would have slowed immeasurably the reception of their work if they had. Punctuated equilibrium is becoming part of the everyday vocabulary of social science through the back door, not the front.
Indeed, this view of the centrality of Marx's great insight is not widely shared in economics, even today. Take, for example, the latest edition of ,Paul Samuelson's famous introductory textbook (now co-authored by William Nordhaus and nearly as old and as influential as the Marshall Principles text that ran through 8 editions.) Here Marx is represented in the familiar "family tree" of the history of economic thought only as a break-away strut from David Ricardo, leading off to the failed experiments of the command economies, having no influence whatsoever on mainstream modem economics. Economics scholars are only now bringing discontinuities into a central place in their field, mainly through the study of increasing returns to scale. Economics is finally moving slowly toward becoming a history of technology and institutions, as Marx had wanted.
But you don't need even a smattering of recondite economics to understand Marx's enduring place in the modern world. His memorial is the word "revolution," meaning not so much the bullet in the eye of an Eisenstein movie, as the relatively sudden development, generally unanticipated but quick to spread until people "accept the new as unthinkingly as they once opposed it," as Cyril Stanley Smith once put it.
We talk without controversy about the automotive, computer, the birth control revolutions, and so on. This first great glimpse into our understanding of punctuated equilibrium is Marx's legacy to the world. It is this that will never go away.
May 3, 1992
Keynes: Yes, He Was a Genius, but Was He Right:?
On New Year's Day in 1935, John Maynard Keynes confided in a letter to his friend George Bernard Shaw, "I believe myself to be writing a book on economic theory which will largely revolutionize -- not, I suppose, all at once but in the course of the next 10 years -- the way the world thinks about economic problems."
It was like Babe Ruth pointing to the wall in Chicago's Wrigley Field just before he hit The Homer. The next year Keynes published his General Theory of Money, Interest and Employment, and sure enough, within 10 years, the world had come round to him. Keynes' name became synonymous with government "pump-priming" -- heavy spending designed to get a stalled economy moving again -- and economics hasn't been the same since.
Born 100 years ago this summer, John Maynard Keynes died nearly 40 years ago. Can we see him clearly yet?
Certainly he was a genius -- that much was clear in his lifetime. A thoroughly practical man, he was at the elbow of statesmen from the 1919 Peace Conference at Versailles, after which he wrote a famous protest, to the 1944 Monetary Conference at Bretton Woods, where he designed the International Monetary Fund and the World Bank.
A disciple from college days of the philosopher G.E. Moore, he was a card-carrying member of the Bloomsbury literary set, which included Virginia and Leonard Woolf, Clive and Vanessa Bell, Lytton Strachey and Duncan Grant. His skill as a speculator was legendary -- though he is said to have once filled the chapel at Kings College with sacks of grain for three days when he was forced to take delivery on a futures contract.
He amassed a famous collection of Isaac Newton's manuscripts. He employed a great tailor. He married a beautiful Russian ballerina (a pundit wrote, "Was there ever such a union of beauty and brains/as when Lydia Lopokova married John Maynard Keynes?"). And he had a long string of male lovers, too.
But how good an economist was he?
This week, a couple dozen of the world's most prominent economists are meeting in Cambridge, England, to assay the man's significance in a meeting marking the centenary of his birth. Axel Leijonhuvud, James Tobin, Paul Samuelson, Luigi Pastinetti, Nicholas Kaldor, Allan Mehzer, Frank Hahn, Edmond Malinvaud, Donald Flemming and Rudiger Dornbusch are among those who will present papers and critiques.
Nicholas Kaldor, a Hungarian who received his degree from the London School of Economics in 1930, was one of the brightest pupils involved in the spread of Keynesian economics -- and he is perhaps the oldest to be still deeply involved in the field. In a telephone interview from his home in Cambridge, England, last week, Kaldor recalled happily the early 1930s, when Friedrich Hayek and Keynes were dueling over the role of monetary policy, and the word began to spread slowly that Keynes was onto something.
"People were ready for it, they were tired of waiting," Kaldor said. "The General Theory had such a big effect because it appeared in 1936, which was seven years after the Great Depression began.
"By that time, people were thoroughly fed up with both the Depression and with all the remedies which people were passing around, saying you must tighten your belt, you must consume less. All this made things worse instead of better."
