By James Kwak
As a holiday gift to myself, I’ve actually been reading a real book, on paper — The Worldly Philosophers, by Robert Heilbroner. The book itself was not a gift to myself; I have my sister’s old copy, which is the 1980 edition. The book is a traditional intellectual history of some of the main figures in economics. As the original was written in 1953, it focuses less on the mathematical line of economics, from Walras and Marshall through Arrow-Debreu to the present, and more on what used to be called political economy: Smith, Ricardo, Mill, Marx, Keynes, etc. It’s not a way to learn economics, but a way to learn something about the historical conditions that helped give rise to some important economic ideas.
But some passages seem oddly relevant today. Discussing the conventional economic wisdom of the early nineteenth century (pp. 121-22):
“They lived in a world that was not only harsh and cruel but that rationalized its cruelty under the guise of economic law. . . . It was the world that was cruel, not the people in it. For the world was run by economic laws, and economic laws were nothing with which one could or should trifle; they were simply there, and to rail about whatever injustices might be tossed up as an unfortunate consequence of their working was as foolish as to lament the ebb and flow of the tides.”
And on the conventional economic wisdom of the late nineteenth-century Gilded Age (p. 215):
“Indeed, the world was so scrubbed as to be unrecognizable. One might read such leading texts as John Bates Clark’s Distribution of Wealth and never know that American was a land of millionaires; one might peruse F.H. Taussig’s Economics and never come across a rigged stock market. If one looked into Professor Laughlin’s articles in the Atlantic Monthly he would learn that ‘sacrifice, exertion, and skill’ were responsible for the great fortunes.”
The hero of that chapter is Thorstein Veblen, who argued that the so-called captains of industry were not the sources of technological progress and economic development, but a parasitic class engaged in financial games to divert excessive profits to themselves: “The bold game of financial chicanery certainly served as much to disturb the flow of goods as to promote it” (p. 235). For Heilbroner, writing and rewriting during the thirty years of postwar prosperity, this was a problem of the past; Veblen did not see the ability of capitalism to evolve into a more efficient, more socially beneficial form.
For us, however, that progress seems less certain, and the financial engineering of the past decade seems little removed from the exploits of the nineteenth-century robber barons. And conventional economic wisdom — not the stuff taught in Ph.D. programs, but the thin veneer of economism that dominates public discourse (raise the minimum wage and unemployment will go up; increase regulations on banks and capital will contract and unemployment will go up; increase the estate tax and business owners will work less hard and unemployment will go up) — has hardly changed, either.