Not only an economist - autobiographical reflections of a historian of economic thought.
by Mark Blaug
Preliminary Comments by Rafe Champion
Mark Blaug probably did more than any other single person to make the philosophy and methodology of economics a growth area during the 1980s. The specialisation and professionalisation of this area had the perverse effect of wasting several decades of effort by many talented and energetic scholars, with very little value for working economists. This is a apparent from the stocktaking caried out by Wade Hands in Reflection Without Rules (2001), where the clear message is that the field has eventually arrived at something like the ideas of Karl Popper, which could have been taken up directly at least 40 years ago. Indeed Popper's ideas were taken up directly by some people, including some economists such as Klappholz (with the aid of Joe Agassi). Radnizky, Boland (student of Agassi), Birner and Wong (student of Boland).
Possibly Blaug's most serious mistake was to think that the Lakatosian Methodology of Scientific Research Programs represented a development and defence of Popper's best ideas, rather than a radically degenerating program.
Before further comments on that episode, a few remarks about other features of Blaug's career.
Memoires can be fascinating documents and this is certainly the case with Mark Blaug's reflections. His perception of McCarthyism in the US is important because that episode can be seen as a turning point in the battle of ideas which swung in favour of the left due to the actual or perceived excesses of McCarthyism. That was despite the simple fact that communists were undermining the system from high places in the administration, in the universities and elsewhere (notably in show business). Anti-communism was a worthy cause but McCarthyism gave rise to anti-anti-communism and this created a smokesecreen for the the activities of leftwing activists who thrived on the rapidly growing university campuses of the 1950s.
He wrote that he dropped communism like an old coat, but Marxism was harder to throw off, and he clearly remained a man of the left, although he would like to be regarded as a classicial liberal. he wrote "Throughout my professional career as an economist, I have admired Milton Friedman's style of doing economics, while detesting his political views, and admired Paul Samuelson's political views while disliking the type of economics he practices." Hence he was very far politically from his doctoral supervisor, George Stigler. He regarded Stigler as a superb scholar and teacher, to the point where he copied Stigler's style of lecturing and writing. He never got over the pupil to master relationship whenever they met later in life, and he was both amused and relieved to see the same deference of Stigler towards his own teacher, Frank Knight.
His career was marked by a series of happy accidents one of which was to fall into the economics of education in Britain after Yale refused to grant him tenure on the ground that they did not need a permanent teacher in the history of economics. After some time in the field he pronounced that the efforts to theorise "human capital" were not yielding fruit, and after some more time working on submissions for "Aid for Education" initiatives in the Third World he pronouned the whole thing a disgusting racket.
"I became more and more cynical about the Third World ministers and politicians I had to work with who exploited me and other economists like myself to get the aid they wanted, while lining their own pockets with the leavings of that aid. The amount of corruption and political hypocrisy that I witnessed in every country I worked in eventually turned me against the entire development consultancy business. Getting out was easy: all one did was to say something that Third World governments did not want to hear; by saying it often enough, one could be assured of not being rehired."
During the 1970s he found himself drifting into the methodology of economics and he realised that he had always been something of a philosopher at heart. He was especially impressed by Karl Popper, in a very strange kind of way. The full extent of this strangeness will become apparent when he met Imre Lakatos.
"By the time I had come to work on my doctoral dissertation, I had somehow absorbed Popperian falsificationism without ever reading Popper. Some of it I acquired from Milton Friedman's classic essay "The Methodology of Positive Economics" (1953), which, without mentioning Popper, presents a sort of vulgar, Mickey Mouse Popperianism. Some of it filtered down from remarks and asides in Stigler's essays on the history of economic thought…When, I published my first professional paper in 1956, "The Empirical Content of Ricardian Economics", it was shot through by predictionism, but, nevertheless, I still had read no Popper. Indeed, I can remember like yesterday the first moment I finally decided to read Popper."
"In 1962, while living in Paris, I strolled into a bookshop one Friday afternoon and saw a copy of Karl Popper's The Open Society and Its Enemies (1945) which, as everyone knows, is a study of Plato, Hegel and Marx as three great enemies of the open society, I went home and started reading it as soon as I had finished dinner. I read all night, all day Saturday, and, after falling asleep reluctantly, finished the book on Sunday. I can safely say that no book before and no book since has excited me more. It was literally like drinking a whole bottle of champagne at a single sitting. Not only did it slay Plato and Hegel, both of whom I had always regarded as monsters of the right, but it made short shrift of Marx for committing the "apocalyptic fallacy", the game of predicting doomsday some day in the indefinite future. At the same time, it offered a philosophy of science, falsificationism, and a convincing argument against political revolutions, on the grounds that we lack the knowledge totally to transform society, but that we can and should reform society on a piecemeal basis."
"I then sat down and read everything that Popper had ever written. I became a through-and-through Popperian and although I now think that there are exaggerations in Popper--there is no such thing as induction; there is a fundamental asymmetry between verification and falsification; methodology is normative and has nothing to do with the history of science--I remain to this day an unregenerate Popperian."
Unfortunately his take on Popper is very limited and he never took on board the full extent of Popper’s ideas. That is revealed in his list of so-called exaggerations in Popper. In brief, there is indeed no logic of induction, there is a fundamental asymmetry between the logic of verification and falsification, and matters of logic cannot be decided by historical studies. So his take on Popper was very thin and his claim to be an unregenerate Popperian can only damage the standing of Popper’s ideas. His lack of grasp on Popperism enabled him to fall hook, line and sinker for the tales told by Imre Lakatos.
"Sometime in the late 1960s, while I was teaching regularly at LSE, I met Imre Lakatos, Popper's successor to the professorship in logic and philosophy of science at LSE. Imre, in the few years that I knew him (he died in 1974), was someone of whom I became extremely fond... He had a marvelous sense of humour and we took to each other almost as soon as we met. He knew no economics but was becoming interested in economics as a field of application for his methodological views, inspired by one of his PhD students, Spiro Latsis, who was indeed the first to apply Lakatos' ideas to economics. In 1974, Imre organized a conference in Greece, which was to bring together physicists, economists, and philosophers of science in the attempt to develop some case studies in his own "methodology of scientific research programmes". A month before the conference was to take place, he died suddenly. Spiro Latsis went on to hold the conference as a memorial to Imre and it proved to be, for myself and for many others, the conference of a lifetime. In economics, there were great men like Lionel Robbins, John Hicks, Terence Hutchison, Herbert Simon, and Axel Leijonhufvud. In philosophy, there were giants like Carl Hempel, Adolf Grunbaum and Paul Feyerabend. It was intellectually exciting; it was held in Nafplion, a beautiful site in Greece; and it was lavishly financed by John Latsis, Spiros Latsis' father, who gave us all a glimpse of the style to which we would have loved to have become accustomed."
"Arguments about the relationship between Popper and Lakatos have raged on ever since 1974. I regard Lakatos as, say, 80 per cent Popper and 20 per cent Kuhn, emphasizing different things but conveying essentially the same methodology as that of Popper."
That is simply not true. Lakatos muddled and confused Popper's take on falsification with a silly story about a series of mythical Poppers. He wanted to regenerate "a whiff of induction" and he took over Popper's theory of metaphysical research programs and rebadged it (sans the esssential Popperian element of criticism) in the form of the Methodology of Scientific Research Programs which (with its rival, paradigm theory) wasted some decades of academic effort.
It is hard to argue with Blaug's final comments on the debacle of formalism in economics!
Over to the man himself.
