Commentary Magazine


Main Currents in Modern Economics, by Ben B. Seligman

Economic Thinking

Main Currents in Modern Economics: Economic Thought since 1870.
by Ben B. Seligman.
Free Press. 887 pp. $11.75.

Of all the social sciences, economics has suffered most from the incompatibility of 18th-century conceptions and 20th-century mathematical techniques. With its parade of simultaneous equations, modern economics seems more rigorous than its sister disciplines, toward which therefore economists incline to condescend. But what economics has gained in rigor it has lost in relevance. As one recent commentator has remarked, when economics is a science it is not economics, and when it is economics it is not a science.

These paradoxes derive from the conception of the economy as “the obvious and simple system of natural liberty” which we associate with the name of its classic expositor, Adam Smith. Galbraith has suggested that his conception reflects the scarcity of that day. Certainly the Founding Fathers did not foresee the great affluence that the industrial revolution was to bring to later generations; but what they did see was the burgeoning wealth of nations in their day, and their inquiry was directed at the nature and causes of what an earlier writer had called “England's treasure.”

Rejecting the then current notion that nations get rich by robbing each other (Adam Smith called it the beggar-my-neighbor, or stud-poker, theory), they based their system on what was seen as a neat co-incidence between individual enterprise and the general welfare. The presumption was that each of us, though intent only upon his own gain, is, in Adam Smith's most celebrated words, “led by an invisible hand to promote an end which [is] no part of his intention.” Hence the best thing public policy can do to promote the general welfare is to leave us alone.

This idea was, and still is, an immensely attractive one, and so has dominated the economic thinking of the Western world ever since, becoming what Galbraith called “the conventional wisdom” of our society. It was attractive to academic minds because it uses the apparatus of market prices, an apparatus so complicated as to absorb the life-long efforts of several generations of scholars. To the business community and the general public its appeal was even greater, since, translated into the policy of laissez faire, it appeared to fit perfectly with the age-old political struggle of free people against tyranny. Furthermore, the rapid growth that followed from the industrial revolution seemed to provide a clincher for the efficacy of the theory, so that by the middle of the 19th century the classical tradition reigned supreme.

But in the later decades of the century the economic picture began to change. Monopolies were beginning to spread over the economy and to overturn the assumption, necessary to classical theory, of a perfect competition. Knights of Labor and Populists, along with other new movements, began to disturb the peace; Edward Bellamy and Henry George were plotting out their seductive Utopias; and a group of young rebels were organizing the American Economic Association. I do not mean to exaggerate the influence of these developments. Many writers have noted that in the decade after the First World War certain dissident ideas, and especially those of the “institutionalists,” seemed to be offering a very real challenge to the Established Tradition. In 1924, when Rex Tugwell edited a book of essays by members of this group he did not scruple to call it The Trend of Economics.

This trend may have been responsible for a unique feature of the present book. Mr. Seligman sets forth the development of “Economic Thought since 1870” (the book's subtitle) in what to the profession is a highly unorthodox way—by beginning with the German historical school, the socialists (Marxist and otherwise), and the institutionalists. Now, 1870 is a standard date in the history of economic thought: the conventional dividing line between “classical” and “neo-classical” theory. If the question “What does the date 1870 signify in the history of economic thought?” were asked of Ph.D. candidates in their oral examination, every one of them would answer: “It marks the beginning of the neo-classical period.” Nevertheless Mr. Seligman begins his survey of Main Currents not with the central tradition, but with the developments described above, entitled “The Revolt against Formalism.” Then returning to the neo-classical movement, which he calls “The Reaffirmation of Tradition,” he characterizes it as a response to Marxist criticism.

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Whether or not neo-classical marginal utility theory was formulated in answer to the socialists, it certainly was not, as Mr. Seligman's treatment might seem to suggest, a rejoinder to Thorstein Veblen. However, the decade between the First World War and the Great Depression was in general a time of stock-taking. One might have expected then that the crash of 1929 and the years of prostration which followed would have put a permanent crimp into classical theory. During those years economists discovered that even very imperfectly competitive markets may be in equilibrium. It was in the 1930's, too, that the “Keynesian revolution” took place. Since equilibrium had always been the holy-of-holies of “the obvious and simple system”—the modern form of the medieval doctrine of “just price”—the discovery that rankly non-competitive markets may nevertheless be in equilibrium might have threatened to destroy our faith in the whole theory of the market-guided economy; and so also might Keynes's discovery that unemployment is not inconsistent with an equilibriated market—a “discovery” that millions of individual people were making on their own account.

