A Research Annual 9781783500598, 9781783500581

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RESEARCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY A RESEARCH ANNUAL

RESEARCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY Founding Editor: Warren J. Samuels (1933 2011) Series Editors: Jeff E. Biddle, Ross B. Emmett and Marianne Johnson Recent Volumes: Volume 28B:

English, Irish and Subversives among the Dismal Scientists Edited by Nigel Allington, Noel Thompson, 2010

Volume 28C:

Economic Theory by Taussig, Young, and Carver at Harvard Edited by Warren J. Samuels, Marianne Johnson, 2010

Volume 29A:

Research in the History of Economic Thought and Methodology: A Research Annual Edited by Jeff E. Biddle and Ross B. Emmett, 2010

Volume 29B:

Research in the History of Economic Thought and Methodology: Frank H. Knight in Iowa City Edited by Ross B. Emmett, 2011

Volume 29C:

Wisconsin, Labor, Income, and Institutions: Contributions from Commons and Bronfenbrenner Edited by Marianne Johnson and Warren J. Samuels, 2011

Volume 30A:

Research in the History of Economic Thought and Methodology: A Research Annual Edited by Jeff E. Biddle, Ross B. Emmett, 2012

Volume 30B:

Research in the History of Economic Thought and Methodology: Documents on Government and the Economy Edited by Ross B. Emmett, Marianne Johnson, 2012

RESEARCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY VOLUME 31-A

RESEARCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY A RESEARCH ANNUAL EDITED BY

JEFF E. BIDDLE Department of Economics, Michigan State University, East Lansing, MI, USA

ROSS B. EMMETT James Madison College, Michigan State University, East Lansing, MI, USA

United Kingdom North America India Malaysia China

Japan

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2013 Copyright r 2013 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78350-058-1 ISSN: 0743-4154 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

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EDITORIAL BOARD

ix

ACKNOWLEDGMENTS

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BRITISH ECONOMISTS ON COMPETITION POLICY (1890 1920) Nicola Giocoli

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SYMPOSIUM ON WARREN J. SAMUELS WARREN SAMUELS, THE JOURNAL OF ECONOMIC ISSUES, AND THE ASSOCIATION FOR EVOLUTIONARY ECONOMICS Malcolm Rutherford 61 WARREN J. SAMUELS: INTELLECTUAL HISTORIAN OF ECONOMICS Ross B. Emmett 73 REVIEW ESSAYS SANDEL’S WHAT MONEY CAN’T BUY: THE MORAL LIMITS OF MARKETS A Political Philosopher’s Quick Trip Along the Border Between Markets and Ethics Donald E. Frey A Book that Should Not Have Been Written James S. Taylor v

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CONTENTS

MUELLER’S REDEEMING ECONOMICS Opening Remarks: Why “AAA Economics” Has Legs John D. Mueller

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Natural Law Economics: Reading a Theological Economics Joe Blosser

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Comments on Redeeming Economics David M. Levy

133

“Minding the Gap” in Economics: The Contribution of Redeeming Economics Edd Noell

141

The Economies of Divine and Human Love Jordan J. Ballor

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Notes on Mueller’s Redeeming Economics Dwight R. Lee

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Response: What Exactly is “Natural Law Economics”? John D. Mueller

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REINERT’S TRANSLATING EMPIRE Robert B. Ekelund, Jr.

187

CLUNE’S AMERICAN LITERATURE AND THE FREE MARKET, 1945 2000 Sarah Skwire and Steven Horwitz

197

WENNERLIND’S CASUALTIES OF CREDIT Richard Kleer

207

BOCKMAN’S MARKETS IN THE NAME OF SOCIALISM Angus Burgin 217 VAN HORN, MIROWSKI, AND STAPLEFORD’S BUILDING CHICAGO ECONOMICS Stephen Martin 225

LIST OF CONTRIBUTORS Jordan J. Ballor

Acton Institute, Grand Rapids, MI, USA

Joe Blosser

Department of Religion and Philosophy, High Point University, High Point, NC, USA

Angus Burgin

Department of History, Johns Hopkins University, Baltimore, MD, USA

Robert B. Ekelund

Department of Economics, Auburn University, Auburn, AL, USA

Ross B. Emmett

James Madison College, Michigan State University, East Lansing, MI, USA

Nicola Giocoli

Department of Jurisprudence, University of Pisa, Italy

Donald E. Frey

Department of Economics, Wake Forest University, Winston-Salem, NC, USA

Steven Horwitz

Department of Economics, St. Lawrence University, Canton, NY, USA

Richard Kleer

Department of Economics, University of Regina, Saskatchewan, Canada

Dwight R. Lee

Cox School of Business, Southern Methodist University, Dallas, TX, USA

David M. Levy

Department of Economics, George Mason University, Fairfax, VA, USA

Stephen Martin

Department of Economics, Krannert School of Management, Purdue University, Lafayette, IN, USA

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LIST OF CONTRIBUTORS

John D. Mueller

Ethics and Public Policy Center, Washington, DC, USA

Edd Noell

Department of Economics and Business, Westmont College, Santa Barbara, CA, USA

Malcolm Rutherford

Department of Economics, University of Victoria, BC, Canada

Sarah Skwire

Liberty Fund, Indianapolis, IN, USA

James S. Taylor

Department of Philosophy, Religion, and Classical Studies, College of New Jersey, Ewing, NJ, USA

EDITORIAL BOARD S. Todd Lowry Washington and Lee University, USA

William Breit Trinity University, USA Bruce J. Caldwell University of North Carolina, USA

Steven G. Medema University of Colorado Denver, USA

John B. Davis Marquette University, USA

Howard Sherman University of California, USA

Craufurd D. Goodwin Duke University, USA Robert F. He´bert Auburn University, USA

Vincent J. Tarascio University of North Carolina, USA

Alon Kadish Hebrew University of Jerusalem, Israel

John C. Wood Edith Cowan University, Australia

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ACKNOWLEDGMENTS The editors wish to express their gratitude for assistance in the review process and other consultation to the members of the editorial board and to the following persons: Sylvia Samuels John Davis Anne Mayhew Steve Medema Malcolm Rutherford Massimiliano Vatiero

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BRITISH ECONOMISTS ON COMPETITION POLICY (1890 1920) Nicola Giocoli Keywords: Alfred Marshall; antitrust law; competition policy; Herbert S. Foxwell; David H. MacGregor; Henry Macrosty

It is rather well-known that most turn-of-20th-century US economists gave a rather cool welcome to the Sherman Act (1890), but reacted more favorably to the Clayton and Federal Trade Commission Acts (1914).1 A huge literature has identified several explanations for this evolving and somehow puzzling attitude, calling into play the relation between big business, new technology, and competition, a non-neoclassical notion of competition and an increasingly deeper understanding of anticompetitive business practices. Much less investigated is the reaction of British economists to American antitrust legislation. It may thus be relatively unknown that, during the three decades (1890 1920) of most intense antitrust debates in the United States, the theme occupied a central position even in British economic discourse. Surprisingly enough, given the common legal foundations of both countries, no major British economist favored the adoption of an American-style, statutory-based competition policy.

A Research Annual Research in the History of Economic Thought and Methodology, Volume 31-A, 1 57 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2013)00031A001

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This chapter digs more deeply into the British economists’ views about the so-called “monopoly problem”2 and tries to explain why, despite their ideological and methodological differences, they all shared a negative attitude toward legislative solutions. This would cast light on two different questions, one internal to the history of economics, the other pertaining to the economists’ influence on public policy. On the one side, understanding the reasons behind their refusal to press for a British version of the Sherman Act may illustrate what kind of model of competitive process and industrial development British economists had in mind at the turn of the 20th century, in comparison to, say, their American colleagues. In particular, it would be helpful to acknowledge whether the refusal was theoretically or empirically motivated in the latter case on account of the structural differences between the British and American economies. On the other, given that the earliest competition law in the United Kingdom only came in 1948, much later than in many other European countries,3 one may legitimately ask whether the negative reaction by British economists to American antitrust acts may at least partly account for the delay or whether the economists’ voice was simply irrelevant on that matter, much like that of their American colleagues in 1890 (but not in 1914). I have so far referred to “the British economists,” but this is overreaching. It goes much beyond the limits of a single chapter to give an exhaustive account of the British economics profession’s views about the monopoly problem. Hence the following pages will focus on only four economists: H. S. Foxwell, D. H. MacGregor, H. W. Macrosty, and, of course, Alfred Marshall the latter taken in two moments at the extremes of our period, 1890 and 1919. Any such selection is obviously open to bias and criticism. In the specific case, these four economists have been selected for their representative role of the main theoretical and policy positions on the field, as well as for their affiliation with the most important British universities. Briefly, Herbert Somerton Foxwell (1849 1936) was one of the champions of the British Historical School and held the Chair of Economics at University College London for more than 40 years; Henry William Macrosty (1865 1941) was an active member of the Fabian Society, a Fellow and then a President of the Royal Statistical Society and a lecturer at the newly founded Fabian stronghold, the London School of Economics; Alfred Marshall (1842 1924) was … Alfred Marshall, with all that this meant for Cambridge-style economics; David Hutchison MacGregor (1877 1953) was arguably the best industrial economist among the “minor Marshallians” (see the title of Groenewegen, 2011) and, later in his career, exported the Marshallian tradition of industrial organization at Oxford University.

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Economists on both sides of the Atlantic had much in common in their reflections about competition policy. First, they shared a dynamic, processbased view of competition. Like the classics before them, these economists still conceived of competition as a specific pattern of behavior a business activity, not a static market condition. None of them considered the monopoly problem as a matter of freedom from excessive market power. The expression “free market” still meant to them again, as to the classics a market free from State’s interference, not a market where no firm had the power to set the price. Moreover, they took the vertical dimension of competition namely, the competition between the seller and the buyer to be at least as important as the horizontal dimension namely, the competition between a firm and its rivals. The rapid pace of industrial change in Britain and the United States caused a departure from classical ideas. The emergence of large-scale business, with enormous investments in fixed capital, put at center stage an issue that did not feature in classical accounts, the relation between business size and competition. Size meant scale economies and increasing returns,4 which in turn led either to monopolization or to so brutal a competitive process that combination in its various forms (trusts, cartels, mergers, etc.) seemed the only available self-defense for businesses. Late 19th-century economists had therefore to reconcile their classical notion of competition with the powerful tendency to concentration in the real economy. Finally, these economists shared in various degrees (sometimes only as a romantic regret for an idealized past) the notion of a “right to fair profit.” For both ethical and economic reasons, they believed that a businessman who behaved honestly and who spent the due amount of effort in his activity was entitled to earn a normal return on his investment. The ethical reasons came from the old Millian mantra that custom was as important as competition for the setting of prices, as well as from the moral refusal of cutthroat competition against your peers. In the United States the refusal was epitomized by the Jeffersonian ideal of an economy made of “small dealers and worthy men”; in Britain it was embodied by “the gentleman’s way” of doing business. The economic reasons were more mundane. Competition had to be restrained as a means to protect the profitability of the huge fixed investments characterizing modern industry. Absent adequate returns, there would be no incentive to perform the investments in the first place. The economic side of the “right of fair profit” featured prominently in the Common Law on both sides of the Atlantic. The principle long established by courts was that, within a liberal system of generalized

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freedom to contract, a businessman had the right to obtain a return for any activity (say, a contract in restraint of trade) that did not cause offense to the law nor violated anyone else’s rights that is, regardless of what the activity’s eventual consequences might be on the working of the market. In sum, at the turn of the 20th century, American and British economists struggled to reconcile a dynamic view of competition and a classical suspicion toward government interference with free markets with a changing industrial structure, the spread of large business, and the “right to fair profit.” How this reconciliation was achieved by our four British economists, and the impact it had on their views about the pros and cons of US antitrust statutes, is the subject of the following pages. Yet, before examining their endeavor in the third (Foxwell), fourth (Marshall), fifth (MacGregor), sixth (Macrosty), and seventh (Marshall again) sections, we need to outline the position of their American colleagues (the first section) and to explain the extent of which British industrial structure and business habits differed from those in the United States (the second section).

US ECONOMISTS AND THE SHERMAN ACT US economists found themselves in a new era at the turn of the 20th century.5 Externally, they were facing the rapid growth and transformation of industrial forces; a world where big business had an ever-increasing role, with its enormous investments in fixed capital, large-scale industrial processes, and powerful increasing returns. Internally, they were caught in a period of theoretical transition between the classical approach and the rising Marginalist school. Coping with both novelties forced them to undertake a difficult redefinition of the meaning of competition. As remarked by Mary Morgan (1993), the difficulty of this task may explain the multifaceted, sometimes even contradictory, characterizations of the notion of competition US economists offered in a relatively short-time span, from the mid-1880s to the outbreak of WWI. A few common traits may nonetheless be singled out. First, they all started from a classical notion of competition. In classical economics competition meant market behavior, that is, the actions and reactions of sellers and buyers in the marketplace.6 The analytical function of competition within the classical “model” was to bring market price to its normal level, eliminating both excess profits and unsatisfied wants. For Smith and the other classics, competition was a process leading to certain

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predicted results a price-determining force that operated within the market, but did not coincide with it. Competition was clearly not conceived of as a market situation or state, like in the post-1930s neoclassical approach. The solution of the basic allocation problem was independent in classical economics of the market type and thus of specific structural assumptions about competition. In the modern sense of the term, it would perhaps be better to say that the classics did not deal with “competition,” but just with the price mechanism (see Peterson, 1957). In order for this mechanism to work, the only requirement was a sufficient degree of competition between buyers and sellers, that is, of their freedom to act and react. As remarked by Paul McNulty, the concept of competition entered economics as a behavior consisting of a series of actions, like undercutting or bidding up prices, entering a market, etc., that later neoclassical economists would consider “monopolistic.” The essence of classical competition was to undersell your rival; the power to set and cut prices was the main competitive weapon (McNulty, 1968; see also DiLorenzo & High, 1988; Salvadori & Signorino, forthcoming). The process view of competition met troubles when applied to an economy like the United States in the last two decades of the 19th century. Centered as it was on the exchange behavior of buyers and sellers, the notion could not account for the internal processes within a firm, that is, for all those activities aimed at finding the cheapest way to produce or the most efficient way to manage a business. The “internal” side of competition, which the classical characterization somehow downplayed (see McNulty, 1968),7 was crucial in the new industrial world. Alfred Chandler’s path-breaking works on the history of US business have demonstrated that the search for cost-reducing methods within the firm was the main force behind the reorganization of US industry at the end of the 19th century (see, e.g., Chandler, 1977).8 US economists struggled to fill the gap. Drawing upon the turbulent experience of US railroad industry, Arthur T. Hadley was among the first and surely the most lucid to argue that the existence of large sunk costs made conventional economics irrelevant to understanding the working of a given industry (Hadley, 1885). He argued that, contrary to what classical economists believed, the mechanism of entry and exit in such industries could stabilize neither the market price nor the return on investment around their normal level. Due to the enormous sunk costs, “the rate at which it pays [for capital] to come in is much higher than the rate at which it pays to go out” (Hadley, 1886, p. 223). As a consequence, there

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was no normal limit to the “new” competition in the presence of large sunk costs. So huge was the loss suffered from stopping production and exiting the market production that firms preferred to fight until the end, and could be even ready to sell below average variable cost (Hadley, 1896). The only possible outcomes for these industries were either that competition led to monopoly, and thus to the end of competition itself, or that firms would find an artificial, rather than natural, limit to competition by forming a combination or a cartel. Richard T. Ely famously remarked that competition in the presence of large fixed costs was self-destructing and inevitably led to monopoly (Ely, 1888, p. 121). The so-called “inevitability thesis” became a mantra for end-of-19th-century US economists. It implied, among other things, the demise of a crucial corollary of the classical view, namely, the notion that the only possible sources of monopoly power were State interferences (like franchises, tariffs, or regulations) with the free working of the market. Yet, the inevitability thesis did not necessarily entail State intervention for preserving competition. Given decreasing costs and increasing returns, higher the market concentration better the productive efficiency. Only big firms could achieve the required size to enjoy scale economies or invest into cost-saving production techniques. Moreover, monopolies, cartels, and combinations were, at least in theory, always subject to the threat of potential competition. The notion that potential competition might constitute an effective check on monopoly power was among the major contributions by the best economist of the era, John Bates Clark (1901, 1904).9 Accordingly, most trusts were not real monopolies but, at best, only partial ones (quasi-monopolies), because they still had to “fear rivals, actual or potential.” Taking into account that bigness fostered the adoption of more efficient, socially beneficial productive technologies, it was therefore inevitable to conclude that “[c]onsolidation without monopoly is favorable to progress” (Clark, 1907, p. 534). The result held only if the trust did not block potential competition by using abnormal or unfair methods, like predatory pricing or boycotts. But apart from those cases, there was no need, in Clark’s view, as well as in that of most US economists, for a specific antitrust law.10 The “new” competition brought forward by the presence of huge sunk costs had another dire consequence, unaccounted for in the classical view of competition. According to Clark (1886), competition in its old meaning was a “rivalry in service,” that is, a race to gain the customers’ favor. It was never intended as an unbridled struggle and was always restrained by custom: as the Palgrave’s entry put it, “custom was the only hindrance to

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perfect competition.” Custom meant, among other things, fair trading and not just in a moral sense. In a market with several firms and free entry, competition was an impersonal activity, where each firm’s lone concern was its relation to customers. Fairness and adherence to custom meant a “right to profit,” that is, a businessman’s entitlement to a normal return on one’s own capital, provided he behaved correctly in the marketplace. The possibility itself of misbehaving was indeed limited by the (usually small) firm’s inability to exercise any form of market coercion upon its customers or rivals. In the United States, the notions of fair trading and the “right to profit” were strictly related to the Jeffersonian ideal of an economy populated with small businessmen, none of whom were capable of exercising a significant market power (see Peritz, 1996, Chapter 1). This old world was being canceled by the “new” competitive order. As Clark, Hadley, Ely, and others recognized, the necessity to either protect or remunerate the huge investments in fixed capital had transformed impersonal competition into personal attack, the rivalry in service to customers into the deliberate effort to destroy a rival, custom-regulated competition into “cutthroat competition,” another popular catchword of late 19thcentury debates. Cutthroat competition (also called “ruinous” or “excessive” competition) was negative for both the firms and the consumers. The former risked losing their investments, or at least having their profit margins, necessary to service their large fixed costs, severely squeezed. The latter risked forfeiting the benefits of technical progress in case the firms, for fear of the consequences of a price war, abstained from investing in the first place (see Fisher, 1912, p. 331). The bigger the stakes, the more intense and costly was destructive competition and the stakes were always huge in the new, heavily capitalized industries.11 Hence, the seemingly paradoxical conclusion, “the smaller the number of competitors, the more intense is the competition” (Hadley, 1896, p. 117). Yet the paradox was only apparent, given that the vertical notion of competition between buyers and sellers had been replaced by a horizontal and often personal struggle between rival firms. In the new order “to compete” meant, much more than before, to perform a series of specific business actions addressed at defeating one’s own rivals. As we know, the latter behavior could still be encompassed within the classical notion of competition. Despite the deep transformation in the industrial structure, US economists could therefore remain faithful to their old idea of competition as a behavioral process. However, cutthroat competition was not the only option in a market with only a handful of firms. Combination offered an appealing alternative,

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free of wasteful consequences. The term “combination” covered a range of solutions, from contracts in restraint of trade to cartel-like collusion to mergers-to-monopoly. Cutthroat competition could thus lead to monopoly not only when only one firm survived a competitive war, but also as the outcome of any of the different forms combination could take. As Clark put it, “Easy and tolerant competition is the antithesis of monopoly; the cutthroat process is the father of it” (Clark, 1886, p. 120). And again: “First, there comes retaliation and reprisal until a form of guerrilla warfare takes the place of reasonable competition, and finally, the ruinously low prices spread over the whole market and profits are turned into losses everywhere. From this condition some way of escape must be found, and the simplest is by agreement or combination” (Clark & Clark, 1914, p. 55). Far from just being the product of government interference in the marketplace, as the classics believed, monopoly seemed ubiquitous in the new industrial era. It could emerge as the natural outcome in an industry characterized by enormous fixed costs, or as the end result of a costly competitive struggle, or as the smooth escape from competition itself, in the form of a trust, a cartel, or a merger. Given the huge losses caused by ruinous competition in a context of heavily capitalized businesses, US economists were not hostile, generally speaking, to the latter solution. Irving Fisher argued that combination was a legitimate form of self-defense for a firm’s investment: “The rise of trusts, pools, and rate agreements is largely due to the necessity of protection from competition, precisely analogous to the protection given by patents and copyrights” (Fisher, 1912, p. 331). Little surprise then that the Sherman Act, which somehow compelled firms to compete, could not be welcomed by most US economists. They did not see the rise of monopoly as a real threat to the functioning of the market. Provided potential competition could work its magic, monopoly could even turn out beneficial on productive efficiency grounds.12 For some of them whom we may call the “corporatist economists,” as in Perelman (2006, Chapter 3) the latter gains were so relevant that they greeted the monopolization process as a natural, inevitable, and, above all, beneficial process. Others stuck to the classical vision of market freedom as absence of restraints and State interferences and as complete liberty to contract let’s call them the “conventional economists.” They accepted whatever outcome the spontaneous play of competitive forces might generate. Common Law should intervene only when a monopolist restrained someone else’s freedom to contract, but apart from these cases no grounds existed for new antitrust statutes. In concrete, this meant that a contract in restraint of trade that had

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been freely entered by independent businesses should always be considered legal, regardless of a firm’s size or power. At least until the end of the 1910s, most US economists supported just one kind of legislation, namely, that compelling the widest publicity of the monopolists’ financial and accounting data, be they trusts, cartels, or other combinations. Publicity could spread information about the profitability of a business to customers, rivals, and the general public. This could help the rational calculation by potential entrants, thus fostering the working of potential competition, and could trigger the public opinion’s contempt against a monopolist’s misbehavior.13 Behind the proposal for a mild form of regulation, mainly publicity, a curious alliance was formed between corporatist and conventional economists: both groups rejected the prohibitions of the Sherman Act and thought that it was business power, not business size, which should raise concern. But power required at most regulation, not prohibition (see, e.g., Seligman, 1909, p. 349).14 The right to profit of “small dealers and worthy men” was a crucial theme during the Congressional debates on the Sherman Act.15 It became the catchword for a third policy view, that we may call the “populist” one. The populists often coincided with those “experts” (usually nonacademics, like journalists, politicians, etc.: see Perelman, 2006, Chapter 3) who, like conventional economists, praised market forces for their desirable outcomes, but who, unlike the other groups, ascribed all marketplace evils to the abandonment of old style, “fair” competition. But if the markets’ natural harmony had been disrupted by the rise of monopoly power, it was up to the State to restore it by contrasting such a rise. Hence, the populists were the only group that openly favored the Sherman Act. Two important decisions by the US Supreme Court, Standard Oil and American Tobacco, both in 1911, changed the landscape. Following those decisions the populist voices were joined by the majority of American economists who refuted the new principle, the “rule of reason,” established by the Supreme Court. According to the new principle, the Sherman Act prohibitions only applied to “unreasonable” restraints of trade; moreover, the “reasonableness” of a given business practice had to be assessed case by case by the court. To the economists’ eyes, the rule of reason meant a major power shift from the legislative to the judicial and, above all, a general unpredictability as to the lawfulness of specific conducts. Such uncertainty would negatively affect business decisions, especially because courts would probably make their “reasonableness” assessment on purely legal grounds, rejecting the categories of economic reasoning.16

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Most economists were actually happy with the recognition that some restraints of trade might well be declared reasonable. This reflected their awareness that the times of classic competition had gone forever and their penchant for, to borrow Fiorito’s (2012, p. 7) terminology, “a ‘trustified,’ or ‘administered,’ competitive market regime.” Yet, US economists opposed leaving the regulatory power to the judiciary. The new regime had to be implemented by an administrative body, guided by economic experts. To establish it, a new piece of antitrust legislation was called for. The Sherman Act had failed in this respect, as the two Clarks (father John Bates and son John Maurice) made clear: We do not want competition to be as fierce as it has been in the past, for that kind never lasts long, and while it lasts it does more harm than good. The more moderate rivalry that would be set up in the way just proposed offers at least some probability of permanence, so that we should be likely to have more competition left after 20 years than after 20 years of the present attempts to preserve “free” warfare. (Clark & Clark, 1914, p. 37)

John Bates Clark himself epitomized the new attitude. As with many of his colleagues, even Clark’s post-1910 analysis shifted the emphasis from structural aspects, like productive efficiency and sheer business size, to behavioral features, like specific patterns of anticompetitive conduct (see Fiorito, 2012, pp. 26 27). Thus, he actively sponsored a new antitrust statute that should, on the one side, explicitly prohibit those business practices that hindered actual or potential competition, and, on the other, create a new commission with ample regulatory powers (from licensing to investigations to publicity; only direct price setting was excluded). Clark’s “new” view was founded upon a distinction between good and bad monopolies, the latter being those achieved or defended through unfair practices, and on a newly acquired pessimism about the power of potential competition. He still stuck to his previous idea that the leading principle for antitrust law should be “keep the field open for competitors” (Clark, 1907, p. 383), but he now believed that such a principle could only be made effective by prohibiting unfair or predatory practices, that is, by warranting through legislative intervention, the existence of actual, not just potential, competition (see, e.g., the preface in Clark & Clark, 1914).17 As is wellknown, Clark’s proposal would eventually form the basis for the Clayton and FTC Acts that the US Congress approved in 1914. It is worth noting that, notwithstanding the modernity of his proposal,18 even the “new” Clark retained the traditional notion of competition as a behavior, not a state. Antitrust law was required precisely because a monopolist or a cartel might undertake some competitive actions that obstructed

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the possibility for other firms to undertake their own ones. In short, even the best US marginalist economist of the time, who also happened to be the keenest supporter of an “administered” market regime, was still within the boundaries of the classical process view of competition. We may therefore safely conclude that none of the turn-of-the-century US economists conceived the competition as a 20th-century neoclassical economist would do, that is, as a specific market structure whose welfare-maximizing properties antitrust law should protect.

COMPETITION IN THE BRITISH ECONOMY BEFORE 1920 A British quip at the turn of the 20th century claimed that Germany was the land of cartels, America the land of trusts, and Britain the land of “gentlemen’s agreements” (see Mercer, 1995, p. 32). The joke captured the spread of loose vertical and horizontal agreements in British industry, aimed at regulating competition among rival firms. Due to those loose agreements, traditional family businesses and independent entrepreneurs could survive in the marketplace without having to surrender to either the excesses of US-style cutthroat competition or the tight guidelines of German-style cartels. The general attitude in British business was “live and let live” an attitude that might even lead to the pensioning off at the other firms’ expense of less efficient entrepreneurs! The agreements were usually managed by a secretary chosen by the participants and entrusted with keeping the records and accounts.19 The British economists’ views about competition law cannot be understood without taking into account the British business’s habit to selfregulation. As I said in the previous section, support in the United States for antitrust law descended from a blending of economic and moral arguments, chief among them was the protection of republican values threatened by the disruption following cutthroat competition and the rise of powerful businesses. The mixture of ethics and economics as a foundation for legislative intervention was explicitly rejected in Britain, where the values and ethos of the business class sufficed to warrant self-restraint and where the adoption of free trade policies guaranteed that external competition would always dilute internal market power. Even British courts were, to say the least, neutral to the fore-mentioned loose agreements. Despite the Common Law’s generally negative attitude

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toward restrictive practices in business, the actual implementation of legal rules by late 19th-century courts amounted to a sort of benign neglect. The underlying doctrine was that contracts in restraint of trade were not unlawful but, at most, just nonenforceable between the parties, meaning that a party could not require that a contract in restraint of trade be enforced by a court whenever a dispute arose. Clearly, the doctrine was ineffective every time no such dispute occurred or whenever, as it was actually customary, the dispute was settled by arbitration. Moreover, following a sort of “rule of reason” developed in the 1890s, British courts stated that contracts in restraint of trade might even be legally enforceable when they were declared “reasonable both between the parties and in relation to the public interest.” The spread of vertical and horizontal agreements preserved the British economy from a US-style wave of mergers and consolidations. US federal courts interpreted the Sherman Act first and foremost as an anti-cartel, rather than antitrust, statute and declared cartels and other kinds of restrictive agreements illegal. As a reaction, American firms replaced simple agreements with tighter forms of consolidation, including full-fledged mergers. Thus, the earliest effect of the Sherman Act on the American economy was a faster growth of business giants and a higher concentration of monopoly power. British commentators be they professional economists or specialized journalists criticized such a paradoxical outcome. This reinforced their refusal of explicit legislation and their praise of self-regulation and upper-class “fair play.” The joint action of British openness to free trade (protective tariffs were historically nil, or almost nil), business self-regulation, favorable judicial interpretations, and faith in the power of competition contributed to the general consensus, shared by scholars, businessmen, policy-makers, and the public opinion, that neither the government’s nor the courts’ intervention were required to bolster competition and fight market power. Apart from those special industries that, as already noted by J. S. Mill (see Medema, 2011, Chapter 2), were unsuited for competition and had therefore to be regulated (i.e., natural monopolies), free trade and “fair play” competition were deemed effective levelers of economic power. The picture of a highly competitive economy is confirmed by historians of British business. Quoting from an extensive literature, Crafts (2011) notes that at the beginning of the 20th century the share of the largest 100 British firms in manufacturing was only 15% of output, profit rates were less than 9%, price cost margins were low, and no restrictions hindered the international mobility of capital and goods. The overall performance of the British economy was quite good. Far from being a failure, as past

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economic historians had it, late Victorian economy thrived so much that by 1911 Britain was still ahead of its rivals in terms of total factor productivity.20 Competition law would hardly be felt as an urgent need. Business historians have identified three phases in the turn-of-thecentury public opinion about the trust and combination problem in Britain (see Freyer, 1992, Chapters 2 3). The first period, from the late 1880s to the first merger wave in early 20th century, was characterized by the abovementioned faith in free trade and competition. Laissez-faire policies, rather than State intervention, were the proper remedy against business concentration. The Report of the 1886 Royal Commission on the Depression of Trade and Industry emphasized that small firms led by innovative entrepreneurs were still essential to British economic prosperity. These firms’ independence was best warranted by their loose business agreements. The second period, from the early 20th century to the beginning of WWI, witnessed an increasing favor for those loose agreements. Spreading ever more in the economy, they represented a reaction against the first merger wave as well as against the failed “invasion” of the British economy by US industrial giants in the crucial shipping and tobacco industries. In 1909 a Royal Commission on Shipping Rings was formed to investigate the consequences of the system of “rings” or “conferences” (i.e., cartels) in the shipping industry. The Commission was the first opportunity for an exhaustive inquiry into the effects of combinations within a potentially competitive industry.21 The issue then arose of where to draw the line between the costs of the weakening of competitive forces and the benefits of higher stability and the prevention of ruinous competition. The Commission produced two reports (for details, see Freyer, 1992, Chapter 3). Both concurred that the remedy against potential abuses of the conference system was full publicity of the agreements, to be achieved through their official registration with the Board of Trade. The majority explicitly rejected the proposal of a regulatory body like that already existing for the railway industry. The minority partly dissented and emphasized that the conferences’ real goal was the exclusion of competitors and preservation of high rates, rather than market stabilization. However, even the minority report did not require more government intervention; on the contrary, by making direct reference to the poor record of US antitrust law, it expressed doubts as to whether a legislation against the conference system would be worth the cost of inevitable litigations and of the government’s, and the court’s, interference with such a complex industry. A lone voice in the Commission spoke in favor of a US-style antitrust law. Economist David Barbour, noting the inconsistency between the

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minority’s diagnosis and remedy, invoked explicit government or legislative intervention. He added that: “a more drastic, and probably more effective and simpler, remedy would be legislation on the lines of the Sherman Act.” However, Barbour erred in a crucial passage of his analysis. He argued that uneven market power precluded the establishment of mutually advantageous agreements for all firms, big and small. The shipping rings’ experience proved exactly the opposite, namely, that achieving a balance of interests through the negotiation of mutually beneficial anticompetitive agreements was quite possible and the real reason behind British businesses’ rejection of more invasive government policies. Finally, in the post-WWI period a rationalization rhetoric emerged, calling for a reorganization of British industry to be achieved via consolidation, agreements, trade associations, and, above all, a reduction of “wasteful” competition. The same collectivism and regimentation that had allegedly benefited both the German and the American wartime efforts had been advocated for the British economy in lieu of its traditional, familybased capitalism. Big business had been the main sponsor of the new system during the war. Accordingly, at the end of the war over 500 local or national trade or industry associations, exercising control over output and/or prices, were active throughout the British economy. Ever more frequently, one or two large firms enjoyed a near monopoly within a market, while smaller businesses could get along only through the establishment of horizontal and vertical price agreements.22 The rationalization rhetoric led to the appointment in 1918 of the Committee on Trusts, whose 1919 Report explicitly stated that combinations held “great possibilities of economical and efficient production and of improved distribution at lower cost.” The Report,23 including its most “scientific” part (authored by economist John Hilton), welcomed the rapid spread of associations and combines in the economy. It bluntly declared that the age of classical competition was over and claimed that combination was inevitable, so much so that the choice facing Britain was not anymore between free and restrained competition, but between loose associations and tighter consolidations. The Committee did not neglect the potential abuses of private market power. Hilton openly dismissed the classical argument that “certain natural safeguards” (like potential competition) could effectively protect consumers from the exaction of extremely high prices. However, the “light of publicity” was still considered “the sovereign antiseptic and the best of all policemen.” American antitrust law was on the contrary ridiculed, especially in view of its paradoxical impact on the survival of small businesses. Beyond

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publicity, the main policy recommendation endorsed by the Committee’s conclusions was the creation of a Trust and Combination Department within the Board of Trade a sort of administrative tribunal (not, note well, a regular court), with the power of investigating and vetting agreements.24 The suggestion was somehow endorsed by the British government with the institution of the Standing Committee on Trusts, a watered down and short-lived (it ended in 1921) version of the permanent tribunal suggested by the Report. This sketchy sequence of facts brings us back to the historiographical issue raised in the introduction. What was the British professional economists’ attitude with respect to antitrust? Were they themselves critical of the Sherman Act or did they support it? What was their opinion about the peculiar kind of consolidation in the British economy, that is, the loose combinations among independent businessmen? What about the postwar rationalization rhetoric? It is to these questions and to the answers provided by our small sample of economists that we now turn.

AN EARLY FORAY INTO COMPETITION ISSUES: FOXWELL AT THE BRITISH ASSOCIATION Our survey begins with an 1888 paper by Herbert S. Foxwell. There are two reasons for selecting it. First, because Foxwell, a prominent member of the English Historical School, can be taken to represent the School’s position on the monopoly problem.25 Second, because that paper, read at the British Association, is one of the earliest forays into antitrust themes by a British professional economist. Foxwell himself, returning to comment on the topic in 1917, proudly claimed: “I was perhaps the first English-speaking economist to put in a word in defense of business combinations” (Foxwell, 1917, p. 325). Foxwell’s initial statement in 1888 was premised upon the classical view of competition, but led him to a nonclassical conclusion: It is in fact a mistake to suppose that a state of competition can be a final permanent state of stable equilibrium. […] The main function of competition is that of selection. It is an industrial war, more or less honorably carried on, leading to the more or less disguised supremacy, the commercial monopoly, of the victorious firm. […] From this point of view it is competition which is transitional; and monopoly presents itself, not as something accidental […] but as something more permanent, more fundamental, than competition itself. (Foxwell, 1919 [1888], p. 264)

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Competition is a process, as the classics said, but a process often leading to monopoly. Indeed, “the more perfect the competition, the more certain and strong is the resulting monopoly” (Foxwell, 1919 [1888], p. 264). And “where competition has been unrestrained, there is a strong tendency for it to end in agreement of more or less comprehensive kind” (Foxwell, 1919 [1888], p. 267).26 Among the different kinds of monopoly listed by Foxwell, two are relevant here. He called them monopolies by efficiency and monopolies by combination (Foxwell, 1919 [1888], p. 267). The latter received little credit in the chapter because Foxwell considered interfirm agreements as difficult to establish and maintain. Hence, “combination, as distinguished from amalgamation of interests [viz., fully-fledged merger], is not a fruitful source of enduring monopolies” (Foxwell, 1919 [1888], p. 267). The case of monopoly by efficiency generated by scale economies, the division of labor, and the progress in transports and communications was deemed much more relevant. Given the later diffusion of loose combinations in the British economy, we know that Foxwell was wrong, but at the time of his paper the inevitable process of monopolization might still take one path or the other, that is, either toward cartels and other agreements or toward mergers and large-scale aggregations.27 What should the State do against such an inevitable process? Foxwell’s policy advice once again proceeded from a classical premise to a nonclassical conclusion: “It is very commonly assumed that competition exists wherever the State does not interfere. This is a very loose and misleading abuse of words. The mere absence of State interference has never given us competition in any real sense of the word. On the contrary, nothing has been more favorable to the growth of practical monopolies than the regime of laissez-faire” (Foxwell, 1919 [1888], p. 269). A major revision was called forth at all levels, theoretical, legislative, and political, because monopoly “seems to be nearly as significant a feature of our time as competition was at the time of Adam Smith.” As a consequence, “the political economy and industrial legislation which suited the earlier period may require some adjustment or development in view of the new force” (Foxwell, 1919 [1888], p. 269). That the cradle of modern monopolies was competition itself rather than State privilege could not leave British public opinion unaffected: “The temper of the public toward monopoly is sensibly changing. […] Competition […] now comes in for popular odium; even monopoly, with its order and permanence, seems a welcome relief from the iron rule and terrible uncertainties of so-called free competition” (Foxwell, 1919 [1888], p. 270).28 Laissez-faire policy was not a viable option

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anymore: theoretically, it was false that laissez-faire warranted the absence of monopoly; politically, the public opinion’s support for unrestrained competition had vanished. Monopoly also brought considerable advantages, “which suffice to explain its success, and to induce us to view that success with a certain degree of sympathy” (Foxwell, 1919 [1888], p. 270). Among the advantages feature the usual suspects plus a few new entries: from scale-induced cost reductions to increased business stability, from the avoidance of wasteful competition to the most efficient use of business knowledge and skills, from the saving of useless advertisement expenditures to the higher quality guaranteed by product standardization and to the higher respect for employees’ rights warranted by the public visibility of big businesses (Foxwell, 1919 [1888], pp. 270 271). Foxwell even claimed that, thanks to increasing returns, monopoly might lead to lower consumer prices, an argument that will also feature a couple of years later in Book V, Chapter XIV, Section 5 of Alfred Marshall’s Principles. Foxwell did not deny the monopolies’ “powers of mischief,” in terms of high prices, excessive political influence, and endemic corruption. To avoid these dangers which might lead to the spread of anticapitalistic views in the public opinion traditional regulatory practices were the most advisable policy. Regulating the new “monopolies by efficiency” rested on two pillars: publicity and industry-specific control. First, “there should be every possible form of publicity in regard to all transactions affecting public interest […] With due publicity, self-help would be far easier, and public opinion would come in to aid the right, and would largely dispense with the necessity for direct legal control” (Foxwell, 1919 [1888], pp. 274 275). Second, “where control is found to be called for, it should be as far as possible delegated to local or trade bodies familiar with the practical details of the case, and subject only to a mild revision from the central authority” (Foxwell, 1919 [1888], p. 275).29 The latter, corporative pillar, made any legislative intervention redundant, if not counterproductive: “Precise and rigid legislation should be avoided as far as possible. Most practical questions are questions of degree. These cannot well be dealt with by law. They are best referred to commissions or other bodies with a large lay element, and partaking of the character of a jury” (Foxwell, 1919 [1888], p. 275, emphasis added). But it was the former pillar, publicity, that should carry most of the burden. Foxwell joined the list of British commentators who thought that the spread of information about monopoly practices would reduce the necessity of actual interventions: “If [this tendency to monopoly] renders control more

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necessary, it also renders it more easy; and it is possible that such control as is required may be very largely secured by the simple expedient of publicity” (Foxwell, 1919 [1888], p. 276). Four propositions summarize Foxwell’s 1888 views that, as already said, we may take as representative of the English Historical School. First, monopoly is the inevitable outcome of competition in every industry where a large capital is required; second, monopoly is beneficial in several respects, including the elimination of that wasteful competition that public opinion despises; third, monopoly cannot self-regulate, lest its negative side prevails; fourth, regulation must be done administratively, that is, away from courts, and at a local or industry-specific level, but, first and foremost, it must be based on the widest publicity of monopolistic practices so that public opinion may effectively curb possible abuses.

