New Perspectives on Political Economy and Its History; Book review by Steven Kates (H-Net)

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Published by EH.Net (March 2021)

Maria Cristina Marcuzzo, Ghislain Deleplace and Paolo Paesani, editors, New Perspectives on Political Economy and Its History. Cham, Switzerland: Palgrave, 2020. xviii + 406 pp. $149 (hardcover), ISBN: 978-3-030-42924-9.

Reviewed for EH.Net by Steven Kates, School of Economics, Finance and Marketing, RMIT University (Melbourne, Australia).

There was a time that one might have said that economic theory was comprised of a series of concepts that help explain the way communities provision themselves and became more prosperous over time. Economic theory as it developed came in the wake of the pamphleteers of more ancient days who saw the world around them and thought there had to be a better way of getting things done. They therefore wrote polemical accounts aimed at addressing various problems as they saw them, to try to persuade others to take up the approaches they were attempting to advocate.

Meanwhile, almost from out of nowhere came the Industrial Revolution. It was not a consequence of Adam Smith having written his Wealth of Nations. The two just appeared on the scene at roughly the same time, and some — observing the world they were living in, while also reading Smith’s account of how economies worked — came to the conclusion that there was some actual theoretical knowledge that might assist in the improvement of the way in which economies grew and prospered. That is how we came to have the classical school first, and then the major critiques of the socialist writers, with Marx and Sismondi among the most significant.

The classical economists observed the world, saw the tremendous growth in output and living standards and, correctly in my view, came to the conclusion that it was the role of private entrepreneurs that had made the difference. Within the community, if it were designed in a way that allowed individuals to pursue their own best interests as they saw them, there would be a rearrangement of productive forces in response to where the greatest return on investments would occur. Output rose, innovations occurred, and as a direct result living-standards rose. It may appear to many of us looking back on those times that the social costs were immense, but many of those who were living at the time were content that England should exchange its “green and pleasant land” for a highly productive economic structure that allowed many individuals to move forward in what they could earn and in the range and quantity of the goods and services they could buy.

But the costs were high, and memories were short. Henry Mayhew’s London Labour and the London Poor, which he began in 1849 as an investigative journalist and which was finally published in 1861-62, brought the tremendous social costs into the limelight (Mayhew 1985). He was hardly the first to do so, but Mayhew’s work stands out as a depiction of the burdens that had befallen the newly formed proletariats of the industrial age. It was the appearance not just of poverty, which had till then been universal, that mattered, but the agglomeration of entire industrial suburbs that focused attention on the world as it had become. Dark satanic mills had become the way of the world.

What also was new in the world at the time was the business cycle, the periodic ebb and flow of economic activity which came at such a tremendous cost to the working classes. It was one thing to be mired in poverty. It was another thing entirely to find that the low wages upon which individuals depended would suddenly disappear, and for reasons utterly beyond the control of the workers themselves, indeed beyond the control of anyone. And while there was no denying the spectacular growth not just in the volume of output but in the assortment of goods and services that came into existence, there was also disquiet at the disruptions and harm that could be visited on individuals and their families because of the disruptions in their working lives.

And while this overview of the years of the Industrial Revolution is part of the background knowledge of every economist, the need for a means to account for how the industrial world operated was required as well as some means to control the forces that had been let loose upon the world. There was the positive side that came in terms of production. But there was the negative side that came in relation to the polluted cities that had sprung up and the uncertainties that had become embedded within the lives of so many individuals. And this is where the history of economic thought comes into the story.

Economists are the inheritors of the latest manifestations of the theory of the economy that more or less satisfies most of the profession. There are now theories of such astonishing abstraction that it is almost impossible any longer to look into what economists believe they know and truly understand how the economic world is structured or what can and should be changed to improve the operation of the productive aspects of our economies. Which brings us to the book under review, New Perspectives on Political Economy and Its History, a collection of readings edited by Maria Cristina Marcuzzo, Ghislain Deleplace and Paolo Paesani. This is how they describe what they are attempting to do in their Introduction.