Keynes' message, rendered in almost impenetrable technical argument spiked with his lucid prose, was that the Depression had been caused by too much saving, not too little. The answer, therefore, was to pump up demand by government spending, even if it meant big deficits.
In America, of course, President Franklin Roosevelt was already engaged in such "pump-priming," on the basis of instinct and public pressure. And in any event, the government's policy didn't seem to do much good until World War II came along with its mega-stimulus.
But after the war, governments in all the industrial nations retained a good part of the economic role that they had acquired during it. The long, broad and deep postwar boom was thus laid, at least by many Keynesian economists, to the good sense of governments in following Keynesian policies. Lord Kaldor, a man still much given to laughing, retains much of the sense of boundless efficacy that, as much as any particular doctrine, is the mark of a "Keynesian."
"I'm really furious about Mrs. Thatcher. We've got this wonderful oil discovery here. We saved ourselves any number of billions of pounds in imports, and started exporting. At that moment, you see, she should have pursued an expansionary policy. She needed to suck in additional imports in order to enable our foreign customers to pay for the oil which they bought from us.
"But instead, she embarked on austerity. The pound was driven up so high that our manufacturing nearly collaped. We had three million unemployed in manufacturing, and the sector shrank by 20 percent. That shrinkage destroyed the same amount of wealth as the oil created, but it was worse than that, for oil doesn't create as many jobs.
"We could have done wonderful investments, modernized British industry. It would be quite a different country now," Kaldor said.
Mrs. Thatcher, of course, has just been re-elected by a landslide.
The conventional wisdom these days is that while Keynes was great for the 1930s, he is irrelevant -- and worse -- today. As expressed by, say, Martin Feldstein, the Harvard professor now serving as chief economic adviser to Ronald Reagan, the thinking goes like this:
"A major revolution in economic thinking is underway -- a retreat from Keynesian ideas," Feldstein wrote a couple of years ago. "Although scholars will continue to debate whether Keynes' ideas and prescriptions were actually correct for the 1930s, it has become very clear that those ideas were not appropriate for the U.S. economy of the 1960s and 1970s when they achieved their greatest acceptance and influence."
Feldstein singled out three broad areas where he thought Keynes' opinions had been reversed by the modern tide. Keynes' view had been that unemployment was due to inadequate demand for labor, Feldstein said. But the present-day consensus was that the ranks of the jobless were full of people entering and leaving the labor force, who were waiting to be called back or waiting until their unemployment benefits ran out to seek work. "It is a picture that stands in sharp contrast to the image of a stagnant pool of job losers who must remain out of work until there is a general increase in the demand for goods and services."
Moreover, Keynes had been almost afraid of saving, Feldstein wrote, since he wrote in the middle of a Depression, when people should have been spending their money instead of locking it away in banks. The result was Keynes paid no attention to the significance of capital accumulation -- and designed policies to discourage savings. The result of following Keynesian policies, Feldstein said, has been a dangerously low level of savings and investment.
Finally, according to Feldstein, Keynes placed unwarranted faith in the ability of government to meliorate social problems through spending, and the business cycle through taxing. Excessive fine tuning and the expensive programs of the Great Society were the result of rampant Keynesian economics, wrote Feldstein, eyes all but rolling in disgust.
It would be the work of a generation to put things straight, he concluded.
Thus the economists meeting in Cambridge this week find themselves at the end of a tradition, that has been, if not discredited, at least rebuffed. They are waiting, as they say, for a new Keynes.
July 12, 1983
Marx, Keynes and...Who?
He was born just 100 years ago, but while he cut a fairly wide swath in his lifetime, he was quickly forgotten by the public after he died in 1950.
Joseph Schumpeter was finance minister of the Austrian Republic in 1919, lost a fortune five years later in banking, then emigrated and as a world-famous scholar at Harvard became the first foreign-born American to be elected president of the American Economic Association.
He wrote a monumental study of business cycles. And he schooled a generation of Harvard students in continental style. (He boasted that he had wanted to be a great horseman, a great lover and a great economist, but that he had managed only two of the three.)
And finally, he wrote a prescient book called Capitalism, Socialism and Democracy. In it, he argued that modern capitalism was producing the very agents of its eventual destruction in the form of risk-averse managers and hostile intellectuals. But today he is remembered mostly for a history of economic thought pulled together by his widow from boxes full of notes after his death.
Yet there is a persistent tendency on the part of some modern economists to claim Schumpeter's mantle. He was soft on Kondratieff waves, for one thing. He praised Marx lavishly, for another. He was interested in entrepreneurs and technology as engines of economic change, for a third.