IN DEFENSE OF BRITISH ENTREPRENEURIAL SPIRIT: MARSHALL’S 1890 ADDRESS Our second specimen is Alfred Marshall’s 1890 address to the Section F of the British Association, “Some aspects of competition.” The paper commends itself for several reasons. It contains a very early reference to the newly approved Sherman Act. It also offers a useful benchmark for Marshall’s deeper analysis of the monopoly issue in Industry and Trade that we will consider below (in the penultimate section of the chapter). Less than a decade before, in the Preface to the second edition of The Economics of Industry, Marshall had defined free competition as a specific kind of behavior: “A man competes freely when he is pursuing a course which, without entering into any combination with others, he has deliberately selected as that which is likely to be of the greatest material advantage to himself” (Marshall & Marshall, 1881, p. vi, emphasis added). Moreover, the “active force” of deliberate competitive behavior was said to be always capable of prevailing over the “passive resistance” of custom (Marshall & Marshall, 1881, p. vii). Important implications stemmed from these early propositions. On the one side, the tendency to combine should not be considered a competitive method, but rather an instance of those “frictions” that, according to Marshall, impeded the working of rational calculation. On the other, competition would inevitably overcome all those “frictions” that might hinder it, including the British industry’s tradition of “gentlemen’s agreements” and the likes.30

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The goal of the 1890 address was to explain the change in post-1840s economists’ “mental attitudes” with respect to competition. The change reflected the “conditions of time and place different from those in which” their previous “narrow and inelastic” doctrines were developed (Marshall, 1890, p. 614). To highlight the modern views about competition, Marshall chose the controversy between protectionism and free trade and the analysis of trusts and combinations, both presented in terms of the different policies followed in Britain and the United States. Plant-size-based cost reductions connected the two themes on account of their different impact in the two economies. The pursuit of scale economies justified American protectionism, but also led to concerns about excessive business concentration. Free trade reduced the exploitation of scale economies in Britain, but also made concentration a lesser issue (Marshall, 1890, p. 621). Yet, the attitude toward free trade might only go so far in explaining the two countries’ different concentration patterns and concerns about it. Marshall was aware that the main reason for these differences had been found elsewhere. First came the diversity in “national character and [objective] conditions.” The former affected the role of the individual in the economy: The individual counts for much more in American than in English economic movements. […] In England, therefore, the dominant force is that of the average opinion of the business men, and the dominant form of association is that of the joint-stock company. But in America the dominant force is the restless energy and the versatile enterprise of a comparatively few very rich and able men who rejoice in that power of doing great things by great means that their wealth gives them. (Marshall, 1890, pp. 621 622)

These “rich and able” American businessmen disliked the methods of a joint-stock company and preferred the “more mobile, more elastic, more adventurous, and often more aggressive” methods of combination, or trust. As to the objective conditions, Marshall remarked how monopolization was favored in the United States by the enormous distances, which made it possible the development of local monopolies, and by the power of railways over local industries, also due to sheer geography (Marshall, 1890, p. 622). Like Foxwell in 1888, Marshall in 1890 also contains a version of the ruinous-competition-leads-to-monopoly story. Especially in the United States, it was customary to remark that “in manufactures free competition favors the growth of large firms with large capitals and expensive plants” and that “when there is not enough work for all, these manufacturers will turn their bidding recklessly against one another, and will lower prices so far that the weaker of them will be killed out” (Marshall, 1890, p. 623). Bursts of cutthroat competition inevitably led the few surviving firms to be

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“irresistibly drawn to some of those many kind of combinations.” As even the American Congress had recognized, “combination grows out of, and is the natural development of, competition,” a competition that “burns so furiously as to smother itself in its own smoke” (Marshall, 1890, p. 623). However, Marshall did not entirely subscribe to this argument (“America’s cry,” as he called it). First of all, he thought that popular fears against monopoly had been exaggerated (Marshall, 1890, p. 624). In some of the most conspicuous examples of nefarious business concentration such as the oft-quoted case of Rockfeller’s Standard Oil a crucial role had been played by objectively monopolistic features (say, ownership of oil fields) and by the control of essential facilities (say, railways and pipelines). Moreover, he noted how trusts often broke down, following a suicidal tendency to set prices so high that it became profitable for their members to deviate as well as for outside businesses to enter the market, not to mention the public opinion’s outrage that might even lead to new antitrust legislation (Marshall, 1890, p. 624). In the opening chapter of Marshall’s Principles we read that deliberate calculation by entrepreneurs “the fundamental characteristic of modern industrial life” may bring to either competition or combination, whatever happens to be more convenient (Marshall, [1890] 1961, Book I, Chapter 1, Section 4). The reversal with respect to the 1881 definition of free competition where the tendency to combine was considered a “friction,” and thus explicitly excluded from the set of rational behaviors was remarkable. Combination had become in the Principles one of the possible outcomes of businessmen’s profit-maximizing choices. Not surprisingly, the 1890 address also embraced the new view. Competition and combination were said to both descend from rational calculation, and not, as other economists claimed, from country-specific psychological attitudes (like, say, the German “spirit”). Economic rationality explained both the rise and the demise of combinations, but also their “moderation” as far as prices and other manifestations of business power were concerned. The rationality of a “moderate” price policy was validated by the empirical observation that only “moderate” combinations managed to survive and eventually to shape the structure of their own industries (Marshall, 1890, pp. 624 625). It is important to recognize that a gulf still separated this analysis of “moderate” combinations from the claims in favor of “bold schemes for industrial reorganizations” by those whom Marshall called the “eulogists of Trusts.” He was skeptical that trusts might retain both “that individual vigor, elasticity, and originating force” typical of the separate firms and “that strength and economy which belong to a unified and centralized

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administration” (Marshall, 1890, p. 625). Modern trusts, with their required pooling of revenues, aimed at eliminating most of the weaknesses undermining older, and simpler, forms of combinations first of all, the incentive to deviate. However, by destroying the individual firm’s incentive to pursue efficiency and good management, trusts led to severe inefficiencies that might even soak up the benefits of scale (Marshall, 1890, p. 626). The long-run tendency pointed therefore toward full-fledged mergers, where individual firms would lose their identity and become branches of the big conglomerate. The drift toward complete consolidation was also favored, in Marshall’s view, by the law and the courts. The latter in particular seemed to adhere to an old, and mistaken, view of competition, namely, the idea of the antithetical nature of competition and combination.31 Marshall noted that in the Common Law “a use of the rights of property, which would be ‘combination in restraint of competition’ if the ownership of the property were in many hands, is only a free use of the forms of competition when the property is all in a single hand” (Marshall, 1890, p. 627). This groundless “restraint of competition” doctrine led to the prohibition of pooling and other looser aggregations, while it sanctioned complete consolidation obtained via mergers and acquisitions. Marshall’s argument may be summarized as follows. A tendency existed in the economy toward concentration due to scale economies and the like, but this tendency would at most lead to loose forms of combinations, pursuing “moderate” pricing behavior, were it not for two forces pushing toward complete consolidation. These were, first, the anti-efficiency incentives originating from the pooling of revenues, and, second, the flawed Common Law doctrine of restraints of trade. As a consequence of the joint action of the two forces, the tendency toward largely innocuous combinations had turned into a drift toward dangerous industrial giants. Armed with that argument, Marshall could tackle two crucial issues in his address. First, the question of either prohibiting or allowing a business practice depending on whether it had been undertaken by a combination or by a single, possibly powerful, firm. What made the issue particular urgent was the novelty of the US Sherman Act, whose Section 2 (against monopolizing practices) extended to individual behavior a prohibition that Common Law had until then applied only against combinations (Marshall, 1890, p. 628). Marshall did not believe that the Sherman Act would suffice to stop the trend of turning combinations into conglomerates; he thought the Act was, under this respect, just a display of legislative populism, with little effect on business behavior (Marshall, 1890, p. 628). His real concern

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was that the Act, much like the Common Law’s traditional doctrine on combinations, lacked rigorous economic foundations. This concern explains why he dedicated a whole section of his 1890 address to discuss the literature about the positive and negative effects of combinations. For instance, according to the “trust eulogists” large combinations reduced socially wasteful marketing expenses and stabilized output and prices (see Foxwell’s discussion of gains from monopoly in the previous section). Marshall contested both points: on the one side, to gain and preserve its monopoly position the combination had to spend in wasteful bargaining activities an amount of resources comparable to competitive firms’ marketing expenses; on the other, the record showed that the allegedly higher stability of monopolized industries had been paid in terms of more instability in other, related sectors (Marshall, 1890, p. 632). Marshall also downplayed the most typical pro-trust argument, namely, the efficiency gains achieved via the full exploitation of scale economies. Field experience of productive processes enabled him to argue that: “a comparatively small capital will command all the economies that can be gained by production on a large scale; and it seems probable that in many industries […] a similar position of maximum economy will shortly be attained without any much further increase in size” (Marshall, 1890, p. 632). Neither gigantic size nor combination were necessary conditions for achieving significant “reductions in the expenses of production” (almost the same words will feature thirty years later in Marshall’s Industry and Trade; see below). On the contrary, large businesses and combinations seemed to incur into what he called “the main reason for regarding with some uneasiness any tendency there may be toward such consolidations of business” (Marshall, 1890, p. 633). He claimed that the oft-mentioned superior power of big business to perform expensive R&D “count for little in the long run in comparison with the superior inventive force of a multitude of small undertakers” (Marshall, 1890, p. 633). The passage reveals the true reason behind Marshall’s preference for a system of independent and competitive firms, namely, his belief that the latter could be more effective than the former in producing new knowledge. While giant firms and combinations usually exploited existing knowledge, small autonomous businessmen had the highest incentives to exert their utmost efforts to innovate: “Large private firms [are] inferior to private businesses of a moderate size in that energy and resource, that restlessness and inventive power, which lead to the striking out of new paths” (Marshall, 1890, p. 633). Competition, much better than combination, could enhance “the constant experiment by the ablest men for their several tasks, each trying to discover a new way in which to attain some important

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end” (Marshall, 1890, p. 636). In modern jargon, they are called dynamic efficiency gains to be distinguished from mere size-related scale economies.32 According to Marshall, these were the gains that competition policy should defend and promote by limiting the power of trusts. Unfortunately, “the benefits which the world reaps from this originality are apt to be underrated,” if only because “older economists, though fully conscious of them,” had failed to underline their being among the most precious outcomes of a competitive economy (Marshall, 1890, p. 633). The classical process view of competition had become, in Marshall’s hands, an instrument for the generation of dynamic efficiency gains a “discovery view” of competition, so to speak. The “discovery view” found its main implications in policy terms. Those economists “in whom the Anglo Saxon spirit is stronger” would not fail to “exert themselves to the utmost to keep Government management within narrow limits,” in order to preserve “the vital service which free competition renders to progress,” that is, the individual freedom of discovery (Marshall, 1890, p. 642).33 More specifically, the key issue concerned the limits of State interference on property rights (Marshall, 1890, p. 629). Of the two alternatives on the table, State ownership/management and private ownership/management subject to State control, Marshall’s preference was clearly for the latter because only private ownership could warrant the proper incentives to innovate. State control was however technically hard to implement: “More forethought and hard work are needed to arrange an effective public control over an undertaking than to put it boldly into the hands of a public department” (Marshall, 1890, p. 630). Not surprisingly, he thought that the most important kind of control was exercised by neither the government nor the law. It was public opinion, if properly educated to the economic way of reasoning, which could exercise the greatest and quickest pressure against the abuses of monopolists (Marshall, 1890, pp. 638 and 642). Such an authoritative endorsement of “the new force of public opinion” would provide the rationale for the publicity mantra of so many antitrust proposals by turn-of-the-century British economists, including those by Marshall himself in Industry and Trade (see below).

COMBINATION AS A BUSINESS METHOD: MACGREGOR’S VERY MARSHALLIAN ANALYSIS Foxwell’s and Marshall’s addresses predated the first merger wave in the British economy. Marshall’s disciple, David H. MacGregor, published his

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Fellowship thesis for Trinity College, titled Industrial Combination, in 1906, at the peak of the merger mania.34 The work aimed at exploiting the Marshallian definition of competition to demonstrate, first, that combinations should be considered a natural outcome of market forces, and, second, that their rise would not affect the general welfare, provided these same market forces were allowed to work freely. As we read in the Introduction to the 1938 reprint, the book originated from Marshall’s lectures about the relation between competition and monopoly in particular from the idea that “normal competition was not perfect competition; that in all competition there was an element of monopoly” (MacGregor, 1938 [1906], Introduction).35 The monopolistic element of business behavior consisted in the practices of contracting and bargaining. It followed that “competition is the more perfect the less it has recourse to these [trade] practices.” In normal to be distinguished from perfect competition firms make ample recourse to them. MacGregor also remarked that the “more modern [i.e., 1938] definition of perfect competition has an entirely different basis; it means that no single producer can affect the price, and this implies atomization of the supply” ([1906] 1938, Introduction). The difference between the new, neoclassical definition of perfect competition and the Marshallian, classics-inspired definition was adamant to late-1930s MacGregor, who harshly criticized the new approach for being “retrograde,” “superseded,” and capable of “obscuring” the relevant patterns of real world competition. MacGregor began the 1906 book with a definition of industrial combination as “a method of economic organization by which a common control, of greater or less completeness, is exercised over a number of firms which either have operated hitherto, or could operate, independently” (MacGregor, 1938 [1906] p. 1). Characterizing combination as a result, rather than as a process, allowed him to encompass the whole range of monopolistic phenomena, like mergers, trusts, cartels, or other looser agreements. It also brought the issue back within the boundaries of pure economic analysis, away from metaphysical accounts about different national temperaments, such as the allegedly extreme American individualism.36 Finally, if combination was just a new industrial method, a presumption existed that its general welfare effects at least with respect to productive efficiency were similar to those of any other business innovation, that is, surely positive (MacGregor, 1938 [1906], p. 193). The unit of industrial combination was the Marshallian representative firm, that is, the self-contained establishment which alone, under modern conditions, has economic efficiency for the supply of goods […] the structure which is typical of that period of

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economic development, which has access to all of the normal economies of that period, and is of the size which is suited to their most efficient use. (MacGregor, 1938 [1906], p. 3)

The definition was again crucial because it allowed MacGregor to dispose of the commonest explanation for the rise of combinations. Given that, by definition, the representative firm already produces at the maximum efficiency level, the driver of combinations could not be production on a larger scale: “All arguments for combination which depend only on an increase of the scale of production are irrelevant” (MacGregor, 1938 [1906], p. 4). The true economic rationale for combinations should therefore reside in business organization more precisely, in the possibility of achieving further economies, different from purely dimensional ones, via the “adjustment of the relations” between already output-efficient firms. Examples were the gains from establishing a common control or from redirecting reciprocal transactions toward a common interest.37 The most important question to be asked thus became “whether combination may not be the ‘representative method’ of organization in the 20th century” (MacGregor, 1938 [1906], p. 4). Building on Marshallian premises, MacGregor could also get rid of another popular explanation, namely, the idea that combinations be the “industrial medicine, to heal the fever of the independent system” and avoid the turmoil of “excessive competition” (MacGregor, 1938 [1906], p. 38, original emphasis). He thought the thesis was a non sequitur because its supporters never demonstrated the higher efficiency of combinations in an environment that presupposed the existence of either too much capital invested or too small a market. It might as well be possible that, under negative market conditions, Marshallian firms “prefer to combine rather than fight a long and losing battle for supremacy” (MacGregor, 1938 [1906], p. 39). But this solution made the problem of excess capital tougher, because the combination had now to compensate the members whose plants should reduce or shut down operation for the sake of the common profitability (MacGregor, 1938 [1906], p. 40).38 MacGregor denied that combination and competition were really opposed. His mantra that “combination is not monopoly” (MacGregor, 1938 [1906], p. 5) was used to stress that, while monopoly was a limiting case with no room left for competitive methods, a combination had to use competitive methods to exist and succeed: “No one who is acquainted with the policy of the Standard Oil Trust or the Westphalia Coal Cartel would be tempted to regard combination as the foe of competitive methods” (MacGregor, 1938 [1906], p. 6). Even when a combination reached a

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monopolistic situation, it still had to employ aggressive competitive methods in order to keep off potential competition: “The absence of competitors is the best proof of the force of competition” (MacGregor, 1938 [1906], p. 6). The biggest mistake was thus to believe that the “special methods” used by combinations were the negation of competition. Restating the classical view of competition, he argued that: “A monopoly cannot rest on anything, but competing power, since competition is not one of many economic forces, but a name for economic force” (MacGregor, 1938 [1906], p. 6, emphasis added). A few years later he would make the point even more strongly, arguing that “the very meaning of industrial competition [is] the attempt to obtain a monopoly” (MacGregor, 1911, p. 196). From here it was just a small step for him to defend combination as a natural phenomenon, much like competition. If Adam Smith’s natural state of laissez-faire amounted to the triumph of individual freedom, then the freedom to join a combination renouncing one’s own business individuality should also be counted (MacGregor, 1938 [1906], p. 9). Contrary to what many believed, competition did not coincide with independence: competitive methods belonged to every economic system and every kind of business organization. What the modern trend toward combination showed was just the intensification of the competitive struggle (MacGregor, 1938 [1906], p. 12). Accordingly, the combination method could only survive if it proved to be the fittest method, though the standard of fit was not that of efficiency alone,39 but rather the more comprehensive one of competitive strength (MacGregor, 1938 [1906], p. 13). The competitive strength of a business, whatever its form or organization, depended on four general factors. The first was, obviously, productive efficiency, but the other three were equally important: a business’s bargaining strength in vertical relations,40 its ability to avoid or mitigate trade risks, and its use of “resources.” By the latter term MacGregor meant “those forms of industrial strategy and tactics which a firm employs solely by its own exertions, and not through bargain” (MacGregor, 1938 [1906], pp. 13 15). He dedicated the rest of the book to analyzing how combination methods could affect these four factors of competitive strength. Two features of his analysis deserve mention here. First of all, he argued that no general claim could be made about the overall outcome of combinations. The ambiguous welfare effects of three of the four factors (productive efficiency being the only surely positive one),41 plus the circumstance that combination methods could affect each of them, made the general welfare effect of combinations always uncertain. Especially whenever their

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other alleged benefit, market stability, had also to be discounted because of its adverse impact on prices (MacGregor, 1938 [1906], p. 204). Second, the Appendix on fair price is also noteworthy. There MacGregor discussed the popular argument that combination could help avoid the direst consequences of excessive competition: economic chaos on the one side and a strain to market morality, by depriving the entrepreneur of his “right to profit,” on the other (MacGregor, 1938 [1906], pp. 108 112). He noted that, by refusing to condemn practices usually deemed “unfair” (such as exclusive dealing), English courts had sanctioned the “right to profit,” that is, the right to use all lawful means to push one’s own trade. However, the proper yardstick for judging the fairness of a business practice should be its welfare effects, both static and dynamic, rather than its morality. Labeling as “unfair” any output restriction agreement (which diminished static welfare) or any concerted protection of overinvestment (which diverted resources from their most efficient uses) obeyed that yardstick. In other words, MacGregor thought that trade was fair whenever competition served the consumer and that any means used by a firm or combination to prevent rivals from accessing consumers should be condemned as unfair. English courts had therefore been mistaken in their “right to profit” doctrine. In modern jargon, they had considered trade as a zero-sum game, where each trader has the “right” to strive for the largest share of the given surplus, rather than as a positive-sum game, where competition increases total surplus. MacGregor’s book was not just about general principles. As the Marshallians’ indirect response to the English historicists’ complaints about the lack of any “systematic account of the structure of any of the great English industries of today” (Ashley, 1899, p. 172), the entire Part II was dedicated to explaining the specific causes and actual functioning of trusts and cartels in Britain, Germany, and the United States. In particular, by cleverly mixing legal, political, and economic arguments, the book offered a convincing explanation of why cartels had been more successful in Germany than in Britain and the United States. However, it is Part III, dedicated to a comprehensive evaluation of the welfare effects of combination and to the discussion of policy proposals, which deserves our attention. What role for the State with respect to combinations? MacGregor claimed that a preliminary issue should be tackled, namely, whether monopolies and combinations really were the normal and inevitable outcome of modern business. If the answer was positive, if an inevitable tendency toward concentration did exist, then “the State places itself in an altogether

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untenable position by the enactment of laws against combination as such laws, for instance, so general in their terms as the Sherman Act” (MacGregor, 1938 [1906], pp. 231 232). It was not up to public authorities to prejudge the purely theoretical issue of the desirability and/or inevitability of one form or another of business organization. As MacGregor noted, whenever the State tries “to set up a standard of economic orthodoxy,” disaster is looming. “The utter failure of American laws to stop the development” of combinations corroborated this point. Here MacGregor quoted the “epitaph of such unsystematic procedure,” written by the 1902 American Industrial Commission (MacGregor, 1938 [1906], p. 232). Reflecting on the implicit incentive to tighter forms of concentration provided by the Sherman Act, the Commission had declared that “the strongest forms of combination appear to have been fostered by laws intended to prevent them!” The record of US antitrust law had been miserable: “To attach a stigma to what may be a normal evolute is to render the worst service to industry; to attach it to the outcome of artificial conditions is less logical than to operate on these conditions” (MacGregor, 1938 [1906], p. 233). MacGregor’s anathema also included Clark-style proposals for new legislation directed at attacking specific business practices (see the first section above). The evolution of business methods was simply too fast for law and courts to keep pace. Practices such as price discrimination and exclusive dealing, which authors like J. B. Clark considered “unfair” (i.e., against economic efficiency), should more properly be taken as symptoms, rather than sources, of monopoly power. The right policy was to address the sources (by, say, reducing or eliminating trade tariffs), not the symptoms.42 The State’s duty should therefore be just to ensure “that the [combination] movement will owe its success or failure to the action of the openest competition with other methods.” If trust and cartels eventually succeeded in such an open contest, that would “not mean that the era of competition is over; but rather that a new form of organization has greater competitive power than an old one” (MacGregor, 1938 [1906], p. 235). This conclusion extended, in a very Marshallian way, the notion of competitive tools from the usual “price-and-capacity” pair to entire methods of business organization. The State should only care that competition between alternative methods took place in a level playing field. More concretely, the policy-maker should intervene on those sources of monopolistic powers under its direct control, first and foremost trade tariffs. Following another of J. B. Clark’s ideas, the latter could be calibrated “to enable new competitors to bear the especially high charges incurred in making a start.” Hence tariffs would

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become “simply protective of the better [business] method,” be it combination or independent production (MacGregor, 1938 [1906], p. 236). MacGregor’s approach of viewing combination as a market phenomenon was reiterated in the book’s conclusion: “The combinations will stay according as they can compete, as the general sense of the community approves their methods of competition, and foresees in the future no power upon prices that is mainly resourceful and strategic” (MacGregor, 1938 [1906], p. 240). Thus, the best policy advice was “to avoid passion, and prejudgment, and the terrorism of mere size; to perceive that the extortion of a few strong producers can be remedied otherwise than by drastic interference with economic tendencies” (MacGregor, 1938 [1906], p. 241). The question then arises whether such a conclusion characterizes MacGregor as a mere speaker on behalf of his mentor Marshall or as an autonomous thinker. The gist of MacGregor’s argument that combinations were just a peculiar method of organizing business in a changing industrial world and that their success or failure depended on market forces, with no need of government or, worse, judicial intervention might as well feature in Marshall’s 1890 address. Yet, as I show later, it would fit only partially within Marshall’s Industry and Trade, a book that reflected another decade of deep transformations for the British economy. A few years later MacGregor published another book, The Evolution of Industry, which appeared in the popular Home University Library of Modern Knowledge series. The volume offered a broader picture of industrial growth and development, though again with a specific emphasis on the British economy (MacGregor, 1911). In the seventh chapter, titled “Competition and Association,” the author gave a more lopsided reading of the combination movement. Differently from the may-the-fittestmethod-survive attitude of 1906, now combination was almost a priori declared the best method of industrial organization. For example, we read that: “It is only by some degree of combination that we can obtain for the benefit of industry certain elements which used to be ascribed to free competition” (MacGregor, 1911, p. 205). Or that: “Combination, therefore, makes actual in competition certain elements which without it belong only to competition in the ideal, so that even the benefits of competition are only obtained by alliance with this other force” (MacGregor, 1911, p. 206). He even complained that: “Of the two forces of Western civilization, it is combination which tends to come too late, and competition which tends to last too long” (MacGregor, 1911, p. 206). Surprises continued in the next chapter, dedicated to “Types of industrial government.” There MacGregor, after having reiterated his 1906 point

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that the internal organization of a trust did not extinguish the fire of competition, but rather revived it for efficiency reasons (MacGregor, 1911, p. 222), flirted with the idea of the nationalization of trusts. The unbridled rivalry that formerly existed between the constituent firms was replaced within a trust by a regulated kind of competition addressed at enhancing efficiency. This he saw as a concrete possibility to combine the gains of competition with those of combination, and thus as one of the key advantages of the trust method. But “regulated competition” had a further bonus to reveal. It could show “on what lines industry might proceed, if any parts of it ever became nationalized, in order to ensure a high standard of work” (MacGregor, 1911, p. 222, emphasis added). Stopping short of openly endorsing nationalization, MacGregor did not pursue the idea further.43 As the next section shows, this task belonged to our fourth British economist.

FROM RADICALISM TO COMPLACENCY: THE STRANGE CASE OF H. W. MACROSTY Our fourth author was so distant from the Marshallian camp that in the works hereby examined two monographs and two papers, all published in a short-time span, from 1899 to 1907 he failed to quote a single time the Cambridge master: quite a rare feat in the era of Marshall’s domination over British economics. As I said in the Introduction, Henry Macrosty was an active member of the Fabian Society, the British organization founded in 1884 to advance the principles of democratic socialism via gradualist and reformist, rather than revolutionary, means. A glance at the list of Fabian Tracts in the period under scrutiny shows that Macrosty was the Society’s “expert” on the themes of industrial organization and concentration. Macrosty organized his contributions along the usual triple “explanation description solution.” Given the applied character of his works, the descriptive part was always predominant, with detailed presentations of several examples of the various patterns of combination, taken from British and other countries’ industrial experience.44 As to the explanation of the combination movement, he identified its main causes in the firms’ effort to escape from the negative consequences of competition, on the one side, and in their desire to achieve the economies of large-scale production, on the other (see, e.g., Macrosty, 1905, p. 3). While he was hardly original in arguing that, or in stressing the inevitability of “the growth in monopoly in

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English industry” (such was the title of his first Fabian pamphlet: Macrosty, 1899b), his voice was surely the loudest within our survey to decry the deleterious effects of “excessive” competition. Another distinguishing feature of Macrosty’s works was his remarkable knowledge of the British and American common law on restraints of trade. But where Macrosty really marked a difference with respect to the three other economists in our sample was in suggesting, at least initially, so radical a solution to the combination problem as a full-blown nationalization of monopolies. As we will see, such a drastic way-out was to be substantially watered down in his later contributions. A firm believer in the inevitability thesis, Macrosty rejected the optimistic argument that the trust problem would never become so severe in Britain as in the United States thanks to the peculiarities of the British economy. Neither the no-tariff attitude toward foreign trade, nor “the lawabiding instinct of our people” (Macrosty, 1899b, p. 3), nor the fact that “the greed for money has never reached in this country the height to which it has attained across the Atlantic” could save British industry from the “steady movement toward combination and monopoly,” the movement itself being just “the natural outcome of competition” (Macrosty, 1899b, pp. 3 and 14). We may only guess to whom Macrosty’s polemic was addressed to. What is sure (see above) is that Alfred Marshall featured prominently among the champions of such “complacent conclusions” that had to be seriously reassessed (Macrosty, 1899b, p. 3). Macrosty was never against combinations per se. He joined many other scholars in acknowledging combinations and mergers as a method to avoid the waste of capital and wealth caused by ruinous competition and as the best gateway to scale economies. He considered competing on process rather than price the most effective trigger of technological and managerial improvements that would eventually increase social welfare: “In addition to securing industrial peace in their trades, these alliances [i.e., combinations] have the great social advantage of shifting competition from cheapness to processes” (Macrosty, 1899b, p. 8). Hence, since his very first work on the topic he concluded that the net result of the combination movement was “a great improvement in productive organization.” This outcome had however to be balanced against “the possibility that the new machinery may be turned against the consumer” (Macrosty, 1899b, p. 14). The latter remark refers to what Macrosty more clearly than any other economist in our survey viewed as the most significant drawback of monopolization. By curbing competition, the new patterns of industrial organization would effectively cancel the main benefit of the classical

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system of free competition, namely, the passing through to consumers of every improvement of production processes. Consumers’ harm was the perennial counterpart in Macrosty’s works to the list of possible benefits stemming from the combination movement. Admittedly, the harm potentially caused by monopolies or combinations was not limited to damaging consumers. Macrosty mentioned other well-known dangers, like the political pressure that large concentrations of capital might exert on governments or the “economic mastery” that big business might possess over workers. The latter in particular was a typical Fabian theme. Little surprise then that it featured prominently, and alarmingly, in Macrosty’s earlier works (Macrosty, 1899b; see also, Macrosty, 1901, Chapter 10). His later views on the relationship between trusts and unions were however more sanguine. In the 1905 Fabian pamphlet “State Control of Trusts,” he borrowed from the Final Report of the American Industrial Commission the optimistic conclusion that no sign of abuses by combinations against their employees had been registered thus far.45 On the contrary, a kind of cooperative behavior had seemingly been established between the newly formed industrial giants and the most powerful workers’ associations (Macrosty, 1905, p. 12). Thus, it turned out that the only real concern raised by the monopolization movement was the protection of consumers’ interests. The emphasis on consumer welfare was an apparent modern trait of Macrosty’s analysis, although his main policy suggestion was faraway from current antitrust practices.46 Theoretically speaking, Macrosty’s main contributions came along three lines: his description of the working and effects of ruinous competition; his critique of the effectiveness of potential competition as a limitation of monopolistic power; and his definition and analysis of the key notions of horizontal and vertical integration. The most lucid analysis of ruinous competition came in The Trust Movement in British Industry (Macrosty, 1907). As we know, the theme was a compulsory feat of turn-of-the-century literature. Yet the clarity and persuasiveness achieved by Macrosty in describing how fierce competition inevitably led to monopolization was perhaps unparalleled. A few passages would suffice: “The special reason for the formation of an amalgamation is always the existence of destructive competition, the result of a surplus of productive capacity” (Macrosty, 1907, p. 265); “Alike in protected and unprotected markets free competition becomes cutthroat, prices fall, and overproduction ensues in the wild effort of producers to reduce costs by a larger output” (Macrosty, 1907, p. 7); and, quoting from the Preliminary Report of the American Industrial Commission: “Among the causes which

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have led to the formation of industrial combinations, most of the witnesses were of opinion that competition, so vigorous that profits of nearly all competing establishments were destroyed, is to be given first place” (quoted in Macrosty, 1907, p. 7). So strong was Macrosty’s belief that amalgamation and monopoly were the inevitable endpoint of free competition that he praised those decisions by British common law courts that, starting from the last decades of the 19th century, had recognized the economic reasonableness of several contracts in restraint of trade, chief among them those linking the members of a cartel. The classic case was Mogul Steamship Co v. McGregor, Gow & Co and others (hereafter, Mogul, 1892), where a unanimous House of Lords had rejected the appeal made against the shipping conference that had excluded Mogul Steamship from the tea trade between China and London.47 Macrosty’s book contains a detailed discussion of the Mogul decision, an unusual feature for a British economist of that time. The Lords’ arguments in favor of the cartel were openly approved by Macrosty when he lauded the decision as a “fortunate one” (Macrosty, 2001 [1907], p. 19). In particular, he endorsed their main point that a business should be free to sign a contract that restrained its own trade if that was the behavior that most effectively promoted its interests. The key opinion in the Mogul case had been authored by Lord Justice of Appeal Charles Bowen. The opinion read as a tribute to the traditional doctrine of freedom to contract, one of the backbones of the classical laissez-faire era. According to Lord Bowen, [The defendants] have done nothing more against the plaintiffs than pursue to the bitter end a war of competition waged in the interest of their trade. […] A man is bound not to use his property so as to infringe upon another’s rights […] There is surely no doctrine of law which compels him to use his property in a way that judges and juries may consider “reasonable” […] If there is no such fetter upon the use of property known to the English law, why should there be any such fetter upon trade? (Mogul, 1892, p. 280)

The implications were adamant: first, joining a cartel was just a way to compete, and, second, more competition or even a deadly fight between the cartel and the excluded business could never be unlawful at common law. Macrosty, like the unanimous House of Lords had done in sealing the case, fully endorsed these implications. Moreover, confirming his considerable legal awareness, he underlined that, by establishing that contracts in restraint of trade were lawful but (still) nonenforceable in court, the Mogul case had created a precedent that made cartels and other loose forms of association more fragile with respect to other, stricter forms of combination. Following Mogul, the latter were lawful too, but they had the extra

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advantage of not being subject to opportunistic deviations by cartel members. Hence, the decision seemed to open the door to tighter patterns of business consolidation (Macrosty, 1907, pp. 22 23). Combinations use competition to restrain competition, argued the Mogul court, and therefore it was impossible to foresee the final effect of combinations on the market process, especially when account was made of the threat of potential competition. This passage of the Mogul decision was the only one Macrosty did not endorse in 1907, as he was quite skeptical about the power of potential competition. As early as 1899 he had noted that: “A large combination can always buy up or starve out new rivals whose competition threatens its monopoly […] The shipping rings, too, have crushed all attempts at competition” (Macrosty, 1899b, p. 14). He had reiterated the point in 1901: The consumer […] is told to look to independent competition as the means of keeping prices at a proper level; but the “combine,” by charging low rates and looking to a large turnover for its profit, could create a state of things in which the people would be politically serfs and yet fresh capital would not be tempted to come in. Even if prices were maintained at a high level, the prospects of a new competitor would not be brilliant, for he would have to face the hostility of a company already in possession of the field, fully equipped and well-organized. […] The power of the purse can be used to buy out as well as to starve out a rival, and few men of business are so philanthropic as to prefer the bankruptcy court to being merged with a formidable opponent. (Macrosty, 1901, pp. 277 278, emphasis added)

Remarkably, the latter argument would represent the main critique raised only a few months later by Marshall’s disciple A. C. Pigou against J. B. Clark’s proposals in The Control of Trusts. As Pigou would put it: “It is not enough for a potential rival to be able to compete with the prices at which the Trust at any time chooses to sell; he must be able to meet those at which, by abandoning all ‘monopoly revenue’ and contenting itself with ‘normal profits,’ it could sell. […] The latent power of the Trust to fix a new price level, high enough to maintain itself, but low enough to ruin them, would frighten [independent producers] away” (Pigou, 1902, p. 66, original emphasis). Two arguments that were to become popular in the post-WWII economics of the so-called “exclusionary practices” were clearly forerun hereby Macrosty and Pigou: the deep pocket story for predatory pricing and limit pricing theory.48 The bottom line of both was that potential competition was a much weaker threat against the abuses of monopoly power than most other commentators believed. Macrosty’s last, but arguably most relevant, theoretical contribution was his lucid distinction between, and analysis of, the two patterns of

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integration, horizontal and vertical. The distinction was already in his first Fabian pamphlet (1899b), but he made it more precise in The Trust Movement, where, after having analyzed “the union of firms in the same line of business ‘horizontal combinations,’” he recognized the existence of “another class of combination, whose history is older, which is perhaps more closely involved in the evolution of industry, which is sometimes hostile to, sometimes ancillary to, the ‘horizontal’ form. Employing the same metaphor we may call it the ‘vertical’ form, where all processes of production, direct and lateral, from the extraction of the raw material to the sale of the finished product are concentrated or ‘integrated’ under the same control” (Macrosty, 1907, p. 18). The horizontal/vertical terminology was far from established at the time. The Oxford English Dictionary records as first use of the word “integration” in a business context a 1894 newspaper article by, perhaps not casually, the Fabian leader Sydney Webb. This was followed, still according to the OED, by MacGregor’s use in his 1906 book (see the previous section). As it turns out, the expressions “vertical” and “horizontal,” both referred to integrations or amalgamations, did feature in MacGregor’s work (see MacGregor, 1938 [1906], pp. 50 and 74), but their use was somehow casual, without even approaching the depth of analysis that we find in Macrosty, 1907. As to the JSTOR database, the earliest use of either of the expressions dates to no earlier than 1913. Hence, though far from establishing a case of absolute historical priority, we may nonetheless argue that Macrosty (1907) should be considered among the earliest analyzes of the vertical/horizontal integration dichotomy. According to Macrosty, vertical and horizontal integration, plus what he called “terminable associations” (i.e., combinations formed “for the attainment of specific purposes over an agreed period of time after which the members are free to revert to independence”: Macrosty, 1907, p. 9), represented the main lines of development of the amalgamation movement in British industry (Macrosty, 1907, p. 264). The pro-efficiency effect of vertical integration was beyond dispute to him. Hence, he juxtaposed this kind of integration to the other, anticompetitive forms of amalgamation: “We must correlate the evolution of those large efficiency combinations of integrated form with the almost universal prevalence of associations for the fixing of prices, the regulation of output, and the demarcation of territory” (Macrosty, 1907, p. 265). But there was more than mere juxtaposition between the two patterns of integration. He also identified a feedback mechanism between horizontal and vertical integration, as the latter led to more efficient firms, and thus to

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a stronger need, and higher probability, of horizontal combination. The reason for this feedback was simple: cutthroat competition between bigger, integrated firms would hardly warrant the desired effect because it would be extremely difficult to “kill” or “swallow” a big, vertically integrated rival. In these circumstances, horizontal combination would provide a safer alternative: “The reduction of numbers along the former line [i.e., vertical integration] makes ever more possible combination along the latter [i.e., horizontal integration], and in proportion as the strength of the units increases so does the possibility of securing trade by internecine competition diminish, and the necessity for combination to ensure lasting peace become more evident” (Macrosty, 1907, p. 265, emphasis added). Notwithstanding the obvious importance of their theoretical analysis, Macrosty’s contributions gained recognition first and foremost for their suggested radical way-out from the monopoly problem. The polar star of Macrosty’s solution was the necessity to protect the consumer. More specifically, the issue was finding a way to guarantee that at least part of the gains accruing from technological improvements and scale economies could still be passed from the producer to the final purchaser. Macrosty was too knowledgeable of British and US common law to put his faith in either legislative or judicial solutions. The combination movement was a natural outcome of competition “and therefore not capable of being prevented or undone by law” (Macrosty, 1899b, p. 14). Indeed, “destructive legislation has completely failed […] In the United States antitrust legislation has been voluminous and futile” (Macrosty, 1905, p. 2). In 1907, his skepticism about antitrust law was, if possible, even stronger. He noted that: Repressive legislation could only affect the outward form of combination. Amalgamation cannot be prohibited without forbidding the union of even two firms, while to make monopoly illegal would be fruitless where no formal monopoly exists. […] No law can suppress the Gentlemen’s Agreement, where there are no rules, no constitution, no contract, but common action is effected verbally and informally, and yet some of the most oppressive combinations have been of that form. (Macrosty, 1907, p. 275)

And again, in a passage that is among the most brilliant renditions of the intrinsic limits of antitrust law: To strike at the methods adopted by combinations is not easy without at the same time repressing measures blamelessly adopted by the individual trader. Boycotting, dumping, selling at a loss to crush competition, maintaining prices at the highest level which the market permits these are no monopoly of combinations, but are weapons in everyday use by manufacturers, merchants, and shopkeepers. It would be indeed an extraordinary

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thing to strike at competition in the name of competition. (Macrosty, 1907, pp. 275 276, emphasis added)

These words highlight the distance the 1907 Macrosty had traveled from his earlier most preferred alternative to legislative and judicial intervention, namely, that proposal for the nationalization of monopolies that had secured his fame among industrial economists. The work where Macrosty most strongly supported the nationalization solution is his 1901 Trusts and the State.49 There he dedicated a whole chapter (Macrosty, 1901, Chapter XII) to an eulogy of the policy-maker’s direct intervention in the economy, in the form of State ownership of combinations and monopolies. He reached such a drastic answer after having qualified, if not wholly demolished, all the other alternatives for limiting private monopoly power, from antitrust legislation to consumers’ or retailers’ cooperation, from foreign trade pressure to the last bulwark of the free-market supporters, potential competition (see above). The conclusion was inevitable: Private monopoly is a public danger, and yet it cannot be undone by law; nor if it could would any economist recommend that the community should abandon the most efficient method of production for a worse. The problem is, how to secure the benefits of combination without its disadvantages, and to this there is only one solution, the public ownership of monopolies. (Macrosty, 1901, p. 283)

In short, outright nationalization was the only way to preserve the manifold positive effects of combination without incurring into its major defect, the negative impact on consumers. The Fabian Macrosty was quite optimistic about the ability of State ownership to safeguard the benefits while avoiding the evils: When a monopoly becomes collective property its character is entirely changed. Given a good system of administration and effective parliamentary control, and arbitrary conduct, which is the essence of tyranny, is impossible. Undue raising of prices or unjust treatment of employees would cause a political reaction against the government responsible, and would therefore be avoided. (Macrosty, 1901, p. 283)

Even on the more practical side he failed to see any major obstacle to his nationalization plan. At the bottom lay an analogy between combinations and governments, upon which he returned several times throughout that period: “All these different forms of [trade] association may be regarded as so many governments each in its particular locality and according to its capacity passing laws for the regulation of its branch of industry, exercising a legislative function, so to speak” (Macrosty, 1907, p. 15).50 Given the analogy, it should not be impossible to replace the private owners of a

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business with “the activity of that broader federation of individuals which we call the State” (Macrosty, 1901, p. 282). The organization of modern big business was already structured along bureaucratic patterns, so much so that no major change would be required in case of nationalization. It followed that: “Half the criticism which is directed at the collectivization of industry would fall to the ground if it were clearly understood that it necessitates not so much changes in organization as an alteration in the aims to which that organization is to be directed” (Macrosty, 1901, p. 287).51 After having so passionately supported the nationalization of monopolies, it took just a few years for Macrosty’s views to change. In what we may consider a progressive “Marshallianization” of his position, he increasingly distanced himself from the radical solution of 1899 and 1901. In his 1905 State Control of Trust, Macrosty explained that only socialists were really fond of trusts because they saw them as the necessary step toward the collectivization of industry.52 The “new” Macrosty was on the contrary much more skeptical about this solution. First of all, he now distrusted the civil servants’ ability to manage such complex businesses in various industrial fields. Moreover, he doubted that the public opinion was ready to accept such a radical change in the organization of economic life.53 As if he was speaking about himself just four years before, he argued that: “It is not enough to dismiss the [trust] problem with the dictum that public monopoly must supersede private monopoly. For such a conclusion the public mind is not yet prepared, nor is the State machinery at present fitted to cope with industrial administration” (Macrosty, 1905, p. 4). In that Fabian pamphlet Macrosty also gave credit to J. B. Clark’s new efforts to redirect antitrust law toward the prohibition of a list of specific business practices. Again differently from the dismissive tone of 1901, Macrosty said that such a redirection of legislation was hard, but “not absolutely impossible” (Macrosty, 1905, p. 8). The conclusion of the 1905 Tract was, not surprisingly, midway between the old radicalism and the new, more moderate attitude. Nationalization and state management were still credited as the only real solution to the monopoly problem, but that was only for the long run, when both the public opinion and, above all, the bureaucrats would be up to the task. In the meanwhile, more limited, and possibly more realistic, solutions could be implemented, like the regulation and/or registration of combinations and trusts. As we know, publicity was a regular in British economists’ antitrust proposals. Yet Macrosty’s legal awareness still allowed him a touch of originality. He proposed that a specific incentive be granted to those combinations that endeavored to publicly register themselves: contrary to what the common law presently said, the

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contracts joining together the members of a registered combination should be enforceable, and not only lawful, at common law; this would grant the combination a much higher stability (Macrosty, 1905, pp. 10 11). Macrosty’s distance from nationalization projects was soon to increase. In 1907 he adopted a “no praise, no blame” approach to the combination movement (Macrosty, 1907, Preface). So, for instance, no definite judgment could descend from the sheer observation that post-amalgamation prices were always higher than competitive prices because nothing warranted the “healthiness” of competitive prices in the first place (Macrosty, 1907, p. 268). He still believed that combinations could always keep for themselves the gains of better production processes and technology, rather than passing them on to consumers. Yet the available evidence about the limited power on prices of even the biggest trusts showed that the real test of efficiency for a combination lay in “its own inherent capacities as an administrative method. Unless it can show that it is the cheapest and best mode of production it will fail. […] Success, in a word, depends on management” (Macrosty, 1907, p. 269). Such a statement which would fit perfectly within, say, MacGregor’s 1906 book (see the previous section) brought to the forefront the typically Marshallian theme of the managerial/technical expertise required for administering big businesses a theme Macrosty had substantially neglected in his earlier works. As he put it: “A huckster may run [a competing business] but a statesman is required for [an amalgamation]” (Macrosty, 1907, p. 269).54 No surprise, then, that little room was left in 1907 for radical solutions. The closing tune of Macrosty’s decade-long journey in the new methods of industrial organization, a journey that had started with inflamed Fabian tones, was truly anticlimax, or very Marshallian, one might say: The position of the British combinations in regard to the interests of the community may be summed up as not at present dangerous but containing, like every new development, great and unknown possibilities alike for good and for evil. […] There are no grounds for dread lest associated capital in this country should adopt some of the grosser methods of political control as practiced in the United States. […] The point cannot be too much emphasized that we have not in this country to face the American problem or the German problem, but a problem of our own the modification of society by a new organization of industry, a mere efficient method of production, evolving normally without artificial stimulus. Patience, not hostility, is our proper attitude. What is clear is that we need more study, more investigation, and above all, more discrimination. (Macrosty, 1907, pp. 274 276, emphasis added)

A perfect instance of those “complacent conclusions” he had so ridiculed just a few years before.

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IT’S TIME FOR EXPERTS: MARSHALL’S RECIPE FOR A NEW INDUSTRIAL ERA The second volume of Industry and Trade (Marshall, 1920) marked Alfred Marshall’s return to the combination problem. As we know from the second section of the chapter, in the three decades since his 1890 address the British economy had undergone major transformations, including a merger wave at the turn of the century followed by a new attitude toward combinations during the war years. It is therefore hardly surprising that Marshall’s views on the topic may have also changed, though we will see that the main innovation in his thought was triggered by an external event, the 1914 approval in the United States of the Clayton and FTC Acts. Despite these changes, a strong continuity will be showed to exist between the two Marshalls with respect to pure theory even more so if we include MacGregor’s 1906 book as a reliable account of his teacher’s beliefs. The analytical underpinnings of Marshall’s discourse on trusts, cartels, associations, and other forms of combination in volume II of Industry and Trade can be found in a crucial passage in the first volume. There he famously denied the existence of any sharp distinction between competition and monopoly, because “they shade into one another by imperceptible degrees” (Marshall, 1920, Vol. I, p. 123). No necessary connection existed between economic freedom, a more or less intense competition, and the spread of monopolies. Indeed, “the most malignant features of unscrupulous competition […] have been seen in the pursuit and maintenance of monopolistic control in industries which might retain an open market.” The reason was obvious: monopolists stood to gain the most from the aggression, and eventual elimination, of a competitor, while truly competitive markets offered meager prizes for winners (Marshall, 1920, Vol. I, p. 124). The monopolistic element in the economy was at the same time ubiquitous and partial, or temporary: “Every manufacturer, or other businessman, has a plant, an organization, and a business connection, which put him in a position of advantage for his special work. He has no sort of permanent monopoly, because others can easily equip themselves in like manner. But for the time being he and other owners of factories of his class are in possession of a partial monopoly” (Marshall, 1920, Vol. I, p. 135). Those combinations that will occupy a large portion of Volume II were just one of the several possible methods by which businessmen might consolidate their partial monopoly.

