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When was economics not radical?

December 6, 2016

The History of Economic Thought online discussion forum has had this request posted:

I would be interested in your thoughts and reactions to this article: When Economics Was Radical. The article was published in The Chronicle of Higher Education [CHE].

My response is below.

This is how I would summarise the point of the article, whose provenance is given away by its title, “When Economics was Radical”.

Economics had the opportunity to enter into radical economics during the late nineteenth century but missed the boat. Now the time has come again, when we can jump aboard by taking up Thomas Piketty’s call to arms over income distribution.

So here are my thoughts and reactions.

First, since I think economics has gone downhill pretty much since the time of John Stuart Mill, I’m not sure that we have missed many of the leftwards currents that have affected the political world that surrounds our studies. By the 1880s, laissez-faire had been long gone – pushed overboard by many including JSM. But what remained was a very robust subject that maintained the central role for free markets. The market mechanism had to be overseen and regulated by governments but the direction that the economy would take would and should be left to itself. Not sure anyone could say that about economic theory today.

Second, economics has remained outside the complete embrace of Marxist thought mainly because the labour theory of value remains an entirely empty theory of value, although no doubt there are still those who will come to its defence. It completely discredits Marxist thought since it is so indefensible. There are nevertheless many economists who have gone full Marx, but they have had to find other ways to reach these conclusions than through Das Kapital. I am well prepared to be corrected on this, but I cannot think how someone could use a modern first year economics text to explain what has happened to the Venezuelan economy. I imagine most of us can do it in an ad hoc sort of way, but not by using the latest editions of Samuelson of Mankiw as the guide.

Third, Piketty’s Capital for the Twenty-First Century tries to do today what Marx’s Kapital for the nineteenth century did not quite manage to do, which is to give central direction of an economy the imprimatur of economic theory. For Marx, it was to raise living standards or something by ridding us of the capitalist class. For Piketty, it is to achieve economic equality by taking from the rich and giving to the poor, and if I understand him right, it is not just to be done within individual societies, but to take from the rich capitalist nations and pass this wealth on to the less wealthy ones. As noted on Wikipedia, “Piketty offered ‘a possible remedy: a global tax on wealth’.” The authors of the article in CHE had this to say about Piketty, just in case you may think I am missing the point:

“[Piketty] had many harsh things to say about the field’s methodological narrow-mindedness and self-absorption and their cost: the absence of a convincing theory of rising inequality, downward social mobility, and resulting pathologies — and, in the absence of such a theory, a foot-stomping insistence that these phenomena either don’t exist or don’t matter.”

For myself, I don’t find this very hard to explain, but here is neither the time nor the place.

Fourth, there is no doubt that the juices of envy are everywhere. It has been a long-time red rag for the left to worry about income distribution and how unfair it is. As it happens, Piketty was in Melbourne about a month or so back and I was the fourth in line to ask a question. Unfortunately for me, there was only time for three questions so I missed out. So I will put my question down here:

We are meeting in the Melbourne Town Hall, built when Australia was the richest country in the world, and Melbourne was the richest city in the world’s richest country [around 1890]. Back then, no one had a car, a computer, a radio or TV. Few had indoor plumbing, hot and cold running water and electric lights. No one flew to London, went to the movies or surfed the net. Antibiotics had not been invented. What possible difference could it make to anyone whether income distribution in some measure that is invisible to everyone without a dataset and a computer happens to be more skewed in one direction today than it was at some moment in the past?

Fifth, as my question suggests, income inequality is not an economic question, it is a political question. There have been no mainstream laissez-faire economists since the time of John Stuart Mill. The need to find some means to assist the poor and disadvantaged has always been part of economic theory. We have a much larger surplus today than we did back then, so we are able to assist others to a greater extent. But the issue is not inequality but welfare. Inequality has nothing to do with economic theory, other than to point out that you either have a market system where individuals earn what they can by selling to others, or you have some kind of centralised system where income is generally disassociated from one’s contribution to total output and income distribution is determined by political will – “from each according to his ability, to each according to his needs”. Well, who decides that and how would they do it? There are no economic answers here.

It’s at times like this that economists need to be able to explain what went wrong in Venezuela. And if you cannot do it without saying that it was the fault of the capitalists and the rich, you are not an economist and your answers have nothing to do with economic theory. I find this kind of call to arms from the CHE article perfectly ridiculous:

“It’s hard to escape the conclusion that in exiling radicalism from the AEA and from mainstream economics, its practitioners attained enormous intellectual prestige and elite approval by sacrificing the disinterested search for answers to the most controversial questions in economics.”

Aux barricades, comrades etc.

And as a sixth and last point, I have to say this did give me some pleasure:

“A re-evaluation of classical economics has been proceeding in recent years, highlighted by the publication of Piketty’s Capital in the Twenty-First Century.”

Well, no one is more interested in seeing a re-evaluation of classical economics than I am, but the last place I would send you to is Piketty. J.S. Mill, J.E. Cairns, Simon Newcombe, Henry Clay, that is where I would send you. In fact, I have just had an article published on Clay if you are interested in these kinds of things, with the ultra-neutral title, “The Hundredth Anniversary of Clay’s Economics: the Best Introduction to Economics Ever Written”. You can find the article here if a re-evaluation of classical economics really is your thing.

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