I owe the decision to study economics to the influence of the writings of Henry George and Karl Marx. In 1944 I was 17 years old and attending Peter Stuyvesant High School in New York City. I enrolled for a course in Commerce, and in the last week of the term the teacher took some of the better students, which included me, to a special lecture at a nearby Henry George School. The lecture was an explanation of why the unrestrained growth of land rentals had produced poverty, wars, and all the other ills of modern civilization. Henry George had long ago provided both the diagnosis of the evil and the treatment that would cure it: a single confiscatory tax on ground rent! At the end of the lecture, we were all presented with free copies of Henry George's Progress and Poverty, which I duly read without understanding much of it. But years later when I finally studied the Ricardian theory of differential rent, I did have a moment of excitement at discovering the true source of George's theory.
The Influence of Marxism
I was intrigued by Progress and Poverty but I was not entirely convinced. But shortly afterwards, during my first year at New York University, I became friendly with some left-wing students who introduced me first to the pamphlets of Lenin and Stalin and later to the weightier tomes of Marx and Engels. I was completely bowled over by these writings and within a matter of months became a Marxist, that is, an avowed follower of Marx.
When I now try to recall just what it was about Marxist writings that converted me so quickly, I think it was a combination of qualities that says as much about me as about Marxism. Firstly, it was the aura of the absolute conviction of possession of the truth that radiated from every page of the writings the leading Marxists, accentuated in the case of Lenin and Stalin by their dogmatic and abusive tone towards their intellectual opponents. Secondly, it was the encyclopaedic range of Marxist theory, the sense that here was a universal science of society and indeed a philosophy of history as well as a philosophy of nature; whether it was the latest political election result, or the causes of the French revolution, or the overthrow of the matriarchy in ancient Greece, or why Rembrandt was so partial to chiaroscuro, or why Beethoven's last piano sonata Op. 102 consisted of only two movements, or what Goethe meant by the ending of Faust, it could all be explained by Marxism. I was always a bit of a smart alec when I was young and Marxism was made to order for me: it allowed me to pontificate on every subject with a cock-sureness that suited me perfectly.
Marxism taught me economic determinism, that is, the idea that economic interests and economic forces are the foundations of all social and political conflicts. It .followed that economics is the queen of all social sciences because everything is ultimately reducible to economics. Within six months of becoming a Marxist, I had therefore decided that I had to master economics. I took my first course in economics in my second year of university and I keenly remember finding it a rather taxing subject. I am glad that I can still remember my own difficulties in learning economics because it has made me a better teacher as a result.
Even all this does not fully account for my attraction to Marxism. The real appeal of Marxism for me was its conceptual apparatus, its intricate jargon of special terms and categories, its endless Talmudic distinctions between "base" and "superstructure", between "modes of production" and "relations of production", between "strategies" and "tactics" of social action, between the "contradictions" and the "unity of opposites" of social and economic systems, etcetera, etcetera. Once one had commanded the technical language, adherence to Marxism created an entire subculture of discourse in which, literally, one could only be understood by other Marxists. In short, Marxism gave me my first glimpse of the culture of scholarship, an intellectual community that feeds upon itself.
I did not remain a purely intellectual Marxist. I joined the American Communist Party, attended political meetings and participated in party demonstrations. I did this reluctantly because I was never much of a joiner but, nevertheless, I went through a brief period of genuine political activity. It was brief because my natural rebelliousness soon got me thrown out of the Communist Party. As the war drew to a close in 1945, the question of the continued occupation of Germany by Allied troops came to the fore as a political issue. Earl Browder, the President of the American Communist Party, endorsed President Roosevelt's recommendation of post-war military conscription so as to allow American troops to be stationed permanently in Germany. This was regarded as heresy by some members of the Communist Party and when Stalin came out against Roosevelt's policy, Browder's fate was sealed: he was deprived of his presidency and expelled from the Party. In a flash, he became persona non grata. A few of the communist students at college collected a petition on Browder's behalf, which I signed after due consideration. I was called before a Party tribunal and, having failed to repent, was promptly expelled. From that moment on a large number of friends and acquaintances in the Party refused, not just to speak to me, but even to recognize me when they met me in the street. To those who have never been a member of a conspiratorial or quasi-conspiratorial group, the speed with which party members will ostracize a heretic is hard to believe. In retrospect, and given the total political insignificance of the American Communist Party in 1945, the experience seems ludicrous but at the time it proved to be a harrowing awakening to the realities of left-wing politics.
Although I ceased to be a card-carrying member of the Communist Party in 1945, it took me at least another seven to eight years to shake off all the blinkers that Marxism leaves behind. Between 1945 and 1952 I travelled gradually but irreversibly away from communism. I well remember the effect of reading The God That Failed. Six Studies in Communism (1950) by Arthur Koestler, Ignazio Silone, Andre Gide, Richard Wright, Louis Fischer and Stephen Spender, all writers who had at one time been "fellow-travelers". Even after all these years, I can still recall the awful feeling of having shared the disillusionment of these famous communist coverts. It is curious how far one can go in abandoning previous beliefs without making the final jump to non-belief. The moment for me was the abortive East German "revolution" in the summer of 1952 when the people of East Berlin came close to throwing off the Soviet-imposed government of East Germany. I had visited East Berlin as a tourist in May, 1952 and had seen evidence of seething resentment against the regime. When I returned to London, I read accounts of the outbreak and its suppression by Soviet tanks in the Communist press. I had always recognized that communist papers are capable of telling lies but I had previously closed my eyes to the extent to which they carry their lying. The disillusionment of a "true believer", such as I had been, comes in the final analysis like a cold shower after a hot bath.
When I think of some of the things that I believed when I was a communist and that I expounded passionately and with a sense of total conviction, I blush to the roots of my hair. I can remember, for example, how I defended the Stalinist version of the Moscow Trials, namely that Trotsky living in Paris and Mexico City had orchestrated a vast conspiracy of sabotage inside the Soviet Union that even infected the Soviet military hierarchy--and this despite reading Arthur Koestler's Darkness at Noon, which I brushed aside as bourgeois propaganda. It has made me suspicious ever since of beliefs strongly held and has helped me to be more tolerant than I am naturally inclined to be. Whenever I now pronounce that so-and-so is absolutely true, I always say quietly to myself; "yes, just like the Moscow Trials."
I dropped communism like an old coat thrown off but Marxism took longer to discard. In some sense, the great themes of exploitation, alienation and inequality haunt me still. Of course, the more economics I learned, the less Marxian economics I believed in. I could soon see that Marx's grasp of the economic problems of running a socialist society was ludicrous: he really thought that it would present no more than an accounting problem rather like a corner grocery store writ large. Moreover, most of Marx's economic predictions were palpably awry and it was perfectly clear that he himself was deeply disappointed at the time of his death by the failure of the proletariat to overthrow capitalism. But it still took me many years to perceive the profound, central fallacy at the core of Marxian economics, a fallacy which even today is not acknowledged by Marxists and even ex-Marxists. It is a most interesting fallacy and it is so cleverly hidden away in Capital that not one in a thousand readers ever notices it. It is the idea that there is a uniform rate of surplus value in every industry in the economy, that in short every dollar of wages paid out yields capitalists an identical number of dollars of profit, irrespective of whether these wages are earned in agriculture digging ditches or in the oil industry refining oil. This is a most improbable assumption but there is no way of demonstrating that it is false because the rate of surplus value is neither an observable nor a behavioral variable in a capitalist economy: no one strives to minimize or maximize it; it is truly a ghost-in-the-machine. Marx was well aware of this phenomenon but, in the eagerness to disguise the arbitrariness of his assumption he reified value and surplus value and spoke repeatedly of the capitalist system striving to increase the rate of surplus value; this is something that individual capitalists cannot do and in any case have no incentive to do. Nevertheless, Marx simply had to assume a uniform rate of surplus value because without it his claim that labour alone creates surplus value would have fallen to the ground.