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Consider the opening sentences of the second volume: The fiercest and cruelest forms of competition are found in markets which are no longer quite free, but have been already brought in some measure under monopolistic control. […] Though monopoly and free competition are ideally wide apart, yet in practice they shade into one another by imperceptible degrees […] There is an element of monopoly in nearly all competitive business, […] nearly all the monopolies, that are of any practical importance in the present age, hold much of their power by an uncertain tenure, so that they would lose it ere long, if they ignored the possibilities of competition, direct and indirect. (Marshall, 1920, Vol. II, pp. 1 2)

Marshall’s long list of case studies, drawn from British, German, and the United States industries, rested on these premises. Three principles summarized them: (i) competitive and monopolistic elements coexist in every business and every market; (ii) the most intense competition takes place for achieving and extending monopolistic power; (iii) any monopoly is intrinsically partial and temporary, being subject to potential competition. From the latter point stemmed Marshall’s first evaluation of the combination movement. The strength of monopolies could well become “a national danger” (Marshall, 1920, Vol. II, p. 10), but the ever-increasing threat of potential competition and the habit of farsighted businessmen to privilege the long over the short run significantly reduced the danger that monopolies could abuse their power and set very high prices (Marshall, 1920, Vol. II, p. 3). Consistently with his own 1890 address, as well as with MacGregor’s (1938 [1906]) and (we may add) Macrosty’s (2001 [1907]) conclusions, he did not view the situation in the British economy as particularly worrying. The examples were illuminating: a combination could well be established to protect its members’ right to a “fair profit” against the intrusion of competitors charging “unfairly low prices”; a monopolist could rationally charge a low, not short-run profit-maximizing price, in order to launch a new product, increase sales, and exploit scale economies (Marshall, 1920, Vol. II, p. 8); two partial monopolists, situated at different stages of the production process, could merge in order to internalize the benefits of any efficiency improvement, to the eventual benefit of the general public (Marshall, 1920, Vol. II, p. 18).55 Remarkably, Marshall dealt with the traditional arguments about combinations only after those caveats against a simplistic and overtly negative attitude.56 The two customary issues were the alleged incompatibility between scale economies and competition and the different varieties of combination prevailing in America, Germany, or Britain. As to the first, he downplayed the role of production economies in the current industrial

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phase, the main driver toward combination having become the economies in marketing: “The influence of technical economies on the expansion of the business unit tends to weaken after a certain size has been reached. […] In the present age the tasks of marketing offer ever-increasing scope for vast aggregations of capital. These tasks will be found to give the keynote to the present phase of the development of trusts, and of cartels” (Marshall, 1920, Vol. II, p. 76). He also reiterated the traditional point that the maximum of production economies could well be attained by firms of moderate size: “A capital very much less than that required to dominate the market will suffice to obtain every important advantage that belongs to production on a large scale” (Marshall, 1920, Vol. II, p. 80).57 Achieving the maximum efficiency in marketing tasks required on the contrary an “almost unlimited capital.” This circumstance pushed firms toward an “association with others engaged in the same industry” (Marshall, 1920, Vol. II, p. 77). That British public opinion had a more relaxed attitude toward combinations than the American one could be easily explained by the lesser recourse of British firms to aggressive competitive practices and by the green light given by common law courts to several kinds of restraints of trade that had been severely condemned in the United States. Marshall made it clear that the first feature was specific of the British economy, on account of its peculiar mix of “gentlemen’s” business habits and extreme openness to foreign trade. A weaker trend toward trustification, as well as the spread of looser forms of associations (much looser than, say, German quasi-military cartels) had emerged: “Many industries […] are mainly controlled in Britain by firms, whose traditions go back for several generations, and which are therefore disinclined to sudden changes, and violent courses of strategy; while attempts to make an antisocial use of monopolistic strength in manufacture would generally be frustrated by the arrival of competitive foreign goods in British ports” (Marshall, 1920, Vol. II, p. 77). Different from Germany and America, associations of producers in Britain depended on the participation of “worthy firms, that reckon costs of production on the basis of good solid work or well-tried methods and with well-tried plants.” Rather than pressing hard for the elimination of lagging firms, British associations took the weaker members’ costs as normal. The most efficient members could then earn hefty profits upon their lower costs while the association could boast that it was reasonably pricing at the level of normal costs (Marshall, 1920, Vol. II, p. 149).58 The second argument about the heterogeneity of combinations in the different countries called into play what Marshall dubbed the paradox of

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antitrust law. In the United States both the common law and, later, the Sherman Act had condemned business associations, but had left almost unaffected other forms of capital aggregation. While repressing temporary combinations in restraint of trade, the law had paid “little attention […] to the threatening power of permanent growth and fusions of great businesses” (Marshall, 1920, Vol. II, p. 78). In Britain the courts’ attitude toward combinations had been even more lenient. Contracts in restraint of trade had never been condemned as unlawful in general, but only as unfair in specific circumstances, for example, when used by a powerful business to destroy its weaker rivals (Marshall, 1920, Vol. II, p. 95). British courts had thus sanctioned even openly anticompetitive practices, such as contracts for exclusive dealing with deferred rebates, which had on the contrary been enjoined in the United States (Marshall, 1920, Vol. II, p. 151). Up to this point Marshall’s analysis was very much in line with his 1890 address or, if anything, with MacGregor (1938 [1906]). Yet, in 1919, new times had come for the British economy. Traditional arguments about combinations now held less sway than before. Free trade was not anymore an undisputed dogma. The enhanced dependence on foreign supplies during the war and the government’s increasing revenue needs pushed toward the imposition of import tariffs. Proposals had emerged that combinations for the regulation of prices should be officially sanctioned, and even encouraged, by the State (Marshall, 1920, Vol. II, pp. 82 83). Worse than that, the new mantra in British public opinion was that small businesses were out of place in the postwar era (Marshall, 1920, Vol. II, p. 123). Against these dangerous ideas Marshall raised his authoritative voice in the most original part of Industry and Trade. He ridiculed the slogan that the modern industrial age belonged to large businesses as a “parrot-wise” repetition, “all the more mischievous, because there is much important truth at the back of it” (Marshall, 1920, Vol. II, p. 123). The combination movement had clearly favored countries like Germany, whose industries had been organized on a semi-military basis. In the case of Britain similar gains could be achieved only “at the expense of the diminution of the spirit of free enterprise” (Marshall, 1920, Vol. II, p. 123), “a priceless national asset” that had been the main driver behind British economic success (Marshall, 1920, Vol. II, p. 124). Marshall’s defense of the entrepreneurial spirit of individual businessmen itself not a novelty in his thought did not go unqualified. He acknowledged that individualism could lead to the neglect of opportunities of cooperation. The modern economy increasingly required “efforts in tasks that are needed for the proper development of industry, but are too

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large for a single business” (Marshall, 1920, Vol. II, p. 124). His overall balance of the pros and cons of the combination movement centered on a typically British mixing of individualism and cooperation. For example, he argued that “constructive cooperation” among independent business allowed the standardization of production without requiring that all productive activities be placed under a common direction (Marshall, 1920, Vol. II, p. 129). Hence, even small firms could specialize in the standardized production of specific components: “Standardization, specialization, and thorough organization may enable a multitude of businesses of moderate size to attain every important efficiency and economy that at first sight appear to belong only to giant businesses” (Marshall, 1920, Vol. II, p. 130). Against the claim that size was crucial for R&D activities because of their huge cost and the impossibility to arrange them cooperatively (Marshall, 1920, Vol. II, p. 130), Marshall countered that the claim only applied to specific industries, like steel and chemicals. Generally speaking, it remained true, in 1919 as in 1890, that “thought, initiative, and knowledge are the most powerful implements of production” (Marshall, 1920, Vol. II, p. 130) and that “the vaster a business, the greater is the danger that it will be dominated by routine” (Marshall, 1920, Vol. II, p. 96). Thus, it seemed “probable that the total constructive activities of the nation will be neither as vigorous nor as freely exercised, as they would have been if nearly every establishment, large enough to avail itself of the full economies of massive production, had been under independent control” (Marshall, 1920, Vol. II, p. 130). Yet, the “new ideas” and material conditions of postwar industry did require something more concrete than a romantic appeal to augment traditional British individualism with a cooperative spirit. Here, in the field of specific policy proposals, Marshall drew an important lesson from US antitrust experience and the main difference between his 1890 address and Industry and Trade. Precisely because of the new business environment and new challenges raised by modern technology, any policy statement concerning the combination movement had to be based on an adequate amount of information. Britain had to therefore imitate the United States and establish proper institutional settings for the collection and analysis of information about trusts, cartels, and other forms of combination. America’s aggressive antitrust action against several kinds of anticompetitive business practices rested on a massive amount of data and research. Despite each country’s economic peculiarities, the American method “seem[ed] to offer guidance of high value to Britain,” because of the “unrivaled thoroughness” of its studies on the combination problems (Marshall, 1920, Vol. II, p. 121).59

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What was then the gist of the “American method,” which Marshall so much admired in the second decade of the 20th century? It rested on two pillars. On the one side, the Clark-inspired attack against “unfair” methods of competition, that is, methods that narrowed the basis of competition itself. On the other, given the vagueness of the term “unfair,” the organization of “systematic studies” on that issue, conducted by “permanent and authoritative Commissions,” which could help courts in handling concrete cases (Marshall, 1920, Vol. II, p. 79). Marshall endorsed both pillars. His overall view of the goal of antitrust was, in 1919, more clear-cut than three decades earlier. He explicitly acknowledged that such a goal should be defending the competitors’ right to compete: “The law against malicious boycotting is akin to an antitrust law: each aims at preserving the right of well-behaved persons to make free use of the common highways of business” (Marshall, 1920, Vol. II, p. 84). Freedom to trade should of course remain the leading principle. The law and the State should never hinder “the action of the great forces of economic evolution, even when they involve the destruction of old businesses.” They should never be invoked to protect “incompetent competitors.” What the law and the State should do was to intervene whenever “the trust sets itself to destroy a rival who is prepared to sell things of good quality at lower prices than the trust is charging for them elsewhere” (Marshall, 1920, Vol. II, p. 85). This is because “the interest of the public requires that the rival should have a fair chance of developing his business” (Marshall, 1920, Vol. II, p. 85) in modern jargon, because it is the possibility of competition, carried on by efficient firms, which must be protected on account of its beneficial effects on general welfare. As to the second pillar of the “American method,” Marshall claimed that: “The first place among unfair methods of competition denounced by antitrust laws is held by price discrimination, especially local price-cutting” (Marshall, 1920, Vol. II, p. 84), that is, by what is today called predatory pricing.60 He remarked that this kind of monopolistic strategy is “so definite that it can hardly evade the pursuit of painstaking capable investigation well supported by authority” (Marshall, 1920, Vol. II, p. 84, emphasis added). In hindsight, we can smile at his optimism about an antitrust violation that has caused more than a headache to 20th-century lawyers, scholars, and law enforcers. Yet, what really matters to us is the implication Marshall drew from his remark, namely, that business practices like predatory pricing had “relatively little to fear from those milder and less penetrating forms of bureaucratic control which have hitherto sufficed for most of Britain needs” (Marshall, 1920, Vol. II, p. 84). The ability to

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conduct painstaking capable investigations was required in Britain too. Hence, his call, reiterated in several places of Industry and Trade (see, e.g., Marshall, 1920, Vol. II, p. 155), for the intensification of research about combinations and for the establishment of a British version of the American FTC in the form of a permanent inquiry commission on monopolistic practices. To sum up, Marshall’s 1919 plea for a substantial revision of British antitrust policy was based on the theoretical notion that, as J. B. Clark had argued long before, several business practices did exist that were clearly anticompetitive, and on the practical advice that, in order to concretely identify those practices, neither antitrust law nor government orders would suffice. Absent an adequate level of information, not even an autocratic power of the kind experienced by Germany, and much less so a mere courtadministered statute, could effectively curb the potential evils of powerful monopolies without risking the dissipation of their potential benefits. Before anything else, the British economy required a series of “organized, long-continued authoritative studies,” like the ones performed in the United States by the FTC and its predecessor, the American Bureau of Corporations (Marshall, 1920, Vol. II, p. 118). These studies had to be conducted by “expert teams,” where economists and business experts should feature prominently. Indeed, “the central fact” emerging from American experience was that “investigations in regard to the antisocial policies of trusts and cartels can be efficiently made only by a strong staff of men who give their whole time to the work” (Marshall, 1920, Vol. II, p. 98).61

CONCLUSION There is good reason to believe that the views of the four men examined here capture the range of opinions in the British economics profession about the turn-of-the-century combination movement, and, specifically, about the possibility of extending to Britain an antitrust legislation akin to the American one. A more exhaustive analysis of the British economics literature might of course reveal some positions and attitudes they did not articulate. What follow are three main points emerging from the previous pages. First of all, from a pure history of economic thought viewpoint, all the economists considered here shared a classical view of competition as a dynamic process consisting of a series of business actions and reactions.

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None of them got even close to embrace a structural notion of monopoly and perfect competition like the one popularized by post-1930s neoclassical authors. Ironically, their main theoretical troubles arose precisely because, under modern industrial conditions, those very business actions and reactions were generating an outcome generalized monopoly power which was faraway from that envisaged by classical economists. Second, no economist among those surveyed here declared himself explicitly in favor of a British version of the Sherman Act.62 Surely not a member of the Historical School like Foxwell (or Ashley), who saw in the spread of combinations the inevitable outcome of the technological transformations in industrial processes. Nor a Fabian socialist like Macrosty, who was too knowledgeable of the common law to put his faith in the courts and who viewed outright nationalization as the only way to retain the benefits and avoid the evils of monopolization. Nor laissez-faire economists, like Marshall and MacGregor, who considered combination as just another business method that, like all others, should be allowed to stand or fall according to its own intrinsic efficiency in the free market. On the contrary, all economists in our sample, one way or the other, decried the Sherman Act’s paradoxical outcomes, as well as the negative effects of a court-based system of law enforcement. Only in 1919 did Marshall recognize that several business practices existed that required explicit prohibition on account of their significant anticompetitive effects. Hence, he explicitly endorsed the approval of a British antitrust law, but not, as we have seen, along the lines of the Sherman Act, but rather in the form of an administrative-based system like that envisaged by the Clayton and, especially, FTC Acts. In this partial “conversion” Marshall somehow followed the steps of his American colleagues, first and foremost J. B. Clark, though the changed economic conditions of the British economy in the 1910s undoubtedly played the major role. Assessing the actual policy impact of those economists’ views is more difficult, though the record looks dismal. Of the three possible channels through which economists’ idea about antitrust may influence policymaking the political, the legislative, and the judicial our economists managed to affect just the first, via their direct or indirect contribution to Royal or Parliamentary Commissions on various industrial matters (for what those Commission actually mattered), and, albeit very partially, also the second, via their authoritative support for the creation itself of those study Commissions. In any case, British economists were no John Bates Clark, as none of them got even close to exercise the same influence that

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the American (and many of his colleagues too) had on political debates and direct legislative action (see, e.g., Fiorito, 2012). As to the judicial channel, the proper epitaph for the British courts’ attitude toward economic reasoning came in Lord Bowen’s Mogul opinion (see the previous section). Requested to balance the pros and cons of combinations with respect to general public interest, Bowen invoked the principle of judicial restraint and argued that it was not “the province of judges to mold and stretch the law of conspiracy in order to keep pace with the calculations of political economy” (Mogul, p. 282). Bluntly, economics found no hospitality in British courtrooms.63 My final point draws upon the second one to offer new food for contemporary antitrust scholars. While it may be true that the explicit laissez-faire position of his disciple MacGregor was in strong continuity with his 1890 address, and while even large parts of his own Industry and Trade did not go beyond the repetition of the same happy-go-lucky attitude toward trusts and cartels, it cannot be denied that in the 1919 book Alfred Marshall made a decisive step toward a more “modern” notion of competition policy. In principle, his key notion of “defending a competitor’s right to compete” lent itself to two different interpretations: that of protecting any competitor, including inefficient ones, or that of protecting only those competitors whose existence in the marketplace could effectively foster social welfare. By eventually choosing the latter interpretation which, as modern industrial economics shows, amounts to identifying the goal of competition policy in the protection of the competitive process itself Marshall concluded a path that had begun with his 1890 address and that had significantly progressed thanks to MacGregor’s 1906 book (where several hints at this new policy notion might indeed be found). That he did so without making recourse to the post-1930s neoclassical notion of competition as a static market structure that lies at the foundation of most contemporary antitrust policy should be something to ponder for those industrial economists who claim that the classical dynamic view of competition is unsuited as a groundwork for competition policy.

NOTES 1. See Stigler (1982), Mayhew (1998), and, above all, Fiorito (2012) who describes the direct contribution that US economists gave to the drafting of the 1914 Acts.

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2. Also called the combination, or the cartel, problem, while the word “trust” was most frequently used in American debates. Note that in the chapter I will use as synonymous the expressions “antitrust policy/law” and “competition policy/law.” 3. Austria, Czechoslovakia, Denmark, Germany, Norway, Poland, Sweden, and Yugoslavia enacted one form or another of antitrust legislation well before WWII (see Gerber, 1998, Chapters 3 5). In the chapter, I will make no mention to competition law in the rest of Europe. My goal here is limited to comparing Britain with another common law country like the United States and analyzing the British economists’ attitude with respect to the two countries’ antitrust policies. Another feature left out from the present narrative is how courts in both countries approached cases involving monopolization or restraints of trade. 4. In what follows I freely use “increasing returns” and “scale economies” as synonymous to mean any reduction in production cost, regardless of its being due to the sheer increase of output along a given cost curve or to a progress in production techniques. 5. This section draws on a vast literature. Even limiting the attention to works in the history of economics (thus neglecting legal history contributions), we refer to, among many others: Peterson (1957); McNulty (1967, 1968); Stigler (1982); DiLorenzo and High (1988); Williams (1990); Backhouse (1991); Morgan (1993); Machovec (1995); Mayhew (1998); and Fiorito (2012). 6. To this “vertical” aspect of competition we may add the set of activity by which firms learned what and how to produce (see, e.g., Machovec, 1995, Chapter 2), though it is far from obvious that this “internal” side of competitive behavior was as important for the classics as the “vertical,” exchange-based side. More on this below. 7. For a contrary view, see Machovec (1995, Chapter 4). The point is not of course whether classical economists dealt with entrepreneurial behavior they obviously did. The real issue is whether they viewed such within-the-firm behavior as an external competitive weapon. 8. Recent research in economic history has largely qualified Chandler’s thesis. Among the fiercest critics, Leslie Hannah has showed, first, that “at the aggregate level, the notion that Europeans suffered disadvantages in plant scale relative to the United States is difficult to square with their having over half the world’s giant plants more than one might expect from Europe’s relative market size while the United States had less than a fifth” (Hannah, 2008, p. 66), and, second, that “American factories plausibly achieved higher productivity even than those in western Europe, because they used more power per worker. Yet this applies to industry overall: productivity in giant factories was probably more evenly balanced. […] If the United States had any measurable scale advantage, it was in firm, rather than plant, size” (Hannah, 2008, pp. 71, 73). I thank Chris Colvin for having raised this point. 9. The notion had a forerunner in George Gunton, who argued that: “If the gates for the admission of new competitive capital are always open, the economic effect is substantially the same as if the new competitor were already there; the fact that he may come any day has essentially the same effect as if he had come, because to keep him out requires the same kind of influence that would be necessary to drive him out” (Gunton, 1888, p. 403, original emphasis).

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10. The long-debated U-turn in Clark’s view with respect to the desirability of an antitrust law may thus be explained as an evolution from the idea that these “abnormal and unfair” methods were quite rare to the awareness that they were so frequent that they required explicit statutory and judicial condemnation. 11. The idea that the larger the share of fixed over variable capital, the riskier a business with respect to “sudden fluctuations in trade” was already in David Ricardo’s Principles (1821, Chapter 19). 12. This not only on account of larger scale economies, but also because big firms could enjoy the gains of costly R&D activities or of advanced managerial techniques. 13. That lack of information might constitute a source of monopoly power, and that publicity might make for it, was acknowledged in the 1902 Report on Trusts and Combinations of US Industrial Commission, authored by US economist Jeremiah Jenks. See Jenks (1902). 14. An interesting issue that cannot be touched here is whether US economists’ preference for regulation over prohibition was, among other things, also a consequence of their newly acquired literacy in marginalist techniques, and, thus, of their higher confidence in the possibility for the policy-maker to master, via the power of mathematics, the working of market forces. 15. See Peritz (1996, Chapter 1). These exact words would be used by Justice Rufus Peckham, writing for the Supreme Court in one of the earliest Sherman Act cases: see United States v. Trans-Missouri Freight Association, 166 US 290 (1897), at 323. 16. The disastrous way the Supreme Court had handled the dissolution of Standard Oil and American Tobacco just confirmed the economists’ fears. 17. Fiorito (2012, pp. 24 36) details Clark’s direct involvement in support of a new antitrust statute. 18. Both the idea of equating monopoly power with restrictions to entry (as done already in the early 19th century by British economist Samuel Bailey; see Backhouse, 1991, pp. 60 61) and that of focusing on business conducts, rather than static market structures, as the real sources of monopoly power, were prescient of modern developments in competition economics. The latter idea (conduct as the source of monopoly) will be openly criticized by MacGregor ([1906] 1938). 19. That is, with typical accountancy tasks. US-style combinations were on the contrary handled by lawyers and often ended in legal controversies. See Freyer (1992, Chapter 1). 20. By 1911, total factor productivity in the United States and Germany were, respectively, about 90% and 75% of that in Britain. However, both countries had a higher total factor productivity in the industrial sector than Britain (see Crafts, 2011, Table 2). McCloskey (1971) compares US and British productivity at the turn of the century in two key sectors coal and steel. Hannah (2006) does the same for the tobacco industry. For a similar sector-by-sector comparison with Germany, see Broadberry (1997). The traditional thesis of a failing industrial sector in Britain is not validated by these works. 21. Previous inquiries had only been concerned with natural monopolies, such as the railways or the street lights. On British shipping rings, see Scott Morton (1997).

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22. Rees ([1922] 2001) contains an exhaustive analysis of British industry in the war and postwar period. 23. A summary of the Report is in Jones (1919). A fuller contemporary analysis is in Rees (1922). For a modern evaluation, see Mercer (1995, Chapter 3). 24. The Committee’s conclusions echoed J. B. Clark’s proposals at the time of the Clayton and FTC Acts debates; see the first section of this chapter. In an Addendum to the Report, the Fabian members of the Committee (including S. Webb and J. Hobson), though basically agreeing with the Report’s conclusions, advocated further government action. As a means to protect the community from the evils of private monopoly and, at the same time, grant workers and consumers a share of the benefits of improved industrial organization, they suggested socialization, that is, the monopolized services be performed either by cooperative societies or directly by public authorities. As I show in a later section of this chapter, this was the original view of H. W. Macrosty, the leading Fabian industrial economist of the period. However, by 1919 Macrosty had embraced a more moderate position. 25. On Foxwell and the English historical school see Koot (1977). Foxwell’s address presents a richer analysis of the topic than similar works by even more prominent members of the same school: see, for example, the relatively uninspiring presentation of the American trust problem by William Ashley (1899) in another address to the same Association. 26. Note that Foxwell came short of making explicit the relationship between the formation of trusts or combinations and the businessmen’s desire to avoid the most negative effects of ruinous competition. That trusts and combinations were “simply an attempt to lessen and, if it may be, avert altogether the disastrous and harassing effects of cutthroat competition” and that this way-out had been used especially in America were nonetheless two obvious truths for at least another important member of the English historical school writing a decade later (Ashley, 1899, p. 168). 27. In 1917, Foxwell will credit his 1888 paper as being the first “defense of business combinations” among British economists. The claim is false, but understandable in view of the wider role played by combinations in 1910s economy. 28. Again in 1917: “It is beyond doubt that unregulated competition has destroyed more honest trade than all the combinations in the worlds. Even in England, legislation has been more occupied in restraining competition than monopoly. The social history of the 19th century has been one long protest, one great legislative reaction, against the mischiefs of unregulated competition” (Foxwell, 1917, p. 325). 29. A decade later, Ashley (1899, pp. 170 171) would strongly argue in favor of government regulation of prices. 30. For more on this aspect of Marshall’s early work, see Becattini (1975, pp. lxxvi ff). 31. That is, the very same view that Marshall himself had entertained just a few years before! 32. Note that our simplified terminology, explained in note 4 above, betrays Marshall’s distinction between scale economies and increasing returns. 33. Marshall’s polemic targets were clearly the Germany-influenced members of the Historical School and, probably, also the Socialists. With respect to the former,

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Marshall’s address may thus be considered as a direct reply to Foxwell’s 1888 one, read in front of the same Association. 34. On MacGregor, see Lee (2008), who notes the long-lasting success of the 1906 book, and Groenewegen (2012, Chapter 7), who remarks that the book was a significant contribution to the implementation of Marshall’s research agenda. 35. In his original preface, MacGregor also recognized his theoretical debt to American economists J. B. Clark and Jeremiah Jenks, as well as to German antitrust scholar Robert Liefmann. 36. See MacGregor’s critique of William Ashley’s argument about the “American economic atmosphere” ([1906] 1938, pp. 139 140; and Ashley, 1899, p. 167). It is hard to disagree with MacGregor’s remark that, were heightened individualism the true cause of American trustification, how could we explain that trust actually suppressed the member firm’s independency while cartels, which flourished in allegedly less individualistic Germany, effectively preserved it? 37. Later in the book MacGregor explained that, having by assumption already exhausted its internal economies, a representative firm could grow further only via external economies. Achieving the latter while preserving a firm’s independence required an implicit or informal cooperation with other firms in some aspects of the business (like, say, general and trade-specific services or collective supplies). Combinations were simply a way to make explicit and more organized these, often preexisting, independent methods of gaining external economies (MacGregor, [1906] 1938, p. 20). As he put it, “neither private interest nor Natural Selection will realize these economies so readily or effectively as combination” (MacGregor, [1906] 1938, p. 28). 38. MacGregor mentioned here ([1906] 1938, p. 40) the British habit of “bribing” members of combinations out of their business; see the second section of this chapter. 39. Here MacGregor targeted the following passage by J. B. Clark: “Of all the fields in which the struggle for survival is in process, the one in which a quick and beneficent outcome can most surely be counted on is that in which an assorted lot of business establishments, as organized on various plans, are testing their efficiency in a competitive struggle. The stamp of assured success in such a contest puts the excellence of a type of organization beyond question” (Clark, 1892, p. 50). 40. MacGregor ([1906] 1938, p. 14) remarked that a business’s horizontal bargaining strength with direct competitors depended on its vertical bargaining power with customers and suppliers. See the next section for a similar argument by H. W. Macrosty. 41. MacGregor ([1906] 1938, p. 194) knew all too well that “combination is not as a rule primarily due to productive efficiency, but rather to reasons of defense or aggression.” 42. Here MacGregor partly misrepresented Clark’s views. Clark believed these business practices were the means through which monopoly power was becoming ubiquitous in the US economy because they warranted the elimination of both actual and potential competition (Clark, 1901, p. 72). This aspect of Clark’s analysis had been well understood by another prominent Marshallian, A. C. Pigou, in his review of The Control of Trusts (Pigou, 1902, pp. 65 66). Yet, both Pigou and MacGregor were right in criticizing, for different reasons, Clark’s faith in the power

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of either common law or new judicially enforced statutes to solve the problem. As we know, Clark himself would eventually change his mind and propose that the assessment and control of “unfair” business practices be left to a special administrative commission. On the differences between Clark and MacGregor on this point, see Williams (1990). 43. In the Preface we read that to avoid overlapping with another volume in the same series, he had “stopped on the threshold” of dealing with Socialism and had “tried to make this study a way of approach to that larger question” (MacGregor, 1911, p. v). 44. Ashley (1899, p. 172, footnote 1) praised this feature of Macrosty’s works that made him akin to the historicists’ approach. 45. For a similar optimistic view, still referring to the American experience, see Ashley (1899, pp. 168 169). 46. Another option for protecting consumers consisted in the development of the cooperative movement another Fabian favorite that found ample space in Macrosty’s works; see, for example, Macrosty (1901, Chapter 11). 47. Mogul Steamship Co v. McGregor, Gow & Co and others [1891 1894], All ER Rep 263. 48. For details, see Giocoli (2011). 49. This solution had been already proposed in Macrosty (1899b, p. 14): “What, then, is to be done? Our answer is clear. The State must take over these private monopolies and work them for the public benefit.” Curiously, such a drastic conclusion did not feature in the original version of the same essay, published in the Contemporary Review (Macrosty, 1899a), but only in the reprint of the same year. The “radical” addition was probably not unrelated to the fact that the essay was to be reprinted as Fabian Tract No. 88. 50. The notion of the trust owners as “industrial statesmen” was also in Ashley (1899, p. 169). 51. As a specific example from recent British economic history, Macrosty mentioned the nationalization of the Post Service, which had managed to preserve “[t]he great public advantages of monopoly”; namely, “that by eliminating competition it prevents overproduction and crises, and restores stability to industry and permanence to employment,” without incurring in its evils, as was still the case, for instance, with railways monopolies (Macrosty, 1901, p. 284). 52. Freyer (1992, pp. 69 70) makes the point that early 20th-century British socialists were convinced that the combination movement, being a fundamental departure from classical laissez-faire, represented a necessary step for establishing the eventual state ownership of the means of production. For this reason they refused any kind of government intervention, short of nationalization. According to Freyer (who however only refers to the 1907 book), Macrosty was the only notable exception in the socialist camp on this specific issue. 53. Though he added that the abuses committed by private monopolies were quickly turning public opinion in favor of radical solutions (Macrosty, 1905, p. 14). 54. See also Macrosty (1907, p. 270): “Rule of thumb is dead in the workshop, the day is with the engineer and the chemist with their methods of precision.” 55. This is a version of what is today known as the double marginalization argument for vertical integration by either merger or contract.

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56. As to the alleged increased stability of output and prices warranted by trusts, Marshall acknowledged that trusts could well “make for increased stability in the conditions of trade and industry,” and that they could reduce “the wastes of competition and the strain of anxiety lest some unexpected move should largely falsify business expectations.” However, he noted that this stability, at least in the United States, had been “purchased at a heavy price,” especially after that free capital whose abundance had always protected the general welfare much more effectively than sophisticated regulation had fallen under the control of financial conglomerates representing the very same interests of industrial trusts (Marshall, 1920, Vol. II, pp. 97 98). 57. Recall the similar argument in Marshall (1890) and MacGregor (1906). 58. That prices were set by the association with an eye at the worst possible cost conditions was among the reasons why some British industries now lagged behind their foreign rivals. 59. And also because of the shared common law principles (Marshall, 1920, Vol. II, p. 122). 60. Still today a predatory pricing violation may fall either under Section 2 of the Sherman Act (prohibiting monopolization) or under the Clayton Act prohibition of price discrimination. See Giocoli (2011, 2013) for the history of predatory pricing in US antitrust. 61. He added that: “In such work there is but little use for the special faculties of the lawyer” (Marshall, 1920, Vol. II, p. 98). Under this respect, there was no real change in Marshall’s thought. His 1890 skepticism about the Sherman Act was based on a distrust of the judiciary’s ability to deal with difficult antitrust issues. In 1919 the praise of the Clayton and FTC Acts was founded on his faith in the “expert teams” called to investigate the combinations and their practices. 62. The only exception was Royal Commission member David Barbour (see above). 63. The role of economics in turn-of-the-century US antitrust case law is more controversial. For the view that American judges were significantly influenced by economic theory and ideology, see Hovenkamp (1989). For the contrary view, see Peritz (1996, Chapter 1).

ACKNOWLEDGMENTS Without involving them in any responsibility for remaining mistakes, I thank David Andrews, Chris Colvin, Carlo Cristiano, Marco Dardi, Alberto Zanni, and this journal’s editor and referees for their comments on earlier versions of the chapter. The financial contribution of the MIUR PRIN grant “Contracts, Markets and Competition in English Economists from Marshall and Edgeworth to Coase. At the Origins of the Economic Analysis of Law” and of the INET grant “Free From What? Evolving Notions of ‘Market Freedom’ in the History and Contemporary Practice of US Antitrust Law and Economics” is gratefully acknowledged.

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REFERENCES Ashley, W. J. (1899). American trusts. Economic Journal, 9(34), 162 172. Backhouse, R. E. (1991). Competition. In J. Creedy (Ed.), Foundations of economic thought (pp. 58 86). London: Basil Blackwell. Becattini, G. (1975). Introduzione. In A. Marshall & M. P. Marshall, Economia della produzione, ISEDI, Milano [Italian translation of Marshall A. & Marshall M. P. (1881)]. Broadberry, S. N. (1997). Anglo-German productivity differences 1870 1990: A sectoral analysis. European Review of Economic History, 1(2), 247 267. Chandler, A. D. Jr. (1977). The visible hand: The managerial revolution in American business. Cambridge: Cambridge University Press. Clark, J. B. (1886). The philosophy of wealth. New York, NY: Macmillan. Clark, J. B. (1892). Insurance and business profit. Quarterly Journal of Economics, 7(1), 40 54. Clark, J. B. (1901). The control of trusts. New York, NY: Macmillan. Clark, J. B. (1904). The problem of monopoly. New York, NY: Macmillan. Clark, J. B. (1907). Essentials of economic theory. New York, NY: Macmillan. Clark, J. B., & Clark, J. M. (1914). The control of trusts. New York, NY: Macmillan. Crafts, N. (2011). British relative economic decline revisited. CEPR Discussion Paper No. 8384. DiLorenzo, T. J., & High, J. C. (1988). Antitrust and competition historically considered. Economic Inquiry, 26(3), 423 435. Ely, R. T. (1888). Problems of to day. New York, NY: Crowell. Fiorito, L. (2012). The influence of American economists on the Clayton and Federal Trade Commission Acts. Research in the History of Economic Thought and Methodology, 30-A, 1 58. Fisher, I. (1997 [1912]). Elementary principles of economics. In W. J. Barber (Ed.), The Works of Irving Fisher (Vol. 5). London: Pickering & Chatto. Foxwell, H. S. (1917). The nature of the industrial struggle. Economic Journal, 27(107), 315 29. Foxwell, H. S. (1919 [1888]). The growth of monopoly and its bearing on the functioning of the state. In Papers on Current Finance (pp. 263 277). London: Macmillan. Freyer, T. (1992). Regulating big business: Antitrust in Great Britain and America 1880 1990. Cambridge: Cambridge University Press. Gerber, D. J. (1998). Law and competition in twentieth century Europe: Protecting Prometheus. Oxford: Oxford University Press. Giocoli, N. (2011). When low is no good: Predatory pricing and US antitrust law (1950 1980). European Journal of the History of Economic Thought, 18(5), 777 806. Giocoli, N. (2013). Games judges don’t play: Predatory pricing and strategic reasoning in US antitrust. Supreme Court Economic Review, 21. Groenewegen, P. (2011). The minor Marshallians and Alfred Marshall. London: Routledge. Gunton, G. (1888). The economic and social aspect of trusts. Political Science Quarterly, 3(3), 385 408. Hadley, A. T. (1885). Railroad transportation: Its history and its laws. New York, NY: Putnam’s Sons. Hadley, A. T. (1886). How far have modern improvements in production and transportation changed the principle that men should be left free to make their own bargain? Part I. Science, 7(161), 221 225.

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Hadley, A. T. (1896). Economics: An account of the relations between private property and public welfare. New York, NY: Putnam’s Sons. Hannah, L. (2006). The Whig fable of American Tobacco, 1895 1913. Journal of Economic History, 66(1), 42 73. Hannah, L. (2008). Logistics, market size, and giant plants in the early twentieth century: A global view. Journal of Economic History, 68(1), 46 79. Hovenkamp, H. (1989). The Sherman Act and classical theory of competition. Iowa Law Review, 74(5), 1019 1065. Jenks, J. W. (1902). The trust problem. New York, NY: McClure Phillips. Jones, E. (1919). Report of the Committee on Trusts of the British Ministry of Reconstruction. American Economic Review, 9(4), 890 892. Koot, G. M. (1977). H. S. Foxwell and English historical economics. Journal of Economic Issues, 11(3), 561 586. Lee, F. S. (2008). David H. MacGregor and the Marshallian tradition at Oxford, 1920 1945. Paper presented at the Conference Marshall and Marshallians on Industrial Economics, Hitotsubashi University, March 15 16. Retrieved from www.ier.hit-u.ac.jp/∼nisizawa/ frederic%20lee.pdf MacGregor, D. H. (1911). The evolution of industry. London: Williams & Norgate. MacGregor, D. H. (1938 [1906]). Industrial combination. London: Routledge. Machovec, F. M. (1995). Perfect competition and the transformation of economics. London: Routledge. Macrosty, H. W. (1899a). The growth of monopoly in British industry. Contemporary Review, 75, 364 378. Macrosty, H. W. (1899b). The growth of monopoly in British industry. Fabian Tract No. 88. London: The Fabian Society. Macrosty, H. W. (1901). Trusts and the state. A sketch of competition. The Fabian Series, n. 1, London: Grant Richards. Macrosty, H. W. (1905). State control of trusts. Fabian Tract No. 124. London: The Fabian Society. Macrosty, H. W. (2001 [1907]). The trust movement in British industry, Batoche Books, Kitchener. Marshall, A. (1890). Some aspects of competition. Journal of the Royal Statistical Society, 53(4), 612 643. Marshall, A. (1920). Industry and trade (3rd ed., 2 Vols.). FL: Signalman Publishing. Marshall, A. (1961 [1890]). Principles of economics (9th (variorum) ed.). London: Macmillan. Marshall, A., & Marshall, M. P. (1881). The economics of industry (2nd ed.), London: MacMillan. Mayhew, A. (1998). How American economists came to love the Sherman antitrust Act. In M. S. Morgan & M. Rutherford (Eds.), From interwar pluralism to postwar neoclassicism (pp. 179 201). Durham, NC: Duke University Press. McCloskey, D. N. (1971). International differences in productivity? Coal and steel in America and Britain before World War I. In D. N. McCloskey (Ed.), Essays on a Mature Economy: Britain after 1840 (pp. 285 304). Princeton, NJ: Princeton University Press. McNulty, P. J. (1967). A note on the history of perfect competition. Journal of Political Economy, 75(4), 395 399. McNulty, P. J. (1968). Economic theory and the meaning of competition. Quarterly Journal of Economics, 82(4), 639 656.

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Medema, S. (2011). The hesitant hand: Taming self-interest in the history of economic ideas. Princeton, NJ: Princeton University Press. Mercer, H. (1995). Constructing a competitive order: The hidden history of British antitrust policies. Cambridge: Cambridge University Press. Morgan, M. (1993). Competing notions of competition. History of Political Economy, 25(4), 563 604. Perelman, M. (2006). Railroading economics: The creation of the free market mythology. New York, NY: Monthly Review Press. Peritz, R. J. R. (1996). Competition policy in America: History, rhetoric, law. New York, NY: Oxford University Press. Peterson, S. (1957). Antitrust and the classic model. American Economic Review, 47(1), 60 78. Pigou, A. C. (1902). Review of the control of trusts, by J. B. Clark. Economic Journal, 12(45), 63 67. Rees, J. M. (2001 [1922]). Trusts in British industry 1914 1921: A study of recent development in business organization. Kitchener: Batoche Books. Ricardo, D. (1821). On the principles of political economy and taxation (3rd ed.), London: John Murray. Salvadori, N., & Signorino, R. (forthcoming). Competition. In G. Faccarello & H. D. Kurz (Eds.), Handbook of the history of economic analysis (Vol. 3). Cheltenham: Edward Elgar. Scott Morton, F. M. (1997). Entry and predation: British shipping cartels 1879 1929. Journal of Economics and Management Strategy, 6(4), 679 724. Seligman, E. R. A. (1909). Principles of economics. New York, NY: Longmans. Stigler, G. J. (1982). The economists and the problem of monopoly. American Economic Review, Papers and Proceedings, 72(2), 1 11. Williams, P. L. (1990). The attitudes of the economics profession in Britain and the United States to the trust movement, 1890 1914. In J. D. Hey & D. Winch (Eds.), A century of economics (pp. 92 108). London: Basil Blackwell.

SYMPOSIUM ON WARREN J. SAMUELS

WARREN SAMUELS, THE JOURNAL OF ECONOMIC ISSUES, AND THE ASSOCIATION FOR EVOLUTIONARY ECONOMICS$ Malcolm Rutherford Keywords: Warren J. Samuels; Journal of Economic Issues; Association for Evolutionary Economics; Allan Gruchy; Clarence Ayres; Association for Institutional Thought

Warren Samuels made many important contributions to the history of economic thought, economic methodology, and to institutional economics. In this chapter, however, I will focus on a different aspect of Samuels’ career: his involvement with the Association for Evolutionary Economics (AFEE), and particularly his editorship of the Journal of Economic Issues (JEI). Warren Samuels was born on September 14, 1933 and obtained a B.B.A. from the University of Miami in 1954. He then moved to the

$

Papers: AGP Allan Gruchy Papers, in possession of the author.

A Research Annual Research in the History of Economic Thought and Methodology, Volume 31-A, 61 72 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2013)00031A002

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University of Wisconsin where he obtained an M.S. degree in 1955 and his Ph.D. in 1957. Samuels’ doctoral thesis, prepared under the supervision of Edwin Witte, was titled “Concepts of Organizations on the Role of Government.” Witte had been a student of John R. Commons and closely involved in the development and passage of the Social Security Act of 1935. At Wisconsin Witte was best known for his courses on Government and Business (see Samuels, 1967), but Witte was also one of the few Wisconsin students who had fully absorbed Commons’ ideas on law and economics. Witte’s own Ph.D. thesis, prepared under Commons’ supervision, had been on “The Role of the Courts in Labor Disputes” and a great deal of his early work concerned the use of injunctions in such disputes. Both of these themes, law and economics and the economic role of government became central to Samuels’ own work. After completing his Ph.D. Samuels worked briefly at the University of Missouri, Georgia State College, and the University of Miami, before settling at the Michigan State University in 1968. At Michigan State, he became part of a significant group of institutionalists. This group included, apart from Samuels himself, Harry Trebing, A. Allan Schmid (both also Wisconsin Ph.D.’s), Robert A. Solo, and W. Paul Strassmann.1

AFEE AND THE JEI BEFORE SAMUELS AFEE developed out of an earlier informal organization known as the Wardman Group. This group first met in December 1959 at the American Economic Association (AEA) meeting in Washington DC. Allan Gruchy was the organizer of this meeting, having sent out invitations to economists “interested in the field of institutional economics.” Eleven people attended including Gruchy, John Gambs, William Glade, Forest Hill, J. Fagg Foster, Arthur Schweitzer, and James Street. The group met at the Windsor Hotel, and began with a discussion of a name. It is noteworthy that the term “institutional” was explicitly rejected as a name “since this term carries with it certain intellectual associations that are not always appropriate” (quotations from minutes of the meeting prepared by Allan Gruchy, AGP). The other main items of discussion concerned shared issues and problems and the next steps to be taken. A concern was the difficulty of getting on the AEA program and it was agreed to organize some informal sessions at the next AEA meeting. The group continued to meet at AEA meetings calling itself initially the “AEA Group” and then, at the 1963 meeting, decided

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to name itself (temporarily) the Wardman Group, after the former name of the hotel where they had first met in 1959. Prior to the meeting in 1963 John Gambs had spent two months of a sabbatical leave traveling the United States talking to various “dissident economists.” Gambs interviewed some 40 individuals in the West, Southwest, and Northeast. For some reason he did not talk to anyone at Wisconsin or Michigan State, so the Commons group was pretty much ignored. He identified two main groups of dissenters: (1) the “non-Veblenian dissenters” who did not place themselves in a Veblenian or institutionalist tradition, but who were acutely dissatisfied with standard theory and interested in the reconstruction of economics; and (2) the “Veblenian dissenters” who thought of themselves as Veblenians and institutionalists and who wished to develop institutional theory along Veblenian lines. Gambs observed, however, that this group was “not unanimous in its agreement on basic Veblenian doctrine” (Gambs, 1963). The issue for the AEA Group, then, was to decide whether to limit the group to Veblenians or institutionalists, “or to include in their number those who deny Veblen, but who repudiate much of standard theory and embrace the belief that economics requires nothing short of a major overhaul” (Gambs, 1963). The decision to adopt the “non-committal” name of the Wardman Group was made in this context. Gambs’ efforts also resulted in the mailing list expanding to some 150 names. The next year (1964) saw a one day program of two sessions, one with a paper from Allan Gruchy and the other with papers from Louis Junker and Julius Rubin. The program was organized by Arthur Schweitzer and Troy Cauley. One interesting sidelight to this program is to be found in a letter from Schweitzer to Junker (June 6, 1964, AGP) advising him against giving a paper on the topic of Ayresian “instrumental theory” on the grounds that it would not appeal to those people in the group less impressed with the work of any of the main institutionalist thinkers. Schweitzer also points out that even among the institutionalist group a “very substantial number” are not convinced that Ayres’s work “is moving in the right direction.” The conference ultimately contained a session with Junker discussing the “theoretical achievements of institutionalism” and Julius Rubin giving a “critique of institutionalism,” creating, in Schweitzer’s mind, a “more comprehensive program” (A. Schweitzer to A. Gruchy, October 6, 1964, AGP). A business meeting on the next day discussed a proposed constitution for the group prepared by Ben Seligman. The proposed name for the group was the “Association for the Reconstruction of Economic Science,” but the

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issue of a name was delayed while the membership was polled on alternatives. The purposes of the organization were stated as “to foster, in the broadest manner, the development of economic study and of economics as a true social science” recognizing the “complex interrelationships of man and society” and in a manner that recognizes the need to join questions of theory and policy (Draft Constitution, 1964, AGP). By the time of the 1965 meeting the name of the Association for Evolutionary Economics had been adopted, with the same broad statement of purpose as in the earlier draft constitution. AFEE was officially constituted at that meeting with Clarence Ayres as President, John Gambs as Vice-President, and Ben Seligman as Secretary Treasurer. The program of three papers in two sessions was organized by Allan Gruchy and Harry Trebing. The paid membership list for 1966 included 110 names. The constitution was amended slightly in 1970 but no change was made to the statement of purpose. Very quickly following the creation of AFEE, a proposal for a journal came from Clarence Ayes and the University of Texas; the proposed journal to be jointly sponsored by the University and by AFEE. Despite concerns expressed by some, such as Joseph Dorfman, the proposal went ahead rapidly with Forest Hill as the editor. The discussion of the editorial board between Hill and Gruchy again showed a desire to appear “open.” Indeed, Gruchy wrote to Hill that the journal should not be a journal of institutional economics, but something broader, of interest to members of AFEE, and also to non-members interested in “social economics.” Hill suggested the name Journal of Economic Issues.2 The first issue of the JEI came out in June 1967 with a lead article by Clarence Ayres. The editing of the journal, however, quickly ran into difficulty. By May of 1969 the journal was well behind schedule and Ben Seligman, in his capacity as Vice President of AFEE, was writing to Hill to complain of his failure to respond to contributors and to act in a timely manner. Hill was urgently “directed” to send all the manuscripts to Seligman. Seligman in fact made a visit to Texas to sort out the situation with respect to Forest Hill’s editorship and the publication delays. Hill was asked to resign and editing taken over by a committee of the Editorial Board.3 Hill is listed as “Editor (on leave)” in the June and September 1968 issues and from then until the September 1969 issue no editor is listed. Harvey Segal, Ben Seligman’s colleague at the University of Massachusetts, then took on the editorship, but he resigned quite suddenly in 1971. At this point both Harry Trebing and Paul Strassmann were closely involved with AFEE, and a proposal with financial support came from Michigan State University with Warren Samuels as editor.