So last week, MIT's Paul Samuelson took to the lectern in Boston to restore some lost glory to Schumpeter, his teacher -- but to observe that the scholar was sometimes oversold, too. Samuelson, the first American to win the Nobel Prize for economics, told the annual convention of the Eastern Economic Assn. that Schumpeter's claim on modern attention had little to do with Kondratieff waves, those 50-year cycles that are supposed to contain the technologically driven rhythm of capitalism. That was "folderol" and "moonshine," he said.
In a paper called "Marx, Keynes and Schumpeter," Samuelson noted that both Keynes and Schumpeter had been born in 1883, the year Karl Marx died. "The cloth of history is written with an endless seam. I myself knew a man who knew a man who had known Napoleon," he said.
"Which of the three was the greatest economist? That is a naive question. But if you insist on asking it, my considered response would have to be that John Maynard Keynes was scientifically the greatest economist of this century. Only Adam Smith and Leon Walras can be mentioned in the same breath with him.
"Karl Marx can be measured in the same breath with Mohammed and Jesus, but it is with scientific scholarship that we are concerned here tonight and not with political movements and ideology.
"Without Joseph Schumpeter, valuable insights into the laws of motion of political change would be lost to us, and perhaps one strand of business cycle theorizing. Without Schumpeter, we would know less about economic history. Still, the 1983 corpus of economic science would not be qualitatively different from what it is now" had Schumpeter not lived, Samuelson said. It was Keynes who changed the way economists think.
Instead, "the very greatest contribution" that Schumpeter had made was in the melancholy formulation of the problems facing unfettered capitalism. Capitalism would end in stagnation, Schumpeter wrote in Capitalism, Socialism and Democracy, a victim of its own contradictory forces.
According to Samuelson, "the book reads better 40 years after its publication than it did in 1942 or 1950. It is a great book," he said, "and this despite the fact that its main thesis does not quite convince."
Schumpeter defined capitalism too narrowly, Samuelson said; he had defined socialism too broadly. He had failed to forsee the staying power of the modern mixed economy.
Yet the book anticipated the most imposing work on the subject that has been done since. Mancur Olson, a Harvard-trained economist of unusual depth, has for 20 years emphasized the way groups seeking their own self-interest will collude with government to foul up laissez-faire equilibrium.
"Although Mancur Olson came to Harvard years after Schumpeter died," Samuelson said, "Olson's recent The Rise and Decline of Nations is very much in the Schumpeter vein." Everybody knows Keynes. And everybody knows Marx. But what about Schumpeter?
Joseph Alois Schumpeter (pronounced Chum-pate'-er) was born in Moravia in February 1883. His father, a textile manufacturer, died when he was 4. His mother, then only 26, married a lieutenant-general in the Austro-Hungarian army. Ever after, Schumpeter was given to military metaphors in his writing.
In Vienna at the turn of the century, he proved to be a brilliant student in a brilliant circle. He assimilated the fervent admiration of mathematical precision that was in the air then.
He spent crucial months in England in 1906 and 1907, according to Arthur Smithies, the Harvard professor from whose account of Schumpeter's life most of these details are drawn. Smithies thought the "upstairs-downstairs" life of the time had a lasting impact on Schumpeter, and that Edwardian age seemed to him "the apotheosis of the civilization of capitalism."
Schumpeter married (a woman 12 years older than he) and went to Egypt in 1907, where, according to Smithies, he practiced law and managed the financial affairs of an Egyptian princess. "He performed the financial miracle of cutting rents on the princess' estates by half and doubling her income," Smithies wrote, a feat that has so far escaped the notice of modern-day Laffer curve enthusiasts. He left Egypt two years later and took up teaching in Austria. His marriage ended in divorce.
By 1912, he had become famous. In The Theory of Economic Development, he argued that rate of interest in a stationary state would be zero, a conjectural exercise that is the source of vast significance to economists and of almost no interest to everyone else. In short order he wrote another book, a history of economic theory, and got himself an honorary degree from Columbia University in New York, at the age of 30.
World War I was a hard time for Schumpeter, according to Smithies, and 1918 saw him publish a pessimistic book called The Crisis Of The Tax State. It led to a fiasco. He was named finance minister of Austria under a coalition government in 1919, then quickly had to quit. Inflation took over. Schumpeter refused to talk about the episode in later days.