Many modern Marxist economists, at least in Western countries, no longer believe in the labour theory of value and its corollary, the labour theory of surplus value. Even so, to the extent that they remain Marxists they continue to believe that capitalism is grounded on the exploitation of labour. By "exploitation", they mean simply that workers do not own the means of production and hence are denied the profits that result from employing labour in the production of saleable goods. Their argument is therefore that there is a fundamental injustice in capitalism, an injustice residing in the fact that workers do not own and owners do not work. It is fascinating to me to see how far such "analytical Marxists", as they call themselves, have abandoned all varieties of consequentialism in appraising capitalism and have instead opted for moral judgements based on the ethical meaning of social relationships in a capitalist system. In other words, they ask: is it fair that most of us have to work for a living, while a small minority can live without working?, (to which of course the only answer is that it is exceedingly unfair), instead of asking whether the consequences of capitalism in generating unprecedented economic growth could be obtained without an unequal and hence unfair distribution of private property. In other words, we can agree that capitalism is not an edifying system: it is crass, brutal and morally reprehensible but it does deliver the goods and in the final analysis it is the goods that we want!
The McCarthy Experience
I doubt whether it would have taken me so many years to throw off the weight of Marxism if it had not been for an encounter in 1952 with the spectre of McCarthyism. McCarthy was tiding high in 1952, the product of the anti-Communist hysteria that held America in its grip at the height of the Cold War. And it was a hysteria as the following story will show. I had graduated from Queens College of the City University of New York in 1950 and was in the midst of my preliminary year for the PhD at Columbia University when Arthur D. Gayer, the chairman of the economics department at Queens College, was killed in an automobile accident. The department looked around for someone to take over his courses in the middle of the semester and since I had worked for him as a research assistant, I was asked whether I would have a go. And so I suddenly found myself teaching a full load of courses in microeconomics, consumer economics and marketing, a subject I had never studied. I can remember being so nervous about my first lectures that I literally memorized them in their entirety the night before giving them.
I was just getting on top of all this teaching when the Un-American Activities Committee, chaired by Senator Joseph McCarthy, arrived in New York city to investigate communism in the New York City college system. They called on three well-known professors to appear before them in order, no doubt, to ask them the familiar questions: "Are you now or have you ever been a member of the Communist Party?". All three refused to cooperate with the committee, pleading the First and Fifth Amendment to the Constitution, which prohibits witnesses from incriminating themselves. Despite the fact that all three were tenured professors, they were promptly and summarily dismissed by their employer, the City University of New York. One of these three professors was Vera Shlakman, Professor of Labour Economics at Queens College, a former teacher of mine and, at that point in time, a colleague. She was the president of the Teachers' Union, a left-wing professional union of college teachers in the New York City area, and was herself left-wing and, for all I knew, a fellow-traveler. But having been taught by her, I knew that she was scrupulously impartial and leaned over backwards not to indoctrinate her students. A number of students organized a petition to the President of Queens College demanding Vera Shlakman's reinstatement but, by the by-laws of the college, student petitions could not be submitted to a higher authority without an endorsing signature of at least one faculty member. The students went right through the economics department, which then numbered 40 professors, associate professors, assistant professors, and lowly tutors like myself, without encountering one person willing to endorse the petition. At the end of the line, they came to me and because of my personal regard for Professor Shlakman, and because I could not bear the thought of being pusillanimous, I signed the petition. Within 24 hours, I received a curt note from President Thatcher of Queens College (odd that I should remember his name after 40 years!) informing me that, unless I resigned forthwith, I would be dismissed, and black-listed for future employment.
For a day or two, I contemplated a magnificent protest, a statement that would ring down the ages as a clarion call to individual freedom, that would be read and recited for years to come by American high school students--and then I quietly sent in my letter of resignation.
I was now at my wit's end. I had planned to apply for a scholarship to begin working on my doctoral dissertation and had been relying on my teaching salary from Queens College to carry me through the application period. I was broke and depressed by the entire experience when suddenly the telephone rang to inform me that I had been offered a grant by the Social Science Research Council to enable me to go abroad to write my PhD thesis: clearly, there were people here and there behind the scenes lending assistance to victims of McCarthyism.
In the curious way that every disaster in my life has always in due course turned into a blessing, there now began what I quickly realized were the best two years in my life. I had picked a topic, the rise and fall of the school of David Ricardo in nineteenth century economic opinion, that turned out to be even more promising than I had imagined.(1) I also discovered that scholarly research was my true metier. I took a room within a stone's throw of the British Museum Reading Room in London and lived the life of a medieval monk, reading and writing as much as 18 hours a day, 7 days a week. My early efforts were sent off to my doctoral supervisor, George Stigler, then at Columbia University, whose acerbic but acute comments were just what I needed to spur me on. Two years later I was back in New York with a completed thesis and the undeniable pleasure of witnessing the final downfall of Senator McCarthy on television.
In the summer of 1954, I was interviewed for a post as Assistant Professor at Yale University. On my interview committee was William Fellner, who later became one of my mentors. In the course of the interview, I felt impelled to explain how I had lost my previous teaching position at Queens College. I always remember how Fellner cut me off, saying: "We don't want to hear about that. This is a private college and what transpired at a public university a few years ago is of no concern to us". I never had a better demonstration of Milton Friedman's thesis that a free market, by multiplying the number of probable employers, is more likely to secure liberty for the individual than a socialist system in which the state is a monopsonist.
It is difficult nowadays to convey the extraordinary atmosphere of the McCarthy era in which one was likely to be stabbed in the back by one's best friends and in which everyone was literally looking for "reds under their beds" every night. In my youth I had innocently believed that intellectuals would always stand up for ideas against the powers that be but, as a result of the McCarthy experience, I lost whatever respect I ever had for intellectuals and academics. With enough social pressure, they will capitulate to McCarthy, Hitler, Stalin, Sadam Hussein, or anyone else with the power of the army and police behind them.
By the time I started teaching at Yale in 1954, I had shaken off almost all of my old Communist beliefs, and when Kruschev delivered his famous anti-Stalin speech in 1956, I had the quiet satisfaction of having all my new beliefs confirmed out of the horse's mouth. In the next few years, I moved steadily to the right but I never became as maniacally anti-communist as many ex-communists. I remained, and probably still remain, politically schizophrenic: rather right-wing on questions of economic policy, such as privatization, deregulation, trade union legislation, and the like, but fiercely left-wing on questions of social policy, such as welfare payments, unemployment compensation, positive discrimination in favour of women, blacks and gays, the right to abortion, legalization of soft drugs, and so forth. My right-ward journey was halted by Reagan and Thatcher. Living in England in the 1980s, I was increasingly appalled by the blatant use of mass unemployment to counter inflation and was amazed that the persistence of double-digit unemployment was tolerated by the British electorate for a decade or more. I was struck by the way Mrs. Thatcher managed to persuade voters, financial journalists and even many economists that the costs of inflation are always greater than the costs of unemployment which I believe to be blatantly false for single-digit inflation but double-digit unemployment rates, which indeed was the prevailing scenario throughout most of the 1980s.(2) The Falklands War was bad enough but her failure to attack the unemployment problem, or even to admit that it was a problem, made me as left-wing on macroeconomic questions as I had long been on social questions. Thanks to Mrs. Thatcher I came back to a more or less consistent belief in capitalism, yes, but capitalism tampered by Keynesian demand management and quasi-socialist welfarism.