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SAMUELS AND THE JEI At the time Warren Samuels took on the editorship of the JEI he had not been heavily involved with official AFEE business, but he had had one article published in the JEI “On The Future of Institutional Economics” (Samuels, 1969). Interestingly, this article was a response to John Gambs’ presidential 1967 address to AFEE, “What Next for the Association for Evolutionary Economics” (Gambs, 1968). Gambs’ address began by noting the broad nature of the AFEE membership, but then proceeded to outline a suggested agenda very much in the Veblen/Ayres line: “the central effort of our group must be to work toward the attainment of a more harmonious relationship between slowly changing institutions and a dynamic technology and also toward a more harmonious relationship among changing institutions” (Gambs, 1968, p. 69). In this context Gambs also argued for a greater degree of political activism. Samuels, while agreeing that an important part of institutional economics had been in the realm of real world problem solving, argued that developing institutionalism as “a coherent body of knowledge” was the most essential task, and this needed to penetrate more deeply than to “simply decry the existence of ‘gaps’” (Samuels, 1969, pp. 67, 71). The central subject matter of institutional economics for Samuels was “the theory of economic policy” which directed attention to the “basic problem of the organization of the economy as a system, with the market interpreted as ‘an institutional complex operating within and interacting with other institutional complexes’,” and the central economic problem involving the “distribution and redistribution of power” (Samuels, 1969, pp. 68 69). The differences in emphasis here are clear, and can be seen as indicative of the division between the Veblen/Ayres and Commons wings of the institutionalist movement. Samuels’ editorship of the JEI took a very broad approach to institutional economics, adopting an attitude to work in economics very much in line with that of Commons and Witte. It was, in addition, completely in line with AFEE’s statement of purpose and the desire of the organization to maintain a wide appeal both to committed institutionalists and to those dissenters who did not associate themselves so closely with Veblen or with institutionalism. As well as publishing the work of all varieties of institutional economists, the journal began to publish papers by authors writing on subjects of interest to institutionalists but not themselves institutionalists. Examples include papers by Sidney Weintraub, Jan Tinbergen, Ezra Mishan, Eugene Rotwein, Joseph Spengler, Robert Heilbroner, Kenneth Boulding, John Roemer, Lawrence Boland, Vincent

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Tarascio, and Bruce Caldwell. Samuels introduced symposia issues on subjects such as “Macroeconomic Institutional Innovation,” “Law and Economics,” “Markets, Institutions, and Technology” (in commemoration of Clarence Ayres, who died in 1972), “The Chicago School of Political Economy,” “Commons and Clark on Law and Economics,” “Contributions to Institutional Economics,” “Power in Economics,” and “Methodology in Economics.” Most of these symposia focused on issues of central interest to Samuels: law and economics, power, approaches to economic policy, and issues of methodology. The issue on Clark and Commons included papers from Wisconsin people such as Richard Gonce, Jack Barbash, Daniel Bromley, and Henry Spiegel, as well as Vincent Ostrom and Victor Goldberg. The methodology issues included papers from institutionalists Ron Stanfield, Baldwin Ranson, and William Dugger, but also Lawrence Boland, Ezra Mishan, and Bruce Caldwell. The issue commemorating Ayres included a majority of non-Ayresian contributors, including Paul Strassmann, Robert Solo, Gunner Myrdal, Kenneth Parsons, and Joseph Spengler. Thomas De Gregori was perhaps the only out and out Ayresian included. The journal also published reviews of a wide range of books, those written by institutionalists as well as books by the likes of John Rawls, James Buchanan, Gordon Tullock, Douglass North, and John Hicks. Samuels undoubtedly developed the JEI into an extremely appealing and non-dogmatic journal with a wide readership of those interested in institutional issues, but his approach did not find universal approval among the AFEE membership. Despite the broad purposes originally approved in the constitution, some members, including the two founders Allan Gruchy and John Gambs, began to complain of Samuels’s editorial direction. In Gruchy’s case the strength of his opposition to Samuels was substantially a result of the publication in the JEI of A. W. Coats’s highly critical review of his Contemporary Economic Thought (Coats, 1974),4 but Gruchy also complained of AFEE lacking a definite image, of the publication of the Samuels/Buchanan correspondence, of the handling of the commemorative Ayres volume, the symposium on the Chicago School, and of the publication of various other papers that he considered insufficiently institutionalist.5 This was in spite of Gruchy’s earlier explicit support of a journal with broad appeal. Gambs also objected to some of the symposium topics, and proposed amendments to the statement of purpose with the idea of focusing the membership on those who were “stalwart heterodox economists” or “non-Marxist dissident economists.”6 Gambs supported Gruchy in his complaints about the reviews of his book, and

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both Gruchy and Gambs proposed that editorial policy making be moved from the editor to the JEI editorial board. This move was rejected by the AFEE board, and both Gruchy and Gambs resigned from AFEE in 1974 (Gambs, 1980).

AFEE AND AFIT Concerns about AFEE, whether it was promoting a clearly institutionalist program, also began to be raised by a significant group of those in the West and Southwest and who were largely of a more Ayresian persuasion. This group had at one point considered forming a Western branch of AFEE, but eventually decided to form a separate organization. The Association for Institutional Thought (AFIT) was officially founded in April 1979 (Sturgeon, n.d.). Their concerns with AFEE were put together in a document “AFIT Report to AFEE” (1978) that became known as “the Sturgeon Report” and was brought to AFEE board meetings in 1978 and 1979 for discussion. The complaints included criticism of Samuels’ symposia topics, that the journal was publishing too much of what the editor himself thought significant, that it concentrated too much on the debate between institutional and standard economics, and was much too eclectic. In their view, the journal was not serving to advance institutionalist thought, and AFEE was not projecting a clear and distinctive image; both should move in a more institutional direction. In contrast to the AFEE constitution the constitution adopted by AFIT stated its purpose to be “to encourage and foster the development of institutional thought in extension and modification of the contributions of Thorstein Veblen, John Dewey, Clarence Ayres, John Commons, Wesley Mitchell, and others as a basis of inquiry into the interrelationships of society” (Ranson, 1981, p. 522). Allan Gruchy and John Gambs were invited to the organizational meeting and were named Honorary Sponsors of AFIT (Sturgeon, n.d., pp. 17 19). Samuels was also invited to become a charter member, an invitation he accepted. Shortly after the founding of AFIT, the JEI published an article by Baldwin Ranson “AFEE or AFIT: Which Represents Institutional Economics?” The criticisms of AFEE as lacking a sufficiently well-defined focus are repeated, and the greater exclusivity of AFIT defended. Ranson points out that Gambs found the same division in 1963, but for the members of AFIT, in contrast to AFEE, “it seems undesirable to extend the

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institutional label to those outside the intellectual lineage of Veblen and his co-workers” (Ranson, 1981, p. 523). Ranson takes Samuels as “an excellent representative of the AFEE perspective” while adopting Fagg Foster as representing the AFIT viewpoint. Samuels is explicitly criticized for his eclecticism and for not adopting “a single criterion of judgement for all discourse and action” which turns out to be the Ayresian notion of continuity and the “unity of value” (Ranson, 1981, p. 526). The papers in the JEI symposium on methodology are singled out for special criticism as failing to contribute to institutional thought “because they are not directly related to the institutional lineage” (Ranson, 1981, p. 527). Ranson’s argument concludes with a plea for a journal “that follows an exclusive editorial policy” (Ranson, 1981, p. 528). All of this criticism did have an effect. Although Samuels was reappointed as editor for a three-year term (to run from December 1980) at the AFEE Board meeting in 1979, there was considerable debate over editorial matters, and it was decided that a full search should be made for the editorial position well in advance of the end of that term. As matters transpired, Michigan State University withdrew its financial support for the JEI in 1981, and the journal had to find a new home in some haste. The new editor, Marc Tool, one of the founding members of AFIT, took over in August 1981. The drama, however, was not quite over. The AFEE nominating committee recommended Samuels for the vice-presidency of AFEE, a position that leads automatically to the presidency. This nomination was opposed, and Allan Gruchy, who had, in the interim, rejoined AFEE, actively campaigned against the nomination. The nomination was rejected in favor of Wendell Gordon.7 Samuels was, however, elected to the Board of AFEE in 1989 and given the Veblen/ Commons Award in 1995.

AFEE AND THE JEI AFTER 1981 Marc Tool edited the JEI from 1981 until 1991, and his editorship did bring about noticeable changes. The focus did become narrower. The symposia issues came to an end, the number of articles dealing with law and economics declined, and contributors such as Victor Goldberg, A. Allan Schmid, Jack Barbash, Seymour Melman, and Dan Bromley appear much less often while contributors such as Greg Hayden, William Waller, Paul Bush, and Wendell Gordon, all much more aligned to the Veblen/Ayres/Foster line of

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institutionalism, increase their presence. Tool accepted the idea that the JEI should attempt to provide “a coherent statement of the institutionalist position” (Bush, 1991), a position that resulted in a two special issues of the JEI in 1987 devoted to the foundations of institutional thought and institutional theory and policy. In the introduction to these volumes Tool indicated that his discussions with institutionalists had “converged on a recognition that a more comprehensive treatment of the basic institutionalist approach to inquiry in political economy would be a valuable addition to the institutionalist literature” (Tool, 1987). The volumes were guided by an advisory committee formed at a meeting of AFIT in 1984. The contributors were heavily (although not exclusively) on the Veblen/Ayres wing of institutionalism. The clash of viewpoint between different groups within AFEE continued to make appearances, although in a more subdued form than when Samuels was in the eye of the storm. Looking back on the history of AFEE on its 25th anniversary, Paul Dale Bush picked his way carefully through the minefield: AFEE began publishing the Journal of Economic Issues in 1967… . After some inadvertent instability in the editorship in the first four years, Warren Samuels assumed the editorship in 1971. Under his guidance, the JEI’s reputation as a scholarly enterprise was greatly enhanced. Samuels pursued an editorial policy that gave the JEI a decidedly eclectic character … This brought Samuels under fire from some AFEE members who believed that the pages of the JEI should be reserved exclusively for institutionalists. Regardless of one’s view on that issue, it is fair to say that Samuels opened the pages of the JEI to a range of ideas that have, over the years, proven to be very useful to the ongoing discussion of matters pertinent to institutionalist thought. (Bush, 1991, p. 323)

Samuels himself continued to be concerned with the narrowness of some of his AFEE colleagues and their tendency to rule out of court certain approaches or methodologies. Samuels never wavered or apologized for his broad view of institutional economics and of what should be of interest to institutionalists. At the AFEE conference in 2000 organized by Yngve Ramstad, Samuels got the opportunity to reflect on the state of institutionalism. Samuels did not pull his punches. He argued that too much of the work done by institutionalists was a rehashing of the work of the institutionalist “greats,” that many institutionalists had a narrow and exclusive view of institutional economics, lacked a view of the substantive and epistemological limitations of their own work, practiced an exclusivity by equating institutional economics with their particular version of institutionalism and reading others out of the movement. This “sectarianism”

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Samuels blamed for the lack of progress in developing institutionalism: “Too many institutionalists … exhibit a need and/or desire for premature determinacy and closure together with the exclusivist, if not authoritarian sanctioning of perceived ‘indiscipline,’ instead of a willingness to tolerate open-endedness, pragmatism, and doctrinal pluralism and ambiguity” (Samuels, 2000, pp. 309 310).

CONCLUDING REMARKS During the heyday of institutional economics in the interwar period there was little of the kind of internal dispute that broke out within AFEE. Commons, to be sure, was not one of the original “founders” of institutionalism, and there was awareness of the differences between Veblen’s and Commons’ approaches (see Copeland, 1936), but his work on law and economics was absorbed by Wesley Mitchell, J. M. Clark, and Walton Hamilton without much issue. Veblen’s critique of utility maximization, his attacks on business practice, and his emphasis on technology could be, and were, combined with Commons’ work on the legal foundations of capitalism. Hamilton could talk of the “lack of harmony between the technology of industry and the form of its organization and control” and also engage in detailed investigations of court decisions and the “judicial control of industry” (Rutherford, 2011). Mitchell could build on Veblen’s treatment of business cycles and also use Commons’ discussions of legal foundations in his treatment of the institutions of the money economy (Mitchell, 1927). Clark made extensive reference to both Veblen and Commons (Clark, 1926). As institutional economics came under increasing attack in the 1940s, Ayres attempted a restatement, but it is worth noting that Ayres’ Theory of Economic Progress received a less than enthusiastic reception from J. M. Clark, Joseph Dorfman, Morris Copeland, and Alexander Meiklejohn (Rutherford, 2000), as well as a highly critical review from A. B. Wolfe (1944). Wolfe described Ayres book as superficial in its economics, dogmatic and doctrinaire in its philosophy, full of sweeping statements and divisions into black and white, containing a “devious and confused” discussion of value, and abounding in “half-truths, undocumented charges, straw men, and distorted logic” (1944, p. 624). The significance that Ayres’ work took on among institutionalism in the post-World War II period, thus, created new divisions within the movement. These divisions were apparent to Gambs after his 1963 survey of

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dissenters. Initially, decisions were made to make AFEE a broad association, but the divisions within the group found a lightening rod in Samuels’ editorship of the JEI. Samuels was not responsible for these divisions existing in the first place; the history outlined here is a history of the impact of these preexisting divisions on the subsequent development of AFEE and the JEI. Samuels was, of course, a key player, with his editorship standing for a broad and relatively open approach to the development of institutionalism, as against the more exclusivist view taken by many of those in the Ayresian tradition. Despite all the furor, Samuels established the JEI as a successful journal with a large subscription list. In my own view the JEI has never since been as interesting, lively, and creative a journal as it was under Samuels’ editorship, a loss to all, but especially to institutionalism.

NOTES 1. For a history of the institutionalist group at Michigan State see Schmid (2004). Solo’s Ph.D. was from Cornell, Strassmann’s education was at Texas, Columbia, and Maryland. 2. A. Gruchy to C. Ayres, June 14, 1966; F. Hill to A. Gruchy, July 5, 1966; A. Gruchy to F. Hill, July 21, 1966; C. Ayres to A. Gruchy, September 30, 1966, AGP. 3. B. Seligman to F. Hill, May 6, 1969; Ben Seligman, Memo to the Board of Directors; Paul Strassmann to Ben Seligman, June 22, 1969, AGP. 4. Samuels had solicited four reviews of Gruchy’s book, none of which was very positive in tone, but Coats’ review was especially cutting. The issue of what to do with these reviews involved Samuels and the AFEE board. Coats’ review was toned down but was still extremely critical. Gruchy objected both to the reviewers chosen and the particular nature of Coats’ review. A. Gruchy to J. Gambs, January 26, 1974, AGP. 5. A. Gruchy to J. Gambs, January 26, 1974, and A. Gruchy to W. Samuels, March 15, 1974, AGP. 6. Gambs states that he, Gruchy, and D. Fusfeld agreed on a draft amendment to the constitution. Gruchy disputed this. A. Gruchy to J. Gambs, August 29, 1980, AGP. 7. Minutes of the AFEE Board of Directors Meeting, December 27, 1979; Memo from Walter Neale to AFEE Board Members, January 6, 1981; A. Gruchy to H. Trebing, June 3, 1981; and A. Gruchy to Ron, September 2, 1981, AGP.

REFERENCES Association for Institutional Thought. (1978). AFIT Report to AFEE. Retrieved from www. associationforinstitutionalthought.org/downloads/about/AFIT-Report-AFEEDec1978.pdf

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Bush, P. D. (1991). Reflections on the twenty-fifth anniversary of AFEE: Philosophical and methodological issues in institutional economics. Journal of Economic Issues, 25(2), 320 346. Clark, J. M. (1926). The social control of business. Chicago, IL: University of Chicago Press. Coats, A. W. (1974). Review of contemporary economic thought by Allan G. Gruchy. Journal of Economic Issues, 8(3), 597 605. Copeland, M. A. (1936). Commons’s economics in relation to problems of social evolution and economic planning. Quarterly Journal of Economics, 50(2), 333 346. Gambs, J. S. (1963). Report on Interviews with American economists. AGP. Gambs, J. S. (1968). What next for the association for evolutionary economics? Journal of Economic Issues, 2(1), 69 80. Gambs, J. S. (1980). Allan Gruchy and the association for evolutionary economics. In J. Adams (Ed.), Institutional economics: Contributions to the development of holistic economics: Essays in honor of Allan G. Gruchy. Boston, MA: Martinus Nijhoff. Mitchell, W. C. (1927). Business cycles: The problem and its setting. New York, NY: National Bureau of Economic Research. Ranson, B. (1981). AFEE or AFIT: Which represents institutional economics? Journal of Economic Issues, 15(2), 521 529. Rutherford, M. (2000). Institutionalism between the wars. Journal of Economic Issues, 34(2), 291 303. Rutherford, M. (2011). The institutionalist movement in American economics, 1918 1947: Science and social control. Cambridge: Cambridge University Press. Samuels, W. J. (1967). Edwin E. Witte’s concept of the role of government in the economy. Land Economics, 43(2), 131 147. Samuels, W. J. (1969). On the future of institutional economics. Journal of Economic Issues, 3(3), 67 72. Samuels, W. J. (2000). Institutional economics after one century. Journal of Economic Issues, 34(2), 305 315. Schmid, A. A. (2004). The Spartan School of Political Economy at Michigan State University. Research in the History of Economic Thought and Methodology, 22-C, 207 243. Sturgeon, J. (n.d.). The history of the Association for Institutional Thought. Retrieved from www.associationforinstitutionalthought.org/downloads/about/AFIT-Early-History.pdf Tool, R. M. (1987). Introduction. Journal of Economic Issues, 21(3), 951 967. Wolfe, A. B. (1944). Review of the theory of economic progress, by C. E. Ayres. Political Science Quarterly, 59(4), 622 624.

WARREN J. SAMUELS: INTELLECTUAL HISTORIAN OF ECONOMICS Ross B. Emmett Keywords: Warren J. Samuels; George J. Stigler; intellectual history; historiography; theory of economic policy; linguistic turn

Recent essays by John Davis (2012a, 2012b), Steve Medema (2011, 2012), and Dan Bromley (2012) have done an excellent job of integrating Warren Samuel’s historiography of economics with his economic methodology, his approach to law and economics, and his pragmatism. Indeed, it is interesting that in each case, these authors found it not only appropriate but necessary to refer to his contribution to the first History of Economics Society conference in order to interpret other parts of his work (Samuels, 1974c). Samuels himself would have agreed that intellectual history was an integral part of all his scholarship. My goal here is to examine Samuels’ work in the history of economic thought to see what it was that he actually did as an intellectual historian. While intellectual history was integral to his entire body of work, not all

A Research Annual Research in the History of Economic Thought and Methodology, Volume 31-A, 73 88 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2013)00031A003

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of what he did constitutes work in intellectual history. So when he was working as an intellectual historian, what did he do? In answering that question, I will both follow and divert from Samuels’ own intellectual historiography. For Samuels, the central purpose of the intellectual history of economics was to elucidate past economists’ general theories regarding “the fundamental problem of order, the problem, that is, of reconciling autonomy and control, of continuity and change” (Samuels, 1974c, p. 317) in order to be able to compare and assess these theories of economic policy as to their usefulness for our contemporary purposes.1 My own purpose is to elucidate a past intellectual historian’s general approach to his elucidation of these general theories of economic policy in order to assess his approach in light of the historical approaches to economic thought employed today. The recursivity implicit in the comparison between Samuels interpretation of the history of economic thought and my interpretation of his historical work is deliberate I am asking how he found order in the work of those whose fundamental problem, in his estimation, was the search for order and yet our purposes are different. For Samuels, intellectual history was always a part of his work as an economic theorist, while for me, considering his work on economic theory is part of my work as an intellectual historian. I will examine his approach for what it can tell us about revealing the general theories of economic policy in the work of others. And in the process, I will also show how his approach informed the transformation of the historiography of economics during the last half century.

A GENERAL APPROACH TO THEORIES OF ECONOMIC POLICY A decade before Samuels wrote his defense of the task of the intellectual historian of economic thought, another of the first participants in the History of Economics Society, George Stigler, argued that the interpretation of the work of past economists should be guided by the principle of “scientific exegesis” (Stigler, 1965). In order to interpret any part of a past economists’ work, Stigler said, the historian’s task was to understand how it fit into the author’s “general position,” which was the theoretical core of the author’s work restated in language appropriate to the work of modern economists. Because the general position of an author was not usually provided in any one particular passage, the historian should be guided in

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reconstructing general positions by the sense of the author’s ideas that the economics discipline had come to accept. While Stigler’s principle of scientific exegesis led to an appropriate historical distrust of novel interpretations of past economists based on single passages in their work, it also made the community of today’s economic theorists the exegetical authority over what constituted the contribution of past economists.2 Samuels’ work as an intellectual historian can also be described as the search for the “general position” of past economists. But the scope and exegetical authority of Samuels’ “general positions” differ substantially from those of Stigler. The scope of Samuels’ general theories is best studied by reference to Samuels’ early work on the Physiocrats (Samuels, 1961, 1962), the classical economists (Samuels, 1966, 1973, 1976c), and Pareto (Samuels, 1974a). His approach to exegetical and interpretative authority becomes more apparent in his later work.

General Theories of Economic Policy Economy policy has become such a familiar term to us that it has become almost one-dimensional. Society has problem M, and wishes to find a solution which will satisfy objective T. The problem might concern the allocation of resources, or the level of macroeconomic outcomes, or the distribution of income and other economic flows. Economists are asked to find a policy solution. Economists reply that there are x number of possible solutions to M, but that given T, solution D would be the most efficient. Pretty straight forward stuff. As Milton Friedman (1953) said, given that most of us agree about T, the only major disagreement is over the positive assessment of the various solutions. Of course, it has taken the economics discipline a couple hundred years to sort out that assessment, and the sorting out often required solidification of the theoretical underpinnings of policy solutions. If things were really this simple, the history of economic thought would be simply the history of how the discipline dispensed with wrong assessments of policy solutions and established the theoretical basis for the right ones. Or, as Frank Knight once said, “… the primary interest in the ‘ancients’ in such a field as economics is to learn from their mistakes” (Knight, 1999 [1935], p. 237; see also, Stigler, 1941). Many economists appear to accept this assessment, and, hence, it is no wonder that interest in the history of economic thought has declined among economists. Studying all the permutations of the debate over the various solutions to

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problem M would only confuse us, since we already know that (given T) D is the best solution. But there are other questions to be asked of economic policy; in particular, the question, who chooses how we as a society make choices about problems like M (or even that M itself is a problem)? The answers to that question may be political, legal, ethical, or even religious, but however they are made, they deeply affect economic theory and policy. Put differently, economic policy at any particular point is the product of a valuation process; a process by which society chooses what problems to address (Samuels, Medema, & Schmid, 1997). As Knight said in The Economic Organization (1951; see also Knight, 1956 [1941]), the valuation decision is logically prior to any policy decision, and itself reflects a societal decision as to the relative merits of different means of social economic organization. Samuels makes the point this way: A theory of policy must be viewed for the valuational premise it upholds and from which it derives its distinctive character, but it must also be searched for something logically prior and in a sense more relevant, both ultimately and immediately. It must be expressed in terms of a set of social problems to which the valuation system claims to provide in some sense a distinctive solution. (Samuels, 1966, p. 11)

A “general theory of economic policy,” then, was for Samuels’ a specification of the unique configuration of the “valuational premise” upheld by the policies of an economist or school of economic thought, as well as the “set of social problems” which the solution claimed to solve. But, of course, it was much more than that to Samuels, because the social valuation process by which those policies were determined also identified who would make the decisions, and what knowledge they would have. In other words, for Samuels, a general theory of economic policy not only identified the structure of the ideas which led to the economist’s (or school’s) policy proposals; it also identified the structure of power and knowledge in society (Samuels, 1979). However, rather than providing a deterministic approach which privileged one aspect of society’s order over the others,3 Samuels argued that all three were simultaneously cocreated, by reflection and choice perhaps, but also by force, and even sometimes by the accidents of history.4 From Physiocracy to the Chicago School The fullest displays of Samuels’ approach to the general theory of economic policy are in his two books on classical economics (Samuels, 1966) and Pareto (Samuels, 1974a). But the historiographical groundwork for these

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seminal contributions was laid in his earlier two-part treatment of the Physiocrats’ theory of economic policy (Samuels, 1961, 1962). Both of his seminal books took commonly held views of the 18th and 19th century economists and situated their economic theories and policies in the broader context of the authors’ general understanding of the social, political, and economic organization of society. Both studies stressed the necessity of examining the authors’ understanding of that context in order to understand the particular policy arguments made. Pareto’s economics, for example, can only be understood, Samuels argued, if his general theory of social economic organization is appreciated. Pareto’s general theory is an interlocking sociology, psychology and economics of society as a system. Socioeconomic policy, then, was “a function of knowledge, psychology, and power” which addressed economic change through the dual problems of freedom/control and continuity/change (Samuels, 1974a, pp. 18 20). The same kind of argument appeared in Samuels’ two-part treatment of Physiocracy mentioned earlier. There he argued that the Physiocratic support for laissez faire, laissez passer depended crucially upon an active government in ways that were often overlooked by those who interpreted their support for free trade as equivalent to support for limited government. “In the Physiocratic theory of economic policy,” N.B. the use of the expression “theory of economic policy” even here at the beginning of Samuels’ career “(1) government had a more thorough and activist role, being given specific tasks and ends, and (2) laissez faire, … had a restricted scope” (Samuels, 1962, p. 158). What were the “specific tasks and ends” of government for the Physiocrats? Samuels encapsulates these nicely at the conclusion of his discussion of the Physiocratic theory of property rights, which understandably underlies their theory of commerce: The Physiocratic social claim on private property has the following major dimensions: the application of the police power as conventionally understood, and the implementation of the Physiocratic programs of social construction, economic development and economic stability. The ultimate sources of such property-state relationship include: (a) the vestiges of a feudal conception of property, with the sovereign conceived as coproprietor of property and economy, coupled with the Physiocratic theory of a paternal, absolute (albeit benign) sovereign; (b) more important, operationally at least, their equating of the natural order not with the status quo but with the ideal with the consequent program of social change and reconstruction along the lines of the ideal through the agency of the sovereign, i.e., the state; and (c) the recognition that the presumed harmony of interests, if it was to be realized, had to be attained (and disharmonies and obstacles precluded) through the agency of the state, especially (but not only) for the maximization of the produit net and the proper functioning of the processes of circulation and reproduction. (Samuels, 1961, p. 110, emphasis in the original)

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The point, clearly, was that even talk of free enterprise must always consider the state’s involvement in property administration, and in policies and regulations that implement its program for economic development and stability. Samuels’ observations regarding Physiocracy led directly into his consideration of the “theory of economic policy” of the classical school (Samuels, 1966). Here, the relationship between exchange and state action were reversed from Physiocracy. Where the Physiocrats saw an active state and a defined realm of free exchange, the classical school wanted to extend the realm of free exchange and limit the activity of the sovereign. But this did not mean that classical theory was about freedom and not control. The classical school wished to ensure both the participation of a variety of forces in social organization as well as balance the continuity of the British legal and social tradition with the innovative change emerging from commercial society. “That is to say,” Samuels tell us, “choice in economic policy was not merely limited to matters of resource allocation and income distribution, within the given system. Policy did encompass such matters. But the scope of policy, or effective social choice, included, also, the structure of the decision-making process itself” (Samuels, 1966, pp. 183 184). Here we can see why Samuels’ book on the classical theory of economic policy is so often explicitly at odds with Lionel Robbins (1952) similar treatise. While Robbins does recognize that economic policies are made in a political setting, and hence that the nature of the political process matters, he does not incorporate a theory of politics into his theory of economic policy, to complement his economic theory. Instead, for Robbins, the politics sits uncomfortably beside the logic of classical economic reasoning. For Samuels, a theory of economic policy requires at least a theory of politics as well as a theory of economics, and perhaps even more.5 Clearly, the purpose of Samuels’ historical work was not a Stiglerian affirmation of what contemporary economists know about past economists! (“You think you know Adam Smith; well, here are some surprises for you!”) Rather, it was, via a historical investigation of past economists’ general theories of economic policy, a challenge to contemporary economists to ante up and flesh out their own general theory of economic policy. (“If Smith needed more than economic theory to generate policy, shouldn’t you rethink what you assume about your own economic policy framework?”) Nowhere is Samuels’ appreciation of the relevance of his historiography to the study of contemporary economists more apparent than in his work on the Chicago School. What prescient marketing acumen, also! Just a few months before Milton Friedman won the Nobel Memorial Prize, Samuels

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published The Chicago School of Political Economy (Samuels, 1976a), a collection of essays by himself and others, most of which had been assembled for publication in two issues of the Journal of Economic Issues (JEI).6 At the time, it appeared as a critique of an approach to economic policy which was about to burst into public awareness (see Schliesser, 2010). Today, it appears as the first study in what we now call the history of recent economics. Samuels own contributions to the Chicago School symposium were, with a single exception, not published in the JEI issues, but constitute fully one quarter of the published volume. The exception was a book review that appeared in the second of the JEI issues, which laid the groundwork for what Samuels was going to say about the Chicago School’s theory of economic policy in the published volume. Commenting on Randall Bartlett’s Economic Foundations of Political Power, Samuels (1976d) applauds the way Bartlett specifies neoclassical theory so as to identify how it rationalized and provided support for the “status quo power structure,” but also showed that it did not have to do so. Bartlett’s construction, Samuels told us, revealed that Chicago and other neoclassical approaches assumed the existing structure of power and knowledge as part and parcel of its general theory of economic policy (Samuels, 1976d, pp. 183 184). Why did it make that assumption? What was being validated by that assumption? In the long run, the answers to these questions became clear to Samuels in the context of his work on Chicago law and economics (Samuels, 1972, 1974b, 1981; Samuels & Medema, 1997, 1998). In a short piece on socialism included in the 1976 volume, Samuels spells out the answers to the questions asked: The Chicago School contemplates freedom in the image of the capitalism system. The doctrines of the school represent a purist, ideological definition and defense of the capitalist system, its mode of organizing economic activity, its structure of power, and its culture. Its doctrine is a rationalization of and presumes the propriety of the status quo of business as a way of life. All of the sophisticated, presumptive optimality reasoning about market solutions and so on, all of the opposition to public ownership, regulation, and the welfare state, is subordinate to, essentially derivative of, and functional to the rationalization or legitimation of these beliefs, quite aside from their value as technical economics and as behavioral predictions about market activity and reactions to government action. (Samuels, 1976b, p. 486)

Intriguingly, he goes on to mention the Coase Theorem, about which he has often written (Samuels, 1974b; Samuels & Medema, 1997, 1998). While we recognize, as I suggested at the beginning of this essay, that Samuels work on law and economics was a seamless whole with his own work on the

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history of economics, we often think of the development of Chicago law and economics as an extension of the Chicago School into other fields a primary example of that dreaded Chicago economic imperialism. But Samuels’ here suggests that Chicago law and economics encapsulated in the Coase Theorem was not an extension of the School, but rather the legal foundation for its general theory of economic policy. By eliminating the need for discussion of the allocation of property rights, the Coase Theorem also provided a shortcut for the Chicago School around the existing structure of power in society.

The Scope and Authority of a General Theory of Economic Policy We have seen the scope of the general theories that Samuels argued were the key to understanding the policy conclusions of past economists. In brief, the economy is an order that structures power and knowledge through its processes of valuation. Economy theories and their policy conclusions similarly examine that order in light of assumptions about its structuring of power and knowledge, and either validate, or attempt to invalidate the existing order. A general theory of economic policy articulates the interlocking nature of the economist’s understanding of social economic organization and society’s structure of power and knowledge. The question that remains unanswered is: upon what exegetical authority did his construction of an individual’s or a school’s general theory of economic policy depend? In my earlier discussion of Stigler’s principle of scientific exegesis, we saw that any particular text is to be understood in light of the general message of an author’s work that the economics community today holds. The community of contemporary economists constituted the exegetical authority.7 Stigler’s principle addresses the traditional problem of interpretive theory which comes first, the texts or the general position? with a resounding affirmation of the external authority of the community of economists, with himself as its arbiter. Samuels’ pluralistic approach naturally led him away from Stigler’s reductionist principle. He tried at least two ways of articulating his task. The first appeared in his 1974 essay on the task of intellectual history in economics. Davis (2012a) has provided us with an excellent survey of Samuels’ defense and use of methodological pluralism, and of the “matrix of meaningfulness” that he used to articulate it. The second way he expressed the task was in the context of discussion of the hermeneutic circle. Rather than depending on an external authority to escape the circularity of the relation of particular texts and general theories, Samuels affirmed the

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necessary relativity of the interpretive task, but, also recast the hermeneutic circle as a process of continual negotiation. In such a process, there are multiple authorities contesting with each other. Viewed as a negotiation process, the interpretation of the work of past economists requires us as one of the contestants to bring as much material that may be relevant to our task as possible to the table. It also requires us to pay attention to the language our economist used, and how the economist employed language in the context of her own contests and negotiations; all the while recognizing, as Samuels always did, that the historian qua economist was also a participant in contemporary contests and negotiations over current economic thinking. These two issues paying attention to language, and learning as much as you can about the context of your subject’s use of language ended up shaping the contributions Samuels made to the development of the history of economic thought from the early 1980s until his death.

THE LINGUISTIC TURN So far we have discussed Samuels’ examination of the valuation processes within which economists address policy matters related to the economy and the state. But Samuels was well aware that the intellectual historian’s choices about what to study are just as much the product of a valuation process as are the choices of consumers or economists (Samuels, 1974c). And, as a follower in the tradition of Thorstein Veblen and John Commons (see Rutherford & Samuels, 1996; Samuels, 1996), he understood that language could be used to conceal as much as it could reveal, even when deployed by an economist or, for that matter, an intellectual historian. In this sense, his attention to the linguistic, rhetorical, and sociological contexts of both the economists studied and of the historian meant he was well ahead of what has sometimes been labeled the discursive, or linguistic, turn (Rorty, 1967) as it was introduced to historical work in economics during the 1980s and 1990s.8 In these decades, the history of economic thought was transformed by new historical work challenging the central preoccupations of traditional historiography in economics. As more historians of economics began to utilize a wider range of economic scholarship, Samuels’ work appeared timely, if not even prescient. Samuels studied the valuation processes of ideas that economists and schools made within rhetorical contexts that were manifold and often not obvious. And he understood that in order to study the process of valorizing these ideas, the historian had to cast a broad net to sort out the context in which valuation occurred.

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There is, however, an irony in the connection we make between Samuels’ historical work and that of the new historiography. While the linguistic and archival turns emerged from the effort to bring economics and the study of its history out from under the mantle of positivism, Samuels needed no such effort. When Commons, John Dewey, and Knight were your mentors, who needed positivism?9 This is not to say that Samuels ignored the developing post-positivistic literature. But while he familiarized himself with, and made reference to, the developing literature in the history and philosophy of science during the 1970s and 1980s, he did not depend on that literature in the same way that other historians and philosophers of economics did (see Blaug, 1980; Caldwell, 1982; Hands, 2001). Rather than reacting to other past approaches, Samuels was able to use the changes introduced by other historians of economics as an opportunity to talk more freely about issues that were already present in his own approach. As Davis (2012a, pp. 121 122) tells us, Samuels did not become a pluralist in the light of the post-positivist methodological literature; he already had a framework for economic methodology which avoided the many pitfalls of positivistic methodology that others sought to avoid (Samuels, 1980). Central to that framework was an historical awareness of the contingencies which shape the ideas of past economists, and hence an appreciation for the limits to our knowledge today. Thus, while he followed the debate over the relevance of emerging philosophies of science to the history of economics with interest, he looked elsewhere for inspiration as an intellectual historian.10 Indeed, his selfidentification as an intellectual historian may have been a deliberate decision to stand apart from the philosophical approaches that other historians of economic thought deployed. Although themes related to the use of language and discourse were present in Samuels’ work throughout his career, about 1990 there was a decided up-tick in his use of the words “language” and “discourse” in the titles of his articles and books. In the last section of the chapter we will see that his serious research into the use of the “invisible hand” term in economics had begun early in the 1980s.

ARCHIVAL MATERIALS AND THE IMPORTANCE OF CONTEXT In 1989, Samuels published the first archival supplement to Research in the History of Economic Thought and Methodology, the research annual that he

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started in 1983. You will probably not be surprised to learn that the first material provided there were the lecture notes from John Dewey’s Columbia University course “Moral and Political Philosophy” (Koch & Samuels, 1989). But this was not Samuels’ first venture into publishing the type of material that we collectively refer to as “archival.” Already in the fifth volume of the research annual, published two years earlier in 1987, he had published an edited version of an alternative first chapter that Joseph Schumpeter had written for his famous History of Economic Analysis (Schumpeter, 1987). But, again, his use of archival materials goes back far before that. Ten years earlier he had published two articles within months of each other: one analyzed the private exchanges in correspondence between Frank Knight and Clarence Ayres (Samuels, 1977a); the other summarized the student notes of two history of economic thought courses taught at Harvard University in the late 1890s (Samuels, 1977b). The latter announced that “These notes suggest vast opportunities for using turn-ofthe-century economic thought … as a base with which to research the spectrum and the operation and results of the filtration or selection mechanisms by which certain interpretations survive and others pass into oblivion” (Samuels, 1977b, p. 411). And 10 years before those articles, when surveying Edwin Witte’s theory of the economic role of government, Samuels (1967) made significant use of unpublished manuscripts and lecture notes, available in the archives of the Wisconsin Historical Association. Samuels use of those materials, and his collection of copies of them, began a lifetime of collecting, using, and publishing archival materials as a necessary part of his work as an intellectual historian. What began as a small part of his publication record in the 1960s and 1970s became a major part of his legacy for future historians of economics. Samuels was an inveterate collector, of many things. But unlike others who see their collections as curiosities, he viewed his ever growing collection of archival materials as a resource for his historical work and, perhaps more importantly, as something that should shared with others who might be able to make use of it for their work. In this sense, Samuels publication of materials in the research annual’s archival supplements was simply to make the material publicly available as quickly as possible. As Medema (2012) has pointed out, where he to be a young scholar today, he would probably pursue the digital provision of the material he collected via the internet. His continual publication of archival materials and of introductory notes regarding the materials’ significance amounted to a massive body of work. We might rue the serious scholarship, especially on the “Invisible Hand” project (Samuels, 2011), that was lost to this work, but it is undoubtedly

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one of his most significant contributions to the study of the history of economic thought.

CONCLUSION I have shown that the general theories of economic policy Samuels distilled from the work of economists ranging from the Physiocrats to the Chicago School consistently addressed the same issues: the nature of the social economic order created the general theory, and the structures of power and knowledge that the theories validated. In order to understand the policy conclusions of these economists, Samuels argued, one needed to understand the social and legal structures and economic processes they privileged. The history of economic thought is not the gradual correction of error. If it can be told as a continuous story, then it is a story of contest and negotiation between competing conceptions of the role of markets and governments; that is, between different general theories of economic policy. One could go farther, of course. For Samuels, writing the history of the contest and negotiation between competing schools was to be a participant in their contest and negotiation today. To be a historian of economic thought was, for him, part and parcel of what it meant to be engaged in the struggle today.

NOTES 1. In a later essay on his historiography, Samuels (1997a) says that every historian of economic thought tells a story, not the story, of economics, because each historian sees the central task of economics as something slightly different. While that may take away some of the normative element in his 1974 manifesto the sentence quoted here actually begins by pointing out that his historiography suggests that “the history of economic thought must be interpreted in the perspective of the fundamental problem of order” (Samuels, 1974c, p. 317) it remains the case that his history of economic thought was a story of how economists dealt with the problem of order, and that problem was also the fundamental problem of his economic theory. He is, then, one of the few historians of economic thought whose historiography was guided by his economics. 2. For more on Stigler’s principle and its hermeneutic problems, see Emmett (2009 [2003]). 3. For example, Marxism provided a deterministic general theory which showed how the structure of power determined the structures of knowledge as well as the social order.

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4. See the language used by Alexander Hamilton in the first paragraph of Federalist 1. 5. Two side observations. First, on my reading of Samuels’ historiography, Medema’s (2009) The Hesitant Hand reads as a continuation and perhaps even a codification of his mentor’s approach to studying the theory of economic policy. Second, I am also reminded at this point of Samuels’ affinity for Frank Knight, as well as the similarity, despite their strong disagreements, of his work to that of Knight’s student James Buchanan. Both Knight and Buchanan came to argue that a social scientist needs coordinated theories of economic organization, politics, and of the moral order. See Knight (1960) and Buchanan (2001). The differences among the three might be characterized this way: Samuels see the theory of politics as dominant, Buchanan sees the theory of economics as dominant, and Knight sees ethical theory as dominant. But all three agree on the necessity of this wider conception of social organization in order to form a theory of economic policy. 6. The articles appeared in Volume 9 No. 4 (December 1975) and Volume 10 No. 1 (March 1976) of the JEI. At the time, Samuels edited the JEI. 7. The similarity of Stigler’s principle to the biblical exegetical principle of the Analogia Scriptura is striking, and is what drew my attention to Stigler’s principle in the first place many years ago. According to the Analogia Scriptura, obscure biblical passages should be interpreted in light of passages whose meaning is already clear to the Christian community. In fact, from discussions with Samuels about hermeneutics and interpretation, Samuels asked me to write Emmett (2009 [2003]), in which I used my musings about Stigler as the jumping off point for a broader reflection on exegesis and interpretation in the history of economics. 8. In Samuels’ case, it might be better described as a hermeneutic turn, because he knew that language was opaque and, also, that the point from which a historian entered the hermeneutic circle in the interpretation of ideas mattered. I discuss this more in a moment. 9. Perhaps to make the point, the first two volumes of archival supplements in Research in the History of Economic Thought and Methodology that Samuels published contained Dewey’s lectures on moral philosophy (Koch & Samuels, 1989) and Knight’s (1991) infamous essay on “The Case for Communism,” which included his sociology of talk. 10. The only review he ever published about any of the major philosophers of science was a review of Paul Feyerabend’s autobiography (Samuels, 1997b). Davis (2012a) points out that Samuels had read Feyerabend’s Against Method by at least the end of the 1970s. Samuels did, however, review several books which dealt with pragmatism: Samuels (1984a), evolutionary approaches (Samuels, 1985, 2001), and language/rhetoric (Samuels, 1984b, 1993, 1995). And he (1984c) once wrote a short piece for the History of Economics Society suggesting journals in intellectual history that they might follow.

ACKNOWLEDGMENT The author would like to thank Jeff Biddle for discussions of Warren Samuels’ work while formulating his thoughts for this paper, and John

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Davis and Steve Medema for comments on an earlier draft. The paper was presented at a session on “Warren Samuels: Economist and Historian,” at the History of Economics Society annual meeting, June 2012, Brock University, St. Catherine’s, ON, Canada.