For a time, he was president of a private bank. It went bust in 1924, costing Schumpeter a substantial personal fortune. He went back to scholarship. In 1932, he left Europe permanently for Harvard.
In the 1920s, Schumpeter regarded himself in a race with Keynes to publish a theory of money. He shelved the project after Keynes published his Treatise on Money in 1931. "And the reception of Keynes' General Theory [in 1936] put his nose permanently out of joint," MIT's Samuelson said last week.
So Schumpeter went to work on the business cycle, and here it is that he is most tantalizing to modern readers. He was looking for an explanation of development. Why did capitalism continue to grow, rather than settle down in a nice stable equilibrium? The answer had to do with the drive of entrepreneurs, and "the will to conquer, the impulse to fight, to prove oneself superior to others, to succeed for the sake not of the fruits of success, but of success itself."
But in Schumpeter's system, the innovations on which these entrepreneurs depended came not continuously, but in "swarms." The pattern of innovation and investment set up not one but three separate "waves" in the process of capitalist development -- the longest being the 50-year cycle named for the Russian economist D. Kondratieff. And the Great Depression, which Keynes had blamed simply on too little spending, owed to all three waves slamming down at once.
To most modern economists, this is so much nonsense. Said Samuelson last week: "Among us professionals, the recent revival of Kondratieff moonshine -- in its disparate Rostow, Forrester, Shonihara, and David Freedman reincarnations -- does not make us look back more kindly on Schumpeter's Ptolemaic epicycles."
Yet in the end, Samuelson said, it was in the field of economic development that Schumpeter had made his mark. The process might not be as neat and simple as he had thought, but there was something to what he had said. The idea of growth as a process of periodic development, "driven by oscillatory impulses from the side of innovation" should be the criterion by which we know a modern Schumpeterian.
March 15, 1983
Emerson: The Philosopher of the Business Class
Ralph Waldo Emerson was the philosopher par excellence of American business, and when he died, 100 years ago this month, The New York Times ran the news across three columns of its front page. For 50 years thereafter, bosses quoted him, workers read him, economics teachers cited him and his books made a small fortune for Boston publishers. The author of "Compensation" and "Self-reliance" was as much a part of the folklore of American commerce as Henry Ford, Thomas Edison and Andrew Carnegie, who a couple of generations later would quote his words.
Emerson was invoked to teach that sorrows were superficial, that short-term sacrifice was necessary to achieve long-time gain. He was consulted as a pastoral psychologist, his work a kind of American Thoughts of Chairman Mao. And the sort of doctrines likely to be quoted would explain an assault at Anzio as much as the determination to recapitalize a failing venture: "Nothing great was ever accomplished without enthusiasm"; "An institution is the lengthened shadow of one man"; "A foolish consistency is the hobgoblin of little minds"; "Insist on yourself; never imitate"; "Trust thyself; every heart vibrates to that iron string"; "In all my lectures I have taught but one doctrine, namely the infinitude of the private man."
Then, seemingly suddenly, the bottom dropped out of the Emerson market. Although the shrewd had seen it coming, a wave of revision of Emerson's reputation in the popular press hit broadside, starting in 1930 with a famous essay in the Atlantic Monthly by James Truslow Adams.
Adams wrote: "As the ordinary unimportant man, such as most of us are, reads Emerson, his self-esteem begins to glow and grow." He wasn't entitled to feel good, wrote Adams; reading Emerson just made men "drunk and drivelling." The Concord sage made life too easy.
Today, instead of Emerson, the "ordinary unimportant man" depends on United Technologies advertisements and books like Winning Through Intimidation, Vince Lombardi videos and songs like "The Impossible Dream" to make him feel good. Emerson is on the shelf. Yale president A. Bartlett Giamatti, in a speech to undergraduates last year, described his writing as "about as appealing as a piece of barbed wire." Meanwhile, at Harvard's Fogg Museum, the statue of Emerson by Daniel Chester French is in dead storage.
The story of what happened to Emerson is a saga that casts some light on the changing ethical environment of American capitalism. Businessmen who wonder whatever happened to good old American stick-to-it-iveness would be well advised to read not Emerson but the volumes of criticism that have been collected in his wake.
The simple facts are that Waldo Emerson was born in Boston in 1803, came to influence in Boston as pastor of the Unitarian Second Church in 1829. The two high-caste religions of the day had been described by Oliver Wendell Holmes as "white-handed Unitarianism and ruffled-shirt Episcopalianism," and Emerson belonged in neither tradition.