The Flirtation with Freud
Even as I fell under the spell of Marx, I also succumbed to the siren call of Freud. In the summers of 1944, 1945 and 1946, I worked as a waiter in upstate New York hotels--the so-called "Borsht Belt"--and many of my guests were psychiatrists and psychoanalysts. It didn't take long before I was deeply immersed in the writings of Freud and Freudians and thrilled by the power of Freudian theory to explain everything, a power which of course reminded me of the style of Marx. I still recall vividly being absolutely entranced by Freud's Interpretation of Dreams, the sense that something as inherently mysterious as dreams could be accounted for in an rational manner. I yielded too, to the enormous rhetorical power of Freud, who, whatever one may think of him as a scientist, was a great literary artist. Freudianism stayed with me insidiously much longer than Marxism. But, gradually over the years, I became increasingly aware of how self-fulfilling and self-justifying were many of the key concepts of psychoanalytic theory and how characteristic was the unwillingness of analysts to submit Freudian ideas to an empirical test. I now think that virtually the whole of Freudian theory is a tissue of mumbo-jumbo and that psychoanalysis as a therapeutic technique is not very different from Chinese brain-washing. But this was a view that came to me only slowly and not without a certain measure of personal experience with psychoanalysis.
In the wonderful poem, "In Memory of Sigmund Freud", every line of which I ought to quote, W. H. Auden concludes:
If often he was wrong and at times absurd
To us he is no more a person
Now but a whole climate of opinion,
Under whom we conduct our differing lives
Like weather he can only hinder or help
. . .
Not so: he can only hinder and does!
Why Bother With the History of Economics?
Ever since my childhood, I have been a voracious reader. When I was young, I read to escape and later reading a book a day became a habit which I could not shake off. A non-stop reader has a comparative advantage in a subject like the history of economic thought and in that sense intellectual history, at least for me, a form of self-indulgence. Within a year of arriving at Yale University in 1954, I was asked to take over William Fellner's graduate course in the history of economic thought for no better reason than that I was the only person on the faculty anxious to teach it. And so, at the tender age of 27, I found myself teaching a compulsory course in the history of economics to postgraduate students at one of America's foremost institutions of higher education. Yale in those years admitted some twenty to thirty hand-picked graduate students in economics and in the next few years my students numbered at least a dozen or so names who later became well-known academic economists. I was so nervous about teaching the course that I over-prepared myself: within a few years I had collected thousands of pages of notes, notes that were eventually to become my only well-known book, Economic Theory in Retrospect (1962).
In the introduction of the book, I claimed that all historians of economic thought are either "relativists"; or "absolutists": they either believe that all past doctrines are more or less faithful reflections of the historical circumstances in which they are created or that past ideas are largely the result of the internal logical development of the subject, being almost always mistaken in the light of later thinking. I announced myself an unapologetic absolutist and poked fun at relativists throughout the book. This is not a point of view I now hold, having been upstaged over the years by even more strident upholders of the "Whig interpretation of history". When I witness the attempt of many commentators in recent years to reproduce the great ideas of the past in modern dress, particularly in one or another mathematical model, I realize that absolutism carried to its logical extreme deprives the history of ideas of all raison d'etre: far from imparting an appreciation of the past, it actually destroys historical understanding by condemning all thinkers down the ages to live now and to think as we do.
Be that as it may, my youthful absolutism was the product of three forces. Firstly, the discipline of economics was never so confident as it was in the late 1950s and early 1960s: we knew that general equilibrium theory was the last word in theoretical elegance, that input-output analysis and linear programming would soon make it not just elegant but operational, and that "the neo-classical synthesis" had successfully joined Keynesian macroeconomics to Walrasian microeconomics; in short, that economics was one church and that the full truth was at any moment to be revealed to us. If ever one were going to take an absolutist view of the history of economic ideas, 1960 was just the right date to bring it off. Secondly, I was deeply influenced by Schumpeter's History of Economic Analysis (1954), and Schumpeter was of course a peculiar but nevertheless adamant absolutist. Reinforcing the influence of Schumpeter was the influence of both the writings and the personality of George Stigler, my doctoral supervisor.(3) He had a reputation of destroying students but I always got along very well with him. I like aggressive, assertive people and when George Stigler said that something you had written was nonsense, he produced so many crushing reasons to back up his judgement that you could not but be grateful that he had condescended to criticize you. Also he was one of the few really funny men that I have ever known: his sense of humor was wicked and even vicious and I loved it. I found myself imitating his lecture style and of course his writing style but I have never been able to match his biting footnotes.
Whenever I met him in later years, I regressed immediately to the status of a young graduate student ingratiating himself with a senior figure. In fact, I was a bit scared of him, particularly as our political views were a thousand miles apart and I once or twice inadvertently expressed opinions that were abhorrent to him. My most touching memory of him is a day in 1960 when he introduced me in Chicago to Frank Knight, his doctoral supervisor in the 1930s. I watched him talking to Frank Knight with the same deference that I showed him and I suddenly realized that he too could not address an elderly teacher of Knight's renown as an equal, no more than I could relate to him as an equal. There is something very stirring in the idea of the successive generations of teachers and pupils passing down "the lamp of knowledge".
But apart from Schumpeter and Stigler, it was my students at Yale who would have driven me to absolutism whatever its intellectual merits. The history of economic thought was a compulsory graduate course in the 1950s but these students were typical American graduate students: they wanted to learn the tools and techniques of modern economics and to hell with such scholarly subjects as economic history and the history of economic thought. I was aware from the moment the course began that I had to sell the history of economics as somehow relevant to these young Turks. No wonder then that I taught the subject by emphasizing the filiation of purely analytical concepts and continually emphasizing the modernity, and sometimes lack of modernity, of the ideas of the past.
The very task of working so hard to put over the history of economics as a legitimate subject for intellectual inquiry eventually soured me on the subject altogether. By the time I left America in 1962, I was more or less determined to work instead in applied economics. But eventually, after a holiday from the history of economic thought for a decade, I came back to it again in the 1970s as my first and ultimately last love. In the final analysis, I find nothing as intellectual satisfying as the history of ideas. I have never been able to grasp how one can understand any idea without knowing where it came from, how it evolved out of previous ideas. As soon as I learned calculus, I had to find out how Newton invented it, how Leibniz invented it independently, how they argued over the right calculus notation and just what was meant by the concept of a derivative. And one reason I have never really understood Einstein's general theory of relativity, despite repeated attempts to learn it, is that late nineteenth century physics is too difficult for me, so that I can't follow how Lorenz almost got as far as Einstein did. Great theories, in economics as in other subjects, are path-dependent, to use popular recent jargon in economic history, that is, it is not possible to explain their occurrence without considering the corpus of received ideas which led to the development of that particular new theory; had the body of received ideas been different we would have arrived at a different theory at the culmination of that development. In other words, without the history of economics, economic theories just drop from the sky; you have to take them on faith. The moment you wish to judge a theory, you have to ask how they came to be produced in the first place and that is a question that can only be answered by the history of ideas.
I understand very well why historians of economic thought figures so little in the pecking order of economists. But it does mean that economics is for most economists an almost wholly unintellectual subject. In the face of ideas, many economists are simply philistines, like troglodytes listening to a Beethoven quartet and asking why the four players seem to be unable to bow in unison.