REFERENCES Blaug, M. (1980). The methodology of economics: Or how economists explain. Cambridge: Cambridge University Press. Bromley, D. W. (2012). Samuels v. Buchanan: Grasping the purpose of the law, Research in the History of Economic Thought and Methodology, 30-A, 137 149. Buchanan, J. M. (2001). Moral science and moral order. Indianapolis, IN: Liberty Fund. Caldwell, B. (1982). Beyond positivism: Economic methodology in the twentieth century. London: George Allen & Unwin. Davis, J. B. (2012a). Samuels on methodological pluralism in economics. Research in the History of Economic Thought and Methodology, 30-A, 121 136. Davis, J. B. (2012b). Warren J. Samuels (1933 2011). European Journal of the History of Economic Thought, 19(1), 115 124. Emmett, R. B. (2009 [2003]). Exegesis, hermeneutics, and interpretation. In Frank knight and the Chicago school in American economics (pp. 3 15). London: Routledge. Friedman, M. (1953). The methodology of positive economics. In Essays in positive economics (pp. 3 43). Chicago, IL: University of Chicago Press. Hands, D. W. (2001). Reflection without rules: Economic methodology and contemporary science theory. Cambridge: Cambridge University Press. Knight, F. H. (1951). The economic organization. New York, NY: Augustus M. Kelley. Knight, F. H. (1956 [1941]). Social science. In On the history and method of economics (pp. 121 134). Chicago, IL: University of Chicago Press. Knight, F. H. (1960). Intelligence and democratic action. Cambridge, MA: Harvard University Press. Knight, F. H. (1991). The case for Communism: From the standpoint of an ex-liberal. Research in the History of Economic Thought and Methodology, (archival supplement 2), 57 108. Knight, F. H. (1999 [1935]). The Ricardian theory of production and distribution. In R. B. Emmett (Ed.), Selected essays by Frank H. Knight, Vol. I: “What is truth” in economics? (pp. 237 289). Chicago, IL: University of Chicago Press. Koch, D. F., & Samuels, W. J. (1989). Lectures by John Dewey: Moral and political philosophy, 1915 1916, pp. 131 132. Columbia University. Notes taken by Robert Lee Hale and Homer H. Dubs. Research in the History of Economic Thought and Methodology, (archival supplement 1), 1 248. Medema, S. G. (2009). The hesitant hand: Taming self-interest in the history of economic ideas. Princeton, NJ: Princeton University Press. Medema, S. G. (2011). Remembering Warren J. Samuels. History of Economic Ideas, 19(3), 9 16. Medema, S. G. (2012). Warren Samuels: A personal reminiscence. History of Political Economy, 44(3), 389 411.

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Robbins, L. (1952). The theory of policy in English classical political economy. London: Macmillan. Rorty, R. (Ed.). (1967). The linguistic turn: Recent essays in philosophical method. Chicago, IL: University of Chicago Press. Rutherford, M., & Samuels, W. J. (Eds.). (1996). John R. Commons: Selected essays. London: Routledge. Samuels, W. J. (1961). The physiocratic theory of property and state. Quarterly Journal of Economics, 75(1), 96 111. Samuels, W. J. (1962). The physiocratic theory of economic policy. Quarterly Journal of Economics, 76(1), 145 62. Samuels, W. J. (1966). The classical theory of economic policy. Cleveland, OH: World Publishing. Samuels, W. J. (1967). Edwin E. Witte’s concept of the role of government in the economy. Land Economics, 43(3), 131 147. Samuels, W. J. (1972). In defense of a positive approach to government as an economic variable. Journal of Law & Economics, 15(2), 453 59. Samuels, W. J. (1973). Adam Smith and the economy as a system of power. Review of Social Economy, 31(2), 123 137. Samuels, W. J. (1974a). Pareto on policy. Amsterdam, NL: Elsevier Scientific. Samuels, W. J. (1974b). The Coase theorem and the study of law and economics. Natural Resources Journal, 14(1), 1 33. Samuels, W. J. (1974c). The history of economic thought as intellectual history. History of Political Economy, 6(3), 305 323. Samuels, W. J. (Ed.). (1976a). The Chicago School of Political Economy. East Lansing, MI: Association for Evolutionary Economics and Division of Research, Graduate School of Business Administration, Michigan State University. Samuels, W. J. (1976b). On the meaning of socialism. In W. J. Samuels (Ed.), The Chicago School of Political Economy (pp. 479 492). East Lansing, MI: Association for Evolutionary Economics and the Division of Research, Graduate School of Business Administration, Michigan State University. Samuels, W. J. (1976c). The political economy of Adam Smith. Nebraska Journal of Economics and Business, 15(3), 3 24. Samuels, W. J. (1976d). Review of Economic Foundations of Political Power, by R. Bartlett. Journal of Economic Issues, 10(1), 181 185. Samuels, W. J. (1977a). The Knight-Ayres correspondence: The grounds of knowledge and social action. Journal of Economic Issues, 11(3), 485 525. Samuels, W. J. (1977b). Ashley’s and Taussig’s lectures on the history of economic thought at Harvard, 1896 1897. History of Political Economy, 9(3), 384 411. Samuels, W. J. (Ed.). (1979). The economy as a system of power. New Brunswick, NJ: Transaction Books. Samuels, W. J. (Ed.). (1980). The methodology of economic thought. New Brunswick, NJ: Transaction Books. Samuels, W. J. (1981). Maximization of wealth as justice: An essay on Posnerian law and economics as policy analysis. Texas Law Review, 60(1), 147 172. Samuels, W. J. (1984a). Review of Science and Ideology in the Policy Sciences, by Paul Diesing. Journal of the History of the Behavioral Sciences, 30(3), 231 233. Samuels, W. J. (1984b). Comments on McCloskey on methodology and rhetoric. Research in the History of Economic Thought and Methodology, 2, 207 210.

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Samuels, W. J. (1984c). Four journals in intellectual history. History of Economics Society Bulletin, 5(2), 19 21. Samuels, W. J. (1985). Review of Why Economics is Not Yet a Science, edited by A. S. Eichner. Journal of Economic Issues, 19(1), 267 269. Samuels, W. J. (1993). Review of Economics and Language, edited by W. Henderson, T. Dudley-Evans & R. Backhouse. Economic Journal, 103(421), 1576 1578. Samuels, W. J. (1995). Review of Knowledge and Persuasion in Economics, by D. N. McCloskey. Eastern Economic Journal, 21(3), 424 426. Samuels, W. J. (1996). Reader’s guide to John R. Commons. Legal foundations of capitalism, 1924. Research in the History of Economic Thought and Methodology, (archival supplement 5), 1 61. Samuels, W. J. (1997a). The work of historians of economic thought. Research in the History of Economic Thought and Methodology, 15, 181 197. Samuels, W. J. (1997b). Review of Killing Time, by P. Feyerabend. Research in the History of Economic Thought and Methodology, 15, 337 343. Samuels, W. J. (2001). Review of Is Economics an Evolutionary Science? edited by F. Louca & M. Perlman. European Journal of the History of Economic Thought, 8(2), 270 273. Samuels, W. J. (2011). Erasing the invisible hand: Essays on an elusive and misused concept in economics. Cambridge: Cambridge University Press. Samuels, W. J., & Medema, S. G. (1997). Ronald Coase and Coasean economics: Some questions, conjectures and implications. In W. J. Samuels, S. G. Medema, & A. A. Schmid (Eds.), The economy as a process of valuation (pp. 72 128). Lyme, NH: Edward Elgar. Samuels, W. J., & Medema, S. G. (1998). Ronald Coase on policy analysis: Framework and implications. In S. G. Medema (Ed.), Coasean economics: Law and economics and the new institutional economics (pp. 161 183). Boston, MA: Kluwer. Samuels, W. J., Medema, S. G., & Schmid, A. A. (1997). The economy as a process of valuation. Lyme, NH: Edward Elgar. Schliesser, E. (2010). Friedman, positive economics, and the Chicago Boys. In R. B. Emmett (Ed.), The Elgar companion to the Chicago School of Economics (pp. 175 195). Cheltenham, UK: Edward Elgar. Schumpeter, J. A. (1987). Some questions of principle (L. Allen, Ed.). Research in the History of Economic Thought and Methodology, 5, 93 116. Stigler, G. J. (1941). Production and distribution theories: The formative period. New York, NY: Macmillan. Stigler, G. J. (1965). Textual exegesis as a scientific problem, Economica, new series, 32(128), 447 450.

REVIEW ESSAYS

SANDEL’S WHAT MONEY CAN’T BUY: THE MORAL LIMITS OF MARKETS A POLITICAL PHILOSOPHER’S QUICK TRIP ALONG THE BORDER BETWEEN MARKETS AND ETHICS Donald E. Frey Keywords: Michael Sandel; markets and morals; economic ethics; utilitarianism; gifts; morality of exchange; non-market values

A Research Annual Research in the History of Economic Thought and Methodology, Volume 31-A, 91 108 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2013)00031A004

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Review essay on Sandel, M. J. (2012). What money can’t buy: The moral limits of markets. New York, NY: Farrar, Straus & Giroux. 244pp. ISBN: 9780374203030. $27.

Sandel is a Harvard professor of government, whose previous books in political philosophy have enjoyed wide popularity, resulting in substantial mass media attention for this book. This book seems to aim at a popular audience, raising issues that deserve wide recognition. Sandel’s thesis is that market practices recently have invaded nonmarket realms, propelled by a morally questionable economic perspective. Sandel asks “why worry that we are moving toward a society in which everything is up for sale?” (p. 8). His primary answer is that moral and cultural values are thereby lost. His method relies heavily on examples to expose morally troubling implications of market expansion. Examples range from minor things to major policy issues. The book’s five chapters cluster examples by type: payments replacing traditional rationing practices (e.g., school admissions by family propensity to contribute instead of merit); monetary incentives to elicit desired behaviors (e.g., paying smokers or polluters to quit); economic interpretations that alter the meaning of a value-laden good, activity, or relationship (e.g., adopting a purely utilitarian view of marriage); ways to profit from bad events (e.g., purchasing ill people’s life-insurance policies); and finally, the recent boom in naming rights being sold for almost everything. In each chapter, the message extracted from examples of different types is the same. In the nonmarket realm actions are interpreted and guided by moral and cultural values. But, when market practice or thinking intrudes, values are replaced or altered. Sandel’s point has a long history: in the first century the early church recognized the sin of simony, which is the attempt to buy a sacred gift, bestowed by grace; divine grace is profaned by treating it as a marketable commodity (cf. Acts 8:14). Three types of moral problems are associated with market encroachments into the nonmarket realm. One is the familiar equity objection: lowincome people will bear relatively greater costs in some way. However, equity does not fault the “marketizing” of “goods that are precious or sacred or priceless” (p. 113). And so, Sandel’s second, and main, objection to market expansion is that non-economic values may thereby be threatened (p. 113). Finally, the third problem (perhaps a corollary of the

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second) is that conversion to market mentality can degrade society relative to its condition when moral norms guided behavior; in fact, the displacing of moral norms by market incentives can even nullify predicted responses to market incentives.

SANDEL’S CRITIQUE OF MARKET TRIUMPHALISM Of most interest is Sandel’s critique of the reasoning propelling recent market expansion. Part of his critique lies in his earlier book Justice (2009), which explores the philosophical roots, and weaknesses, of economics. Apparent omissions in What Money Can’t Buy are often, but not always, addressed in Justice, which seems to be a complementary volume. The critique begins by noting that there was a time when economists were humble enough to limit their subject (p. 48). Sandel lauds Paul Samuelson’s introductory textbook (1958 edition) for still respecting traditional limits of economics, covering “prices, wages, interest rates” and so forth (p. 84). Contrary to Sandel, some recent portrayals of the text attempt to mark it as the start of a kind of triumphalist economics; however, my reading puts Samuelson properly in the limits-to-markets camp. Specifically, Samuelson implied moral limits to markets, consistently taking “the position that policy issues of ethical import should be decided by the democratic process” (Frey, 2009, p. 143). That is, not left to market outcomes. The start of the current era of market expansionism is dated by Sandel to the argument of Gary Becker that virtually all of life can be understood by economic reasoning (pp. 49 50). But Sandel ignores earlier tendencies in this direction. The wedding of Pareto efficiency with a utilitarian view of the good by welfare economics surely contained seeds of market triumphalism. Chicago economists’ successful minimization of the problems of market imperfections certainly smoothed the way for market expansionism. Later, claims about the information-processing excellence of financial markets almost certainly aided and abetted deregulation, with subsequent expansion (and collapse) of financial markets. In any case, Sandel objects to the proposition that utility maximization explains all behavior, for it implies a (generally covert) value system of its own and promotes expansion of markets into areas properly governed by other values. An example of this paradigm is the interpretation of marriage as a utility-maximization problem. Sandel cites alternative values: critics think “love, obligation and commitments” define such relationships (p. 50).

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As the economic reconceptualization of everything has expanded, Sandel says, we “have witnessed the remaking of social relations in the image of market relations” (p. 51). Sandel regularly cautions about values lost when markets expand, but largely relies on readers to agree with him for their own reasons. Even allowing for greater elaboration in his earlier book, Justice, I wished Sandel had developed his arguments more fully. At a minimum, he might have quoted others who agree with his position. For example, Amartya Sen also asserts that humans understand themselves by their commitments and values, and not merely as utility maximizers (1988, p. 41). It is worth considering how Sandel deals with a policy proposal inspired by economics: to assign refugee quotas for countries; then to let nations sell and buy quotas. Presumably this promises that more refugees would find asylum. Sandel asks, “What exactly is objectionable about [a market for refugee quotas]?” (p. 64). His answer is that it encourages participants to “think of refugees as burdens to be unloaded or as revenue sources” (p. 64). Is this an “irrational” or sentimental objection? Or, does the potential good consequence (more refugees placed) trump the change in the way of thinking? Is not a consequentialist argument (more refugees placed) itself motivated by humane considerations? One might cite these questions as reason to dismiss Sandel. Nevertheless, many people take seriously the kinds of statements made by Sandel. And, solid refutations can be made of the objection most appealing to economists (the “irrationality” charge). Only a very narrow definition of “rationality” (i.e., calculations to maximize efficiency) would label Sandel’s argument as being irrational. In fact, Sen (1988, p. 15) observes that “to argue that anything other than maximizing self-interest must be irrational seem altogether extraordinary.” He states further support for Sandel’s thesis, that the “self-interest view of rationality involves inter alia a firm rejection of the ‘ethics-related’ view of motivation” (1988, p. 15). Finally, Sandel does not insist that moral attitudes always outweigh good consequences. But he does insist that readers not thoughtlessly ignore moral values. The neoclassical project itself rests on an unexamined moral premise: that maximizing utility by satisfying essentially arbitrary individual preferences is the highest social good. Sandel asks “why we should maximize the satisfaction of preferences regardless of their moral worth” (p. 88). Like John Stuart Mill, who is explicitly cited in Justice (2009, pp. 53 56), Sandel suggests that preferences could be ranked by moral worth. Economic .

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agnosticism about the moral worth of preferences promotes a relativistic morality that has no firmer standing than alternatives. Sandel moves on to the well-known economic argument that giving in-kind gifts is very inefficient relative to cash gifts (p. 99). The example seems minor, but Sandel is making a larger point. He asserts that the best in-kind “gifts are expressive of relationships that engage, challenge, and reinterpret our identities” (p. 102). That is, a well-chosen gift cultivates the humanity of the recipient while strengthening the relationship that motivated the gift. The gift debate highlights the definition of the highest good adopted by utilitarian economists: namely, “that the right way to treat friends is to satisfy their preferences” (p. 103). Sandel could have pushed this line further, that cash gifts presume a static personality as they simply indulge existing preferences. Many people would find attractive the view of interactive, growing persons implied by Sandel’s view of gifts. While Sandel’s larger point is congenial to me, I nevertheless found his critique of cash gifts only partially convincing. Could not a cash gift with no strings attached be an appropriate way to render aid to a loved one in financial distress, thereby affirming a caring relationship? How good are in-kind gifts that are used to impose the giver’s priorities on the recipient (a manipulative use of gifts)? Sandel hints that such exceptions to his argument exist (noting a case or two where cash would be appropriate) but does not develop the implications. Despite such doubts, new evidence supports Sandel’s point. Psychologists recently reported experiments showing that when pitches for charities promised a thank-you gift in return for a donation the size of donations fell. Although this is a somewhat different sort of gift-giving than Sandel’s examples, the researchers rationalized their result using strikingly Sandel-like reasoning. Paraphrasing them: the gift given in exchange for a donation framed the donation as market-like transaction, thereby leaving little room for altruism as motive for a donation; this side-tracking of altruism showed up as diminished donations (Fellman, 2013, p. 32). Incidentally, this is consistent with natural experiments (not related to gifts) in which adding monetary incentives for doing what otherwise was done out of civic duty actually reduced the desired behavior as a transactions-mentality reduced civic feelings (Sandel, pp. 115 116). Sandel takes on another claim of economists, which is of interest mostly because it does not come from the usual suspects. Specifically, this claim is that moral virtue is a scarce commodity and so ought to be economized

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(by using markets more). Sandel paraphrases Kenneth Arrow: “… moral sentiments are scarce resources that are depleted with use” (p. 126). The rejoinder to this is simply to assert the contrary view: virtues are not depleted, but “grow stronger with exercise” (p. 130). Beyond mere assertions, Sandel could have cited inferential support for his views. Economist Benjamin Friedman (2005) argued that in prosperity people favor more humane public policy than in hard times. This suggests that virtue is elastic with respect to people’s sense of material security. If so, is it impossible that virtue may be elastic with respect to the practice of virtue itself? All in all, Sandel’s method (i.e., a small amount of commentary on evocative examples) seems cursory something like a tour that drives by major landmarks with only basic commentary by the guide and little time to explore. Yet, sometimes more explanation is not always better. For a popular audience, which might require time to grasp unfamiliar ideas, Sandel may have the right strategy. There are probably no propositions in ethics that everyone would accept, no matter how much ink was spilled. And, for those who care for more explanation, Sandel does provide somewhat greater support in Justice. Sandel’s approach might be right for raising popular awareness of hot-spots along the economics ethics border.

THE MORAL LIMITS TO MARKETS: A LONG AMERICAN TRADITION For a book addressing predominantly American examples and American economists’ views, it is puzzling that Sandel barely mentions the long American tradition in which his work stands. For a variety of reasons, including but not limited to those advanced by Sandel, Americans have advocated moral limits to markets. Early Puritan clergy were convinced that commercial activity was a threat to personal virtue and also to society, that “the norms of merchant communities … would sometimes contradict godly teaching” (Valeri, 2010, p. 58). The Puritans’ trial of Anne Hutchinson is superficially well known, generally to illustrate Puritan intolerance. But few know that her antinomian teachings were at issue (i.e., in Christianity, claiming freedom from moral law due to the primacy of grace). And her teachings attracted an especially great following among merchants. Governor Winthrop “believed that Hutchinson’s followers sought nothing more than free rein for their

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spiritual pride and material greed” (Valeri, 2010, pp. 42 43). While undermining personal virtue is not the same moral threat highlighted by Sandel, it is cause to establish limits to markets. The popular press of the Antebellum period showed literate Americans torn between economic “progress” and “abandonment of republican virtues in pursuit of prosperity” republican virtues included devotion to the common good (Ratner, Kaufman, & Teeter, 2009, p. 2). Care for the common good is a value threatened by markets in Sandel’s writing. Many writers added “the fear that Christian principles such as compassion for the weak … were being set aside.” In same era, American abolitionists stated clearly the moral reasons for society limiting markets. The marketing of people as commodities violated human dignity. Further, once market-mentality had replaced the norm of human dignity, the door was opened to all manner of other depredation (Frey, 2009, pp. 83 84). In each of these cases, moral grounds for limiting markets are advanced; the reasoning of the abolitionists most closely parallels Sandel’s. Later in the nineteenth century, Edward Bellamy thought that competition created pervasive economic insecurity, making it inevitable that persons would use every means, fair or foul, to prevail against fellow humans. Although Social Gospel moralists advocated the Progressive social agenda, they also held that competition threatened personal virtue. Walter Rauschenbusch believed that under competition “the worst man sets the pace, and good men follow because they are afraid” (quoted in Frey, 2009, p. 120). The theme persisted that competitive markets created economic insecurity, and in turn insecurity corrupted morals. The Great Depression marked a shift in emphasis from personal virtue to equity issues when discussing economic insecurity. New Deal adviser, Rexford Tugwell, argued that American economic productivity grew so fast that factor shares became skewed. This led to too little aggregate demand, depression, and thus want and insecurity an ironic vision, in which the dynamic of growing abundance ultimately created want. Given this analysis, programs aimed to redistribute factor shares, by regulating markets, would produce demand necessary to end a depression and reduce economic insecurity. In the later twentieth century, at a high enough level of generality, the broad thesis of John Kenneth Galbraith looked very similar to that of Tugwell. An inept market system, operating on an incorrect “conventional wisdom” could turn abundance into want. Galbraith, by equating the conventional wisdom with the idea of fundamental scarcity, also highlighted classical economics’ assault on traditional ethics; for if Malthusian scarcity decrees inevitable want, then no moral obligation can

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exist to alter what is inevitable. More fundamentally, only the presumption of scarcity makes sensible efficiency as a social good. Arthur Okun was to continue the case for distributive justice (equity); but more broadly his fuller moral outlook anticipated by decades exactly the kinds of arguments made by Sandel. Okun’s (1975) essay, Equality and Efficiency, respects the ability of markets to allocate efficiently. Yet, for Okun, efficiency was not a value that trumped all other moral values. The book looked beyond efficiency to the very issues Sandel voices today. That Okun anticipated Sandel is easily seen in Okun’s statement that markets “can destroy every other value in sight. If votes were traded at the same price as toasters, they would be worth no more than toasters and would lose their social significance” (1975, p. 13). Continuing, Okun added that “society refuses to turn itself into a giant vending machine … .” Ignoring this truth invites the “nastiest definition of an economist: the person who knows the price of everything and the value of nothing. Society needs to keep the market in its place” (1975, p. 13).

A SUMMING UP Sandel has demonstrated the enlightening role of philosophers in clarifying what is really at issue in certain ideas, institutions, and trends. He points to market-oriented thinking replacing important values, with consequences that sometimes affect behavior but almost always color moral inclinations and relationships. His many examples are often convincing; but fewer examples with more extended discussion surrounding each could have been a fruitful strategy. Sandel’s tone is more open-minded to economics than my review might have indicated: generally, he leaves the reader to balance the moral peril of adopting market thinking against possibly good efficiency effects. I think his likely audience probably will not realize that Sandel stands in an existing tradition. His work is a fresh restatement of that tradition, given with a sense of urgency.

REFERENCES Fellman, B. (2013). A gift for your donation? Bah, humbug! Yale Alumni Magazine, January/ February. Frey, D. E. (2009). America’s economic moralists: A history of rival ethics and economics. Albany, NY: State University Press of New York.

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Friedman, B. M. (2005). The moral consequences of economic growth. New York, NY: Alfred A. Knopf. Okun, A. (1975). Equality and efficiency: The big tradeoff. Washington, DC: Brookings. Ratner, L. A., Kaufman, P. T., & Teeter, D. L. Jr. (2009). Paradoxes of prosperity: Wealthseeking versus Christian values in pre-civil war America. Urbana, IL: University of Illinois Press. Sandel, M. J. (2009). Justice. New York, NY: Farrar, Straus and Giroux. Sen, A. (1988). On ethics and economics. Oxford: Blackwell Publishing. Valeri, M. (2010). Heavenly merchandize: How religion shaped commerce in Puritan America. Princeton, NJ: Princeton University Press.

A BOOK THAT SHOULD NOT HAVE BEEN WRITTEN James S. Taylor Keywords: Michael Sandel; justice; markets and morals; economic ethics; utilitarianism; human organ markets; gifts; morality of exchange

Review essay on Sandel, M. J. (2012). What money can’t buy: The moral limits of markets. New York, NY: Farrar, Straus & Giroux. 244pp. ISBN: 9780374203030. $27.

In David Lodge’s academic satire Changing Places an inept British academic, Philip Swallow, and an ambitious American professor, Morris Zapp, exchange their positions for a year: Swallow travels to the high-powered Euphoric State University, while Zapp moves to the lowly University of Rummidge. In an attempt to dispel the awkwardness of a faculty party held to welcome him to Euphoric State Swallow introduces his new colleagues to the game of “Humiliation” in which one scores points by humiliating oneself by naming books that one has not read, but which have been read by the other players. Once the highly competitive Americans realized that the aim was not to name books one had read but others hadn’t, but to name books that everyone should have read but they had not, they entered into the game with zeal. The party ends when, to win the game, a junior faculty announced that he had not read Hamlet a move that he later

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came to believe cost him tenure, since no English Department could in good conscience tenure a professor who had admitted to never having read such an important work. While reading Sandel’s What Money Can’t Buy: The Moral Limits of Markets it is difficult to shake the feeling that Sandel is playing his own private game of “Humiliation.” Not only does he omit discussion of important works directly relevant to his contention that there are moral problems with what he sees as a trend toward “market society,” but he appears not to have read (or, at least, did not read carefully) some of the works that he does address. Moreover, while many of his contentions simply lack supporting arguments, where he does offer arguments they often evince a failure to understand the basic concepts relevant to them. Were What Money Can’t Buy to be an entry in a book-length game of “Humiliation,” Sandel would be playing to win. Sandel is concerned with what he perceives to be the expansion of markets into areas that have previously lain outside their domain. In particular, he is concerned that we are becoming a market society “in which market values seep into every aspect of human endeavor” (pp. 10 11), rather than remaining a market economy, which is merely a “valuable and effective tool” “for organizing productive activity” (p. 10). In support of his concern Sandel lists various examples of what he takes to be the expansion of the market into new areas: In Santa Ana, California, for example, prison cell upgrades are available to nonviolent inmates for $82 a night, while the right to shoot an endangered black rhino cost $150,000 in South Africa. A bespoke wedding toast can now be ordered for $149, while many major American companies take out life insurance on their shop-floor workers and collect death benefits when they die. Before moving to address Sandel’s criticisms of what he sees as the recent move toward a market society it is worth noting that none of the examples that he offers are recent developments at all. In eighteenth century London, for example, prison upgrades were available at Marshalsea prison, while discussion of licensing big game hunting dates back at least to the work of Stanley Jepson in the 1930s. “Literary clerks” have always been available to write speeches for a fee, and corporate America’s current practice of insuring workers is considerably less grim than Lloyd’s of London’s willingness (until 1807) to insure the human cargo of transatlantic slavers. Of course, Sandel’s ignorance of the historical antecedents of his examples might be seen as a strength of his book, indicating that his concerns in What Money Can’t Buy do not exhibit a temporal parochialism. And, of

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course, if sound, Sandel’s arguments against our becoming a market society would apply equally well to our being a market society. So, why should we be concerned about being a market society? For two reasons, according to Sandel: one to do with equality, and one to do with corruption. Let us start with Sandel’s equality-based argument against markets. Sandel holds that in a society where everything is for sale the distribution of wealth matters more than in a society where some things are distributed by nonmarket means by queuing, for example. Although Sandel’s argument here is not entirely clear, it seems to be that he holds that we should resist the expansion of markets on the grounds that one utilitarian argument offered in favor of them that markets will allocate goods to those who value them most highly, and thus will maximize social utility is mistaken. Sandel claims that wealth will allow persons to outbid poorer people in competition for goods even if the wealthy value them less than the poor do. However, if a good was distributed by queuing, then the poor who might have more time to queue than the rich owing to lower opportunity costs might have greater access to it than the rich. Thus, claims Sandel, there is no reason on a utilitarian basis to believe that markets rather than queues should be used to allocate goods, since both methods discriminate (markets by the possession of wealth, queues by the possession of time) and neither will guarantee that goods will end up in the hands of those who value them most. But this is a bizarre line of argument to take against a utilitarian defense of markets. Implicit behind it is the view that there is a basket of goods to be distributed, and the only question that remains for a utilitarian is how best to do this. If this were the case, then it might be true that we could not a priori prefer markets to queues, since while it might be the case that the wealthy valued the goods in question the most (and so markets would achieve the best utilitarian allocation) it might also be the case that those with the most time did (and so queues would be preferable). But concentrating on the allocation of goods in this way overlooks the fact that the utilitarian defense of markets does not focus on their ability to maximize social utility merely by distributing preexisting goods instead, it focuses on their ability to maximize it by providing incentives to persons to produce them in the first place. To overlook this crucial part of the pro-market argument is akin to arguing that there is nothing to choose from a utilitarian standpoint between horse-drawn buggies and automobiles on the grounds that sometimes reins are better steering mechanisms than steering wheels while ignoring the fact that only automobiles have engines. And Sandel, surely, knows this so it is not clear why this crucial aspect of the utilitarian defense of markets in unaddressed.

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While Sandel’s particular version of the antimarket argument from equality is bizarre, there is, at heart, nothing new in it it is simply the hackneyed claim that inequalities of wealth in a market society will lead to inequalities of access to the goods of that society, and that there is something bad about this. (Unfortunately, Sandel does not offer a philosophical framework for identifying precisely what is bad about such inequality. Instead, he merely relies on emotive claims about persons who allegedly cannot “afford” such luxury goods as performances of Shakespeare in the Park or tickets to see the Red Sox even though the items in question are well within the means of even those at the U.S. poverty line.) There is also nothing new in Sandel’s arguments from corruption, which have their genesis at least as far as Kant although Kant is nowhere to be found in What Money Can’t Buy. (“Humiliation” again!) The general line of argument here is that commodifying some items would be inappropriate for the sort of thing that they are. This was Kant’s objection in the Lectures on Ethics to commodifying parts of the human body, such as teeth, on the grounds that a person’s body is partially constitutive of her as a person, and hence, like persons, should not be bought and sold. This degradation objection is sometimes as here, with Sandel coupled with the claim that were an item to be degraded through being commodified fewer instances of it would become available for distribution. This is because, it is claimed, the commercialized instances of the item in question would crowd out their noncommercial alternatives without the market procuring enough to replace them. Sandel draws on this type of argument to argue that we should be careful what we commodify, criticizing what he takes to be the economic, pro-market, view, that If a previously untraded good is made tradeable, no harm is done. Those who wish to buy and sell it can do so, thereby increasing their utility, while those who regard the good as priceless are free to desist from trafficking in it. According to this logic, allowing market transactions makes some people better off without making anyone else worse off … . (p. 125)

There are two points to note here. First, Sandel only focuses on the providers’ options. As such, there is a lacuna in his argument, for from the mere fact that providers will (apparently) not be made worse off it does not follow that no-one will be made worse off. Standard economic theory does not assume that utility is only a function of things that carry dollar values: it recognizes that people can have preferences for things that do not currently have this. A person might, for example, derive utility from the altruistic donation of his time. If he values a good G that he donates at amount X, and he is offered amount Y in payment for it, this will communicate to him

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that G is worth Y. If Y < X a rational person would cease donating G since he now realizes that his donation of it when it is valued at Y would lead to the destruction of value. And if the number of G’s that would no longer be donated is greater than the number procured at price Y then (assuming static demand) the recipients of G would be made worse off by its commodification. Economic theory is thus not, contra Sandel, committed to claiming that “allowing market transactions makes some people better off without making anyone else worse off” since it can predict that commodifying some goods could make some of their former recipients worse off through leading to a decrease in their provision. (Note that this is not to claim that the number of formerly noncommercial goods procured would be reduced even if their commercial procurement crowded out their altruistic provision, for a rise in price could stimulate either renewed altruistic provision if Y > X, or increased commercial provision.) Second, since economic theory is able to recognize that persons can derive value from things that are not commodified it is able to recognize that persons could derive value from the donation of G only when G is not commodified. If such persons wanted to donate G, then, they would be made worse off by its commodification, independently of its price. This is unproblematic from an economic point of view. But could it be problematic from a moral point of view, and so be used to ground an objection to certain types of market expansion? It could not. While it is true that some persons might be made worse off through the expansion of the market into areas where the goods concerned could only be secured through altruism, it is important to note that this occurred through an option being extinguished (i.e., the option to donate G in a situation where G could not be bought). As such, the persons whose preferences would be thwarted by this would be in a position similar to persons who wanted to fly like birds but could not: their preferences are thwarted as they are impossible to satisfy, but this thwarting is no ground for any moral complaint since it is not the result of coercion on the part of others. By contrast, were a ban on the commodification of G to be enacted this would coerce some persons into refraining from buying or selling. And since coercion requires justification such a ban could encounter a moral complaint against it. Morally speaking, then, there is a clear difference in kind between commodifying G and banning this; while both might thwart some persons’ preferences, only the latter might directly raise serious moral issues. Neither Sandel’s equality-based argument nor his argument from the corruption of the social meaning of goods, then, support his view that certain goods should be market inalienable. Of course, that Sandel’s

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arguments fail does not in itself show that What Money Can’t Buy is a bad book, for even arguments that ultimately fail can do important work in advancing debates. But Sandel’s arguments here are not of this sort, for they are simply reheated versions of arguments that have been addressed and dismissed already. It is not clear whether Sandel knows this (although since he is, according to the back cover of his book, a “superstar Harvard political philosopher,” he should) for the arguments of the defenders of markets who have responded to these charges such as Eric Mack, Mark J. Cherry, Matt Zwolinski, John Meadowcroft, and John Tomasi are not even mentioned in the book. (Sandel is here winning “Humiliation” with a vengeance!) And at times this leads him to rehearse arguments that have been offered against allowing markets in certain goods without recognizing that they have been systematically rejected. In discussing markets in human organs and sex, for example, Sandel observes that some persons’ agreements to participate as vendors in such markets might have been coerced by their economic situation. From this, one might argue although Sandel does not do so explicitly that to protect persons from being coerced into selling their bodies (whether for parts or for sex) we should prohibit the markets that would allow such coercion to take place. But this line of argument has been subject to two devastating objections. The first, developed by Janet Radcliffe-Richards in the context of arguing in favor of allowing a market in human kidneys, is based on the observation that coercion operates by reducing the range of options that a person has until the most palatable one is that which her coercer desires her to pursue (RadcliffeRichards, 1996). However, argues Radcliffe-Richards, removing the prohibition on having a market in a previously banned good (such as a kidney) would not be to reduce a person’s options, but increase them. Markets, then, do not coerce. In response to this defense of those markets in which the poor would typically act as vendors one might argue that while markets themselves do not coerce, they allow a person’s poverty to coerce, since it is this that restricts a person’s available options and channels her into making an exchange she would otherwise eschew. But this response to the first objection to the claim that persons can be coerced by their poverty into making exchanges, and so should be protected from the markets in which such exchanges would occur, simply leads to the second objection to this antimarket argument from coercion. A person who is successfully subjected to coercion will thus form the desire to “to what my coercer wants me to do.” It is this abdication of control on the part of the coerced to her coercer that justifies the claim that a person who has been coerced into acting thereby does not act fully voluntarily. (Note that this is compatible with

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the claim that even a coerced person can be fully voluntary with respect to her decision either to submit to her coercer or to attempt to resist, for the lack of voluntariness that results from successful coercion arises at the level of a person’s acts the control over which she would have ceded to her coercer rather than at the level of her decisions, such as the decision to submit and cede control.) But since a person’s diminished voluntariness with respect to her coerced acts stems from her abdication of control over them to her coercer, only intentional agents can coerce. Thus, since a person’s economic situation is not itself an intentional agent, it cannot be said to coerce her. The view that Sandel appears to endorse (that markets either themselves coerce, or that they enable economic coercion to take place) is thus mistaken. And since these objections to it are not new, he should have known this “Humiliation” again! In response, perhaps Sandel could argue that What Money Can’t Buy is not supposed to be an academic text that advances the debates over the morality of markets, but instead a text intended to popularize thinking about their proper scope. But even if that is the case it behooves him to present the arguments of persons whose views he disagrees with fairly, even if he eventually rejects them. Not to do so is to do a disservice to his readers, by knowingly manipulating the argumentative landscape that he is allegedly introducing them to. Sandel’s failure to address the defenses that have been offered against the type of antimarket arguments that he rehearses is compounded by the errors that he makes when he does outline positions that he rejects. Consider, for example, his objection to utilitarianism in the context of his observation that this ethical theory is relevant to “market reasoning” that he begins by asking … why we should maximize the satisfaction of preferences regardless of their moral worth. If some people like opera and others like dogfights … must we really be nonjudgmental and give these preferences equal weight in the utilitarian calculus? … when market reasoning is applied to sex, procreation, child rearing, education, health, criminal punishment, immigration policy, and environmental protection, it’s less plausible to assume that everyone’s preferences are equally worthwhile. (pp. 88 89)

Unfortunately, Sandel fails to recognize that the utilitarianism of Jeremy Bentham (hardly a minor figure in the utilitarian firmament) is immune to this “familiar objection,” for Bentham explicitly distinguished between those preferences that he held to have moral worth, and those that he did not. Arguing that homosexuality should not be criminalized, Bentham argued that the preferences of those prejudiced against do not justify its punishment, even if this would lead to greater happiness overall, for even

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on a utilitarian view mere prejudice against an act did not justify its persecution (Bentham, 1978 [1785], esp. the section “How far the antipathy is a just ground”). For Bentham, then, if a preference has an alleged moral basis, that preference only has moral worth to the degree that its moral basis is justified. But it should be noted that recognizing that a utilitarian can accept that different preferences have different values and thus can readily avoid the “familiar objection” that Sandel levels at them does not support Sandel’s general claim that “some ways of valuing goods may be higher, more appropriate than others” (p. 89). Whereas Sandel is writing of preferences for types of goods, Bentham is writing of preferences for types of behavior. And while Bentham can explain the differences in moral value that he sees holding between preferences for types of behavior, for, on his view, the question of whether an act is moral or not admits of argument, Sandel still owes us an account of why preferences for different goods should have different moral value, for the question of whether one good should be preferred over another seems merely to be a matter of taste, rather than of argument. Yet despite the flaws in Sandel’s arguments against expanding the scope of the market some of his conclusions are still defensible although not for the reasons that he believes. Two of the proposed markets that Sandel objects to in What Money Can’t Buy are those for procreation permits and immigration permits for refugees. Sandel objects to the latter market on the grounds that it would encourage those who participate in it “to think of refugees as burdens to be unloaded or as revenue sources, rather than as human beings in peril” (p. 64). He objects to the market in procreation permits on the grounds that this might result in children becoming luxury goods, “affordable by the rich but not the poor” (p. 71). But a more basic objection could be leveled against these proposed markets: That the goods that are being proposed for trade immigration permits, and procreation permits only exist against a background of immoral coercion. Thus, a permit to immigrate into a country only has value if the Government of that country (i.e., some tiny subset of its population who claim the right to monopolize legitimate force) coercively prevents persons from entering it, even if others already residing within it are willing to rent or sell them housing and employ them. Similarly, a procreation permit only has value if the Government takes (presumably, by force) partial ownership of the bodies of its female subjects. Thus, to say that Sandel’s objections to markets fail to show that the scope of the market should not expand is not to defend markets in everything that there can be markets in, for some markets could only exist against a background of immorally executed coercion.

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What Money Can’t Buy is an extremely frustrating book. The question of the appropriate scope of the market is a serious and interesting moral issue, and given Sandel’s undoubted philosophical talent he could have made genuine advances in addressing it. Instead, in What Money Can’t Buy we appear to have a book that would make even the most ardent competitor in a game of “Humiliation” concede defeat and hence a book that has the dubious distinction of being A Book That Should Not Have Been Written.

REFERENCES Bentham, J. (1978 [1785]). Offenses against oneself. Retrieved from www.columbia.edu/cu/ lweb/eresources/exhibitions/sw25/bentham/index.html#28. Accessed on March 5, 2013. Radcliffe-Richards, J. (1996). Nepharious goings-on: Kidney sales and moral arguments. Journal of Medical Philosophy, 21(4), 375 416.

MUELLER’S REDEEMING ECONOMICS OPENING REMARKS: WHY “AAA ECONOMICS” HAS LEGS$ John D. Mueller Keywords: Neoscholastic economics; neoclassical economics; natural law; economics and religion; economics and theology; Thomas Aquinas

$

Opening remarks at a session on Redeeming Economics at the History of Economics Society meeting, Brock University, St. Catherine’s, Ontario, June 2012. I am grateful to the History of Economics Society for carving time in its 39th Annual Meeting for this panel on my book. I am especially grateful to J. Daniel Hammond for suggesting and organizing the roast; and to Joseph Blosser, David Levy and Edd Noell, for supplying the wieners. These remarks are similar to the ones made at a session on Redeeming Economics at the Association for Private Enterprise Education meeting in Maui, Hawaii, April 2013. The two commentators at that session, Dwight Lee and Jordan Ballor, graciously added their contributions to this roast.

A Research Annual Research in the History of Economic Thought and Methodology, Volume 31-A, 109 185 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2013)00031A005

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My first task is to summarize 470 pages (370 of text and 100 in end-notes) in 10 minutes. Our moderator Dan Hammond opened a forthcoming review by remarking, “Redeeming Economics is likely to be ignored by economists,” but then helpfully gave this admirably succinct summary: What, according to Mueller, is wrong with economics? In the simplest terms familiar to economists, there is an “equation” missing from the model. Economists have “equations” for production, consumption, and exchange, but not for the primary economic choice the choices of persons. This missing element is a theory of distribution. Mueller argues that Thomas Aquinas had a complete economic model, with all four elements. Drawing on Aristotle and Augustine, Aquinas’s economics explained production (what is produced and how), consumption (utility), exchange (commutative justice), and distribution (production or purchase for whom). Adam Smith, the father of modern (classical) economics, dropped two of the four equations, those for consumption and distribution. With neoclassical economics the equation for consumption was restored. But neoclassical theory has nothing to say about distribution, leaving the restoration of economics incomplete. Mueller sees this reconstruction (redemption) continuing with his book, with the efforts of other nascent neoScholastics and, he predicts, eventually by the profession at large. Thus Mueller himself does not think his book will be ignored. Or perhaps, if it is ignored the deficiency of economics will become evident to practitioners from their experiences doing economics. Mueller expects that economists will find their way to a neo-Scholastic economics that will preserve the best of both Smith and the neoclassicals, while restoring the theory of distribution. (Hammond, 2012)

Mine is the latter view: “the deficiency of economics will become evident to practitioners from their experiences doing economics.”1 The technical problem is that with fewer explanatory equations than variables to be explained, the classical and neoclassical systems are “underdetermined,” thus requiring economists using them to adopt circular logic or insert empirically false assumptions (or both). I came to this realization by the accident of becoming a financial market forecaster, which requires one to spell everything out verifiably. But to put the problem in terms that most ordinary people can understand, the scholastic, classical, and neoclassical systems presuppose three different views of human and divine nature, and their difference has to do with the existence and nature of free will (Table 1). Since Adam Smith essentially “de-Augustinized” economics, it’s important to understand Augustine’s theories of benevolence and beneficence, which Aquinas integrated within the scholastic natural law moral philosophy and the economic theory which prevailed for five centuries before Smith.2

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Table 1. Kind of Love

Ordinate Inordinate

Augustine’s Theory of Love and Hate. Inner Act

Benevolence (goodwill) Malevolence (ill will)

Outer Acts Toward Self

Others

Utility Vice

Beneficence (doing good: gifts) Maleficence (doing evil: crimes)

Source: John D. Mueller, Redeeming Economics, Table 6-1, p. 142.

Augustine started from Aristotle’s insight that “every agent acts for an end”3 and his definition of love willing some good to some person (Aristotle, 1932, pp. 6). But Augustine drew an implication that Aristotle did not: every person always acts for the sake of some person(s). For example, when I say, “I love vanilla ice cream,” I really mean that I love myself and use (consume) vanilla ice cream to express that love (and in preference, say, to strawberry ice cream or Brussels sprouts, which reflects my separate scale of utility). Augustine also introduced the important distinction between “private” goods like bread, which inherently only one person at a time can consume, and “public” goods (like national defense, enforcement of justice, or even this panel), which, at least within certain limits, many people can simultaneously enjoy because they are not “diminished by being shared” (Augustine, 1953, pp. 102 103) (Fig. 1).4 In other words, Augustine’s crucial insight is that we humans always act on not one but two scales of preference one for persons as ends and the other for other things as means: the scales of personal love and utility, respectively. Moreover, we express our preferences for persons with two kinds of external acts, “sale or gift” (Augustine, 1953, p. 131). Generally speaking, we give our wealth without compensation to people we particularly love,5 and sell it to people we don’t, in order to provide for those we do love.6 It’s always possible to avoid depriving others of their own goods, so this is the bare minimum of love expressed as benevolence or goodwill and the measure of what Aristotle (1954, V, v; pp. 117 122) called justice in exchange. But our positive self-love is expressed by the utility of the goods we provide ourselves, and our positive love of others with beneficence: gifts. Hate or malevolence is expressed by the opposite of a gift: maleficence or crime (Table 2). This understanding of economics entails an alternate view of the history of economics; hence, my book begins with a “Brief Structural History of Economics,” which describes and distinguishes the scholastic, classical, and neoclassical theories, as well as the incipient “Neoscholastic” school. The

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Persons loved equally (including self)

Personal gifts/crimes are proportional to one's love/hate for the persons

Fig. 1.

10 9 8 7 6 5 4 3 2 1 0 0%

Selfishness (assumed by Adam Smith and neoclassical economics) Gifts (express love) Crimes (express hate)

50% 100% 150% Allocation of own wealth to own use

200%

Augustine’s “Personal Distribution Function.” Source: John D. Mueller, Redeeming Economics, Fig. 6-1, p. 144.