In contrast to the reorientation of political economy implemented by Keynes with his General Theory less than seven years after the 1929 Wall Street crash, no substantial change in the mainstream approach to economics can be detected twelve years after the collapse of Lehman Brothers. The same Dynamic Stochastic General Equilibrium (DSGE) model which had been unable to anticipate the crisis still rules research, teaching and economic policy, only marginally modified to take account of the most obvious flaws of the economic system. In this intellectual environment, going back to past authors may be of some help, not to fuel nostalgia for times gone by but to explore modern economic issues along new perspectives — in short to build theory and understand facts. This is the task of the history of economic thought, when it is not understood as a graveyard for respected albeit no longer read authors but as a living corpus of debates on the same old issues shrunk and distorted by the present mainstream. (pp. 1-2)

I particularly agree with them on the role of the history of economics which I will repeat: the role of the history of economics is “to explore modern economic issues along new perspectives.” It may seem somewhat odd that one would delve into the past to find new perspectives, but given how hollow the understanding of most economists is of the theories that have come before the ones they have studied themselves, there truly is a vast ocean of economic theory unknown to virtually all economists that do have many perspectives that really might with great benefit be brought into the debates among economists today.

But here we come to the first obstacle. There is an enormous amount of learning that every economist must come to terms with in even being able to deal with the mainstream theories they are taught. Retreating to historic accounts does not provide an obvious wormhole through which new insights can be introduced among the wide array of perspectives that already exist within the profession. If one thinks of theory in relation to General Equilibrium, which is highly mathematical in its orientation, it seems like a major ask to suggest that economists abandon their present approach and return to completely foreign forms of analysis that existed at some point deep in the past. Suppose this is how one goes about thinking about things, which is an equation picked more or less at random:

ct + xt + G0exp(G˜ t) = yt

The meaning of the equation is of no significance so far as the point I am trying to make goes. It is only presented to compare and contrast a passage from a quite sensible argument presented by Sheila Dow in her chapter on “The Methodological Role of the History of Economic Thought.”

The history of economic ideas is important, not just for understanding theory itself, but also for understanding the subject matter of theory and how it has absorbed particular economic ideas. Karl Niebyl . . . presented a stage analysis of Classical monetary theory and policy whereby the dominant economic ideas of each stage are both the product of real experience, but also shape real experience, all mediated by power structures …. Prevailing academic ideas about monetary policy, the product of past experience, provide the basis for monetary arrangements and monetary policy, which then enable and constrain future possibilities for monetary policy. Given this temporal sequence and the tendency for past experience to be a poor guide to the future, these developments get out of phase, so that monetary arrangements and monetary policy get out of phase with reality and academic ideas take time to catch up, and so it goes on. (p. 32)

You can easily see the problem. Is it even possible for practitioners of these two ways of approaching economic theory to even begin to communicate with each other? And this is leaving all issues of political economy aside. These are just two methodologies now used to discuss economic theory. The number of economists who can understand both is vanishingly small. Unless a special effort is made to reach out to modern economists, the economics of earlier times will be utterly beyond their reach, assuming they can even be made to feel a wish to go back to these earlier forms of analysis.

Background Knowledge Required

Going further, if the aim is to interest mainstream economists in the history of economics, there needs to be some kind of overlap in these articles and the kinds of knowledge an economist would typically have. I have chosen for my example an issue of interest to myself, which overlaps both the writings of John Stuart Mill and the Wages Fund doctrine. The article is “Classical Roots of the Criticisms of John Stuart Mill’s Wage-Fund Theory” written by Antonella Stirati. The question that might well be asked is why would someone without a prior interest in Mill or the wages fund wish to read such an article? I, for example, do believe there is a good deal to learn about the operation of a modern economy through seeing what Mill and his classical contemporaries believed. Yet this is how the article begins:

The purpose of this contribution is to discuss the analytical contents of the criticisms levelled at J.S. Mill’s theory of the wage fund and accepted by him in his famous recantation of 1869. I will therefore disregard other important aspects of that debate, of a historical-political nature, particularly in relation to the controversy on the role and legitimacy of the trade unions.