The Economics of Education
In 1962, I left America to spend a year in Paris on a research scholarship to continue my investigations of the nineteenth century cotton industry. At the end of that year I reached the promotion barrier at Yale: after six years as an assistant professor an American university must either promote you to an associateship, which carries tenure, or dismiss you. Yale refused to promote me on the grounds that they had no need of a senior professor specializing in the history of economic thought and I therefore found it necessary to look elsewhere for a new appointment. When I now thought of returning to the United States, my heart sank. I realized that despite 20 years in America, I had never ceased to think of myself as a European. America was too crass, too commercialized for me and I had never entirely given up the condescending feeling of a cultured European for those vulgar Americans. A nation in which "the life of the whole of one sex is devoted to dollar-hunting, and of the other to breeding dollar-hunters", as John Stuart Mill put it, or, in Oscar Wilde's words, "A country that has passed straightway from barbarism to decadence without the intervening phase of civilization". I made up my mind to move to Britain, a country in which I had lived as a boy during World War II and had lived in again as a student working on my doctoral dissertation.
I began making applications for a number of vacancies at British universities but there was little expansion in the academic job market in 1962 and I soon realized that I might well fail to find a job before the year was out. By a fluke I bumped into Lionel Elvin, the Director of the University of London Institute of Education, who told me that they had been unable to fill a vacancy in the economics of education because this was a new field in Britain. I had never heard of something called "the economics of education" and decided to inform myself. This did not take long because the subject was indeed little researched in 1962. I took the bull by the horns and wrote to Lionel Elvin, admitting that I was a novice in the economics of education, but asking whether the Institute would hire me on a temporary basis for a year or two. They agreed to do so and those two years turned, much to my amazement and theirs, into 23 years! I mention all this only to emphasize the role of accident in life. I have read dozens of involved explanations of how people make occupational choices or marital choices for that matter, but when investigated closely and in detail it often appears that it was pure chance that A became a chemist and B a lawyer, or that A married B and C married D.
The Institute was a post-graduate teacher training college and the bulk of my students were teachers seeking to up-grade themselves. My teaching load at the Institute was light; my administrative duties were equally light because the department of economics at the Institute numbered only two or at most three; and for the first time I was able to give myself almost wholly to writing and research. The lack of economists to talk to would have been painful but for the fact that the London School of Economics was just down the street. I soon became a visiting lecturer at L.S.E. and divided my time between the two institutions.
The world of education was a wholly new milieu for me: it was much softer than the world of economics; very few educationists paid much attention to empirical evidence in supporting their assertions and many arguments degenerated into a clash of value judgements. I was not at first prepared for the unmitigated hostility with which educationists viewed all economists who they regarded at best as cost-cutters and at worst as fascist swine. The sway of fashion was even worse in education than in economics and, while the center of gravity of the political spectrum in education was well to the left of what it was in economics, when educationists were right-wing they made Milton Friedman look like a loony left-winger.
It did not take me long to become an enthusiastic advocate of human capital and I was certainly the first to venture to make rate-of-return calculations for educational investment in Britain. For about a decade, roughly from 1965-75, I proselytized on behalf of human capital theory and I like all enthusiasts, outperformed my adversaries at least quantitatively. But then this God failed as had Marxism and Freudianism before. In 1976, I published a long post-mortem whose title says it all: "Human Capital theory: A Jaundiced Survey". It said, not that human capital theory is wrong, but that it is thin and unproductive despite its early promise, and unable to vanquish its principal competitor, the screening hypothesis, credentialism, the diploma disease, call it what you will. I came in the end to think that human capital theory vastly exaggerates the role of cognitive knowledge in the undoubted economic value of education. What really accounted for the economic and even the social and political role of education in the modernization process was what educational psychologists call "the affective behavioural traits" that formal education imparts, that is, the effect of schooling in shaping the values and attitudes of students; what employers really value about education is not so much what educated workers know than how educated workers behave. This insight has far-reaching implications for questions of vocational training, for aspects of educational planning and even for problems in the financing of education. Eventually, I married up my notions of the incomplete employment contract, requiring the monitoring of effort and the screening and signalling problem that characterizes the hiring and promotion of workers, with my new conception of the economic value of education. But by the late 1970s, I found myself repeating this message over and over again in different contexts without the slightest visible effect on either educational circles or the treatment of education by economists and, as a consequence, became bored by the very topic.
Indeed, it seemed to me then, and it still seems to me now, that education is more plagued than most subjects by a sense of deja vu, an endless merry-go-round in which every question or argument recurs every ten or twenty years, frequently in identical for. I could give many examples of this phenomenon but let me cite just one: I began advocating student loans in higher education, preferably financed by a graduate tax throughout working life, in the late 1960s; although this was already old-hat in the USA by then it remained right up to the 1980s in Britain an outrageous and extremely unpopular idea. I came very close to the centers of power in British education, first under Labour in the early 1970s and then under the Tories in the early 1980s, but was never successful in selling the idea to those who could have implemented it. I gave it up in disgust around 1982 but since then the argument has been carried on more ably by other British economists but again to no real avail! When the Conservative government under Mrs. Thatcher in 1988 finally adopted a very modest student loan scheme, conceived as a personal debt repayable in 15 years, no reference whatsoever was made to 20 years of writings on the subject and the British economic profession swallowed the proposal without a murmur of criticism. To this day it is not generally recognized by politicians that the finance of higher education is an economist's issue par excellence.
I spent a good deal of time during my years at the Institute of Education on leave in Asia and Africa as an educational consultant for various UN agencies, such as UNESCO, UNECAFE, ILO and the World Bank. I participated in economic missions to six underdeveloped countries in tropical Africa, South and South-east Asia. I lived in India for six months writing a book on graduate unemployment and worked in Thailand and Indonesia for a year, working for the Ford Foundation. At first, I learned a lot about development economics and the role of economic advice to Third World governments but diminishing returns to learning soon set in and I found myself repeating more or less everything I had said in the last country had worked in. I started out as a do-gooder, anxious to help lift the downtrodden masses of the Third World from the squalor in which they lived. But as time passed, I found myself more and more inclined to agree with Peter Bauer that aid to developing countries does more harm than good. The whole business of UN aid missions and advice to Third World governments on what to do or not to do in economic policy was a gigantic charade. The governments in question simply wanted aid or World Bank loans but could not get it unless they could show they had consulted the best advice they could obtain. Instead of buying that advice from the international consultancy industry, which did in fact happen in technical fields like oil drilling or hydraulic engineering, they went to the UN agencies to secure the services of free-lance consultants like myself, who soon learned which side their bread was buttered on--always the underside of course--and did well by doing good, at least for a while until the song they were singing at that moment went out of fashion.
I became more and more cynical about the Third World ministers and politicians I had to work with who exploited me and other economists like myself to get the aid they wanted, while lining their own pockets with the leavings of that aid. The amount of corruption and political hypocrisy that I witnessed in every country I worked in eventually turned me against the entire development consultancy business. Getting out was easy: all one did was to say something that Third World governments did not want to hear; by saying it often enough, one could be assured of not being rehired.
The bee in my bonnet was simple enough: down with higher education and up with primary schooling! In my view, all these countries, and particularly those in Africa, overspent outrageously on free higher education, which the government officials of the moment had of course themselves enjoyed, and underspent equally outrageously on the primary schooling of the rural poor. Another bee in my bonnet was the wastefulness of formal vocational schooling at the secondary level, not to mention the vocationalization of the primary and secondary school curriculum, which was simply the old fallacy that the cognitive knowledge of students was what made education so economically valuable. Underlying both of these mistaken policies was a technique of educational planning called the manpower-requirements approach, which was input-output analysis inappropriately applied to the matching of educated workers to different occupational slots in individual industries. I spent ten years or more attacking the manpower requirements approach to educational planning but to no avail, at least in the Third World. The fact of the matter is that the approach, being entirely in terms of physical quantities and involving no prices--"priceless economics" as someone called it--is so easy to understand and hence so politically irresistible that the manpower-requirements approach has remains to this day the principal technique for the planning of education and training in the Third World.