Table 2. How the Structure of Economics Has Changed: Simplified. Element Outline

Distribution

Consumption

Production

Exchange

Scholastic (1250 1776) Thomas Aquinas Classical (1776 1871) Adam Smith Neoclassical (1871 c. 2000) Jevons, Menger, Walras Neoscholastic (c. 2000 ?) Scholastic outline, elements updated

Yes

Yes

Yes

Yes

No

No

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Source: John D. Mueller, Redeeming Economics, simplified from Table 5-1, p. 130.

simplified version merely lists “yes” or “no” to denote the presence or absence of each fundamental element of economics (Table 2). But the same analysis distinguishes not only among periods but also among schools within each period, such as the British School inaugurated by W. S. Jevons, the Austrian School initiated by Carl Menger, the neoclassical school begun by Leon Walras, as well as the Distributist and “neoThomist” schools, and even among individual economists. (Table 3) (For example, it is instructive to compare the economist pairs Ludwig von Mises and Wilhelm Ro¨pke in the Austrian School, co-founders Frank Knight and

“

“

“ “

Classical (1776 1871) Neoclassical (1871 c.2000) School British (Jevons)

Austrian (Menger)

Lausanne (Walras) Chicago (1920 1960: like British)

Period Scholastic (1250 1776)

Source

Yes (all: personal, domestic, and political) No No

1. Preference for persons as ends Final distribution (social unit described) Augustine, On Christian Doctrine I, 26 (person); Aristotle, Ethics V, 3 (household, business, government)

Generic meaning

Element of economic theory

Gifts (or Crimes) and Distributive Justice

“ (“ “) “ (“ “)

“ (tangible nonhuman) “ (“ “)

“ (cardinal: … −1,0,1,2, …) “ (ordinal) “ (ordinal) “ (cardinal)

Yes (tangible human) Yes

Yes (none)

3. Actualization of means: a Production (factors typically assumed to vary) Aristotle, Politics 1, 4 (none)

Production

No Yes

Yes (ordinal)

Augustine, City of God XI, 16 (ordinal: 1st, 2nd, 3rd, …)

2. Preference for scarce means Utility (type)

Consumption

The Origins and Historical Structure of Economic Theory.

Common-sense Meaning

Table 3.

Yes (partial) Yes (partial)

No (Mises)

Yes (partial)

Yes (partial) Mixed

Yes (partial)

Aristotle, Ethics V, 5 (partial)

4. Actualization of means: b Equilibrium (type)

Justice in Exchange

Opening Remarks: Why “AAA Economics” Has Legs 113

Mixed (cardinal)

No Yes (ordinal) Yes (ordinal)

Mixed (domestic and political only)

Political only

Yes/Yes Yes (all: personal, domestic, and political)

Neo-Thomist Solidarist (Pesch: 1900 ) Distributist (Belloc: 1910 Chesterton) Neoscholastic (c 2000 ) (Morse, 2001; Mueller, 2002, 2010)

Source: John D. Mueller, Redeeming Economics, adapted from Table 5-1, p. 130.

“ (cardinal)

“

(1960 ) Schultz, (Mueller, 1996)

Consumption

Gifts (or Crimes) and Distributive Justice

Common-sense Meaning

Table 3. (Continued )

“ (all: tangible and intangible human and nonhuman) Yes (all: tangible and intangible human and nonhuman) Tangibles only (“labor theory”) Yes (all) Yes (all: tangible and intangible human and nonhuman)

Production

“ (“) Yes (general)

Yes (partial)

Yes (partial)

Yes (partial)

Justice in Exchange

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Jacob Viner in the Chicago School, and Hilaire Belloc and G.K. Chesterton in the Distributist School; in each pair, the latter corrected the former’s theories to bring them closer in line with the (Neo-) Scholastic school. I differentiate my own migration from the Chicago School as of 1996 to the Neo-Scholastic School in the book.) Where Aristotle had divided moral philosophy into ethics and politics, scholastic philosophy and economic theory follow Thomas Aquinas by redividing it into three parts: personal, domestic, and political prudence, or (equivalently) economy, according to the social unit each describes (Aquinas, 1981, II-II Q47 A11 contra and corpus, and Q50 A3). Hence the middle three sections of Redeeming Economics are devoted to personal, domestic, and political economy. In each section, after re-stating and updating the scholastic economic theory, I focus on a salient application in which neoclassical and neoscholastic economics make divergent predictions; in particular, disproving the famous claim by economist Steven D. Levitt that the U.S. Supreme Court’s legalization of abortion in 1973 caused the crime rate to fall 15 20 years later, by eliminating potential criminals (Fig. 2; Levitt & Dubner, 2005, pp. 117 144). In fact, there is a 90% current inverse relation between “economic fatherhood and homicide. Legalizing abortion raised crime rates immediately and with a lag” (Fig. 3). The final chapter concerns “divine economy,” the name that Aristotle used for metaphysics. It considers the three world views presupposed by (Neo-) Scholastic, classical, and neoclassical economics, which correspond Levitt assumed fertility affects crime with a 20-year lag since “infants commit little crime.” Hence, Roe v. Wade in 1973 supposedly reduced crime in the 1990s. In fact, legal abortion quickly raised the homicide rate by decreasing the share of men supporting children. Crime rates fell in the 1990s mostly because of welfare reform and incarceration. 12

4.0

3.0

11

Total Fertility Rate

2.5

10 9 “Economic Fatherhood”

8 7

2.0

6

1.5 1.0 0.5

Homicide Rate

Starting in 1967, many states 20-year lag legalize abortion (supposedly required for effects of Roe to become evident in homicide rate)

0.0 1935

Fig. 2.

5 4

Homicide rate per 100,000

Children per woman/man

3.5

3 2

1945 1975 1955 1965 1985 “Economic Fatherhood” = Total Fertility Rate less children on welfare and men in prison

1995

“Economic Fatherhood” vs. Homicide. Source: John D. Mueller, Redeeming Economics, Fig. 8-3, p. 184.

JOHN D. MUELLER

Economic fatherhood

116 1936-2000 4 57 56 59 58 60 55 61 54 53 62 52 63 5164 50 49 4847 46 43 65 66 44 4542 67 41 40 00 9939 38 98

3 2 1 3

4

5

R-square = 0.904 # pts = 65 y = 19.6x∧–1.17

Fig. 3.

68 69 37 36 70 71 97 96 90 7294 89 95 76 88 79 7375 87 92 74819180 82 8583 86 93 77 84 78

6 7 8 9 Homicide Rate per 100,000

10

11

12

Label = year (e.g., 70 = 1970)

Fatherhood vs. Homicide: 90% Trade-off. Source: John D. Mueller, Redeeming Economics, Fig. 8-4, p. 185.

to biblically orthodox natural law, the Stoic, and Epicurean philosophies, respectively. These three differ about immaterial realities the existence or nature of God or the soul yet lead to starkly different behaviors among people and starkly different predictions by economists. In (neo-) scholastic natural law, economics is a theory of rational providence, describing how we “rational,” “conjugal,” and “political animals” choose both persons as “ends” (which we express by our personal and collective distribution) and the scarce means to be used (consumed) by or for those persons, which we make real through production and exchange. By dropping both final distribution (the choice of persons as ends) and consumption (the choice of other things as means), Smith (1982, para 274) expressed the Stoic pantheism that viewed the universe “to be itself a Divinity, an Animal” with God as its immanent soul, so that sentimental humans choose neither ends nor means rationally; instead, “every individual… intends only his own gain, and he is … led by an invisible hand to promote an end which was no part of his intention” (Smith, 1966, Bk. IV Ch. 2; Vol. 2, p. 35). By restoring the scholastic element of utility (the choice of means) but not final distribution (the choice of persons as ends), neoclassical economics expressed the Epicurean materialism that claims humans somehow evolved as merely clever animals, highly adept at calculating means but having no other choice than self-gratification, since “reason is, and ought only to be, the slave of the passions,” as Hume (1740, II, III, iii) put it (Table 4). Since the other panelists have circulated responses in advance, I not only suspect but also know that we will disagree at least in part. But I think the

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Table 4. Worldview Implicit in Each Outline of Economic Theory. Economic Theory

(Neo-) Scholastic

Philosophical worldview Ultimate cause

Biblically orthodox natural law God

Governing principle View of God Is he immanent? Transcendent? View of man Personal soul? Free choice of ends and means? Theory of knowledge

Logos (reason) Creator (ex nihilo) Yes Yes Rational animal Yes Yes, both (though weakened by sin) Moderate realism: rational creation, hence knowable

Classical

Neoclassical

Stoic pantheism

Epicurean materialism

Uncreated animate matter Fate (necessity)

Uncreated inanimate matter Chance

World-soul Yes No God’s puppet No Neither: both driven by “sentiments” (Adam Smith) Nominalism: Divine “deception” (Adam Smith)

Doesn’t exist No No Clever animal No Means, not ends: reason ‘slave of passions’ (Hume) Nominalism: no “real connection”of things (Hume)

Source: John D. Mueller, Redeeming Economics, Table 17-1, p. 365.

model for disagreement was well expressed by Thomas Aquinas: “We must respect both parties, namely, those whose opinion we follow, and those whose opinion we reject. For both have diligently sought the truth and have aided us in this matter” (Aquinas, 2007, pp. 1073a14 1073b17; paraphrasing Aristotle). Let the roast begin!

NOTES 1. I use the term “redeem” in the sense of “fulfill (an earlier promise or pledge).” If, as I believe, the next phase in economics is neoscholastic, it will have fulfilled its original promise. 2. In the book I typically use the term “final distribution,” to distinguish it from “distribution” as the term has been used since the time of Adam Smith. The original scholastic theory of distribution comprises Augustine’s theory of personal distribution gifts and their opposite, crimes and in every social community (like a family or political community), what Aristotle called “distributive justice.” Smith conflated distribution properly so called with what is more properly called “compensation” or “justice in exchange,” by introducing the assumption that

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“every individual … intends only his own gain” (Smith, 1966 [1776] Bk. IV Ch. 2; Vol. 2, p. 35). 3. This concise formulation seems to be that of Aquinas (1981, pp. I II, Q1 A2 V. 2, p. 584), paraphrasing Aristotle’s Physics, ii, 5. 4. Private goods are now sometimes called “rival” goods. The formulation “diminished by being shared” is from Augustine (1953, pp. 396, 397, I, 2). 5. To be more precise, love with both benevolence and beneficence. 6. Or rather, love only with benevolence but not beneficence.

REFERENCES Aristotle. (1932). In L. Cooper (Trans.), The Rhetoric of Aristotle. New York, NY: AppletonCentury-Crofts. Aristotle. (1954). In W. D. Ross (Trans.), The Nicomachean Ethics of Aristotle. Oxford: Oxford University Press. Aquinas, T. (1981). Summa theologica (Vol. 5). Westminster, MD: Christian Classics. Aquinas, T. (2007). In R. J. Regan (Trans.), Commentary on Aristotle’s Politics. Indianapolis, IN: Hackett Publishing. Augustine, A. (1953). On free will. In J. H. S. Burleigh (Ed.), Augustine: Earlier writings (pp. 102 117). Philadelphia, PA: Westminster Press. Hammond, J. D. (2012). Review of Redeeming Economics: Rediscovering the missing element, by John D. Mueller, Faith & Economics, 59(Spring), 73 77. Hume, D. (1740). A treatise of human nature Project Gutenberg ebook. Retrieved from http://www.gutenberg.org/files/4705/4705-h/4705-h.htm Levitt, S. D., & Dubner, S. J. (2005). Freakonomics: A rogue economist explores the hidden side of everything. New York, NY: William Morrow. Smith, A. (1966 [1776]). An inquiry into the nature and causes of the wealth of nations (Vol. 2), London: W. Strahan and T. Cadell. Smith, A. (1982). The Theory of Moral sentiments. In D. D. Raphael & A. L. Macfie (Eds.), Indianapolis, IN: Liberty Fund.

MUELLER’S REDEEMING ECONOMICS NATURAL LAW ECONOMICS: READING A THEOLOGICAL ECONOMICS Joe Blosser Keywords: Neoscholastic economics; neoclassical economics; natural law; economics and religion; economics and theology; Thomas Aquinas

Review essay on Mueller, J. D. (2010). Redeeming economics: Rediscovering the missing element. Wilmington, DE: ISI Books. 400pp. ISBN: 9781932 236941. $27.95

Mainstream “textbook” economics with its notoriously myopic vision fails to describe economic activity accurately because it fundamentally misunderstands who humans are and how we act economically. At its heart I read John Mueller’s Redeeming Economics as a clarion call to economists to reconsider the big picture of economics to rethink their assumptions about human nature, the ends of economic activity, and the connections between economics and the wider questions of human nature and

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metaphysics. I could not be in greater agreement with the problem Mueller perceives plaguing the field of economics. Mueller’s solution draws on a particular form of natural law thinking that participates in a growing movement of theological economics.1 His contribution to the movement is that he is one of the few theologically minded scholars actually doing economics in a way that economists might recognize. Redeeming contributes to the theological economics literature by demonstrating how theology translates into economic theory and policy. I am leery of the approach, however, because it seems to overstep the human ability to know the laws of God. Redeeming is rooted in a particular Catholic natural law kind of thinking that restricts “reason” to those who agree with it, and it results in an ideological re-reading of economic history and several religiously motivated economic policies. While I concur with Mueller’s desire to inject moral considerations, humans as ends, and a broader understanding of economic activity back into economics, the approach laid out in Redeeming is too narrow too uniquely Catholic to build a strong coalition and make an impact on the wider field.

SITUATING REDEEMING ON THE LANDSCAPE OF THEOLOGY AND ECONOMICS I first want to situate Redeeming Economics on the wider landscape of texts that engage both theology and economics. I have created a typology with three general types to describe the ways in which theologians and economists relate their fields: isolationist, imperialist, and integrationist. Though I discuss particular thinkers in each type, no one scholar can be wholly defined by any particular type and no type can be captured in only one scholar’s thought. The types are simply meant as a heuristic, to decode the landscape of approaches to theology and economics. I would wager that the majority of theologians and economists today fall into the isolationist type. Isolationists see their work contained within particular parameters that do not require them to engage other disciplines to do their work well. On the theological side, the most popular theological isolationist is surely Stanley Hauerwas, who along with William Willimon uses the term “resident alien” to describe the Christian life in this world. They claim that “the church was called to be a colony, an alternative community, a sign, a signal to the world that Christ made possible a way of life together unlike anything the world had seen” (Hauerwas & Willimon,

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1989, p. 132). Hauerwas claims the church and all the spheres that constitute the secular world represent two different ways of life. The Christian sphere is constituted by people who live their lives as characters in God’s story, and the other spheres include people who do not confess to be part of the story of Jesus Christ.2 Doing Christian theology well does not require or need worldly sources, like economics. Most neoclassical economists are also isolationists because their tradition grows out of a fundamental distinction between positive and normative economics (Waterman, 2008, p. 137). Hume (1739, p. 469) famously states in his Treatise on Human Nature that one cannot derive “ought” from “is.” Imperative statements about how the world should be cannot be derived from indicative statements about how the world actually is. Lionel Robbins interprets such a statement to mean that “economists qua economists cannot legitimately recommend a particular course of public action” (Blaug, 1980, p. 150). Economists do descriptive work; they do not make moral statements about how people ought to live. Economists of this stripe can do quality economic analysis without a need to engage other fields, especially theology. Frank Knight, Paul Heyne, and Anthony Waterman are excellent examples of economists who are knowledgeable of theology, but still advocate an isolationist view because they see the fields asking different questions and pursuing different projects. On the other end of the spectrum is the imperialist type, including theological economics and economic theology. Though theological economics and economic theology utterly reject each other, they mirror each other’s logical structure, and thus, fall into the same type. Both imperialist types believe their approach is dominant and that other fields have subordinate or derivative approaches. I read Redeeming as an example of a theological economics. It advocates, as Mueller (p. 18) writes, “that all theories of order in the markets are frankly theological” or that “economics is essentially a theory of providence.” Natural law scholars, like Mueller, typically fall in this type, but many other Catholics and Protestants do so as well, including adherents to Radical Orthodoxy, like John Milbank. Milbank (1991, p. 388) exemplifies the imperialist type when he claims that the logic of the church is superior to other discourses on moral action. Only the Christian narrative of peace offers a way out of the “self-torturing circle of secular reason” (Milbank, 1991, p. 434). Though Milbank’s views should not be confused with Mueller’s, both articulate a theologically rooted approach that subsumes all other discourses under it. Mueller’s unique contribution to theological economics is that he actually engages economics. He shows the kind of analysis and policy decisions that result from a

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theologically driven economics this has been a major gap in the discourse thus far. And Redeeming, more than other works of theological economics, shows the influence economic methods have on the way one makes practical sense out of orthodox theological beliefs. Redeeming, however, advocates that economics remains subordinate to theology (see also, Long, Fox, & York, 2007, p. 42). Milbank’s claim that theology is “itself a social science” and should be seen as the queen of the sciences sounds analogous to the claim made in economic theology: economics can explain everything, including religion (1991, p. 380). As a prime example of economic theology, George Stigler and Milton Friedman see people enslaved to sinful systems of inefficiency, but they and other economists like them are the prophets of freedom, or as Stigler (1982, p. 8) proclaims, “we are their self-chosen saviors.” They believe the powerful insights of economics should not be relegated to the economic sphere; Stigler calls on economists to preach their findings and apply what they know to all spheres of life. Heeding the call Gary Becker argues “that the economic approach provides a valuable unified framework for understanding all human behavior” (1976, p. 14). Though other disciplines can lend insight into human motivations and nonmarket activities, Becker believes economics can explain as the subtitle to Steven Levitt’s Freakonomics puts it “the hidden side of everything” (Levitt & Dubner, 2005, emphasis added). Such claims to total explanatory power by economic theologians mirror the claims made in Redeeming “that only the neo-Scholastic version fully explains” the challenges at hand (Mueller, p. 283, pp. 7, 245). The most imperialist form of economic theology is seen in the economic study of religion that has emerged from the work of Gary Becker’s students. It shows “how economic models can be modified to address questions of belief, norms, and values; and exploring how religion (and, by extension, morals and culture) affect economic attitudes and activities of individuals, groups, and societies” (Iannaccone, 1998, p. 1465). By assuming self-interested utility maximization, economists of religion offer economic explanations for a range of religious phenomena, like why people attend church more frequently later in life. In the imperialist type, theologians and economists believe their field contains the dominant logic through which all other fields are understood. The final type is integration, which is where I locate myself so you can see my bias. Instead of trying to dominate the other field or ignore it, integrationists strive to use the insights of both economics and theology to improve human well-being. A wide spectrum exists within forms of theological and economic integration: liberation theology, some forms of welfare

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economics, many liberal Protestant scholars (like Douglas Hicks, Rebecca Todd Peters, or Max Stackhouse), and some economists (like Deirdre McCloskey, Herman Daly, or Robert Nelson). The integration type seeks to learn from a variety of disciplines and perspectives to form novel syntheses and compromises. It seeks to hold back the domineering tendencies of the imperialist type and provoke the isolationists into conversation and engagement. My approach to Mueller here is no exception.

REDEEMING THE NATURAL LAW I trace the root of the troubles I find with Redeeming to its articulation of a form of natural law rationality that perceives any deviations from “rationality” as defined by the Catholic tradition to be aberrations that will eventually be corrected by the pull of the truth. Exemplifying the theological economics type, Redeeming throughout maintains that its conclusions are “not matters about which reasonable people can disagree because the disagreement is precisely about whether or to what extent humans are reasonable” (pp. 284, 357). That is, Redeeming defines the logic of reason to which all others must succumb, and its definition of reason derives from a natural law tradition. Therefore, anyone who disagrees with the conclusions in Redeeming about abortion, the definition of marriage as between only a man and a woman, divorce as a social pathology, and so on are, by definition, not rational (p. 223). But such a definitional proof violates Redeeming’s own tests of “circular logic and apparent nonfalsifiability” (p. 102). One cannot disprove Redeeming’s claim that all rational people agree with its conclusions because it defines all rational people as those who agree with them. Redeeming repeatedly claims that humans are “rational animals,” but it seems to interpret this to mean that humans can have such incredible access to the natural law that we can fully explain phenomena through it. For example, Redeeming makes the troubling claim that phenomena can be “explained only fully” by its methodology (pp. 7, 245). The claims to being the only way and to explain a phenomenon fully would seem to violate Thomas Aquinas’ view of the natural law (pp. 164, 245, 283). Thomas believed human access to the natural law was minimal and warped. “While the created order continues to move men,” writes Russell Hittinger (2003, p. 11), “the effect of that [natural] law (in the creature) is bent by sin not so bent that God fails to move the finite mind, for the fallen

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man is still a spiritual creature, possessed of the God-given light of moral understanding, but bent enough that this movement requires the remediation of divine positive law and a new law of grace.” Natural law, for Thomas, could by itself not provide economists or theologians with total explanatory power. Thomas never uses natural law separate from theology, and he does not use it to decode or fully explain economic relations apart from the Word and grace of God. Mueller certainly sees the connection between natural law and a biblically orthodox Christian faith, but he wants people to be persuaded by natural law thinking apart from the inspiration of Christian scripture and practices of faith. On my reading of Thomas, this stretches the natural law beyond our ability to know it, and it underestimates the power of sin to warp the law. Though Mueller’s work clearly draws on theological sources, he seems to want the natural law to stand on its own two feet (apart from scripture, sacrament, and Christian tradition), but Thomas among others would find such a project to overstep the concept of natural law on which Mueller relies.3 The natural law view of reason in Redeeming also cannot “[provide] a common basis of conversation and debate among those who disagree about divine revelation” for two reasons (p. 357). First, the natural law if it is in any way Christian, and especially Thomastic relies on divine revelation because the it resides in the mind of God, not in nature or humans (Hittinger, 2003, pp. 8 9). Second, the approach in Redeeming cannot provide a common basis for rational discussion because its approach predefines rational as those who agree with the approach and its conclusions. For instance, Redeeming dictates that rational people must believe in the doctrine of creatio ex nihio and a creator God, but this is a belief rooted in Christian doctrine and hardly a common assumption among all the world’s people who could contribute to a vibrant conversation about economics and morality (pp. 362 364). More sophisticated natural law approaches may avoid some of these pitfalls, but Redeeming will not be able to build a larger coalition of those seeking to change the field of economics without a reconsideration of how it uses reason, the natural law, and the Christian tradition. My trouble with reason in Redeeming, therefore, is a bit of a paradox. I have a problem with restricting reason to those who agree with an understanding of natural law clearly dependent on a particular Christian understanding of it. But I am also troubled by the attempt to loosen the natural law from its Christian moorings. I would be more persuaded if Redeeming had used the full force of the Catholic social thought tradition

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to make its argument. But as it stands, I read Redeeming (and many other natural law approaches) as claiming that a particular Christian view of reason is universal and as universal it can stand independent of Christian practices. It is a position that violates the traditional Christian understanding of the very natural law on which the argument is built. As I see it, the Christian tradition teaches that natural law is not simply common sense or universal reason. It is the little piece of God’s law that we can know, but it takes the guidance and correction of scripture and the sacraments to get it right.

REDEEMING THE HISTORY The particular view of reason espoused in Redeeming shapes its view of the history of economics. Mueller has rightly said that after the 1970s the University of Chicago stopped teaching the history of economics (see Levy’s contribution for more on this decision). While at Chicago I studied for my comprehensive exam in the history of economic thought with Robert Fogel because as Fogel admitted few people younger than him were ever trained in it. And Mueller (p. 11) is right in that without a knowledge of the history of their discipline and its ideas, economists have tended to write “Whig histories of economics” in which they read their own position back onto history, discovering “proto-Chicagoans” and “protoKeynesians.” I fear, however, that Mueller may fall into the same trap he describes. Given the constraints of my competence and the good work done by Edd Noell and David Levy, I will comment on just a few pieces of Redeeming’s treatment of Thomas Aquinas and Adam Smith that I believe will elucidate what I see as its problematic view of history. Redeeming begins its discussion of Thomas by noting that his economics occurs as part of a comprehensive system of thought. Thomas is, after all, a theological economist; his economics is always developed in light of his theology. Redeeming’s use of Thomas, however, quickly narrows to the economic synthesis Thomas forms between Augustine “gifts and crimes” and the theory of utility and Aristotle theories of production, equilibrium, and justice (p. 28). Though Redeeming draws on Thomas to advocate for humans as the ends of economic activity, it deviates from the ultimate ends Thomas seeks. It instead focuses on subordinate capitalistic ends, like economic security and flourish. For example, Parts 3 and 4 of Redeeming use natural law means to promote the same kinds of economic

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ends that other economists desire, like “raising real family income” and protecting America’s “hard-won global preeminence” (pp. 266 270, 276). Redeeming couches its concerns about demographics, unemployment, inflation, and so on, within its attempt to secure “justice in exchange,” but the kind of economics Thomas sees being just differs markedly from the picture Redeeming paints of him as a proto-economic analyst. Redeeming argues that Thomas sees “scarcity as the reason for placing the general responsibility for the poor, except in emergencies, primarily on individual persons in their various intermediating social relationships rather than on government” (p. 39). But Thomas’s historical context is so far removed from our world of nation-states and talk of autonomous individuals that he could hardly be forced to support such a position. The passage in the Summa Theologiae to which Redeeming refers is not one about individual responsibility, but a question about “Whether it is lawful to steal through stress of need,” to which Thomas argues by saying that stealing in such situations is allowed. He says nothing about preferring private ownership to the government, and his statement cannot be turned into an endorsement of free markets (markets existed in his day, but “free markets” are a modern construct). By adhering to a natural law approach that preferences market-based solutions as part of the natural law, however, Redeeming cannot help but assume that Thomas the epitome of natural law thinking would also prefer such solutions. On my reading of Thomas, however, his entire account of human nature is oriented toward beatitude. Thus, as Chris Franks argues, “Thomas’s economic teachings [affirm] that the perfection Thomas associates with the pattern of the cross, a pattern specified particularly well by the evangelical counsels, is the goal in light of which Thomas’s whole account of Christian life is best understood” (2009, p. 23). The overriding logic of Thomas’s economics is not toward economic well-being and security, but toward communion with Christ. “The basic trajectory,” in Frank’s words (2009, p. 31), “that characterizes Thomas’s economic teachings is toward a lowly and trusting receptivity that interrupts our impulse to secure our future and our nobility.” Thomas seems concerned with faith, virtue, sacraments, and beatitude, not so much with economic security, market competition, and financial well-being. If Redeeming reads Thomas as a proto-economic analyst a protomember of Mueller’s school of thought then it reads Smith as the founder of the opposition party. Redeeming follows Schumpeter’s lead in claiming that the problem with Smith is that he does not add “a single analytic idea” to economics; that is, he’s not of the school of analysts, like

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Mueller, Schumpeter, Thomas, and Augustine (pp. 12, 14, 49). But Schumpeter’s view of what constitutes analytical seems flawed, as Levy demonstrates in his contribution to this symposium, and Noell also shows several places where Smith makes analytical contributions. Furthermore, the distinction both Schumpeter and consequently Mueller draw between “analytic” and “thought” is confusing. If Redeeming wishes to trouble the fact versus value distinction by re-introducing ethics into economics, then I would think the “analytic is scientific” versus “thought is opinion” distinction would also fall since it is premised on the idea that scientific thought is a fact-based, value-free, and positivist enterprise. Mueller seems to be doing a kind of Whig history here. Smith is out of line, but Thomas and Augustine are in. Augustine, in particular, is repeatedly referred to as an “economic analyst.” But how can Augustine, who existed before the Enlightenment separation of science from value, create analytic valuefree ideas”?4 And why would Mueller want him to? I raise these objections because I believe the same faulty division of analytic versus thought has perpetuated the “Adam Smith Problem,” which sees Wealth of Nations (WN) and Theory of Moral Sentiments (TMS) as independent, unrelated, or even opposing projects. I cannot go into the debates now, but I read WN and TMS as complementary texts dealing with different aspects of human life; not one text dealing with facts and another dealing with values. If one admits that facts and values are inseparable (as certainly Augustine and Thomas did since they made no such distinctions), I must utterly reject the claim in Redeeming that Smith “reduces all human transactions to selflove” and that Smith assumes “universal human selfishness.” Especially since Redeeming interprets selfishness to mean that Smith would give himself a positive significance and all other people zero significance, keeping all scarce resources for himself. And thus Smith according to Redeeming would leave the man saved by the Good Samaritan to die on the roadside (Mueller, 2011, pp. 57, 72, 77, 91, 181).5 Smith clearly rejects such a worldview. The first line of TMS boldly states that “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it” (Smith, 1982a, p. I.i.i.1).6 Smith calls self-centered theories, like Mandeville’s, “erroneous,” and even WN reflects a concern for the poor, a recognition of the deeply social nature of humans, the presence of friendships that exist outside the market logic, and an acknowledgment that people are part of family units (Smith, 1981, V.i.f.50, I.ii.1-3; Smith, 1982a, VII.ii.4.6 8). Freed from the shackles of selfishness alone, Smith’s account of human nature is not

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that of a Stoic determinist as Redeeming insists. His humans are free to make rational though often deluded judgments, wrestle with their emotions, and connect to others by way of mutual sympathy. Further breaking with the arc of history Redeeming paints, Smith cannot be so easily dismissed as an “anti-Christian,” Stoic pantheist, who “rejected his Christian baptism” (Mueller, 2011, pp. 51, 356). The evidence in Redeeming to support such claims amounts to a few scholars who read Smith as a Stoic (none of whom go as far as Redeeming in their claims), a letter by Smith in which he praises Hume against “Whining Christians” (hardly a denunciation of one’s baptism; I am a Christian minister and I regularly denounce the whining of Christians), and a quote from James Boswell, who Redeeming claims was a person who knew Smith well. Boswell, however, was a student of Smith’s at age 19, and we only have one letter, which he sent Smith in 1769. Furthermore, Boswell’s own eclectic religious journey may not make him the best judge of the orthodoxy of Smith’s personal religious views. Regardless, none of these accounts prove that Smith’s internal disposition was one of a Christianity-hating pantheist. I argue that Smith’s biography and texts make it more plausible that he was somewhere between a Calvinist and a deist though no definitive evidence exists to prove where on that spectrum he falls. Scholars, like Jacob Viner and Brendan Long, argue Smith remained a kind of Calvinist (Long, 2009; Viner, 1927, p. 199).7 They point to Smith’s signing of the Calvinist Confession of Faith before assuming his role as a professor at Glasgow University (Ross, 1995, pp. 26, 109, 311). And they might question why a supposed baptism-rejecting pantheist would extol the Presbyterian Church as Smith does in WN: “There is scare perhaps to be found anywhere in Europe a more learned, decent, independent, and respectable set of men, than the greater part of the presbyterian clergy of Holland, Geneva, Switzerland, and Scotland” (1981, p. V.i.g.37). Another group of scholars, including Noell and the “new view” commentators, read Smith as a natural theologian or non-Christian theist (Alvey, 2004, p. 336; Halteman & Noell, 2012). They typically agree with D.D. Raphael that though Smith “abandoned Christianity” he “remained a theist” (Raphael, 2007, p. 104).8 Scholars who see Smith as a natural theologian are also supported by textual evidence. He claims in WN (p. V.i.g.8) to want a “pure and rational religion, free from every mixture of absurdity, imposture, or fanaticism, such as wise men have in all ages of the world wished to see established,” which would seem to suggest more of a natural religious perspective than Scottish Presbyterianism. For those who see

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Smith as a kind of deist, “natural religion,” in Charles Griswold’s words, “provides us with a holistic context” for viewing Smith (1999, p. 323). Both the moderate Calvinist and deistic interpretations of Smith appear to be in the realm of contextual and textual possibility, but the evidence is hardly conclusive. What does seem to be the case is that Smith should not be read as a Stoic pantheist. Further, with all of the professed Christians who number among classical and early neoclassical economists (from Robert Malthus to Henry Thornton, Francis Wayland, Richard Ely, and the other social gospelers who helped found the American Economics Association), we cannot dismiss their economic worldviews as either Stoic pantheist or Epicurean just because Smith’s might look that way; the evidence is not there. They may not have been Catholic natural law economists, but that does not mean they did not work out of a Christian worldview. If we move away from a natural law reading of economic history, Thomas does not need to be the prophet of proto-free market economic thinking (though he certainly has much to contribute) and Adam Smith does not need to be the devil driving the current myopia in mainstream economics (though he certainly is not blameless).

LEARNING FROM REDEEMING Though I disagree with Redeeming’s natural law definition of human rationality and its subsequent view of economic history, my integrationist tendencies push a hermeneutic of appreciation. In addition to a strong statement of the problem facing much neoclassical economics, I want to affirm the argument made plain in Redeeming that one’s worldview matters to one’s economic methods. Redeeming shows the dangers of economic approaches blind to their assumptions about human nature, and it shows what a Catholic economic ethic would suggest. Though I do not think the “four basic elements” of economics are “real” in any necessary sort of way, they do offer good benchmarks for economists to keep in mind as they do their work. I am skeptical that there will be a Neo-Scholastic revival in economics, but I am hopeful that there will be an increased awareness of ethics in economics. With that said, I would suggest more of an integration of economics and theology in which the two fields work together without trying to dominate each other. I fear the theological domination of economics because I do not want economic policies rooted in orthodox Christian teachings about

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moral issues like abortion, family planning, marriage, divorce, worship attendance, and so forth, which tend to dominate the prescriptions in Redeeming. For instance, the argument that worship is a key indicator of couples who remain married commits two errors: (1) It commits the naturalistic fallacy in that just because the data shows this “is” the case does not mean it “ought” to be the case. A separate ethical argument would need to be made for why remaining married is always good. (2) It confuses correlation with causation. No data shows that increased worship attendance is the cause of marriages staying together, and yet Redeeming assumes based on perhaps religious assumptions that people who attend worship are less selfish and therefore less likely to get divorced. Such orthodox Christian economic interpretations neglect the diversity of beliefs and practices in our country. I wager a better way forward in our pluralistic society is through compromises and syntheses of different economic, moral, and theological positions. It would be a kind of pragmatic approach, rooted perhaps in language analysis (as Levy suggests) or shared democratic practices or even in the act of trading itself. As Deirdre McCloskey (2000, p. 160) suggests, “Specialize, yes. But trade!” I read Redeeming as contributing a specialized approach (but not the final or complete approach) to this marketplace. I have learned from Mueller, and I hope as a theological ethicist meeting among economists, I have shared something of value from my specialization. I am now happy to trade and learn.

NOTES 1. I elaborate on my definition of theological economics in the coming pages. I see it as a stream of theological thinking that uses economic methods, but ultimately subsumes them to theological methods and ends. 2. For an ancient theological source, see Roberts, Donaldson, and Coxe (1886). 3. I am well aware of the natural law movement in law, political science, and economics, and think the charge that Thomas did not separate the natural law from the church to draw philosophical conclusions could be leveled against many in these movements. Certainly Thomas admits that God’s existence is self-evident, but without revelation and the church, none of the pagan philosophers were able to come up with true religion. The natural law needs theological support in Thomas. I am not a natural law thinker, but it seems odd to do “neo-Scholastic” thinking and not take seriously a central point of the Scholastics, which is that everything was oriented toward God. 4. Noell seems similarly frustrated by Mueller’s assertion that Augustine and Thomas offered analytical and mathematical economic formulations. And he also

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questions Mueller’s application of the fact versus value distinction in regards to Smith. 5. See also Noell’s and Levy’s refutations of Mueller’s interpretation of the classic “butcher, brewer, and baker” passage. 6. If one does not accept the fact versus value distinction and can see coherence between TMS and WN, then Smith’s words in TMS can be used to help explain his view of humans used in WN. I understand that economists who see the texts as opposed or independent would not see this quote as relevant to Smith’s economic view of humans. But I contend that Smith is concerned with others in WN as well. 7. Paul Oslington (2012, pp. 294 296) shows that Viner did not move away from this theological reading of Smith later in life. As biographical evidence for this view, Smith grew up in a Presbyterian home to a religious mother, just steps away from the Old Kirk (now St. Bryce Kirk) in Kirkcaldy. When they lived in Edinburgh, he was known to walk his mother to Canongate Kirk where Smith is now buried on his way to work at the Custom’s House. Smith was a childhood friend of John Drysdale who became a moderate Presbyterian minister and introduced Smith to other moderate ministers. And, in John Rae’s words (1965, p. 11), Smith was a “disciple” of his teacher Francis Hutcheson who was the son of an Irish Presbyterian Minister, became a licensed probationer at age 25, and became a leading voice of moderate New Light Presbyterianism (see also Burleigh, 1960, pp. 18 19). 8. John Rae contends that Smith “died as he lived, in the full faith of those doctrines of natural religion which he had publicly taught” (1965, p. 430). These scholars find biographical support in the fact that Smith lectured on natural theology at Glasgow (though we have no notes from the lectures). He also had a great appreciation for Newton (see Smith, 1982b), who believed in a version of the argument from design. Smith was a close friend of Hume, but he also wished for Hume’s Dialogues not to be published. Perhaps Hume’s affection for the Cleanthes character in the Dialogues results from the character’s similarity to Smith (see Smith, 1987, p. 211).

REFERENCES Alvey, J. E. (2004). The secret, natural theological foundation of Adam Smith’s work. Journal of Markets and Morality, 7(2), 335 361. Becker, G. S. (1976). The economic approach to human behavior. Chicago, IL: University of Chicago Press. Blaug, M. (1980). The methodology of economics or how economists explain. Cambridge: Cambridge University Press. Burleigh, J. H. S. (1960). A church history of Scotland. London: Oxford University Press. Franks, C. A. (2009). He became poor: The poverty of christ and Aquinas’s economic teachings. Grand Rapids, MI: Eerdmans. Griswold, C. L. Jr. (1999). Adam Smith and the virtues of the enlightenment. Cambridge: Cambridge University Press. Halteman, J., & Noell, E. (2012). Reckoning with markets: Moral reflection in economics. New York, NY: Oxford University Press.

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Hauerwas, S., & Willimon, W. H. (1989). Resident aliens: Life in the christian colony. Nashville, TN: Abingdon. Hittinger, R. (2003). The first grace: Rediscovering the natural law in a post-christian world. Wilmington, DE: ISI Books. Hume, D. (1739). A treatise of human nature. London: John Noon. Iannaccone, L. R. (1998). Introduction to the economics of religion. Journal of Economic Literature, 36(3), 1465 1496. Levitt, S. D., & Dubner, S. J. (2005). Freakonomics: A rogue economist explores the hidden side of everything. New York, NY: William Morrow. Long, B. (2009). Adam Smith’s theism. In J. T. Young (Ed.), Elgar companion to Adam Smith (pp. 73 99). Cheltenham, UK: Edward Elgar. Long, D. S., Fox, N. R., & York, T. (2007). Calculated futures: Theology, ethics, and economics. Waco, TX: Baylor University Press. McCloskey, D. N. (2000). How to be human though an economist. Ann Arbor, MI: University of Michigan Press. Milbank, J. (1991). Theology and social theory: Beyond secular reason. Cambridge, MA: Blackwell. Mueller, J. D. (2011). Redeeming economics: Rediscovering the missing element. Wilmington, DE: ISI Books. Oslington, P. (2012). Jacob Viner on Adam Smith: Development and reception of a theological reading. European Journal of the History of Economic Thought, 19(2), 287 301. Rae, J. (1965). Life of Adam Smith. New York, NY: A.M. Kelley. Raphael, D. D. (2007). The impartial spectator: Adam Smith’s moral philosophy. Oxford: Clarendon. Roberts, A., Donaldson, J., & Coxe, A. C. (Eds.) (1886). The teaching of the twelve apostles, Riddle, M. B. (Transl.), in Ante-Nicene fathers. Buffalo, NY: Christian Literature Publishing. Ross, I. S. (1995). The life of Adam Smith. Oxford: Clarendon. Smith, A. (1981). An inquiry into the nature and causes of the wealth of nations. In R. H. Campbell & A. S. Skinner (Eds.), Indianapolis, IN: Liberty Fund. Retrieved from oll.libertyfund.org/title/220 Smith, A. (1982a). The theory of moral sentiments. In D. D. Raphael & A. L. Macfie (Eds.), Liberty Fund, Indianapolis. Available at oll.libertyfund.org/title/192 Smith, A. (1982b). The history of astronomy. In W. P. D. Wightman & J. C. Bryce (Eds.), Essays on philosophical subjects. Liberty Fund, Indianapolis. Retrieved from oll.libertyfund. org/title/201 Smith, A. (1987). The correspondence of Adam Smith. In E. C. Mossner & I. S. Ross (Eds.), Liberty Fund, Indianapolis. Retrieved from oll.libertyfund.org/title/203 Stigler, G. J. (1982). The economist as preacher: And other essays. Chicago, IL: University of Chicago Press. Viner, J. (1927). Adam Smith and Laissez Faire. The Journal of Political Economy, 35(2), 198 232. Waterman, A. M. C. (2008). The changing theological context of economic analysis since the eighteenth century. In B. Bateman & H. S. Banzhaf (Eds.), Keeping faith, losing faith: Religious belief and political economy (pp. 121 42). Durham, NC: Duke University Press.

MUELLER’S REDEEMING ECONOMICS COMMENTS ON REDEEMING ECONOMICS David M. Levy Keywords: Neoscholastic economics; neoclassical economics; natural law; economics and religion; economics and theology; Thomas Aquinas

Review essay on Mueller, J. D. (2010). Redeeming economics: Rediscovering the missing element. Wilmington, DE: ISI Books. 400pp. ISBN: 9781932 236941. $27.95

I propose to discuss one large point and a couple of smaller ones raised in John Mueller’s stimulating and challenging book. It perhaps won’t come as a surprise that I like Adam Smith’s work more than Mueller does. I was lucky enough to be in George Stigler’s class when he discussed that I think to be a critical issue, the role of language in the foundations of economic theory. The background of this discussion is my belief that you can’t have a trade between economics and religion without a substantial account of language. Of course, economists can talk about religion as a club good but that’s not a trade; that’s grabbing. You can trick up probabilities to give you beliefs but that won’t help, I suspect, with matters of “right” and

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“wrong,” which religious beliefs carry. The first time a major 20th-century logician looked at Smith’s theory of belief in The Theory of Moral Sentiments he was surprised at what he found, acceptance of belief without truth claims (Prior, 1949). We need to look again at where language enters in Smith’s argument since that is an important issue in Mueller’s criticism.

CHICAGO’S HISTORY OF ECONOMIC THOUGHT REQUIREMENT There’s one thing that I think can be disposed of quickly and independently, that’s the end of the history of thought requirement in Chicago. By the late 1960s, if not earlier, Stigler had come to believe that the judgment of a mistake is an equivalent to the admission of failure to understanding. The world is efficient if you take into account the cost of attaining the information. If the discipline of economics is efficient, then there is no really good reason to require history of economics (Stigler, 1969). That’s coherent from a late-Stiglerian point of view. What’s interesting (I think) is why those who don’t believe in efficiency in general believe their corner of the world, economic theory, is efficient. I’ve taken my public choice hat off for this occasion but I suppose I wouldn’t have to detail the answer Gordon Tullock would give (Levy & Peart, 2012; Tullock, 1966).

LANGUAGE Stigler as a teacher of Adam Smith was terrific. He pointed out in class one day that Smith’s account of trade was based on language. He said we’ve learned something in 190 years, that all we need to do to explain trade is put “agents” with preferences that’s not exactly what he said but we’ll come to that in an Edgeworth box. Behold, trade. No language. Next paragraph in Wealth of Nations. One morning in Blacksburg, I heard Charlie Plott tell about the rat experiments in which it was shown that rats have preferences. Years later this got sharpened when the Giffen segment of a rat demand curve was discovered. Between the two dates I’d learned from Gordon Tullock that the Texas A&M team had not got their rats to trade. Put them in an Edgeworth box, the big one grabs. Oops. Stigler didn’t say “agents” he said “people.” Ah. That’s the rabbit. Hence a paper of mine “Adam Smith & the Texas

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A&M Rats” (Levy, 1992). Needless to say I was enormously amused that Ariel Rubinstein picked up Smith’s argument (Rubinstein, 2000). This episode speaks to Mueller’s argument. Here’s the famous passage from Smith he quotes, which Mueller (p. 56) signals as a turning point in economic theory. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regards to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

The reading Mueller offers is conventional, paying not much attention to the language. Let’s recover the context. Smith is writing about the instinct to truck and barter. I propose to read the whole paragraph very slowly: Whether this propensity be one of those original principles in human nature, of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire. It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any other species of contracts. Two greyhounds, in running down the same hare, have sometimes the appearance of acting in some sort of concert. Each turns her towards his companion, or endeavours to intercept her when his companion turns her towards himself. This, however, is not the effect of any contract, but of the accidental concurrence of their passions in the same object at that particular time. Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that. When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavors by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. (Smith, 1904 [1776], I.2.2)

Now, has everyone here seen Enter the Dragon? That’s the only analogy that I can think of for the next moves. In civilized society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. (Smith, 1904 [1776])

TMS has made the case that affection is habitual sympathy. The limited life? Well, how about the proposition: All men are mortal. What sort of claim is that? In refined Aristotlean logic that is a necessary truth (Levy & Peart, 2013). In terms of the characterizations of modal logic offered today

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that’s a quantity interpretation of modality. Between “all men are mortal” we pass to and from “man is necessarily mortal.” So Smith is working with something like a system of strict implication? Hold the thought, and keep reading: In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. (Smith, 1904 [1776])

Now let’s go back to Mueller’s benevolence and the butcher but add the next sentence. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. (Smith, 1904 [1776])

The usual silly readings of the passage would not predict that Smith’s system would allow beggars. But beggars are enormously interesting: Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the necessaries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food. The old cloaths which another bestows upon him he exchanges for other old cloaths which suit him better, or for lodging, or for food, or for money, with which he can buy either food, cloaths, or lodging, as he has occasion. (Smith, 1904 [1776])

So beggars are in the system of exchange. All civilized humans are in the system of exchange; civilized humans are necessarily in the system of exchange.