He quit the Second Church in 1832 and moved to Concord. His book Nature appeared in 1836, and in 1838 he blasted the Unitarian clergy in an address at the Harvard Divinity School. His break with the church was complete, and within a few years he was known across the nation as the sage of Concord, the Transcendentalist philosopher who exhorted the common man to disintermediate, to think for himself. Though he fulminated gently against Boston, the city made him its sage, too, and for 30 years he lived gracefully in the glory that the intellectual labors of his middle years had won him.
The corpus he left behind was relatively thin: Nature, two volumes of Essays, Representative Men, his Poems. The message is almost impossible to sum up; it was sturdy, hopeful, gracious, intensely interested and open to life -- a constellation of virtues that businessmen and, indeed, leaders ever since have valued highly. No wonder Emerson was a philosopher for the quarterdeck.
Yet, above all, there was a psychology: "A man is a method, a progressive arrangement; a selecting principle, gathering his like to him wherever he goes. He takes only his own out of the multiplicity that sweeps and swirls around him." Matthew Arnold called him "the friend and aider of those who would live in the spirit."
The problem of Emerson, it was thought, was that he didn't look on the dark side of life. The spirit wasn't enough. He had missed something. James Truslow Adams: "Concord in 1840 was an idyllic moment in the history of the race. That moment came and passed, like a baby's smile. Emerson lived in it." That Emerson could be incautiously optimistic was a discovery that didn't escape his contemporaries. For example, Charles Eliot Norton confided to his journal in 1874, "But such an inveterate and persistent optimism...is a dangerous doctrine for a people. It degenerates into fatalistic indifference to moral considerations, and to personal responsibilities; it is at the root of much of the irrational sentimentalism in our American politics, of our national disregard of honor in our public men, of our unwillingness to accept hard truths, and of much of the common tendency to disregard the distinctions between right and wrong, and to excuse guilt on the plea of good intentions or good nature."
Perhaps not surprisingly, in the wake of World War I, there was hell to pay. D.H. Lawrence in particular turned on the Transcendentalist. Emerson had written, "Shall I not treat all men as gods?" and D.H. Lawrence replied, "If you like, Waldo, but we've got to pay for it when you've made them feel that they're gods. A hundred million American godlets is rather much for the world to deal with."
There remains something astonishingly modern about the way Lawrence tore into Emerson. Emerson was merely of "museum-interest," he wrote; he was beside the point. Things had changed. "We've got to have a different sort of sardonic courage. And the sort of credentials we are due to receive from the god in the shadow would have been real bones out of hell-broth to Ralph Waldo."
After Lawrence, the criticism came in torrents. Yvor Winters called Emerson "a fraud and a sentimentalist." Another writer labeled him "a monument to an insufficient way of life." Still another said he had been a fool, incapable of coherent thought.
By the 1960s, the diminished Emerson had become the established version, and by the 1970s, he had become a convenient villain. Columbia professor Quentin Anderson described Emerson as the inventor of the "imperial self," the over-extender of the claims of the individual against society, the hippie, the American soldier in Vietnam. "We are stuck with the parents we've got, the children we get, the cultural moment in which we find ourselves," Anderson wrote -- and the trouble was that Emerson denied it. The closer the nation came to Civil War, the more Emerson exhalted the primacy of the individual.
Even so, says Anderson, the Sage of Concord was too clever not to see the fundamental problem. He describes Emerson's "terrible clairvoyance"; the awful truth was that "the idea of community was dying in him and his fellows."
Nowadays, there is something of an Emerson revival. Harvard University Press, which has been publishing a new volume of Emerson's journals every couple of years since 1960, is now turning out his collected works. A couple of new titles on Emerson appear every year from university presses around the country. Gay Wilson Allen has a new biography out (Viking Press, $25). In the amorphous, but widespread, "new thought" religious movement, Emerson is a powerful prophet. Even some forms of "supply-side economics" owe a debt to Emerson -- author George Gilder is a direct (intellectual) descendent of the sage.
"I find he is gradually reacquiring the stature and influence he had 100 years ago," said Milton R. Konvitz, a professor of law and of labor and industrial relations at Cornell University, who edited an anthology of Emerson criticism a few years ago. "He influenced me while still in high school...I read a few pages of Nature and I was hooked. I think this is not unusual. It happens to lots of people, even today."