One of the great lessons imbibed from my years as a Third World advisor was the hopeless inconsistencies involved in marrying the objective of socialism with that of development and modernization. Every government I ever worked for was to some extent committed to socialism but also wanted to modernize and to imitate America, Japan, Britain, etcetera. They would wax eloquently about the need for indigenous entrepreneurship but would stamp on everyone who made money, particularly by selling shoddy goods to ordinary people in the so-called "informal sector". In short, they never could accept the rugged individualism and the consequent inequalities that rapid economic growth inevitably entails but, nevertheless, they could not abandon the objective of growth and development. They utterly failed to understand the "causes of the wealth of nations", which whatever they are, are not the immediate eradication of unearned incomes and perfect equality in the distribution of earnings.
It is ironic that practically every one of the economic mission reports that I helped to write in the 1970s was commissioned by a government headed by a dictator who was overthrown either as soon as the report was delivered or shortly thereafter: a UNESCO World Experimental Literacy Project mission to Iran headed by the Shah in 1964 and 1976; a ILO World Employment Programme Mission to Ethiopia headed by Haile Selassie in 1972; a ILO World Employment Comprehensive Mission to the Philippines headed by President Ferdinand Marcos in 1973; a ILO World Employment Comprehensive Mission to the Sudan headed by President El Nimeiry in 1975; a ILO World Employment Programme Mission to Lesotho headed by King Moshoeshoe in 1976; a UNDP Mission to Buthan headed by King Wanghuk in 1981; a UNDP Mission to Brunei headed by Sultan Bolkiah in 1983; and a World Bank Mission to China headed by Dang Xiao Ping in 1983. With the exception of Buthan, Brunei and China, all the other countries are now governed by other leaders, often in violent opposition to those to whom I and my team-mates delivered our reports. So much for the notion that economists have an influence on the policies of foreign governments!
The Methodology of Economics
As the 1970s passed by, I turned increasingly towards the methodology or philosophy of economics as a subject of abiding interest. Actually, this had been my interest all along but I had never realized it. It started of course with my early infatuation with Marxism or rather with my gradual disillusionment with Marxism. In my last year as an undergraduate at Queens College I took a seminar course in the philosophy of the social sciences with Donald Davidson (who, I learned later, was an eminent philosopher of science). Davidson knew that there were a number of young Marxists in the class (remember this was 1949) and his way of dealing with Marxism was gently to ridicule it. Thus, when I trotted out the three laws of Hegelian dialectics (the change of quantity into quality, the unity of opposites, the negation of the negation) as the master-key to unlock all doors, he topped it with Herbert Spencer's "law" of evolution: evolution is a change from a state of relatively indefinite, incoherent, homogeneity to a state of relatively definite coherent heterogeneity. "That neatly explains absolutely everything", Davidson said, and with a shock I realized that was just as true of the laws of dialectics: they explained everything, which was just like explaining nothing.
Davidson asked us to read Carl Hempel's "The Function of General Laws in History" (1942), which argues that any valid explanation of a historical phenomenon like, say, the French revolution must necessarily invoke some universal empirical hypothesis or of which this is said to be a particular instance; if it fails to do so, it is merely a pseudo-explanation. This is what later came to be called "the covering-law model of scientific explanation": to explain a thing is to "cover" it under some universal law. I can still recall more than forty years later how this article hit me like a thunder-clap; it is probably one of the dozen or so essays that has left a permanent mark on my thinking. I suddenly realized that I had been employing pseudo-explanations for years without realizing that they were untenable because they involved alleged covering laws of which I nor anyone else had any knowledge. A covering law for revolutions? Yes, we had all read Crane Brinton's Anatomy of Revolution (1938), which collected some general features of revolutions, based on a sample of three, but these hardly amounted to universal laws or even universally applicable characteristics. In short, no one had ever really explained the French revolution of the Russian revolution except in a purely ad hoc way.
By the time I had come to work on my doctoral dissertation, I had somehow absorbed Popperian falsificationism without ever reading Popper. Some of it I acquired from Milton Friedman's classic essay "The Methodology of Positive Economics" (1953), which, without mentioning Popper, presents a sort of vulgar, Mickey Mouse Popperianism. Some of it filtered down from remarks and asides in Stigler's essays on the history of economic thought. When I started teaching in Yale in 1954, I soon became friendly with Tjalling Koopmans, partly because he was an amateur composer and I had just started playing the cello, so we talked about music, and partly because we were both Dutch and enjoyed speaking Dutch together. Our interests in economics were totally different but when he started working on the second of his Three Essays on the State of Economic Science (1957), which is all about methodology, we talked about Friedman's essay and then for the first time I became entirely persuaded by predictionism, that is, the idea that theories must ultimately be judged by the accuracy of their prediction. When, I published my first professional paper in 1956, "The Empirical Content of Ricardian Economics", it was shot through by predictionism, but, nevertheless, I still had read no Popper. Indeed, I can remember like yesterday the first moment I finally decided to read Popper.
In 1962, while living in Paris, I strolled into a bookshop one Friday afternoon and saw a copy of Karl Popper's The Open Society and Its Enemies (1945) which, as everyone knows, is a study of Plato, Hegel and Marx as three great enemies of the open society, I went home and started reading it as soon as I had finished dinner. I read all night, all day Saturday, and, after falling asleep reluctantly, finished the book on Sunday. I can safely say that no book before and no book since has excited me more. It was literally like drinking a whole bottle of champagne at a single sitting.(4) Not only did it slay Plato and Hegel, both of whom I had always regarded as monsters of the right, but it made short shrift of Marx for committing the "apocalyptic fallacy", the game of predicting doomsday some day in the indefinite future. At the same time, it offered a philosophy of science, falsificationism, and a convincing argument against political revolutions, on the grounds that we lack the knowledge totally to transform society, but that we can and should reform society on a piecemeal basis.
I then sat down and read everything that Popper had ever written. I became a through-and-through Popperian and although I now think that there are exaggerations in Popper--there is no such thing as induction; there is a fundamental asymmetry between verification and falsification; methodology is normative and has nothing to do with the history of science--I remain to this day an unregenerate Popperian. I think that I learnt from Popper how to write about complex issues in clear, unadorned, Saxon English and indeed found myself almost copying his style word for word.(5) When I arrived in London in 1952 to work on my doctoral thesis, I was thrilled to learn that Popper was teaching a weekly seminar at London School of Economics in the philosophy of science. I was given permission to audit the course but imagine my surprise when I soon saw that Popper was a Prussian-style teacher of the old school, a walking embodiment of all the arrogant intolerance that he preached against in his books. There was a cruel joke about Popper that went around the London School of Economics invented apparently by one of his students: "The Open Society by One of Its Enemies is that he should have called his book. The Open Society by a Closed Mind would have been an even better title". Ah well, Beethoven, the greatest composer that ever lived, was a dreadful man and so was Wagner, and Goethe, and Tolstoy--and I am not very nice myself!
Before Economics There Was Philosophy
I have never regretted my youthful decision to become an economist but there have been moments when I wished I had studied philosophy. In one sense philosophy is where I started and philosophy seems to be where I am ending up. But where I started was not so much philosophy in general as a particular kind of philosophy, namely, theology. The question of the existence of God was the first philosophical question I ever asked, and answered, and it interests me still. I was brought up as an orthodox Jew, achieved pantheism by the age of twelve, agnosticism by the age of fifteen, and militant atheism by the age of seventeen, from which I have never wavered. Indeed, I seem to become more militant about my atheism the longer I live and it taxes all my tolerance nowadays to keep a civil tongue in my head when I argue with arch believers, which I am afraid I love to do, love too much to do.