WHY THE OPPOSITION TO SMITH? I don’t fully understand the animus of religious thinkers in the Christian tradition to Smith. Here’s what Smith tells us about the book he introduces

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to the reader. The civilization he is about to examine can help prevent the murder of the most helpless: The abundance or scantiness of this supply too seems to depend more upon the former of those two circumstances than upon the latter. Among the savage nations of hunters and fishers, every individual who is able to work, is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniencies of life, for himself, or such of his family or tribe as are either too old, or too young, or too infirm to go a hunting and fishing. Such nations, however, are so miserably poor, that from mere want, they are frequently reduced, or, at least, think themselves reduced, to the necessity sometimes of directly destroying, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts. Among civilized and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great, that all are often abundantly supplied, and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniencies of life than it is possible for any savage to acquire. (Smith, 1904 [1776], Introduction, I.1.4)

Through civilization and division of labor, we save the helpless. Christians have a problem with that? And I really don’t understand the animus with the Stoics. Plato and Aristotle are of course foundational sources of philosophy but they failed to confront the custom of infanticide, a point Smith makes with completely clarity. It is only Smith’s “harsh and spirited” Epictetus who in the ancient world who writes against that practice and its adherents (Boswell, 1988). One of the central connections between the political economists of the 18th and 19th centuries and the Christian evangelicals in the anti-slavery movement was the doctrine of human homogeneity (Peart & Levy, 2005). The evangelicals of that era would take Adam and Eve as the real foundations of humanity and thus ask on behalf of the enslaved Africans, “Am I not a man and a brother?” But where does the doctrine of homogeneity come into political economy without Christian truth claims?

NATURAL AND NECESSARY One of the central tenants of the racialized view of the human world that the political economists confronted was some groups of people were “naturally” indolent and some “naturally” industrious. And by an argument that is both incoherent and pleasing to the vanity of the would-be masters, the

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“better” ought to direct the “worse.” In his first chapter in WN in which Smith explains the properties of the division of labor, he explains the origin of indolence: The habit of sauntering and of indolent careless application, which is naturally, or rather necessarily acquired by every country workman who is obliged to change his work and his tools every half hour, and to apply his hand in twenty different ways almost every day of his life; renders him almost always slothful and lazy, and incapable of any vigorous application even on the most pressing occasion. (Smith, 1904 [1776], I.i.8; emphasis added)

If we are to understand Smith, we need to deal with the assertion “naturally, or rather necessarily” and not simply pass it by as it were an eccentricity of Smith’s prose style. This is a modal claim. The next two paragraphs are from the chapter Sandra Peart and I contributed to the Oxford Handbook on Adam Smith (Levy & Peart, 2013) since it might not be obvious what sort of a claim Smith is making to the explanation of indolence by incentives. In the Aristotelean logical tradition there is a powerful linkage between “necessary” and “natural” which helps with the fine details of Smith’s work. Necessary is what occurs all the time. What is natural might not be necessary but it occurs for the most part. Smith’s frequent use of the words “the greater part” and occasional use of “the most part” suggests that Smith is applying an empiricized modal logic to analyze the world around him. Our proposal is to treat “natural” as an empirical, scientific proxy when “necessary” fails. This formulation is found first in Aristotle’s Prior Analytics and then more precisely in the greatest of the Greek commentator on Aristotle’s logical works. The critical case for Smith is the contingent occurrences between the two certain cases. It is further divided between what happens for the most part and what is simply unknown.1 What happens for the “most part” is “natural” and thus subject to science. The signature of such a modal approach is that the median, not the mean, is the natural centering principle. What occurs in most cases is balanced at the median with half above and half below waiting for one more observation to break the tie and let science begin. A geometrical image in the commentary on Aristotle’s Prior Analytics by Alexander of Aphrodisias helps explain this: the necessary is like a line which has been stretched from eternity to eternity, and contingent comes into being from this line when it is cut. For if this line is cut into unequal segments, the result is the contingent as the natural and what is for the most part, and also the contingent as the infrequent, which includes chance and spontaneity. But if the

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line is cut into equal segment there results the “who can tell.” (pp. 19 23, 102 103, 162 163)

Alexander’s modern editor links “for the most part” to that which “holds by nature.”2 Smith’s WN makes the link between habit and indolence more than a simple scientific regularity, it is a necessary truth. This is true for all of us. This is the strong doctrine of human homogeneity. Armed with his teaching his admirers both among believers and skeptics would set about to rid the world of a monstrous evil.

CONCLUSION An approach such as Smith’s is founded on what are common to humans our finite life, our language, and the relationship between habit and character. This might offer a more solid foundation to a religion-sensitive economics than one based on an unobservable utility function or axioms that seem to disappear when taken into the lab. With language we can talk together about beliefs. Our language and our common fate guarantee our humanity.

NOTES 1. De Morgan (1847, p. 232) tells us: “The theory of probabilities I take to be the unknown God which the schoolmen ignorantly worshipped when they so dealt with this species of enunciation, that it was said to be beyond human determination whether they most tortured the modals, or the modals them. Their gradations were necessary, contingent, possible, impossible; contingent meaning more likely than not, possible less likely than not.” De Morgan is creatively reading Prior Analytics, A.3.37a-b19. W. D. Ross’s commentary (1949, p. 298): “A[ristotle] distinguishes two cases of contingency—one in which the subject has a natural tendency to have a certain attribute and has it more often than not, and one in which its possession of the attribute is a matter of pure chance. … A[ristotle] thinks contingency of the second kind (where neither realization is taken to be more probable than the other) no ´ proper object of science.” Also Bochenski (1951, p. 56) and Prior (1955, p. 190) who provides the linkage with de Morgan. 2. “Most of Alexander’s discussion of this passage ([Pr An] 4, 17 40) is devoted to explaining although what is contingent may not hold for the most part, Aristotle mentions only what holds for the most part which, according to Alexander is the same what holds by nature because there is no scientific value in arguments about which holds no more often that it fails to hold” (Mueller, 1999, p. 37).

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ACKNOWLEDGMENT I would like to thank John Mueller for the occasion to discuss foundational issues. The fact that I have selected issues about which we have some disagreement is perhaps only testimony to our place in this fallen world.

REFERENCES ´ Bochenski, I. M. (1951). Ancient formal logic. Amsterdam: North-Holland. Boswell, J. (1988). The kindness of strangers: The abandonment of children in Western Europe from late antiquity to the renaissance. Chicago, IL: University of Chicago Press. De Morgan, A. (1847). Formal logic; or, the calculus of inference, necessary and probable. London: Taylor and Walton. Levy, D. M. (1992). Economic ideas of ordinary people: From preferences to trade. London: Routledge. Levy, D. M., & Peart, S. J. (2012). Tullock on motivated inquiry: Expert-induced uncertainty. Public Choice, 152(1/2), 163 180. Levy, D. M., & Peart, S. J. (2013). Adam Smith and the state. In C. Berry, M. Paganelli, & C. Smith (Eds.), Oxford handbook on Adam Smith (pp. 372 392). Oxford: Oxford University Press. Mueller, I. (1999). Introduction. In Alexander of Aphrodisias. On Aristotle’s prior analytics 1.8-13 (I. Mueller, Trans., pp. 1 69). Ithaca, NY: Cornell University Press. Peart, S. J., & Levy, D. M. (2005). The “vanity of the philosopher”: From equality to hierarchy in post-classical economics. Ann Arbor, MI: University of Michigan Press. Prior, A. N. (1949). Logic and the basis of ethics. Oxford: Clarendon Press. Prior, A. N. (1955). Formal logic. Oxford: Clarendon Press. Rubinstein, A. (2000). Economics and language: Five lectures. Cambridge: Cambridge University Press. Smith, A. (1904 [1776]). In E. Cannan (Ed.), An inquiry into the nature and cause of the wealth of nations. London. Retrieved from www.econlib.org/library/Smith/smWN.html Stigler, G. J. (1969). Does economics have a useful past. History of Political Economy, 1(2), 217 230. Tullock, G. (1966). The organization of inquiry. Durham, NC: Duke University Press.

MUELLER’S REDEEMING ECONOMICS “MINDING THE GAP” IN ECONOMICS: THE CONTRIBUTION OF REDEEMING ECONOMICS Edd Noell Keywords: Neoscholastic economics; neoclassical economics; natural law; economics and religion; economics and theology; Thomas Aquinas

Critics of economics as a discipline have gained new recognition in recent years as increasing volatility in financial markets, the inefficacy of measures taken to address contracting economies, and a persistent pattern of economic decisions driven by the passions have challenged economic theory. Rational choice models of human behavior geared toward utility-maximization are seen to be inadequate to explain irrational decision-making in financial markets and elsewhere, creating a credibility gap for the dismal science with many policymakers and public intellectuals. For better explanations of economic behavior, it is said that modern economics must look for more robust models. Economics seems to be in need of a richer and more complete account of human action, a need so serious that some would go so far as to ask if economics can be redeemed.

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John Mueller thinks it can, and points the way by seeking to restore the “missing element” of “final distribution” in economic theory through the formulation of a neo-Scholastic economics. This necessitates a critical scrutiny of Adam Smith’s economic thought, for in Mueller’s perspective Smith is the economist who created the gap by eliminating considerations of distribution. It also requires a re-examination of the development of economic thought prior to Smith, with a particular focus on identifying the reasons behind the “Great Gap” in preclassical economics identified by Joseph Schumpeter (1954). In effect, Mueller affirms we must “mind the gap” in both modern economics (rediscover its missing element of personal distribution) and preclassical economics (recognize the overlooked crucial contribution to Scholastic theory of Augustine’s explanation of “personal” choices in the face of scarcity). Redeeming Economics also affirms most of the fundamental tenets of Scholastic economic thought while challenging the “flawed reasoning,” which shapes classical and neoclassical economics. Mueller avers that “each basic outline of economic theory corresponds to a certain theory of human nature.” Scholastics affirm that people “choose both the ends and means of their actions.” Adam Smith and the classical economists essentially believe that “humans choose neither the ends nor the means.” Neoclassical economists claim that “humans choose the means but not the ends of their actions” (p. 357). Mueller proceeds to rebuke Smith for misdirecting classical economics on several fronts. He then elaborates on the failures of neoclassical economics for omitting considerations of distribution connected to the moral implications of scarcity while seeking to show the superior explanatory power of neo-Scholastic economics. Additionally, he offers a critique of public choice theory and modern fiscal and monetary policies, and provides alternative neo-Scholastic policies to address particular current and future economic challenges. Rather than enter this policy debate, my aim is to focus on the preclassical foundations of Mueller’s neo-Scholastic economics and offer some brief comments on the connections to Smith’s “revision of the Scholastic outline.” I wish to ask, does this volume present a convincing formulation of Scholastic economic thought, its sources, and its influence on Adam Smith? How might Mueller’s formulation of a neo-Scholastic economics be improved by more careful attention to Scholastic sources? I’ll approach this task in three parts, considering first the preclassical origins of Scholastic thought, then evaluating Mueller’s particular reading of Scholastic economics, and next addressing both the manner in which Smith’s economics proceeds in light of the Scholastic influence and the Mueller’s critique of

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Smith’s work. Redeeming Economics makes a number of broad claims, some of which have reasonable grounding while others fall short in the light of a closer look at the primary sources and evidence offered. The chapter’s final section identifies some of the merits of a neo-Scholastic economics worthy of careful consideration.

AUGUSTINE, THE GREAT GAP, AND THE ECONOMIC OUTLINE OF AQUINAS In Part I, Mueller sets for himself the task of narrating the history of economic thought from antiquity to the twenty-first century as “the birth, death and resurrection of economics.” Most stories of the history of the discipline recognize the origins of economic reasoning in Aristotle. “The Philosopher,” as he was known in the twelfth century, offers a seemingly definitive explanation of “four essential facets of all human economic decisions,” that is, production, exchange, distribution, and consumption (p. 1). These elements of economic theory are also expounded by Aquinas in the thirteenth century. Yet, Schumpeter’s “Great Gap” (1954) must be explained why no Aristotelian school of economics for some 1,000 years until the period of “high Scholasticism”? Essentially Mueller’s answer points to the incompleteness of Aristotle’s meta-economics. That is, Aristotle’s economics invokes an impersonal deity, rather than a personal Creator God. Aristotle is thus not able to conceive of the innately personal terms of economic distribution. In addition, Aristotle’s account falls short in only emphasizing the necessity of the social and political distribution of wealth rather than offering an explanation of the personal distribution of wealth. Here Mueller helpfully illuminates the manner in which histories of economic thought overlook the distinctive Augustinian perspective, which closes the gap between Aristotle and Aquinas. By centering his discussion of economic action around the divine expectations laid upon humans by a loving God, Augustine supplies the key missing element of personalism, a contribution that is overlooked for hundreds of years until Aquinas (sometimes tacitly) integrates it into his work. Mueller rightly emphasizes that Augustine posits the love of God and love of one’s neighbor, the two great commandments expressed in the synoptic gospels, as the final ends of economic activity. Given that we choose persons as the ultimate ends, we express their significance to us by our distribution of the scarce resources at our disposal.

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Thus we’re led to Augustine’s first principle for understanding decisions to distribute human wealth: the degree of love for other persons relative to oneself. One may distribute wealth solely for oneself, solely for others, or of course distribute wealth with a mix of these ends. Augustine affirmed a sliding “scale of preferences for persons as ends of our actions” (p. 23). This ordering of preferences “is necessarily affected by the scarcity of the means chosen to express this love” (p. 141). The Patristic theory of distribution distinguishes between gift and exchange; gift is wealth distributed proportional to love for others relative to oneself, while exchange requires that humans distribute wealth as a choice of “different people as the ends or purposes of their action … when the means they have chosen are compatible” (p. 24). As will become evident, this Augustinian distinction is helpful, but one shouldn’t ignore the Scholastic discovery of an element of gift-giving in the bargaining facet of the exchange process. As the great synthesizer, Aquinas pulls together Augustine’s theory of personal distribution with Aristotle’s theory of political distribution and justice in exchange. Like Aristotle, Aquinas first seeks the primary purpose (telos) for which something is created, that is, its end. Following Augustine, Aquinas looks to the two great commandments for the purpose or end of economic activity, affirming that the telos for humans is communion with God (p. 38). This guides Aquinas’ reflection on not only the question of distribution but also the practice of exchange. The proper moral safeguards are needed to be sure that the final purpose of exchange is retained. Aquinas finds that the purpose of exchange is for the mutual benefit of each party. Like Augustine, Aquinas recognizes the importance of consent and the lack of fraud as elements of commutative justice, as for example in the labor market.1 For the most part, Redeeming Economics offers a convincing account of Augustine’s role in the formulation of Scholastic economic doctrine. Augustine, indeed, supplied a “personalism” to economic thinking that accounts for scarcity and shapes Thomistic teaching. At the same time, it is intriguing that Mueller asserts Aquinas presents “a logically complete and empirically testable outline of economic theory” (p. 3). Aquinas certainly offered a formulation of commutative justice, which was highly influential in economic thinking, even providing elements that shaped Adam Smith’s account of justice in exchange. Moreover, his discussion of usury formed the basis for Scholastic reflection on lending at interest, even though the Scholastic tradition later found reasons to expand

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the exceptions to the usury prohibition Aquinas identified. However, it is a large stretch for Mueller to go as far as to find that Aquinas actually offered an empirically verifiable outline of economic theory or to claim that there is in Aquinas (or Augustine) a mathematical formulation of the personal distribution of wealth. Moreover, it would seem that Redeeming Economics itself is plagued by some missing elements. For example, in claiming “the whole of economic theory can be reconstructed from four elements” that are derived only from Aristotle and Augustine (p. 17), Mueller ignores the role that Roman law and canon law played in Aquinas’ formulation of his just price, just wage and usury conceptions. Thus, Mueller is quite on target to claim that the Scholastics followed Aristotle’s conception of finding the true purpose for exchange, including the practice of lending of funds at interest, but misses the mark by not teasing out the role of Roman legal reasoning in their articulation of the usury doctrine. Mueller would be better served by recognizing that Aquinas is essentially concerned with the loan of consumable items as he draws on the Roman law’s recognition of the contract of mutuum. In this arrangement, whatever is borrowed as grain, wine, or even money is required to be repaid in the exact amount of weight, number, or measure that is received. Schumpeter correctly claims the argument of Aquinas “does not bear at all upon the question why interest is actually paid” (1954, p. 94) since Aquinas essentially viewed money as a natural medium of exchange and not a store of value. There was no legitimate basis for requiring interest to be paid on a loan. Yet, it must also be recognized that this reasoning shaped Scholastic thinking on economic compulsion, since to charge interest was to place the borrower under economic duress. This concept of duress figures large in Scholastic teaching over the thirteenth through fifteenth centuries. Exceptions to the ban on usury did not include cases of economic compulsion. While he doesn’t recognize time preference as the basis for interest payments, Aquinas in the Summa Theologica (1981, II-II, qu. 78) does accept the legitimacy of profiting from a loan if the lender bears some of the risk as in a potentially productive investment loan, or when payment is default or is late (damnum emergens). Yet, contrary to Mueller, unlike later Scholastics Aquinas was unwilling to accept a missed profit opportunity (lucrum cessans) as the basis for legitimate interest. Here canon law and Patristic teaching were likely most influential in Aquinas’ thinking. It strikes me Mueller’s case for the foundations of the Scholastic economic outline would be solidified by engaging in a more careful reflection on its key sources in antiquity.

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THE EVOLUTION OF SCHOLASTIC ECONOMIC TEACHING: ECONOMIC DURESS AND COMPETITION Mueller’s discussion of Scholastic economics ranges over both the supply side and the demand side of value analysis, monetary theory, and the normative economics of Scholasticism at the personal, domestic, and political levels. Mueller acknowledges analytical shortcomings in early Scholastic analysis with respect to the possibility of economic growth and the legitimacy of charging a positive rate of interest. His treatment also recognizes the developments that modify the Thomistic tradition in fourteenth and fifteenth centuries thinking about product value and compensation to resource owners. Mueller offers a fairly accurate presentation of Scholastic just price and just wage teaching, naming the role of competition in accomplishing commutative justice.2 He rejects the “status” interpretation of the just wage, and rightly observes that “both the status of transacting persons and values exchanged are equal in a competitive market” (p. 125). Yet, he also rightly observes that Aquinas and Scholastics in the fourteenth and fifteenth centuries deal with markets that were much more imperfect than modern markets (p. 43). This, of course, is the reason that the Scholastic just price formulation places significant weight on the problems of collusion, imperfect information, fraud, and related factors. Fraud appears in the title of Aquinas’ question about justice in exchange in the Summa Theologica, and is more specifically the subject of its second and third articles. The “high Scholastics” denounce falsification in regard to substance, quantity, and quality of commodities, and discuss what kinds of withholding of information amount to fraud in the moral sense.3 Violence and fraud were manifestations of injustice in exchange. Again Augustine is helpful here, as Mueller notes in affirming that crime “is essentially not a weighting of utilities but a weighting of persons: thus, it is always a moral decision” (p. 109). As Mueller suggests, market participants can avoid doing harm to someone else through beneficent actions. The injustice committed in these cases is depriving another person of the opportunity to make a rightly informed and uncoerced purchase or sale decision. Mueller’s case for the strength of a neo-Scholastic economics would be bolstered by considering the particular context in which the Scholastics treat exchange. For them, moral reasoning about usury and justice in exchange is not merely an abstract exercise. Determining the just price and/ or just wage and identifying usury are practical necessities for the clerics of the Church, who must provide instructions to penitent merchants,

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employers, and lenders regarding their economic transgressions. Thus, Mueller could build on his example of the European medieval concern with false weights and measures by elaborating on the specific practices, such as “using different scales for buying and for selling, soaking wool and certain spices to make them heavier, diluting wine or otherwise adulterating and mixing liquid goods, counterfeiting, clipping or otherwise mutilating coins” (Langholm, 2003, p. 238), which the merchants in the confessional might name as their economic transgressions. Likewise Scholastic thought on the just wage unfolded as labor markets grew in scale in European urban areas in the fourteenth, fifteenth, and sixteenth centuries and Scholastic thinkers accounted for this change. In their pastoral ministry, Italian Scholastics Sant’Antonino and San Bernardino were quite attentive to economic conditions affecting workers. The Italian Scholastics found that the just wage would be established by common estimate, in the absence of collusion and fraud. As Mueller observes, they declared that combinations of either employers or employees to gain bargaining advantage were violations of commutative justice (p. 40). In the market for loanable funds in medieval Europe, economic injustice could be particularly acute where isolation from competition due to a scattered population and primitive means of communication enhanced the bargaining power of credit suppliers. A discussion of the implications for creating economic duress in lending would aid Mueller’s presentation of Scholastic economic thought on market imperfections. As the thirteenth-century schoolmen observed the egregious interest rates charged by lenders who enjoyed local monopoly power, they qualified the place of consent so important for Roman law and for Augustine. Where a participant in the market offers consent to a transaction when faced with a radical disparity in bargaining power, it was said that “His consent is then voluntary in a conditional sense only. To force such terms upon a needy buyer (or seller) by the exercise of bargaining power is prohibited by the moral law and the terms are unjust” (Langholm, 1992, p. 578).4 The economic duress associated with usury paid by the borrower underscores that it eliminates the “bargaining between equals” fundamental to just transactions. Redeeming Economics is strong in affirming that moral reflection undergirds economic decision-making and recognizing that it applies at the both personal and political levels. In this regard it is significant that Mueller helpfully identifies a key feature of Augustine’s method of personalism, for example, it “recognizes the moral freedom and responsibility of each person to make free choices about both the ends and means of economic

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activity” (p. 128). Still, Mueller misses an opportunity to pursue more fully the nature of that moral reflection by a fuller consideration of the manner in which the Scholastics in fact applied the notion of personal accountability to the creator in product, labor, and loanable fund markets. They understood the social virtue of economic incentive and to some extent acknowledged the practical and moral advantages of free bargaining. Yet, the primary focus for the Christian in the marketplace was to love God by stifling his avarice and love his neighbor by addressing his economic need. This is exemplified in a consideration of the question of exchange and gifting. As noted earlier, Mueller finds a distinction identified between these activities, particularly in Romans 4:4 and Augustine’s exegesis of this text. But a careful reading of the Scholastics indicates that elements of gift-giving remain in market exchange. When two parties have negotiated and reach an agreed-upon transaction price, the schoolmen find that it is the consequence of bargaining in which each must yield from their reservation price: “In the end each will settle somewhat below his own estimate. There is thus an element of gift in economic exchange, from both parties” (Langholm, 1992, p. 576). Loving one’s neighbor in the marketplace by considering the value of their economic person requires each participant to consider how the other party might be disadvantaged in the bargaining process accompanying exchange. As markets widened, and some of the potential basis for market imperfections lessened as technological change facilitated a wider scope for the transportation of goods and flow of information, the Scholastics turned to the question of the role of competition in addressing economic duress. Here another consideration arises that ought to be accounted for by Redeeming Economics. Scholastic thought evolves in a direction that affirms the role of the competitive market price in both product and labor markets in serving as the standard of economic justice because it offers protection against economic compulsion.5 As long as there are alternatives, competition between sellers protects buyers, and vice versa. An explicit endorsement of competition is evident in the literature of sixteenth- and early seventeenth-century Scholastic thinkers, among whom are the Spanish theologian Dominican Domingo De Soto and Leonard Lessuis of the Netherlands. Often roughly grouped together as “the Salamancans,” these late Scholastics spoke of the number of buyers and sellers as significant for gauging the presence of competition, and affirmed a range for the just price and just wage rather than a specific value. This tendency is evident in the discussion offered by Lessius regarding how the just wage level is determined: “What may be judged the fair remuneration of workers, servants

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and people performing some office?” His immediate answer was that it was the rate “customarily paid in a given place over a given period” (Gordon, 1975, p. 263). Lessius followed Aquinas and other schoolmen in observing that the just wage was tied to a particular time and place and varied according to custom. De Soto added a recommended exit strategy for laborers who believed they received less than their due: “if you do not want to serve for that salary, leave!” (Chafuen, 2003, p. 107). At the same time, many of the Salamancans still accounted for economic duress in their guidance for employers, emphasizing that they must account for the economic needs of their workers (Langholm, 1998a, p. 114). Yet, even this moral guidance to the employer was qualified, as the late Scholastics affirmed that both the buyer and the seller of labor services should look for alternative opportunities in the labor market.6 Redeeming Economics would be well served in its case for the viability of a neo-Scholastic economics by exploring the evolution of Scholastic teaching on competition. By stressing the pursuit of alternative opportunities, the late Scholastics highlighted the impersonal elements of labor and loanable fund markets. Consider that over the course of several centuries, productive loans for small businesses come to be tolerated in Scholastic teaching, leading to an expansion of Aquinas’ exemptions for legitimate interest. By the sixteenth century the late Scholastics were proclaiming extrinsic titles to interest, as Langholm observes: “… the concept of a loss was extended from a loss actually sustained (damnum emergens) to a loss in the relative sense of a missed profit opportunity (lucrum cessans)” (1998a, p. 75). But this evolution of Scholastic reasoning did not mean that the establishment of either a just wage or a licit interest rate is to be understood merely as a product of blind economic forces. The Salamancan doctors presume that the market arrives at a just wage out of the consent of the two parties, both of whom have moral accountability to their creator. Morally accountable employers need to recognize and not exploit the position of their employees in bargaining over wage payments. Likewise the duty of the Christian lender not to take advantage of his neighbor’s need is a consistent theme among the late Scholastics. The power of using competition as an analytic concept, a tool in a fashion initially employed by the Late Scholastics, is exemplified in the writings of Adam Smith. Smith draws on and modifies the late Scholastic legacy in the eighteenth century in addressing the relation of competition to economic compulsion in the labor market. Mueller’s evaluation of Smith’s contribution to economic thought would be more charitable if it accounted for this element in Smith’s body of work.

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ADAM SMITH AND THE SCHOLASTIC LEGACY It is clear that Redeeming Economics determines that Smith on net impeded the progress of economic thought. Smith is said have “added nothing to economic theory” and in fact narrowed its range (p. 49). Moreover, Smith is criticized for the manner in which he “deliberately revised the basic Scholastic outline of economic theory” (p. 49, emphasis in original) in a manner harmful to the development of economic thinking in classical economics. In fact, it is evident that in several ways Smith builds on the Scholastic legacy of thinking about the value of competition in connection to economic duress. He shapes the development of thinking about economic justice in a manner accounting for the institutional realities of labor markets in eighteenth-century England. Mueller rightly recognizes several of the key schools of thought shaping Smith’s moral philosophy, including the Stoic tradition and Newtonian reasoning. Mueller is correct in spotting Smith’s contribution to the enlightenment emphasis on the impersonal forces of the market. Nonetheless, Smith is not quite so easily categorized as a moral Newtonian and Stoic oversimplifier of economic theory (p. 53). Although he was heavily influenced by the Christian professor Francis Hutcheson, he was also a close personal and professional friend of the atheist empiricist David Hume, who came out of a Presbyterian background. In a recent study (Halteman & Noell, 2012), I argue that Smith is best described as a “deist” since he sees the creator as a benevolent force in the order of things, and it is clear that he was quite critical of organized religion. Smith’s revisions of The Theory of Moral Sentiments (hereafter TMS, 1982) show a drift some distance away from any appreciation of the truth claims of Christianity as he observed it (Halteman & Noell, 2012). While Smith may have been conflicted over time in his effort to follow some path between the “moral sense” teaching of his mentor Hutcheson and the neo-skeptic influence of his friend Hume, at the same time, he engages in significant moral reflection that recognizes the place of telos in economic behavior. Smith does not separate fact and value (as many contemporary economists do) and Mueller’s evaluation of Smith would benefit by tapping into the manner in which Smith’s moral philosophy shapes his economics. For example, it is evident that Smith’s perspective on human nature does not “assume that every human acts solely for him or herself” (p. 139). Indeed, Mueller is not clear on the question of

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“selfishness” in Smith, for Mueller also states that “the main reason the brewer, the butcher, or baker doesn’t serve his customers from beneficence is not exclusive self-love, but rather because each is faced with the fact of scarcity” (p. 56). Mueller’s depiction of Smith’s “narrowly motivated” economic actor leads him to go further and claim that “By treating self-love as the only essential motive of economic behavior, Smith replaced Augustine’s empirically verifiable theory of personal distribution with an arbitrary and often false assumption: that no one ever shares his wealth with anyone else” (p. 57; see also p. 72). Yet in TMS Smith depicts individuals motivated out of pity, compassion, and vanity distributing their resources to others. In addition, the manner in which Smith’s relationship to Scholastic teaching is depicted in Redeeming Economics ought to be reconsidered. Smith’s references to justice are explicitly described in terms of the Scholastic notion of commutative justice in TMS. Here Smith discusses several different meanings of the term “justice,” and addresses justice with reference to the ancient and Scholastic meaning: In one sense we are said to do justice to our neighbour when we abstain from doing him any positive harm, and do not directly hurt him, either in his person, or in his estate, or in his reputation …. The first sense of the word coincides with what Aristotle and the Schoolmen call commutative justice, and with what Grotius calls the justitia expletrix, which consists in abstaining from what is another’s, and in doing voluntarily whatever we can with propriety be forced to do. (TMS, 1982, p. 269)

Smith indicates here that his usage of the term “justice” should be synonymous with commutative justice in the ancient and medieval sense (Young & Gordon, 1992, p. 11). Smith links the Scholastic concept of commutative justice with his notion of the impartial spectator, a key Smithian concept missing from Mueller’s discussion of the writings of the Scottish moral philosopher. Individuals sympathize with others. They do this because they want their own behavior approved by the impartial spectator, which resides within them. Smith describes how the impartial spectator regulates human behavior: “we endeavour to examine our own conduct as we imagine any other fair and impartial spectator would examine it” (TMS, 1982, p. 110). The impartial spectator acts as an internal regulator in regards to an individual’s moral or ethical judgments. In regards to market activity, the justness of particular policies was to be judged, in Smith’s view, by whether or not they met the test of the impartial

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spectator. Young notes that in Smith’s conception of bargaining in the marketplace, it is manifest that the result of bargaining is commonly accepted rules governing people’s estimation of the value of the goods and services exchanged …. [In the market] the participants must modify their self-love in order to reach an agreement. This is possible because of the strong desire, original in human nature, to be approved of and to secure the pleasure derived from the mutual concord of feeling which results. (1985, p. 123)

In Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations (hereafter WN, 1981) we find the application of the impartial spectator’s standards to economic policy. In the context of laws governing economic action, whether they were mercantile restrictions, or laws governing combinations and conspiracies, this meant impartial treatment with respect to political and economic privilege (Noell, 1995). Smith believed that competition in the labor market, with wages established by free bargaining, would promote commutative justice. Smith’s indebtedness to the Scholastics via protestant thinkers such as Grotius and Pufendorf is noted by Redeeming Economics. Yet, it seems that the manner in which Smith’s work affirmed their basic concerns regarding economic justice is overlooked. Much like the Scholastics, Smith recognized that a worker could be in a weak bargaining position relative to his employer (in part because of the British laws banning employee combinations). This is evident in the fairly detailed and sophisticated economic analysis undertaken in book I of WN (1981) of the reasons underlying worker combinations and evaluation of the likelihood of their success in raising wage rates. The schoolmen and Smith were equally distrustful of guilds and labor market combinations in general, and opposed laws facilitating their formation or granting them monopoly privileges. However, Smith explicitly denied the efficacy and justice of laws banning the formation of labor market combinations. For Smith, competition limited the practice of economic compulsion. Smith’s analysis of the conditions for the payment of a living wage is an extension of late Scholastic thought on the justice of labor market exchanges (Noell, 2006). In addition to this labor market policy application, Smith also impacted subsequent economic analysis of market combinations. Contrary to Schumpeter (1954) and Mueller, Smith made recognizable analytic contributions to economics. He was the first economist to extensively examine the economic aspects of attempts by interest groups to obtain exclusive privileges in the law. Among the factors influencing the acquirement of privilege, Smith (WN, 1981) referred to location and degree of dispersal,

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previous governmental regulation, and the size of the group. Mueller’s discussion of both Smith’s work and public choice economics would be enhanced by accounting for these examples.

CONCLUSION Redeeming Economics offers a perspective on modern economics beneficially informed by moral reflection. It brings a significant voice to the conversation on the problems of modern economics, in that it avoids collapsing all economic activities related to production, consumption, distribution, and exchange into one value-free notion of supply and demand. Yet, the effort is hampered by the ways in which the evolution of Scholastic thinking on economic justice in the product, labor, and loanable funds markets is not carefully elaborated. This drawback hampers the development of more complete neo-Scholastic economics. At several points, Mueller makes sweeping claims regarding the robustness of a neo-Scholastic economics. Unfortunately, in taking a careful look at his modern policy examples, one is left at times to ponder what exactly constitutes a particularly distinctive and superior neo-Scholastic policy initiative regarding a modern domestic macroeconomic problem. For example, the specifics seem to be lacking as to how neo-Scholastic policies toward minimizing both unemployment and inflation would outperform current economic policy regimes. Nonetheless, Redeeming Economics is worthy of careful study by historians of economics for its thoughtful discussion of primary and secondary sources, particularly in preclassical economics, and provocative challenge to the economics profession. It provides a significant case for following the ancients in seeing economics as a servile art. While modern economics rejects any concern with wrestling over the ends of economic life, Mueller’s book leads us to reconsider the value of starting where preclassical economics explicitly begins, with the telos of any particular economic activity. Instead of filtering out the concept of a natural purpose for economic behavior, Mueller’s book follows the path of the Scholastics in starting from the realities of human nature and then reflecting on the significance of personal economic actions if each individual recognizes his or her telos. This volume’s overarching value is in showing the possibility of a way forward for economics that attempts to bring the two disparate conditions together. For his contribution to the ongoing dialogue among economists who also wish to press forward toward that end, we owe our thanks to John Mueller.

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NOTES 1. For an examination of Augustine’s formulation of the just wage, see Noell (1998). 2. The issue of justice in exchange in the product and labor markets occupies a significant part of Scholastic economic thought. It has generated an extensive secondary literature on the elements involved in Scholastic just price and just wage doctrines, including Baldwin (1959); Chafuen (2003); De Roover (1955, 1957, 1958, 1967, 1974); Ekelund, Hebert, Tollison, Anderson, and Davidson (1996); Friedman (1980); Kaye (1998); Laiou (2002); Langholm (1982, 1992, 1998b); Lowry (1994); Noell (1998, 2001); and Worland (1977, 1987). 3. As Aquinas points out elsewhere, the right of buyers and sellers to outwit or “deceive” (decipere) one another granted them by Roman law does not amount to a general license to commit fraud (Langholm, 1992, p. 235). 4. Certainly the Scholastics recognized degrees of need; for Gerald Odonis and Peter Olivi “Need is not compulsion as such; need is a particular kind of economic compulsion, different from but on a par with physical or moral compulsion” (Langholm, 1982, pp. 273 274). 5. Confessional handbooks reference the market price because of its role in protecting against economic compulsion (Langholm, 2003, p. 247). 6. For an extended discussion of these dimensions of late Scholastic thinking on the just wage, see Noell (2001).

REFERENCES Aquinas, T. (1981). Summa theologica (Vol. 5). Westminster, MD: Christian Classics. Baldwin, J. W. (1959). The medieval theories of the just price: Romanists, canonists, and theologians in the twelfth and thirteenth centuries. Transactions of the American Philosophical Society, 49(4), 1–92. Chafuen, A. A. (2003). Faith and liberty: The economic thought of the late Scholastics. Lanham, MD: Lexington. De Roover, R. (1955). Scholastic economics: Survival and lasting influence from the sixteenth century to Adam Smith. Quarterly Journal of Economics, 69(2),161 190. De Roover, R. (1957). Joseph Schumpeter and Scholastic economics. Kyklos, 10(2), 115 146. De Roover, R. (1958). The concept of the just price: Theory and economic policy. Journal of Economic History, 18(4), 418 434. De Roover, R. (1967). San Bernardino of Siena and Sant’Antonino of Florence: The two great economic thinkers of the middle ages. Boston, MA: Harvard Graduate School of Business Administration. De Roover, R. (1974). The Scholastic attitude toward trade and entrepreneurship. In J. Kirshner (Ed.), Business, banking, and economic thought in late medieval and early Modern Europe: Selected studies of Raymond de Roover (pp. 336 345). Chicago, IL: University of Chicago Press.

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Ekelund, R. A., Hebert, R. F., Tollison, R. D., Anderson, G. A., & Davidson, A. B. (1996). Sacred trust: The medieval church as an economic firm. New York, NY: Oxford University Press. Friedman, D. (1980). In defense of Thomas Aquinas and the just price. History of Political Economy, 12(2), 234 242. Gordon, B. (1975). Economic analysis before Adam Smith: Hesiod to Lessius. London: Macmillan. Halteman, J., & Noell, E. (2012). Reckoning with markets: Moral reflection in economics. New York, NY: Oxford University Press. Kaye, J. (1998). Monetary and market consciousness in thirteenth and fourteenth century Europe. In S. T. Lowry & B. Gordon (Eds.), Ancient and Medieval economic ideas and concepts of social justice (pp. 371 403). Leiden, NL: E. J. Brill. Laiou, A. (2002). Economic and noneconomic exchange. In A. Laiou (Ed.), The economic history of Byzantium: From the seventh through the fifteenth century (pp. 681 96). Cambridge, MA: Harvard University Press. Langholm, O. (1982). Economic freedom and the Scholastics. History of Political Economy, 14(2), 260 283. Langholm, O. (1992). Economics in the medieval schools: Wealth, exchange, value, money, and usury according to the Paris theological tradition 1200 1350. Leiden, NL: E. J. Brill. Langholm, O. (1998a). The legacy of Scholasticism in economic thought: Antecedents of choice and power. Cambridge: Cambridge University Press. Langholm, O. (1998b). The medieval schoolmen 1200 1400. In S. T. Lowry & B. Gordon (Eds.), Economic ideas and concepts of social justice (pp. 439 502). Leiden: E. J. Brill. Langholm, O. (2003). The merchant in the confessional: Trade and price in the pre-reformation penitential handbooks. Leiden, NL: E. J. Brill. Lowry, S. T. (1994). The market as a distributive and allocative system: Its legal, ethical, and analytical evolution. In N. De Marchi & M. S. Morgan (Eds.), Higgling: Transactors and their markets in the history of economics (pp. 25 46). Durham, NC: Duke University Press. Noell, E. S. (1995). Adam Smith on economic justice in the labor market. Journal of the History of Economic Thought, 17(2), 228 246. Noell, E. S. (1998). Bargaining, consent and the just wage in the sources of Scholastic economic thought. Journal of the History of Economic Thought, 20(4), 467 478. Noell, E. S. (2001). In pursuit of the just wage: A comparison of reformation and counterreformation economic thought. Journal of the History of Economic Thought, 23(4), 467 489. Noell, E. S. (2006). Smith and a living wage: Competition, compulsion, and the Scholastic legacy. History of Political Economy, 38(1), 151 174. Schumpeter, J. (1954). History of economic analysis. New York, NY: Oxford University Press. Smith, A. (1981). In R. H. Campbell & A. S. Skinner (Eds.), An inquiry into the nature and causes of the wealth of nations. Indianapolis, IN: Liberty Fund, Indianapolis. Smith, A. (1982). In D. D. Raphael & A. L. Macfie, The theory of moral sentiments. Indianapolis, IN: Liberty Fund. Worland, S. (1977). Justum pretium: One more round in an “endless series”. History of Political Economy, 9(4), 504 521. Worland, S. (1987). Commentary: Scholastic economics. In S. T. Lowry (Ed.), Pre-classical economic thought: From the greeks to the scottish enlightenment (pp. 136 146). Boston, MA: Kluwer.

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Young, J. T. (1985). Natural price and the impartial spectator: A new perspective on Adam Smith as a social economist. International Journal of Social Economics, 12(6/7), 118 133. Young, J. T., & Gordon, B. (1992). Economic justice in the natural law tradition: Thomas Aquinas to Francis Hutcheson. Journal of the History of Economic Thought, 14(1), 1 17.

MUELLER’S REDEEMING ECONOMICS THE ECONOMIES OF DIVINE AND HUMAN LOVE Jordan J. Ballor Keywords: Neoscholastic economics; neoclassical economics; natural law; economics and religion; economics and theology; Thomas Aquinas

Review essay on Mueller, J. D. (2010). Redeeming economics: Rediscovering the missing element. Wilmington, DE: ISI Books. 400pp. ISBN: 978193 2236941. $27.95.

John D. Mueller deserves recognition and appreciation for writing this book. It is obviously the work of someone with a rare combination of theoretical acumen, historical sensibility, and practical experience. I have learned a great deal from his work. This is a significant publication that covers a great deal of ground, so I will focus here particularly on three points in which I hope to press for some clarification or agitate for further thought. But spending time on these points should not be construed as inherent criticism of the larger work. I unreservedly recommend the work for edification, study, and reflection. Mueller’s thesis making the case for neo-Scholastic

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economics and his historical study of the development of economics before and after Adam Smith make this book particularly of interest. One of the most compelling aspects of the exploration I found in this study is the attempt to grapple with the complex dynamics relating to the phenomenon of love, both human and divine. To a large extent I think this effort is successful, but these three points I raise will in some direct sense all bear on the treatment of love and particularly the economics of love.