The reasons for the interest in the analytical issues that emerged in the criticisms of the wage-fund theory lie in the fact that they take up and revive many aspects of Smith’s approach to wage determination. In so doing, they show its inconsistency with the wage-fund theory presented by Mill; that is, they show the existence of a conflict between Smith’s views, representative of the theory of wages proper to the classical political economy (from Petty to Ricardo) and the subsequently established theory of the wage fund. (p. 149)

The background knowledge in the history of economic thought that would be required to see what the author is attempting to argue is phenomenal. Indeed, one would already have to know what Mill’s wages fund theory is, what Mill recanted in 1869, and even have some knowledge and even interest in Adam Smith’s approach to wage determination. How much could anyone be expected to know about the theory of wages, especially from Petty (who?) to Ricardo. Where are such people? Where they are not is among the vast majority of the economics profession. And then after many pages we come to the conclusion:

Mill’s acceptance of the two main arguments advanced by Longe and Thornton in turn shows that the departure from the classical tradition was still flimsy, as a new, general analytical framework alternative to the classical approach was yet to become available. The absence of analytical foundations for a decreasing relationship between real wages and employment other than the simple and arbitrary assumption of a given wage fund led to rejection of the wage-fund theory. (pp. 166-67)

This would not only be incomprehensible to virtually every economist today, but almost all would not even see what the point of the struggle to read the article would be. And as it happens, even I who know what the point is, and where the argument is heading, disagree with this conclusion, not that it matters. What we therefore have is an article that argues that even Mill had not completely disassociated his economic argument from the classical tradition which would only come later on and be undertaken by others. Therefore, there is nothing there to learn since even before someone might have picked up this collection of readings they would have, sight unseen, rejected the wages fund doctrine as a sensible approach to understanding any part of how an economy works. (As a recent and contemporary example of how such an argument might be run even today, see Grieve 2020.)

Engaging Mainstream Economists

All authors have an agenda. There is some point they wish to get across to others. I do think there is an enormous amount of sound economic theory that remains embedded within the classical tradition that has now been lost to the modern world. Moreover, I believe that a modern economist who does not understand Mill, for example, is a much-diminished economist in comparison with an economist who does. I have even written an introductory textbook based on Mill’s Principles (see Kates 2017). I do not say that this is the only point in studying the history of economics, but it is one of the important streams in the role of HET. So let me come back to this passage from the Introduction:

In this intellectual environment, going back to past authors may be of some help, not to fuel nostalgia for times gone by but to explore modern economic issues along new perspectives — in short to build theory and understand facts (emphasis added). This is the task of the history of economic thought, when it is not understood as a graveyard for respected albeit no longer read authors but as a living corpus of debates on the same old issues shrunk and distorted by the present mainstream.

I could not agree more with the book’s ambition, but I am disappointed with the execution. I have written a book on this very issue, Defending the History of Economic Thought (Kates, 2013). And let me tell you that this is a highly controversial issue within HET, with many who argue that studying the history of economics should not be trying to use this part of the economics discipline to revive previous doctrines. Theirs is a kind of Whig history, in which there is only progress so that what we find in our textbooks and journals in the present is the final flowering of everything that came before. The history is merely to tell how we reached the supposed heights we have now scaled.

That is obviously how it must look since those who accept some theory must believe that what they have been taught is the best that has ever been thought and said, since if some previous theoretical approach were better, then surely we would be teaching that instead. Yet the reality is that there is an inertia in how issues are conceived. It is something of a cliché to recall that when Galileo dropped a heavy object and a much lighter object from the Leaning Tower of Pisa (or so the story goes) that this was an experiment that could have been undertaken any time during the past if it had occurred to someone to find out for themselves. It was only that the idea had never occurred to anyone else before. But that is not how it was among economists.

It was not as if John Stuart Mill had never considered utility as a means of estimating value. Mill was, after all, the leading utilitarian philosopher of his time. Jevons and his notion of final (marginal) utility may have struck most of his contemporaries as a step forward but then our own textbooks have almost entirely wiped themselves clean of marginal utility in the same way that DSGE has replaced Keynesian theory as the core concept underpinning economic analysis.

All very well, except that every economic downturn since the 1960s has immediately conjured the need for a stimulus, so that no matter how much we might pretend that Keynesian theory has more or less disappeared with our accumulating understanding of the ways in which an economy works, there Keynes remains, as central today as he was in 1936. No introductory textbook avoids Y=C+I+G. And when it comes to that, Keynes seems to have a quite central importance, certainly in the text under review, as shown by the following entry in the index:

Keynes, J.M., 1, 2, 4, 8, 15–17, 29, 32–34, 50, 56, 58, 225, 234, 281, 294, 303, 311, 314, 325–327, 329–331, 334–340, 344–359, 365–367, 370, 371, 374–379, 384–391, 394–397

In fact, there is little doubt that one of the central aims of the book is to assist in the return of Keynesian economic theory to the mainstream. And while I disagree with the specific aim, I am completely onside with the wish to use the history of economic thought in this way, to speak to other economists about how economies work in the real world based on the perspective of economists who are now long dead. This is directly stated in the final paragraph of the introduction.