But to expect that economic crises by themselves could overthrow time-honored doctrine is to fail to do justice to the mental agility of scholars. Price equilibrium may have no moral significance; but like art, or “pure” science, it may be loved for its own sake. Thus, as it turned out, the abstract theory of price—the construction of quasi-mathematical “models” of hypothetical market situations—received an enormous boost from the discovery that it is capable of application to an infinite variety of market situations. These models, we are told, are the “tools” of economic analysis, tools too fine and precise to be used in cutting bread, or even Keynes's celebrated cake.

Meantime, however, the employment theory we associate with the name of Keynes, though many others have held similar ideas, has vastly altered economic practice. Among economists it has produced a split between “micro” theory (of market equilibria) and what might be identified as economic grand strategy, manifest, for example, in the Full Employment Act of 1946 and in the devising and use of such statistical tools as the Gross National Product.

And so economists are today busier than ever, but at different tasks. Some of them are engaged in what Mr. Seligman calls “The Thrust Toward Technique.” In 1922, in keeping with the skeptical spirit of that decade, the famous economic historian Sir John Clapham charged that economic theorists were engaged in constructing “empty boxes”—empty of empirical content and devoid of practical significance and value. Today the image could be stretched to include the new mathematical theorists who seem to be constructing an infinite series of empty boxes, each cunningly designed to fit inside its predecessor, and none containing anything but more empty boxes.

On the other side, economists are being pressed into service by government all the way from townships to the United Nations, by social agencies of every description, and of course by private businesses. More concrete information is being collected and the task of interpreting this mass of information is becoming more formidable with each passing year. It seems clear that “econometrics” and “macro” economics are here to stay.

Such is the scene that Mr. Seligman has undertaken to survey, and in so doing, he has produced by far the most extensive study anyone has made of the development of economic ideas in the last three generations. Indeed, both the dimensions and the complexity of the picture are much larger and more intricate than these few pages can suggest. The task of reducing such a story to some sort of expository order is a stupendous one, and Mr. Seligman's achievement is correspondingly great. Many years of dedicated labor—surely not less than fifteen—must have gone into the preparation of this book. The sheer mass of material which Mr. Seligman has managed to assimilate, including as it does virtually all the published work of all the important economists of the last three generations together with everything of importance that has been written about them—none of it easy reading—is simply prodigious. The footnote references alone occupy seventy-nine double-column pages. But the result well justifies the effort. Through it all Mr. Seligman has managed to maintain his critical equipoise, to be fair even to those he most dislikes, and above all to understand, whether he agrees or not.

Clearly, three generations of scholars—European, British, and American—cannot and do not fall neatly into any pattern. The pattern that Mr. Seligman has imposed on them is a useful one, and one that makes sense, whether or not we agree with the judgments implicit in his arrangement of the material. Undoubtedly, many of his professional readers will demur at his having put the dissenting foot of modern economics forward. Others may protest at the subordinate position assigned to J. M. Keynes, who occupies only the fourth of six sections of the final chapter, entitled “From Reason to Technique.” This subordinate position is quite at variance with the importance Mr. Seligman himself attributes to Keynes, whom he compares in terms of influence with Adam Smith and Karl Marx. A further demurrer might be entered—particularly on behalf of the non-professional reader—about the inadequacy of his explanations of the titles. To the professional reader, Mr. Seligman's titles and his arrangement of them and of the contents of the book tell a story by themselves. But what is “The Thrust toward Technique” going to mean to the lay reader, especially when he turns to the first page of this part and finds that it begins with “The Swedish Contribution”?

This sense of deprivation is heightened by the “Concluding Remarks.” Here, Mr. Seligman explicitly reveals a shrewdness and degree of balanced judgment that throughout the book had remained implicit in its organization. No doubt he had withheld some of the richness of his direct comment out of deference to his major objective, that of a sympathetic exposition of the views and findings of a great number of different men. In that objective he has succeeded brilliantly. But the historian is not a camera or a tape recorder; properly and inevitably he is an interpreter. Therefore, even at the cost of enlarging what is already a very large book, we would have appreciated having more.

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