It all started when one of my uncles gave me a Bible at the age of twelve, not noticing that it included the New as well as the Old Testament. Being a non-stop reader, who devoured any book that I could lay my hands on, I naturally read the New Testament of whose very existence I had never heard. I was immediately enthralled by the story of Jesus and reinforced it by reading Ernest Renan's Life of Jesus, a romanticized nineteenth century biography of Jesus as a humanized prophet of old. This account I thought had to be true but all my relatives told me that it was not true. I argued with them and was sent to a rabbi to be corrected. He soon persuaded me that Jesus could not be the son of God, because the central intelligence that created the universe does not have children nor could he be the Messiah because when the Messiah has come to this world, the lamb will lie down with the lion, swords will be turned into ploughshares, and nations shall no longer war with one another. Have swords turned into ploughshares? Have nations ceased to war with one another? Well then. That struck me as a thoroughly convincing argument.
Perhaps the beautiful story of Jesus as set down in the gospels was false but what about the story of the Buddha, the next account of a god that I read. That struck me as an equally beautiful story. But again, I was told, by relatives and friends, that the story of the Buddha could not be true. All these beautiful stories, the story of Moses and Joseph and David in the Old Testament, the story of Jesus in the New Testament, the story of Buddha in the Mahayama texts of Buddhism, must all be true, I thought because they were so beautiful, and yet equally they must all be false because they contradicted each other. In one leap, I ceased to believe in any authorized religion and became a Spinozean pantheist, without of course ever having heard of Spinoza. When we fled Holland after the German invasion of 1940 and my parents sent my eider brother and me to a boarding school in England, the headmaster of the school was a Christian Scientist and he tried to convert me to Christian Science. This introduced me to unauthorized deviant religious sects and for several years I was a regular little pest to adults because I never left off asking them questions about their religious beliefs, not to learn but to persuade them to drop the argument of design, or the argument of first cause, or the argument of ultimate purpose as fallacious arguments for the existence of God. As for the historicity of Jesus, I had a dozen clever reasons for demonstrating that his existence was no better established than that of King Arthur or Robin Hood. I am afraid that this is a weakness I have never really learned to overcome. To this day I cannot resist trying to argue with a fundamentalist, whether Christian, Jewish, Islamic or Hindu, even though I know it to be a hopeless undertaking. I am an infernal optimist and always believe, against all evidence, that rational argument will eventually win out.
I like to describe myself as a religious person, meaning that not a day goes by but I ponder the great questions: is there order in the universe?; does it mean anything?'; are we here for a purpose? These are good questions but to answer them by God or Church is to insult the profundity of the questions. One reason that I took to Marxism in my teens like a duck takes to water is that its atheism suited me down to the ground. One reason that I took to the writings of Popper, when I eventually read them, is not that Popperianism equal atheism but that Popperian falsification is perfectly suited to atheism. Show me what events, if they occurred, would imply that God does not exist? None, of course, the existence of God is a matter of faith. Well, then, it makes no difference whether we believe or do not believe in the existence of God. A difference that makes no difference is no difference! Q.E.D.
From Popper to Lakatos
Sometime in the late 1960s, while I was teaching regularly at LSE, I met Imre Lakatos, Popper's successor to the professorship in logic and philosophy of science at LSE. Imre, in the few years that I knew him (he died in 1974), was someone of whom I became extremely fond. In the course of the student troubles at LSE in 1968, he emerged as a fearless and yet sympathetic critic of the students, making merciless fun of their radical chic, which he was entitled to do as someone who had spent years in a Hungarian prison as a "right-wing deviationist" before escaping to the West in 1956. He had a marvelous sense of humour(6) and we took to each other almost as soon as we met. He knew no economics but was becoming interested in economics as a field of application for his methodological views, inspired by one of his PhD students, Spiro Latsis, who was indeed the first to apply Lakatos' ideas to economics. In 1974, Imre organized a conference in Greece, which was to bring together physicists, economists, and philosophers of science in the attempt to develop some case studies in his own "methodology of scientific research programmes". A month before the conference was to take place, he died suddenly. Spiro Latsis went on to hold the conference as a memorial to Imre and it proved to be, for myself and for many others, the conference of a lifetime. In economics, there were great men like Lionel Robbins, John Hicks, Terence Hutchison, Herbert Simon, and Axel Leijonhufvud. In philosophy, there were giants like Carl Hempel, Adolf Grunbaum and Paul Feyerabend. It was intellectually exciting; it was held in Nafplion, a beautiful site in Greece; and it was lavishly financed by John Latsis, Spiros Latsis' father, who gave us all a glimpse of the style to which we would have loved to have become accustomed.
Arguments about the relationship between Popper and Lakatos have raged on ever since 1974. I regard Lakatos as, say, 80 per cent Popper and 20 per cent Kuhn, emphasizing different things but conveying essentially the same methodology as that of Popper. When Neil de Marchi and I organized a second Nafplion conference in Capri in 1989, I was taken aback by the hostility that so many of the economists at the conference expressed for the ideas of Lakatos and Popper. Much of that hostility was directed at Lakatos' insistence that scientific research programmes should ultimately be judged by the number of novel predictions that they generate. This criterion proved to be too much to stomach for most of the participants who realized that its implication was to cast doubt on virtually the whole of what passes nowadays as neoclassical economics.
Gradually, since the 1950s, and at an accelerating rate in recent years, economics has become ever more formalistic, that is, almost exclusively concerned with analytical rigour at the expense of policy relevance, taking on ever more the appearance of a kind of social mathematics rather than an empirical social science. Economists have sometimes been accused of physics-envy but that is an utterly misleading accusation. Anyone who knows modern physics will testify that physicists care about experimental evidence, about bringing their theories into conformity with the experimental evidence, and very little about rigorous theorems and analytical lemmas. What economists really suffer from is mathematics-envy. Consider general equilibrium theory, the most prestigious type of economic theory, practiced only by the professional front-runners of the subject. Here is a theory with absolutely no empirical content. Having "proved" the existence, uniqueness and local stability of multi-market, general equilibrium what have we learned about the economy? Absolutely nothing. No physicist would ever think that general equilibrium theory raised interesting questions but a mathematician would of course find it perfect grist for his mill. Some modern practitioners of general equilibrium theory even justify it as fulfilling Adam Smith's age-old promise of demonstrating the tendency of "the invisible hand" of competition to harmonize private and social interests. This assertion is not only a travesty of intellectual history but an utter misunderstanding of the significance of competition as a social process occurring in real time and ensuring technical dynamism and cost minimization in an economy based on private enterprise; an end-state theory like Walrasian general equilibrium theory is simply irrelevant to it.