In their attempt to provide new perspectives on political economy and its history, the eighteen essays collected in this book try to respond to the wish that economics might embark along a different route, whereby economists take into serious consideration past theories and concepts which have failed to survive in the evolutionary struggle of ideas for no good reason, but simply because they have been ‘submerged and forgotten’ with the shift of paradigms. (p. 17)

I too wish to see economics embark along a different route from the one it has taken. Not the different route that the editors of this volume would like to see taken, but nevertheless a different route. These are essays which are attempting to persuade the reader to adopt these different perspectives. And this is a very good thing and I only wish there were more efforts made to do the same.

Economic theory as it is now taught is near moribund. It is too mathematical, too mechanical and almost completely lacking in a philosophical core. There is no longer much of anything that one might describe as “the soul of economics.” The passions that were once central to economic debate have almost entirely evaporated. It is therefore a pleasure to see something of the old enthusiasms found in this book whose essays are largely by people who are trying to convince you of something about the nature of the world and the kinds of economic theories needed to understand it.

This may seem to clash with my earlier statement, that I could not agree more with the book’s ambition, but I am disappointed with the execution. My problem remains that too little effort was made to engage modern economists in a way that would allow those who have studied economics using modern techniques and mathematical analysis to see the difference between what they are taught and what classical economists taught. There is too much asked of readers who are not scholars in the history of economic thought. That was the challenge the editors had set themselves, to bring elements of the classical school within the reach of economists generally. That is an ambition I completely support. My only wish is that a greater effort had been made to explain the views of these earlier economists in a way that would be comprehensible to an economist who had not previously undertaken their own studies into these theories. Thus, I remain concerned that many of the articles in this volume will be understood only by those already versed in the history of economic thought, even while the aim of this book is one I could not agree with more.

References:

Grieve, Roy H. 2020. “Drop the Dead Donkey: A Response to Steven Kates on the Subject of Mill’s Fourth Proposition on Capital.” History of Economics Review: 20-36.

Kates, Steven. 2013. Defending the History of Economic Thought. Cheltenham UK: Edward Elgar.

Kates, Steven. 2017. Free Market Economics: An Introduction for the General Reader. Third edition. Cheltenham UK: Edward Elgar.

Mayhew, Henry. 1985. London Labour and the London Poor. Selections Made and Introduced by Victor Neuburg. Harmondsworth: Penguin Books.

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Debate:

Dear all,

I read with great interest this review. Having not read the book I have only a limited understanding of its contents. However I wish to say that, although

Marx was German (he wrote in German) and Sismondi Swiss (he wrote in French, another obscure language), the review is written for readers interested only in texts written in English. Whether and in what proportion Quesnay and his group anticipated the ‘classical school’ is partly unclear, but, in connection with the below quotation from the review, 

'That is how we came to have the classical school first, and then the major critiques of the socialist writers, with Marx and Sismondi among the most significant’,

the first critiques of ‘liberal’ ideas by the major ‘socialist' writers were written in French by Linguet, Mably and Necker, mostly between 1765 and 1774, hence before the appearance of 

Wealth of Nations, with one major difference: Linguet had great respect for private property, including slavery, on the ground that slaves were better treated than the workers of his age

and were fed as well as horses in periods of poor harvest when some workers were starved, Mably and Necker were far more radical, although Necker was a banker having made his fortune 

through various smart financial schemes. The literature about these authors and the discovery of their ’socialism’ started with a book by Villegardelle, digitized by Google and published in 1846,

Histoire des Idées sociales…ou les socialistes modernes devancés et dépassés…a book most carefully read and heavily extracted by young Marx and which inspired at least one known author 

who republished part of Villegardelle’s book without acknowledgement, unless this was an extraordinary coincidence. 

With best wishes,

Gabriel Sabbagh