April 20, 1982
Aldo Leopold: The Common Vision of Economics and Ecology
In preparation for the avalanche of reports that we must read about the "conference of the century" next month in Rio de Janeiro, I have been making my way slowly through a pair of absorbing biographies of Aldo Leopold (Aldo Leopold by Curt Meine, a University of Wisconsin paperback; and Thinking Like a Mountain by Susan Flader, University of Missouri Press). This gentle man, who was born in 1887 and died in 1948, had much to do with putting scientific ecology on the map of 20th-century American consciousness, both in the popular mind and in the universities. Leopold's story is important to understanding ecology's insistent claim on our attention. In a way, Leopold's story also tells something about the rise of the other science that rose in the 20th century as a key to the 21st, economics -- and even something about the relationship between ecology and economics.
Leopold was a well-born Iowa youth, a Lawrenceville School preppie, a Yale Forest School graduate who joined the U.S. Forest Service in 1909. By age 25, he was managing a million acres of national forest in Colorado on the heavily lumbered upper reaches of the Rio Grande River. In 1933 he became professor of game management in the department of agricultural economics at the University of Wisconsin. Through his writings on the delicate and surprising interrelationships between animals and plants in their habitats, Leopold became known as the man who turned "game" into "wildlife" in the United States -- a man of vast influence on the conservation movement, on a par with Henry David Thoreau and John Muir.
The crucial experiences of Leopold's life had to do with with his early attempts as a forest ranger to maintain stable deer populations in the wild for hunting purposes. To the young Leopold, the problem seemed simple: Get rid of the mountain lions and wolves that preyed on the deer. These hunters were "vermin," "varmints" deserving only to be hunted and killed -- or preserved in zoos as tokens of biological diversity.
But experience on Michigan's Huron Mountain and Arizona's Kaibab Plateau with the odd phenomenon known as deer irruptions convinced Leopold otherwise. Irruptions were episodes in which deer populations suddenly overbred, overgrazed, then suffered drastic reductions in their numbers as thousands starved to death.
Leopold found that while there might be no simple "cause" of deer irruptions (changes in the use of land, protection from human hunters played a role), the predators he had been blithely killing played a crucial part in maintaining balance in wild populations. As Leopold put it, describing the death of a wolf he had shot, "I was young then, and full of trigger-itch; I thought that because fewer wolves meant more deer, that no wolves would mean a hunters' paradise....
"Since then I have lived to see state after state extirpate its wolves. I have watched the face of many a newly wolfless mountain, and seen the south-facing slopes wrinkle with a new maze of deer trails. I have seen every edible bush and seedling browsed, first to anemic desuetude, and then to death. I have seen every edible tree defoliated to the heighth of a saddlehorn....In the end, the starved bones of the hoped-for deer herd bleach with the bones of dead sage, or moulder under the high-lined junipers."
The moral of the story was that man ought to leave complex natural systems alone as much as possible. He began writing passionately about the need for a "new ethic," an ethic of conservation. This was genuinely hard to fathom when Leopold began; today it seems simple common sense.
Leopold thereby contributed to a profound change in the image we have of humankind's relationship to nature (as noted nearly 20 years ago by the philosopher John Passmore), supplanting the image of humankind as a free-floating despot, who could do pretty much as he or she pleased, with the image of humankind as a steward, who serves best when cooperating with nature.
In the 1930s Aldo Leopold was a little-known figure working in an unproven field. Even today his greatest fame rests on the posthumous publication of A Sand County Almanac in 1949. (He died of a heart attack after helping a Wisconsin neighbor extinguish a grass fire.) The book quickly became a classic on the responsible use of land -- a prescient warning that prepared the way for our present-day preoccupations with pollution, climate change, resource depletion and species destruction.
But all the while, ecology was maturing in departments of biology, botany and zoology, moving beyond the sermons and homilies of the early days, beyond the relatively simple discoveries like those of Leopold, to real science. A survey of the origins of the field -- Foundations of Ecology, for example, a collection of classic papers published by the University of Chicago Press for the American Ecological Association -- discloses an increasingly arcane field built by specialists of whom you have never heard.
Then came the explosion. As recently as the 1950s humorist Stephen Potter (Gamesmanship) could still joke that a nice long boring discussion of "oikology" was a perfect strategy for terminating a romantic relationship. By the late 1960s it was not a bad strategy for starting one -- at a rock concert or in a bar, even. Since then the field has acquired its own abstruse mathematical models.