What strikes me most about economics after 45 years of studying the subject is the high regard that general equilibrium theory continues to enjoy, despite its failure to realize its own objectives, and the persistent neglect of technical progress as a topic of economic investigation. Economic historians have in recent years finally begun to open the black box of technical change but economic theorists continue to study economic growth as if it were all the result of capital accumulation and the growth of the labour force, mere quantitative increment in the factors of production. There is a central figure in 20th century economics that perfectly reflects this overemphasis on Walrasian general equilibrium theory combined with the underemphasis of technical progress, namely, Joseph Schumpeter. The curious fact about him is how much he himself admired Walrasian theory as the pinnacle of intellectual achievement in economics and, on the other hand, how his own original contributions to economics owed little if anything to the Walrasian inspiration; indeed, if truth be told, it clashed with it. In my younger days, I did not rate highly Schumpeter's theory of entrepreneurship and its associated treatment of innovations but since then I have come to regard The Theory of Economic Development (1911), the product of a 28-year old economist, as one of the seminal works of twentieth century economics, on par with Fisher's Theory of Interest or Keynes's General Theory. The insight that process innovations are only one kind of innovation and probably much less important in economic growth than product innovations or organizational innovations was an insight of genius.(7) And so was Schumpeter's recognition that bank credit played an essential role in the promotion of entrepreneurship and was not just a financial appendage to machine-driven factory production. It is true that Schumpeter glamorized entrepreneurship and almost reduced it to the heroism of outstanding individuals but, nevertheless, he said more about economic progress under capitalism than any economist since Marx. (What a sad comment on the last hundred years of economics theorizing!). He also recognized that Pareto optimality, perfect competition, static efficiency, and all that--the much-praised first and second Fundamental Theorems of Welfare Economics, inspired by general equilibrium theory--have no practical import because we actually appraise market structures by means of the standards of workable competition, dynamic efficiency, and technical dynamism: that's what Adam Smith meant by the invisible hand of competition, not the equality of the marginal rate of substitution in consumption with the marginal rate of transformation in production.
An alarming manifestation of sterile formalism in much current economics is the popularity of post-modernist strictures on the very idea of methodology as a set of prescriptive norms. Economics, Donald McCloskey has told us, is nothing more than a species of persuasive rhetoric, not really different from literary criticism and aesthetics. Certain "thick" methodological rules--speak softly, listen to your opponents, give reasons for your conclusions--were all right but the "thin" methodology of Popper and Lakatos was somehow ruled out as illegitimate. That this is a hopelessly inconsistent position seemed never to have occurred to him or his acolytes.
Without turning Popper or Lakatos into gurus whose writings may not be questioned, I would insist that the valid core of their contribution is the notion that economics must aspire to address real-world economic problems and that this aspiration is best satisfied by the production of theories with empirically refutable implications. That is not to say that every analytical concept that fails to meet that requirement must be instantly discarded but simply that we must strive to make falsifiable predictions and certainly must never to rest satisfied with an economic theory until it has been confronted by empirical evidence. Technical puzzle-solving as a game to be played for its own sake is not to be held out as an ideal to students, the way in which it is at the moment.
Throughout my professional career as an economist, I have admired Milton Friedman's style of doing economics, while detesting his political views, and admired Paul Samuelson's political views while disliking the type of economics he practices. Between that Scylla and Charybdis, I seem condemned forever to remain.
Notes
1. When I published my thesis as Ricardian Economics (1958), I thought that Ricardo, the rigorous theorist, was an admirable figure, so much that I named my eldest son after him. But over the years I came to identify Ricardo's "telescopic" tendency to collapse the long-run into the short-run as if there was no transition period as the abiding vice of orthodox economics.
2. The economics of inflation has interested me ever since my days as a graduate student at Columbia University. One of my teachers was Arthur F. Burns, who taught me macroeconomics tinged with great skepticism about the theories of John Maynard Keynes. Burns was one of the four examiners in my doctoral oral examination (the other three being Abram Bergson, John Maurice Clark and Karl Polanyi). Burns asked me what was wrong with inflation, a strange question in 1952 when the American inflation rate was 1 per cent. Whatever answer I gave him--unfair to creditors, costly to wage earners and pension receivers, a tax on saving, and the like--he refuted with a counter-example. Within ten minutes, be reduced me to gibberish and made me feel two feet tall. My heart sank as I realized that I had certainly failed his part of the oral. When I was finally told that I had passed over-all, I apologized to him for my poor performance on the inflation question. He putted me on the shoulder familiarly, saying: "That's all right, my boy, better men than you have flunked that question". I ran home and read myself blue in the face on the question of inflation, swearing that I would never fail that question again.
3. Of all my Columbia University teachers, James Angell, Arthur Burns, William Vickrey, John Maurice Clark, Abram Bergson, Ragnar Nurkse and Karl Polanyi, I recall vividly only the latter because he introduced me to general economic history, made me read books I had never heard of (like Malinowski's Argonauts of the Western Pacific) and taught me how easy it is to concoct "laws" of history--Polany's categories were 'reciprocity' and 'redistribution' and in these terms he described just about all pre-market economies in history. I did not believe the central thesis of The Great Transformation (1944) but it was congenial "bourgeois Marxism" and immensely stimulating.
4. Favourite Books. This is a Victorian parlour game which I love to play: (1) favourite novel: Homer's Odyssey; (2) favourite poem: Stephen Spender "I Think Continually of Those Who Were Truly Great"; (3) favourite drama: Arnold Strindberg, The Father; (4) favourite military history: William Prescott, The Conquest of Mexico; (5) favourite history of ideas: Arthur Koestler, The Sleepwalkers;(6) favourite philosophical work: Alfred Ayer, Language, Truth and Logic; (7) favourite anthropological study: Malinowsky as above; (8) favourite political study: Popper's Open Society; etcetera, etcetera, this is a game without end; it is made difficult because second choices are not allowed.
5. A similar stylistic inspiration nearer-to-home was Joan Robinson whose economic writings I first encountered as a student; they continued to fascinate me in later years. I read every word that she ever wrote and her language--verbal algebra peppered with homely colloquialisms--attracted me as much as her political views repelled me. She was always very rude to me when we met--after the Cambridge controversies on capital theory she regarded me as an enemy--but I did not mind. It's hard enough to be a brilliant woman in a male-dominated profession like economics but to be a brilliant woman in the homophilial atmosphere of the Cambridge economics department must have been maddening.
6. One of my favourite Lakatos stories has all the flavour of a great Jewish joke. He told us that he was brought up in a small Hungarian village. When he came home at the age of seven with his first report card, he had A's in all subjects except physical education in which he received a C. His mother beat him black and blue in punishment and the next year, he brought home a report card with A's in all subjects including physical education (this was already funny enough, half way through the story, because he was a physical runt and unlikely to have ever excelled in sports). His mother always told him that she hoped that he would one day be a Professor at the University of Cambridge, a university that for some unknown reason, she regarded as the pinnacle of academic achievement. Imre escaped from Hungary in 1956, and fled to England, and, lo and behold, obtained a scholarship to study the history of mathematics at Cambridge. He completed his doctorate (later published as Proofs and Refutations) and was appointed on the strength of it as a temporary lecturer at Cambridge. He wrote to his mother still living in Hungary to tell her the news and she wrote back: "Yes, but why didn't they make you a professor?".
7. I have personal reasons for appreciating the importance of product innovations. My father manufactured raincoats in Holland in the 1930s. A Swede transformed the business in 1932 by inventing the poplin raincoat; before that raincoats were always made of artificial rubber. My father found himself with thousands of unsalable rubber raincoats in 1933, the depth of the Great Depression in the Netherlands, and faced bankruptcy. Everyone in the industry thought that the new fad of poplin raincoats would not last but my father, being a pessimist, was convinced that rubber coats would never again be demanded, so he offered his entire stock at a penny a piece to C&A, the leading clothing store in Amsterdam. They were so impressed by his boldness that they gave him an order for poplin raincoats if he could learn to manufacture them. He went to Sweden, poached a tailor and a cutter, and filled the order. That led to more orders and still more orders and by 1935, he was the Raincoat King of the Netherlands and a self-made millionaire. His good fortune did not last very long because in 1940, the Germans invaded Holland and we lost it all. When this rags-to-riches story started, I was six years old; when it ended, I was twelve. In short, I have good reasons to think that new products can make a difference.
Originally published in American Economist 38 (2). 1994.