But what to do with economics? Well, aside from the obvious fact that the words are cognates -- from the Greek, meaning household -- both concern behavior of intricate, interdependent systems of enormous diversity, natural and man-made. Both rely on a toolbox of nearly interchangeable concepts, including equilibrium, competition and optimization. True, ecology has a healthy concern with levels of organization that is lacking in economics; the stubborn facts of the natural world impose a robust empiricism on ecologists, while economists continue to operate cheerfully with their mathematical axioms. But their new-found proximity surely will bring the fields closer together. Promising work on organizational ecology has begun to appear.
Moreover, just as the dependability of ecological knowledge was borne in upon us by a series of "natural experiments," so too the overwhelming significance to our lives of economics has been established in a similar way. The collapse of the planned economies is, in its way, rather like the deer irruptions -- unmistakable evidence of good intentions gone awry. The bursts of inflation and collapsing productivity that followed the breakdown of the international monetary system in the early 1970s may yet turn out to be seen as having been a little like the eutrophication of Lake Erie -- a near-disaster reversed by stringent, well-conceived policies. Governments' responsibility for regulating markets are coming to be seen as resembling the responsibility of ecologists for overseeing biota: a matter of letting natural processes have their way as much as possible, with sophisticated and light-handed intervention as a last resort, not the first response. As the mainspring of the system, the concept of "profits" may not have taken on quite the rosy glow of "wildlife," but at least it no longer shares the connotation of "vermin," that is, of being a category whose eradication devoutly is to be desired.
Wildlife management is relatively easy, Leopold liked to say; human management is the problem. In this, the ecologists have more to learn from the economists than vice versa. Development and the Environment, the World Bank's annual World Development Report, timed to anticipate the circus-like meeting next month in Rio, lays out the economics of development and the environment with admirable restraint and clarity.
But even here, the influence between economics and ecology works both ways. Recently the World Bank has been circulating an important new paper by a Berkeley professor of energy and resources named Richard Norgaard. Norgaard argues that economists should abandon their cherished practice of discounting the cost of current developments over the life of the investment, because such thinking tacitly assumes that all the rights to the riches of the earth belong to the present generation.
Not so, argues the author of "Sustainability and the Economics of Assuring Assets for Future Generations." Norgaard believes that distribution of resources between generations should be equal, as a matter of course. It is a point worth pondering from an evolutionary standpoint -- something like what Leopold meant when he wrote in 1944, "Only the mountain has lived long enough to listen objectively to the howl of the wolf."
May 24, 1992
Frederic Bastiat: For the Provisioning of Moscow
A standard cocktail party remark today goes like this: To better understand the problems facing the world of 1992, read The Federalist Papers. These 85 short essays in defense of the Constitution, written by Alexander Hamilton, James Madison and John Jay, were published in New York City newspapers in the two years leading up to the agreement's ratification by the 13 colonies. They are indeed great essays, and Madison's argument that it is more difficult to maintain liberty in a small territory than a large one is relevant to the former Soviet Union.
But with a Big Bang of price decontrol ushering in 1992, you might just as well counsel puzzled Muscovites to read Frederick Bastiat instead. To the extent that there is any protection against the backlash accompanying the end of 74 years of price controls, it lies in the better understanding of what economists like to call "the price system." And Bastiat, according to Joseph Schumpeter, was "the most brilliant economic journalist who ever lived."
Not that you'll be likely to know him. (Where to get the original Bastiat? Robert Heilbroner devotes a few well-considered pages to him in The Worldly Philosophers, his still-indispensable introduction to the lives of the great economists. Otherwise, the French sage has been kept in print by libertarian economists. Several titles are available at bargain prices from the Foundation for Economic Education in Irvington-on-Hudson, New York 10533.)
Born in 1801, Bastiat died in 1850. He was unsuccessful in following his father and his uncle as merchants and instead became a gentleman farmer. But as R.F. Hebert says in The New Palgrave Dictionary of Economics, Bastiat "showed no more aptitude for agriculture than he had for commerce. So he became a provincial scholar, establishing a discussion group in his village and reading voraciously."
It was the turmoil of the 1840s that brought Bastiat into his own. That state of affairs is accessible to 20th-century Americans chiefly through the prism of Victor Hugo's Les Miserables. Bastiat was moved by the formation of the Anti-Corn Law League in England to defend free trade in France, issuing a furious stream of pamphlets against government intervention in bourgeoning international trade. Savagely funny, Bastiat is sometimes described as being "a combination of Voltaire and Franklin." A Gallic George Gilder is more like it.
At one point, for example, he wrote cleverly of the need for a law against sunlight, the better to promote the interests of French manufacturers of candles, streetlamps and everything else connected with lighting. At another point, he suggested that, because the citizens of Bordeaux wanted a gap in the railway there, the better to enrich its merchants, that similar gaps be established at every other city between London and Madrid. The resulting "negative railway" would make France the richest country in the world. Amid the general enthusiasm for socialism, culminating in the publication of The Communist Manifesto, Bastiat propounded the equal and opposite doctrine of "harmonization," an argument common to Adam Smith, Francois Quesnay, J.B. Say and Schumpeter that mutual interests among the social classes greatly outweigh their antagonisms -- and that a certain amount of convergence would be the result.
At his best, Bastiat penned passages that remain wonderfully clear insights into the overall workings of an economic order. "Upon entering Paris which I had come to visit, I said to myself, here are a million human beings who would all die in a short time if provisions of every sort ceased to go towards this great metropolis. Imagination is baffled when it tries to appreciate the multiplicity of commodities which must enter tomorrow through the barriers in order to preserve the inhabitants from falling prey to all the convulsions of famine, rebellion and pillage.
"And yet all sleep at this moment, and their peaceful slumbers are not disturbed for a single instant by the prospect of such a catastrophe. On the other hand, eighty departments have been laboring today, without concert, without any mutual understanding, for the provisioning of Paris."
What Bastiat was delineating here recently has come to be called the "self-organizing" quality of market economies. It was this that Adam Smith had described 75 years earlier as an "invisible hand" that led individuals, through the pursuit of private profit, to promote an orderly society "which was no part of [their] original intention."
The rest of economics is relatively simple, at least at an intuitive level. It has to do with the interplay of the forces of supply and demand, of selling and buying, of effort and desire. The theory is that the rising bread prices in Moscow are supposed to persuade more people to go into the baking business. As more bread reaches the stores (and more people cut their consumption because of high prices), the price will fall back toward "normal" levels -- and the lines that are ubiquitous in Moscow today will fade to an unpleasant memory.
There are imperfections in markets, of course. Often businessfolk seek to circumvent their smooth operation (a fact oft-noted by Adam Smith). Governments will always retain far-reaching economic responsibilities. But a belief that this nearly miraculous order will materialize through the simple act of deregulation is what is necessary now in Moscow -- and Beijing, for the matter.
It won't be easy: experience with market processes is simply in the air in the Western democracies. But it may not be as hard to develop as is widely expected in the newly emerging market economies, either -- especially i
The Masters and Mavericks of Modern Economics
The Masters and Mavericks of Modern Economics
Partly a history of controversies in economics, partly an essay on the evolution of the field, Economic Principals offers a glimpse of one of the most important stories of our time: the metamorphosis of a priestly class of moral philosophers into the mathematical mandarins of today, whose ideas are reshaping society even as they reveal its workings in ever more subtle detail.
Warsh first recounts the rise of the economic paradigm, deftly treating the rediscovery of Adam Smith and the centrality of markets. He then turns to the generation of economists for whom the Nobel Prize was created in 1969, the men who forged the modern field in a few years during and after World War II. Some, like Paul Samuelson and Milton Friedman, are well known to the public; others, like Trygvie Haavelmo and George Dantzig, are less quickly recognized. But all have interesting stories which Warsh brings to light.
Tracing the high tech revolution to the current generation, he sketches younger scholars such as Jeffrey Sachs, Martin Feldstein, and others less popularly known, who rule the field today. Marking the most powerful applications of modern economics, Warsh explains how the ingenious "rocket scientists" of Wall Street are creating new markets and the business school wizards and leading corporate executives are reinventing the organization.
Finally, in exploring the implications of modern economics, Warsh introduces us to scholars operating on the boundaries of the field, from Jane Jacobs to Noam Chomsky, and to the critics, like Donald McCloskey and Robert Reich, who have brought a bit of moral philosophy back into the economist's brave new world.
At every step, Warsh maps the field with the journalist's eye for detail. Readers will see why he is considered one of the most consistently stimulating economic journalists in America today.