ADAM SMITH AND SELF-LOVE First, I wonder about Mueller’s treatment of Adam Smith and the concept of self-love. In my own limited study of Smith, particularly in relationship to theologians like Jonathan Edwards and Samuel Hopkins who were his contemporaries, I have found Smith to be in broad continuity with them on this point (see, for instance, Black, 2006). They, in turn, are largely in the Augustinian stream, which acknowledges self-love as something valid, obligatory, and indeed, unavoidable in some sense, given the reality of human nature. As C. S. Lewis puts it, “If there lurks in most modern minds the notion that to desire our own good and earnestly to hope for the enjoyment of it is a bad thing, I submit that this notion has crept in from Kant and the Stoics and is no part of the Christian faith” (1996, pp. 25 26). The difficulty, as Mueller points out quite eloquently, is that self-love is not ordinate; it is not properly oriented and subsumed under our love for God and related to our love for others. We are “swollen,” to use Augustine’s picture, puffed up with undue self-regard and pride.1 One way of getting at this is to address the historiographical “Adam Smith problem,” concerning particularly the relationship between the Theory of Moral Sentiments and the Wealth of Nations. Mueller largely resolves the problem by asserting that there is no problem; in fact Smith’s view of self-love is consistent throughout (given his Stoic pantheism): Smith regards human beings as essentially selfish (inordinately self-loving). This aspect of Mueller’s critique does raise the further question: How much of the account in Redeeming Economics is dependent upon Mueller’s reading of Smith? If it fails, does the thesis fail as well? As a thought experiment, let’s assume that the reading of Smith is wrong, and that either there is in fact either no Adam Smith problem or the problem is resolved in some other way. Let’s say that Adam Smith does leave some room for self-love,

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properly understood in an Augustinian sense. Would this matter at all to the case that is made in Redeeming Economics? It seems clear that this interpretive issue does have important implications. This relates to Mueller’s treatment of utility in neo-classical economics, which retains the basically selfish and solely self-regarding model of homo economicus handed down from Smith. Isn’t there a sense, though, in which neo-classical economics is happy to remain agnostic about the preferences that make up utility for different individuals? Isn’t utility, for many economists at least, an empty set that can be filled in on a kind of continuum, quite narrowly (with respect to the person individually) on one end, and quite broadly on another, including not only family members, neighbors, co-religionists, and countrymen, but indeed all of humankind and even inclusive of the animal and plant world (as in the case of Peter Singer, perhaps). This is, in fact, one significant reading of assumptions of Adam Smith. Michael Novak makes this claim at various points in The Spirit of Democratic Capitalism: “The real interests of individuals, furthermore, are seldom merely self-regarding. To most persons, their families mean more than their own interests; they frequently subordinate the latter to the former” (1982, p. 93). Paul Heyne (2008, p. 60) puts it this way: “While self-love or self-interest is certainly capable of producing selfish behavior, it need not do so.” Instead, said Heyne (2008, p. 31), “self-interest is not the same as selfishness, and the narrow pursuit of private purposes has no necessary connection with greed, materialism, or a lack of concern for others.” Heyne agrees with Mueller’s evaluation of neo-classical economics: “Many of the most eminent and sophisticated theorists in the economics profession make no effort to distinguish between self-interest and selfishness or between rational behavior and greedy behavior” (2008, p. 58). Heyne just doesn’t think this is accurate with respect to Adam Smith, and it certainly isn’t, as Mueller well notes, for Augustine either. In one sense, and in a way that Mueller may not fully realize or admit, his reading of Adam Smith is separable from the larger case regarding the truncation of classical and neo-classical economics. The broad lines of his historical case may well be correct even though his particular evaluation of Smith and Smith’s pivotal role might be incorrect or at least unbalanced. An aspect of Mueller’s evaluation of Smith and the importance placed on Smith’s Stoic pantheism that is worth exploring more carefully have to do with the weight that Smith’s worldview carries in Mueller’s case. Mueller makes a great deal about the interpretive implications of Smith’s metaphysical and metaethical commitments, and these are, by and large,

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negative on Mueller’s account. But we should pause and ask why Aristotle’s philosophical commitments should not likewise be criticized. In part this surely has to do with the historical proximity of Smith and the role that he plays in Mueller’s depiction of the drama of the history of economic thought in the last two centuries. Aristotle is also critically received and refined in the thought of Augustine and Aquinas, who could be seen as providing Christian correctives to Aristotle’s theological errors. This raises the possibility that something similar might be possible for Smith. Even if Smith’s theological commitments are highly problematic and heterodox, is there anything inherent in his thought that makes it odious to orthodox Christian social thought? Smith, at least, seemed to see the congruence between his views and that of his contemporary Edmund Burke, and this again raises some doubt about the significance of Smith’s purported Stoic pantheism for the problematic nature of classical and neo-classical economics.2

LOVE AND ITS SIGNIFICATIONS One of the strengths of Redeeming Economics is its consistent application of an Augustinian perspective to economic thinking, particularly with regard to the Augustinian insight into the ordo amoris, the order of loves, in both its subjective and its objective senses. At points, however, I wonder if Mueller doesn’t make claims about the empirical ability of the neoScholastic economic method that are too strong. This relates to a larger discussion about methodological and disciplinary humility as it relates to economics as well as to other disciplines (e.g., economics as the “imperial” discipline, and whether a division of labor between types of economics [focused on one or another of the four “elements”] is possible).3 But to return to Mueller’s claims in particular, I am dubious that love can really be measured meaningfully in terms of the costs (financial or otherwise) associated with gifts, even by using the comprehensive neoScholastic economic method. So, for instance, Mueller writes, “A Lover who seeks to maintain the same relative importance for the Loved One will always devote the same share of total real wealth or income to that person, after adjusting for the change in the Loved One’s cost of living, just as if the Lover also were directly affected by the price change” (p. 172). And again, “A person who loves three other people equally with himself will devote the same share of his or her scare resources to the other persons as if he loved three hundred others 1 percent as much or three thousand

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others one-thousandth as much as himself” (p. 152). In general, to love another person as you love yourself is treated in this analysis as entailing a 50/50 split in material resources: “If there are only two of us, and I love you equally with myself, then I will give you the use of half of what I own; it’s that simple” (p. 143). There is potentially a major confusion at work here, or perhaps more than one. Is it the case, for instance, that in a marriage the husband and wife give half of what each owns individually to the other person? Or is it the case more often thant they share 100% of what each owns individually with the other? In the case of an individual gift, to narrow the focus down to the very micro level, is it the case that the amount of time, money, effort, and other variables expended to acquire a particular gift can be combined mathematically to arrive at some empirical measure of how much “love” is represented in that gift? We might think of all kinds of counter-examples to such a view. Sometimes the most meaningful, significant, and loving gifts are those that do not take the greatest expenditure of resources, financial or otherwise, on the part of the giver. We also cannot assume that all individuals have the same preference with regard to measurable aspects of gifts. If my spouse does not particularly enjoy expensive items but rather simple things, a measurably more costly gift (like a new car) might in fact be less loving than something more mundane (like a foot massage). How do attempts to measure love by measuring gifts account for or control for the great variety of individual preferences and the unique, intimate aspects of a loving relationship? I would challenge the attempts to measure love in some empirical way through the costs of various aspects of the gift or the relationship between giver and recipient (and vice versa). Without becoming too unseemly or base, what about what is perhaps the characteristic element of gift in the marriage relationship, the conjugal act itself? Can the love of that exchange or gift be measured meaningfully by neo-Scholastic economics? It strikes me that one of the serious errors Mueller identifies with neoclassical economics is that it might attempt just such a measurement, and Mueller rightly argues that it would be wrong to do so. The basic takeaway is not only that not all gifts are material, which Mueller certainly recognizes, but also that not even all gifts are empirically measurable in any meaningful way. But even if all gifts were measurable, there would still be the further complication that there cannot be a simple equation or even proportional relationship between the measurable elements of a gift and love. I would employ here another basically Augustinian distinction, found classically in

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his De Doctrina Christiana (Augustine, 1996, 1.2.2, p. 107), between the sign (signum) and the thing signified (res). In this case, it seems to me that the gift is a sign of love, the thing signified. In the same way that it is an error to simply identify the sign with the thing itself, and it is an error to confuse price and value, neither should the cost of the gift and love be elided. As Dierdre McCloskey (2006, pp. 56 57) has written, “Love runs consumption.” She’s pointing out there the question of final distribution: “Over half of consumer purchases at point of sale, for example, are on behalf of children and husbands and mothers and friends.” But can we really move from that valid observation to make claims about how much love or what kind of love such purchases represent? Sometimes it really is the thought that counts, but that doesn’t mean that we can count the thought by measuring the material cost. I am skeptical about this linkage between material cost and the measurability of love, and I wonder in this case whether Mueller might be trying to explain a bit too much in terms of neo-Scholastic economics.4

LOVE AND JUSTICE My final point has to do with the complex relationship between love and justice. I’m not expecting to arrive at a final answer to this vexed question any time soon, but I do want to raise some features of the discussion in Mueller’s book that I think are worth lingering over. At various points during the book it struck me that the terms “gifts” and “crimes,” used to refer to distributions of positive or negative varieties in terms of personal economy, might not be the best terms to describe these realities. I should say that on the first score, Mueller is in very good company in describing the distributions of a mother in the mother’s dilemma, for instance, as gifts. As Jesus himself relates in the gospel accounts, even earthly and sinful parents know how to give “good gifts” (domata agatha) to their children when they are hungry: “Which of you, if your son asks for bread, will give him a stone? Or if he asks for a fish, will give him a snake? If you, then, though you are evil, know how to give good gifts to your children, how much more will your Father in heaven give good gifts to those who ask him! So in everything, do to others what you would have them do to you, for this sums up the Law and the Prophets” (Matthew 7:9 12 NIV). Now I think this is in part due to the impoverishment of our language, or at the very least our moral sensibility, but we often tend to equate gifts

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with things that are gratuitous, in the sense of being beyond obligation or desert. But from another way of thinking, isn’t the distribution of milk by a mother to her infant not merely a gift in that sense but also the discharging of a moral obligation, a debt, something that she owes her child? If we grant that this is the case, but we still are determined to describe such acts as gifts, then why not apply that same terminology to distributions at other levels beyond the domestic and personal? Should we then describe political distributions as gifts as well? More often we do not, although in the case of political theory such (re)distributions are often described in terms of gifts, favors, or even bribes. What is the qualitative difference between distributions at the various levels that qualifies one being described as gift and the other as simply distributions or matters of justice? My point is not to say that the domestic and personal economies are normed by love while the political economy is normed by justice. It is merely to point out the complexity of the relationship between love and justice at various levels. Mueller certainly affirms (rightly, I think) that distributive justice governs distributions in the domestic economy, and yet these distributions in this instance are called gifts. I find that curious and instructive, and potentially quite illuminating for sorting out the relationship between love and justice, as well as for parsing the idea of an economy based on the virtue of love or caritas, as exemplified most recently in Benedict XVI’s (2009) encyclical Caritas in Veritate. There is a similar terminological issue at play in describing the opposite of gifts as crimes. They are in a real sense a violation of the moral order, but it is a hallmark of Augustinian and Thomistic thoughts to distinguish between such violations and the more narrow case of violations of positive law. The latter are often called crimes while the former, larger category, are sins or vicious acts, or moral evils: “… although every crime is a sin, not every sin is a crime” (Augustine, 1999, 17.64, p. 88). I hope this final remark makes it especially clear why I have found Redeeming Economics to be a very valuable book, one that is challenging, constructive, and provocative in positive ways, and one whose argument in its various aspects is worthy of extended engagement.

NOTES 1. See, for instance, Augustine’s treatment of crated good, including the self, in The Confessions: “Sin gains entrance through these and similar good things when we turn to them with immoderate desire, since they are the lowest kind of goods

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and we thereby turn away from the better and higher: from you yourself, O Lord our God, and your truth and your law” (Augustine, 2005, 2.5.10, p. 38). 2. Edgeworth (1894, p. 195) tells us that according to Smith, Burke was “the only man he had met with who thought as he did on the chief topics of political economy without previous communication.” 3. Mueller (pp. 101 102) discusses Stigler’s (1988, p. 203) imperialistic comment: “The prospect that economic logic may pervade the study of all branches of human behavior is as exciting as any development in the history of economics, or, for that matter, in the history of science.” See also Stigler (1982). 4. This may be an unfortunate holdover of the basic disposition of much of neoclassical economics. See, for instance, Edgeworth’s (1879, p. 396) axiom: “Pleasure is measurable, and all pleasures are commensurable; so much of one sort of pleasure felt by one sentient being equateable to so much of other sorts of pleasure felt by other sentients.”

REFERENCES Augustine, A. (1996). The works of Saint Augustine: A translation for the 21st century, Part 1 (Vol. 11, E. Hill., Trans.). Teaching Christianity: De Doctrina Christiana. New York, NY: New City Press. Augustine, A. (1999). The Augustine catechism: The enchiridion on faith, hope, and love (Vol. 1, B. Herbert, Trans.). The Augustine Series. New York, NY: New City Press. Augustine, A. (2005). The works of Saint Augustine: A translation for the 21st century, Part 1 (Vol. 1, M. Boulding, Trans). The Confessions. New York, NY: New City Press. Benedict XVI. (2009). Caritas in Veritate, June 29, Retrieved from http://www.vatican. va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_caritas-inveritate_en.html Black, R. A. (2006). What did Adam Smith say about self-love? Journal of Markets & Morality, 9(1), 7 34. Edgeworth, F. Y. (1879). The hedonical calculus. Mind, 4(15), 394 408. Edgeworth, F. Y. (1894). Edmund burke. In R. H. I. Palgrave (Ed.), Dictionary of political economy (Vol. 1). London: Macmillan. Heyne, P. (2008). In H. G. Brennan & A. M. C. Waterman (Eds.), “Are economists basically immoral?” and other essays on economics, ethics, and religion. Indianapolis, IN: Liberty Fund. Lewis, C. S. (1996). The weight of glory. In The weight of glory and other addresses. New York, NY: Touchstone. McCloskey, D. N. (2006). The bourgeois virtues: Ethics for an age of commerce. Chicago, IL: University of Chicago Press. Novak, M. (1982). The spirit of democratic capitalism. New York, NY: Touchstone. Stigler, G. J. (1982). The economist as preacher, and other essays. Chicago, IL: University of Chicago Press. Stigler, G. J. (1988). Memoirs of an unregulated economist. New York, NY: Basic Books.

MUELLER’S REDEEMING ECONOMICS NOTES ON MUELLER’S REDEEMING ECONOMICS Dwight R. Lee Keywords: Neoscholastic economics; neoclassical economics; natural law; economics and religion; economics and theology; Thomas Aquinas

Review essay on Mueller, J. D. (2010). Redeeming economics: Rediscovering the missing element. Wilmington, DE: ISI Books. 400pp. ISBN: 97819322 36941. $27.95.

I responded somewhat skeptically almost immediately when I read that “All serious attempts to explain the order in markets (which is a fact, not a theory) have been derived from divine providence. The most famous, of course, is Adam Smith’s renowned invisible hand” (Mueller, p. 4). My response is that economists would not have made even the limited progress they have getting people to understand “the order in markets” by stating it as a fact. In fact, it is not a fact without important conditions being satisfied, and can only be explained by a theory that incorporates those conditions while, like all theories, containing some simplifying assumptions.

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It is true that the “invisible hand” is often dismissed by critics as being based on a religious-like faith that the pursuit of self-interest always leads to social desirable outcomes. Obviously, these critics haven’t read The Wealth of Nations, or didn’t understand it if they did. This statement clearly doesn’t apply to John, who has something much deeper in mind when, as I think he is saying, “The more serious the attempt to explain almost anything (not just the order in markets) the closer one has to get to some ultimate principle, and divine providence is as ultimate as you can get.” But if I am right here, I am prepared to be satisfied with a much less ambitious explanation than is John an explanation that is willing to accept some things as given before we get all the way back to the most foundational principle. Maybe I am too sympathetic with the woman who told an astrophysicist that the earth was held up on the back of a turtle. When the physicist asked her what held up the turtle she replied, “You can’t fool me, it’s turtles all the way to the bottom.” Having acknowledged my methodological limitations I prefer Jordan Ballor’s term, methodological modesty, and his insight that academics need to specialize just like other mortals (see Ballor’s contribution to this volume) let me consider a few specific issues prompted by John’s book. The overriding problem seen by John with neoclassical economics is that it has no theory of distribution. I have always been under the impression that it did. The theory is hardly immune to criticism, since it assumes an initial distribution of productive resources (land, labor, and capital) with a person’s income being determined by the marginal value of those resources (as ultimately determined by the marginal utility people receive from final goods and services). In essence, this neoclassical theory of distribution is part and parcel of the neoclassical theory of production. The obvious problem is that if the distribution of productive resources changes, so will the distribution of income. But I am now not sure this is all that relevant, since I now think what the neo-Scholastics, and John, meant by a theory of distribution has to do with our “choice of persons” to benefit from our productive effort. And this gets us to the connection between gifts and love (or theft and hate). Neoclassical theory doesn’t deal much with gifts, but, to the extent that it does, it is based on utility we make gifts to others because we receive utility from doing so. But since we cannot measure units of utility, it is easy to fall into circular reasoning. Not being able to measure the utility neoclassical theory uses to explain a gift, the tendency is strong to see an

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increase in the value of a gift to someone as indicating that the utility derived by the giver from making that gift has increased. But isn’t the neoScholastic theory of gifts based on love subject to the same circularity, since there is no way to measure units of love? So if a mother increases the amount she gives one child relative to the amount she gives her other children, it means the amount she loves that child has increased relative to the amount of love she has for her other children, everything else equal. So the relative love for her children cannot be measured except in terms of how much she gives them. I like the marginal utility approach better, because I can think of situations in which it simply seems more plausible. Consider a situation in which a mother loves all her children equally a reasonable default position. As I read Mueller’s book, the neo-Scholastic approach would predict that she would give her children equal amounts. A plausible interpretation of the marginal utility approach would not. This approach would predict that she would try to allocate gifts to her children to maximize their collective benefit, which means equalizing the marginal utility to each from the gifts. If one of the children is, for example, a special-need child, or a gifted musician, whose marginal utility function is higher than the ones his or her sibling have, then he or she would receive the larger gifts than the others. It is also worth pointing out the some of the most valuable gifts parents give their children have nothing to do with money, and like money cannot be measured. For example, love is probably the most valuable gift a parent can give his/her children, but the amount of love given to different children cannot be measured, and neither can the amount of love each child perceives he/she receives. The same is true of another value gift from parent to child discipline. Another example deals with the gift of time that children give their parents who are in a nursing home. I read a study once that found that when a wealthy parent in an old-folks home has several children, each of her children will visit her more frequently (make her a bigger gift of themselves) than the only child will visit his/her rich mother in an old-folks home. Neoclassical economics has an obvious explanation for such behavior. From my reading, neo-Scholastic economics suggests that the children of the first mother each loves her more than does the one child of the second mother loves her. That may be true in some situations, but I doubt it is the general rule. And what about the neo-Scholastic argument that crime indicates hate for the victim. My guess is that muggers are more likely to hate a big tough male strutting along with a beautiful woman on his arm than a feeble old

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lady shuffling down the sidewalk. But I bet that it is the little old lady that is most likely to be mugged, everything else equal. Yet another example: Some traditional societies kill and other coddle their old. I doubt that the explanation is that the former hate the elderly and the other love them. According to Jared Diamond (2012, p. 221) “Thus, much of the reason why societies do or don’t care for the aged depends on how useful old people are.” Sounds a lot like utility to me. There was a lot in the book about the neo-Scholastic economics of the personal economy, the domestic economy, and the political economy (they rated separate parts of the book), but little about the extended market economy or order. Is that because that order results from, and is maintained by, impersonal exchanges motivated by the subjective evaluation of costs and benefits (or utility) and neo-Scholastic economics is less applicable to impersonal exchanges than is neoclassical economics? Let me end by saying my comments have focused on those things about which I have some skepticism. I also want to make clear that there is much in the book that I find very insightful. As one example, the material on labor markets is very informative and compelling. The book reflects an impressive breath of knowledge of economics, and not just economics. Mueller is someone who does not need to specialize as much as I do in that exciting quest to understand the world around us, and contribute to that understanding.

REFERENCE Diamond, J. (2012). The world until yesterday. New York, NY: Viking Press.

MUELLER’S REDEEMING ECONOMICS RESPONSE: WHAT EXACTLY IS “NATURAL LAW ECONOMICS”? John D. Mueller Keywords: Neoscholastic economics; neoclassical economics; natural law; economics and religion; economics and theology; Thomas Aquinas

I’m very grateful to Joe Blosser, David Levy, Edd Noell, Dwight Lee, and Jordan Ballor for their thoughtful responses, they which demonstrate that vigorous disagreement need not imply animus. I view their responses as a high compliment. I will first summarize those responses briefly. Joe Blosser recommends the book mostly as pathology, typifying one dangerous extreme he identifies as “theological economics,” the mirror image of the other extreme, “economic theology,” typified by Becker and Stigler’s “economic approach to human behavior” as applied to religion. To these extreme, abstract Weberian Ideal Types he contrasts his own position, the Golden Mean of economic and religious “Integrationism.” He dismisses my structural history of economics, denies my characterization of both Aquinas’s1 and Smith’s views, and rejects my endorsement of Joseph Schumpeter’s conclusion that “the Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776” (Schumpeter, 1954, p. 184).

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David Levy invites us to look more closely at Adam Smith’s famous passage about butchers and bakers not serving us from benevolence but self-love, because, he says, I stopped short before Smith’s mention of the beggar. Levy also says my treatment is dully conventional by missing the role of language, which he sees as central to Smith’s thesis that humans share the propensity to truck and barter with no other animal. And he repeats the thesis of Frank Knight and Levy’s own teacher, George Stigler, who successfully campaigned to end the requirement that Ph.D. candidates master the history of economic thought: that (in Levy’s words) “if the discipline of economics is efficient then there is no really good reason to require history of economics” (Stigler, 1969).2 Though differing in details and calling for much amplification, Edd Noell endorses my broad historical thesis. He agrees that my interpretation of what Schumpeter called the Great Gap the absence of Aristotelian “economists” between the 4th-century B.C. and the mid-13th century A.D. does indeed indicate that something essential was missing in Aristotle’s outline of economics, and agrees that I correctly identified Augustine’s theory of personal distribution and Augustine’s theory of utility as enabling Aquinas to construct the first complete theory of economics. Dwight Lee and Jordan Ballor formed a tag team, which focused chiefly on two issues: First, whether my description of Adam Smith’s philosophy and economics is correct, and second, the validity of the (Neo-) Scholastic economic theory, particularly how it describes love. Before answering the differences with each, I must note one point of agreement among them that will astonish my publisher: Redeeming Economics is too short! Since my time is short, rather than play Whack-a-Mole with the many objections raised, let me start with just one point Joe Blosser made, which I think will unfold all the major outstanding issues. Blosser writes: “I argue that Smith’s biography and texts make it more plausible that he was somewhere between a Calvinist and a Deist though no definitive evidence exists to prove where on that spectrum he falls. Scholars, like Viner and Brendan Long, argue Smith remained a Calvinist”3 (Viner, 1927, p. 199). Blosser’s comment is interesting for a number of reasons. First, it directly answers David Levy’s remark, “I don’t fully understand the animus of religious thinkers in the Christian tradition to Smith.” Simply look at the panel’s Christians. Blosser hotly defends Smith on every point. Ballor holds out the prospect of reconciliation, as does Noell, who in his new book with James Haltemann, argues for an interdisciplinary approach incorporating Smith’s “social passions” (Halteman & Noell, 2012). And I,

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too, can sympathize with Joe Blosser’s view, since I shared it for years and wrote many speeches for the then-Congressman Jack Kemp to that effect.4 The default position among Christian economic thinkers, I suggest, is not to excommunicate Adam Smith but rather to re-baptize him. This is what I did for years: every time I came across a pantheistic passage in Smith’s works, I would simply interpret Smith as if he were St. Augustine. But I had to stop projecting my own values onto Smith once I paid close attention, first, to what Smith wrote, not what others wrote about him, and then, to see how Smith’s view was understood, to the testimony of contemporaries like Boswell, who, contrary to Blosser’s contention that their connection ended when Boswell was 19, in 1776 was keeping up with Smith and also interviewed Hume.5 Second, Blosser’s comment also reveals the root of his confusion about what he calls “theological economics”: He gets off on the wrong foot by failing to make the basic distinction between natural theology and revealed theology. As Aquinas (1955-1957, Book I, Chapter 3, Section 1) observed There is a twofold mode of truth in what we profess about God. Some truths about God exceed all the ability of the human reason. Such is the truth that God is triune [i.e., the divinity of Jesus Christ]. But there are some truths which the natural reason is also able to reach. Such are that God exists, that He is one, and the like. In fact, such truths about God have been proved demonstratively by the philosophers, guided by the light of natural reason.

Redeeming Economics re-states and follows this distinction, while Blosser’s misinterpretation confines “theology” to the first (revealed) kind of theological knowledge, which depends on faith alone. The second, “guided by the light of natural reason,” is real knowledge, not mere opinion, though it is necessarily incomplete knowledge, since our certain knowledge of God is mostly about what he is not, for example, in-finite, im-material. As I noted in the book’s introduction, “Like natural law philosophy itself, economic theory is the product of human reason reflecting on common human experience, and that is the approach followed throughout this book” (p. 3). Thus Blosser is flatly mistaken in claiming that “Redeeming Economics is rooted in a particular Catholic natural law kind of thinking that restricts ‘reason’ to those who agree with it …” There can be no “Catholic natural law,” any more than there can be a Catholic sun or moon. As I’ll note later, Blosser’s notion misunderstands not only the nature of reason and thus natural law (which refers chiefly to human nature), but also where the natural law actually arose, including the important role of some of his forebears, the “Protestant Scholastics.”

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Third, Blosser’s comment reveals a huge gap in the history of the Chicago School, which Viner co-founded. Viner’s 1927 article, which Blosser cites, actually mentions neither Calvinism nor Deism. It does say, “Smith definitely commits himself to the theism of his time” (Viner, 1978, pp. 81 82), which seems to support a much attenuated version of the Blosser thesis. However, by stopping in 1927, Blosser ignores Viner’s second career with his deeper research into Smith’s religious views. Schumpeter’s History provoked George Stigler’s ultimately successful campaign to abolish the history of economic thought requirement, not just at Chicago but in all major American university economics departments. But it stimulated Viner meanwhile to become a “historian of ideas” at Princeton University, where he explored the role of Scholastic economics and became the first historian of economic theory (including Schumpeter) to recognize Augustine’s crucial technical role (Viner, 1972; and especially Viner, 1978).6 Viner’s deeper research changed his mind about the supposed “Adam Smith Problem”7 And his 1966 Jayne lectures poked fun at his own 1927 view, saying of professors of economics and of ethics, “If perchance Adam Smith is a hero to them, they follow one or the other of two available methods of dealing with the religious ingredients of Smith’s thought. They either put on mental blinders, which hide from their sight these aberrations in Smith’s thought, or they treat them as merely traditional and in Smith’s day fashionable ornaments to what is essentially naturalistic and rational analysis, especially where economic matters and the Wealth of Nations are in question.” It is natural that Levy would defend his mentor George Stigler’s abolition of the history of economic thought requirement, and similarly presume that education is best conceived as an “efficient” market. However, Levy’s remarks on “efficiency” indicate that he has not come to terms with the critique of the consequences of the omission of the element of final distribution from the Chicago School’s theory (as from all other neoclassical schools). In making this argument, Stigler, like Adam Smith, ignored the fact (demonstrated among others by Leon Walras) that, rather than a single optimum distribution of wealth or income toward which an efficient market tends, there is at least one efficient equilibrium for every possible distribution. Moreover, with education as with other goods, two kinds of transaction are possible, not just one. Generally speaking, we “exchange” information with those we keep at arm’s length (such as auto insurance information with another driver after a fender-bender). But as the word “communication” suggests, we also share information, typically with those we trust. Either way whether we acknowledge that any market has an

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indefinite number of “efficient” equilibria, or that information may be given or received as a gift as well as exchanged there can be no single uniquely efficient economic state. In fact, in his Nobel address, Stigler invited his colleagues to exploit the inherent information asymmetry between teachers and students for the teachers’ rather than students’ advantage in effect considering themselves so many used-theory salesmen, whose livelihood was mortally threatened by students’ knowledge that newer (or older) theories are superior: Gary Becker has suggested that … the established scholar possesses a valuable capital asset in his command over a particular body of knowledge. That capital would be reduced if his knowledge were made obsolete by the general acceptance of a new theory. Hence, established scholars should, in their own self-interest, attack new theories, possibly even more than they do in the absence of joint action. (Stigler, 1983)

But here as elsewhere, Jacob Viner’s rigorous scholarship and whole second career started in response to Schumpeter’s rediscovery of the Greek and scholastic economic theory serve as a strong counterexample, indicating that keeping students ignorant of the history of economic theory also leads to inferior current economic theory as evidenced for example by Stephen Levitt’s famous error, which I mentioned in my opening remarks, resulting from applying the Stigler-Becker “economic approach to human behavior” in making his famous claim about the relation of abortion and crime. Another striking example is to compare the neoclassical and neoScholastic theories of fertility. In the book I note that existing neoclassical models, by the admission of their own authors, aren’t very reliable, and cannot agree, for example, whether national saving is positively or negatively related to fertility. In the neoscholastic theory, the Two Great Commandments (to love God and neighbor) are empirically related, because the decision to devote scarce resources (such as time or money) to another person is essentially the same whether the other person is God or another human being. In both cases, the decision entails sacrificing scarce goods that could otherwise have been used for oneself, and so elevating the other person relative to oneself in one’s scale of preferences for persons. Redeeming Economics shows this by outlining a country-by-country model of fertility, which shows that just four factors explain most variation in birth rates among the countries for which sufficient data are available (comprising about one-third of all countries, but more than three-quarters of world population.) The model was first developed in Mueller (2006), and over various presentations I have continued to adapt it (most recently in Mueller, 2012). The charts here are the most recent (Figs. 1 and 2).

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Total Fertility Rate,* 2005-10

*TFR adjusted for mortality (= 2 x NRR) 5 4 3 2 1

BF ET ZM ML GT NG JO PH EG PE IN VE AR MX IDZA TR UY AZ CL BR PR TH TW EE AM CN RS GE MD HRSK BG LV RU LT RO UA BY MT PL KR

0 $0

IL US IS IE NZ AU UK NL CA CZ CY ES EL IT CH PT SI HU JP

FI BEFR DK SE NO AT

LU

DE

$5

$10

$15

Per capita social benefits at PPP $000, 2006 R-square = 0.555 # pts = 70 y = 4.21 + -0.322(lnx)

Per Capita Social Benefits vs. Fertility. Source: Mueller, Redeeming Economics, Figure 11-3, p. 236.

Fig. 1.

Total Fertility Rate,* 2005-10

*TFR adjusted for mortality (= 2 x NRR) 5 BF

4 3 2 1

ET ZM ML GT NG JO PH IL EG VE IN PE AR MX IDZA TR UY AZ IS US CL SE BRTH PR NZ UK FR FI DK BE TW RS AM CN CY EE CA GE MD HR BG PT EL LV AT SI HU RU CZIT ES LT UA ROMT PL BY SK KRDE JP

0 $0

$5

IE AU NL

LU

CH

$10

$15

NO

$20

$25

Per capita national saving at PPP $000, 2006 R-square = 0.461 # pts = 70 y = 5.56 + –0.463(lnx)

Fig. 2.

Per Capita National Saving vs. Fertility. Source: Mueller, Redeeming Economics, Figure 11-4, p. 237.

The birth rate is strongly and about equally inversely proportional to per capita social benefits and per capita national saving (both adjusted for national differences in purchasing power). Social benefits and national saving are inversely related to the birth rate because they represent provision by current adults for their own well-being.

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When these factors are taken into account, a legacy of totalitarian government is also highly significant in reducing the birth rate (by about 0.6 children per couple) (Fig. 3). Finally, the birth rate is strongly and positively related, in a linear fashion, to the rate of weekly worship. On average in the world, a couple that never worships has about 1.2 children, but a couple that worships once a week averages about 2.4 more children, or about 3.6. This suggests that the personal gift of time and resources involved in worship is closely and systematically associated with the personal gift of having children for their own sake rather than for the pleasure and utility of the parents. Thus, the choice to have children because we love them rather than because of the benefits they confer upon us should be positively related to the frequency of worship in all cultures. If George Stigler and Gary Becker’s theory were correct that everyone’s preferences are identical and that these preferences are identical in all cultures, we should find that frequency of worship makes no difference to the total fertility rate. Instead, we find that the rates of weekly worship and fertility are always positively related across countries, with relatively minor variation by religious denomination. Finally, scholastic philosophy and economic theory are necessary to explain what is admirable in Levy’s “analytical egalitarianism.” Augustine deals as Viner puts it “simultaneously with three scales of value, relating to order of nature, utility, and justice” (1972, p. 55). More precisely, the three

Total Fertility Rate,* 2005-10

TFR adjusted for mortality (= 2 x NRR) 5 BF MLZM GT

4 3

ET NG JO

PH IL VE AR IS UY TRUS AZ CL NO FR NZ SE DK FI AU BEUK NL LU CN EETW AM RS CA CY GE MD CZ AT LV PT EL ITHR LTCH RUBG DE HUES SI RO UA SK JP BY KR

2 1 0 0%

20%

EG PE IN MX ZA IE TH BR PR

40%

MT

ID

PL

60%

80%

100%

Rate of weekly worship R-square = 0.52 # pts = 70 y = 1.19 + 2.44x

Fig. 3.

Weekly Worship vs. Fertility. Source: Mueller, Redeeming Economics, Figure 11-5, p. 239.

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scales are the orders of metaphysical being, preference for persons, and utility, the preference for nonpersonal things. This leads us to another question raised by Blosser, what it means to be a “rational animal” and to David Levy’s question, “what does language have to do with it?” To Smith, as Viner notes, “The sentiments are innate in man; that is, man is endowed with them by providence. Under normal circumstances, the sentiments make no mistake. It is reason which is fallible.”8 Unlike Smith, Augustine is not agnostic about whether human economic transactions require “the faculties of reason and speech.” The human person, writes Augustine, possesses “a rational soul” and therefore “subordinates to the peace of the rational soul all that part of his nature which he shares with the beasts, so that he may engage in deliberate thought and act in accordance with his thoughts.”9 Rational humans also use signs, Augustine notes: things which signify other things. The semiotics pioneered by Charles Sanders Peirce helps us answer how rational human language differs from communication of other animals (see Marty, 1997). Semiotics might be said to have begun with Augustine’s theory of signs, which he developed from the classical Greco-Roman understanding of reason. “When should one be deemed superior to cattle? When one knows what one does. Nothing but reason makes me higher than the beasts … I am superior not for doing a large number of things, but for knowing what number is,” as Augustine (2006, p. 11) pithily puts it. In other words, reason is the ability to grasp immaterial universal realities like number, a faculty that cannot be reduced entirely to material phenomena. As indicated in Table 4, which I included in my opening remarks, despite their other differences, the Stoic and Epicurean world views share the nominalist theory of knowledge, both regarding reason as a highly refined form of sensation. Hence, Adam Smith’s just mentioned exaltation of “sentiments” over reason, and David Hume’s remark that “reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey them” (Hume, 1896, Book II, Part III, Section iii). Like most biblically orthodox thinkers before the 13th century, Augustine believed that faith and reason are fundamentally compatible, but he sometimes failed to distinguish clearly between what he believed on the basis of faith and what he knew based on reasoning from experience. However, a community of thinkers gradually emerged, which grappled with that distinction and the implications of creation for philosophy. Each was an outstanding philosopher who sought to reconcile Aristotle and

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Plato, as well as a firm believer in orthodox Muslim, Jewish, or Christian faith. Even though no two were contemporary, I call them a “community” because they learned from one another in a sort of “spiral” fashion: Aquinas learned from Maimonides and Avicenna; Maimonides from Avicenna and Alfarabi; and Alfarabi and (according to Maimonides) Avicenna from earlier Greek and Syriac Christian scholars, who sought to answer objections to their faith raised by Greek pagan philosophers (Gilson, 1955, p. 651). All shared the view that they ought to be able to agree on whatever could be demonstrated by reason and experience. No pseudo-philosophy should be accepted merely because it happened to agree with the tenets of their own faith. Their thought is therefore of special importance to Americans of the 21st century, for whom, exactly as at the Founding, the natural law provides a common basis of conversation and debate among those who disagree about divine revelation. The natural law had been similarly revived after the religious wars of the 17th century by those like the Lutheran Samuel Pufendorf, who recognized it as a way to discuss their differences without resorting to war and whose understanding influenced American Founders like Alexander Hamilton.10 In other animals, communication can be reduced to “dyads” of stimulus and response. Human language cannot be so reduced, because it is inherently “tryadic”: rational and relational, involving the persons communicating, an indicative symbol, and the thing signified by the symbol.11 In the scholastic version initiated by Augustine and developed by Aquinas and later scholastics, language is thus rooted in the realities of human nature, which grasps all natures. Another way to put this is to deny Smith’s claim that what he called the “propensity to truck and barter” is an instinct. As I noted earlier, Levy argues that I erred by stopping my citation of Smith’s famous passage about butchers and bakers serving us from selflove before Smith’s comments on the beggar. But accepting Levy’s invitation shows that the whole passage fails to prove what either Smith or Levy maintains. In Levy’s extended version, Smith says, “Even a beggar does not depend upon [benevolence] entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the necessaries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase.” What this shows is that Augustine (2006, p. 131) was correct: there

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are two fundamentally different kinds of economic transaction, “sale or gift.” Smith concedes that charity gift “supplies the beggar with the whole fund of his existence.” Smith’s pointing out that the beggar also trades with what he received as a gift merely confirms Augustine’s point that both kinds of transaction are necessary; it does not justify Smith’s use of this passage, which was to dismiss the scholastic theory of gifts altogether as superfluous, codified in Smith’s assumption that “every individual ... intends only his own gain” (Smith, 1904, IV.2.9). The most admirable thing about Levy’s “analytical egalitarianism” is its basic intuition that all men are created equal, as the Declaration of Independence puts it. This is exactly what Augustine’s scale of being reveals, since all those sharing the same nature are naturally equal. But analytical egalitarianism is unable to defend this understanding. By positing what Levy and Peart (2005, pp. 20 21, Figures 2.2 and 2.3) call an “anthropic variable” or “index of human status α,” supposedly common in varying degrees to humans and other animals, Levy like Hume can signify only cleverness, not reason, which is specific to humans, and does not vary in degree with its exercise. Otherwise, we’d be less human every time we fell asleep; our humanity would fade into and out of existence like the Cheshire Cat’s smile. Edd Noell remarks that “Mueller helpfully illuminates the manner in which histories of economic thought overlook the distinctive Augustinian perspective which closes the gap between Aristotle and Aquinas.” Continuing with his areas of agreement, Noell writes, “For the most part, Redeeming Economics offers a convincing account of Augustine’s role in the formulation of Scholastic economic doctrine. Augustine indeed supplied a ‘personalism’ to economic thinking that accounts for scarcity and shapes Thomistic teaching.” And “Mueller offers a fairly accurate presentation of Scholastic just price and just wage teaching, naming the role of competition in accomplishing commutative justice.” But Noell raises several ancillary objections, writing that “Redeeming Economics itself is plagued by some missing elements. For example, to find ‘the whole of economic theory can be reconstructed from four elements’ derived only from Aristotle and Augustine (p. 17) ignores the role that Roman law and Canon Law played in Aquinas’ formulation of his just price, just wage and usury conceptions.’” I concede below where fuller discussion would have been desirable, but Noell does not suggest how my empirical description might be altered by the amplification he proposes. Let me enumerate his objections. First, Noell faults my treatment of Aquinas’ views on interest and usury: “Thus Mueller is quite on target to claim that the Scholastics followed Aristotle’s conception of finding the true purpose for exchange,

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including the practice of lending of funds at interest, but misses the mark by not teasing out the role of Roman legal reasoning in their articulation of the usury doctrine.” And yet contrary to Mueller, unlike later Scholastics Aquinas was unwilling to accept a missed profit opportunity (lucrum cessans) as the basis for legitimate interest. Here Canon Law and Patristic teaching was likely influential in Aquinas’ thinking. It strikes me Mueller’s case for the foundations of the Scholastic economic outline would be solidified by engaging in a more careful reflection on its key sources in antiquity. (Noell)

I willingly grant that a fuller discussion of the development of scholastic theory would have been desirable, if my publisher would have stood for it. But Noell does not identify what element or economic theory he thinks Roman jurists supplied, and also seems to miss my endorsement of Schumpeter’s view that the change in view of interest depended chiefly on the changing facts of economic development, not an “evolution of Scholastic reasoning” from Aquinas to the late Scholastics: If pure interest is in fact zero, it is hard to argue with Aristotle’s point: People shouldn’t be charged for what doesn’t exist. In that case, interest should be charged only to compensate for risk of loss, “damnum emergens,” because there is no opportunity cost, “lucrum cessans.” But pure interest is a matter of empirical fact, not morality, and therefore cannot be settled by theoretical deduction. As Schumpeter pointed out, “The fundamental factor that raises interest above zero is the prevalence of business profits.” A stagnant economy, the kind the early Scholastics routinely assumed, rarely produces aggregate business profits, because new production at best replaces goods consumed directly and the human and nonhuman capital used up in the process of production. Those who favored allowing interest in the case of opportunity cost were generally located in cities or regions that were commercial centers experiencing economic growth and aggregate profitability. (Mueller, p. 35)

Secondly, Noell suggests that I “ignore the Scholastic discovery of an element of gift-giving in the bargaining facet of the exchange process.” And elements of gift-giving remain in market exchange. When two parties have negotiated and reach an agreed upon a transaction price, the Schoolmen find that it is the consequence of bargaining in which each must yield from their reservation price: “In the end each will settle somewhat below his own estimate. There is thus an element of gift in economic exchange, from both parties.” (Noell, quoting Langholm at the end)

Again, I would certainly welcome such an updating and development of (Neo-) Scholastic theory, since it depends on what I have called the “missing element” of final distribution. But Noell seems here to be describing an ideal normative prescription, whereas I view my main contribution as correcting the inability of classical and neoclassical economic theory to describe such transactions at all, because of Adam Smith’s elimination of

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the scholastic theory of final distribution (particularly Augustine’s theory of gifts/crimes and Aristotle’s theory of distributive justice). Whether there is “an element of gift in economic exchange” would seem to require confirmation by observing people’s actual behavior, not an assumption a priori. Third, like Blosser, Noell writes that “Smith is best described as a ‘deist’ since he sees the creator as a benevolent force in the order of things.” The main obstacle to this view is Smith himself, who nowhere refers to God as “creator,” in contrast to Deists like Thomas Paine who routinely do so; and Smith himself describes the pantheism of Stoic philosophy (see note below). Fourth, Noell claims that Smith’s economic theory is in accord with scholastic theory because Smith’s notion of justice corresponds to commutative justice: “Smith indicates here that his usage of the term justice should be synonymous with commutative justice in the ancient and medieval sense.” But one of my contentions in Redeeming Economics is precisely that Smith became the first major economic thinker to try to eliminate distributive justice from consideration, by restricting the meaning of justice to commutative justice, or justice in exchange alone; “and he holds this position throughout his career,” Smith’s biographer Ian Simpson Ross (2010, p. 119) notes. As a surviving Glasgow lecture fragment indicates, Smith erroneously taught that ‘in the Schools’ distributive justice meant ‘doing good according to the most perfect propriety,’ but that commutative justice (which he correctly defined) “can alone properly be called justice.” He apparently realized this significant error only when his manuscript of The Theory of Moral Sentiments based on his lectures was close to publication (a predicament with which any author can sympathize). Smith’s solution was to retain the incorrect definition of distributive justice as “proper beneficence” in the text (through all six editions) but add a footnote noting that the Scholastic definition of distributive justice derived from Aristotle’s was “somewhat different.” (Mueller, pp. 57 58)

It’s telling that both Dwight Lee and Jordan Ballor speak of love as a thing, just as the British School treated utility. As Augustine described them, love, and utility are essentially relations: orders of preference for persons and non-persons, respectively. G.K. Chesterton once remarked that a man is fortunate to marry the woman he loves, but he is more fortunate to love the woman he marries. The first is a deep or passionate affection, the second is an act of the rational will, regardless of one’s emotions. Animals love in first way, only persons love in the second way, and only humans, being rational animals, can love in both ways at once. Human love is not essentially an emotion. We love our children even or especially when we feel like wringing their necks. So I am far from denying the subjective, animal, emotional dimension of love, upon which Dwight Lee and Jordan Ballor have dwelt. What I do say

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is that specifically human love necessarily has an objective dimension, which helps us cut through much of the nonsense. To summarize my responses, Blosser is attempting to baptize Adam Smith just as I once did, but without acknowledging the basic distinction between natural and revealed theology, and ignores or dismisses the evidence of what Smith actually wrote and how contemporaries understood Smith. Though his defense of Stigler’s abolition of the history of economic thought requirement is untenable, many goals of Levy’s “analytical egalitarianism” are laudable; but he simply cannot sustain them without the basic insights of Augustine, which were developed by later scholastics and which are updated in some branches of modern semiotics. While registering Noell’s concerns, I obviously appreciate his agreement that what Schumpeter called “the Great Gap” in economic theory between Aristotle and Aquinas points to the importance of Augustine’s insights not only for scholastic economics, but for any coherent economic theory. Finally, I reminded Dwight Lee and Jordan Ballor of Augustine’s insight that love and utility are not things but relations among persons, and between persons and things. To answer our panel’s question, then: yes, the most important element of economics is really missing. If my book helps economists refocus upon the missing element of final distribution, its modest ambition to contribute to “redeeming” economics in the sense I use it in the book, of “fulfilling (a promise or pledge)” will have been achieved. And I thank Dan Hammond, Joe Blossser, David Levy, Edd Noell, Dwight Lee, and Jordan Ballor for having contributed to this emergent redemption.

NOTES 1. “While property up to a point should be held in common, the general principle should be private ownership” (Aristotle, 1981, p. 63). Aquinas appropriates Aristotle’s argument, adding that “possessions be private as to ownership, but common as to their use” (Aquinas, 2007, book 2, lesson 6). 2. “In 1972, Stigler successfully proposed that the history of thought requirement be dropped at Chicago. Most other economics departments later followed suit. … At the same meeting Stigler unsuccessfully proposed that the economic history requirement also be dropped” (Leeson, 1997, note 62). In his earlier campaign for the change, Stigler rejected Aquinas’ view that a scientist is defined by whether he understands his subject rather than having a degree. Stigler claimed instead that every science is continuously defined by a self-governing group calling themselves scientists. From this sociological definition, he said, it was obvious that “one need not read in the history of economics that is, past economics to master present economics.” Instead, “the young theorist … will assume … that all that is valid in

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earlier work is present in purer and more elegant form in the modern theory,” and that “the history of the discipline is best left to those underendowed for fully professional work at the modern level” (Stigler, 1982 [1969], p. 107). Yet as Redeeming Economics and the text of my remarks here indicate, the young economist who made that assumption would be underendowed for fully professional work, because he wouldn’t know his subject. 3. Blosser’s note cites Viner (1927) and Long (2009), adding: As biographical evidence for the position, Smith grew up in a Presbyterian home to a religious mother, just steps away from the Old Kirk (now St. Bryce Kirk) in Kirkcaldy. When they lived in Edinburgh, he was known to walk his mother to Canongate Kirk where Smith is now buried on his way to work at the Custom’s House. Smith was childhood friends with John Drysdale who became a moderate Presbyterian minister and introduced Smith to other moderate ministers. And, in John Rae’s words, Smith was a “disciple” of his teacher Francis Hutcheson who was the son of an Irish Presbyterian Minister, became a licensed probationer at age 25, and became a leading voice of moderate New Light Presbyterianism. (See Rae, 1965, p. 11; and Burleigh, 1960, pp. 18 19)

4. In the chapter on classical economics in Redeeming Economics, I argue that the three keys to understanding Adam Smith are his moral Newtonianism, his philosophical Stoicism, and his sophistical view of rhetoric. First, moral Newtonianism. Smith aimed, as he put it in an unpublished manuscript, “to see the phenomena which we reckoned the most unaccountable all deduced from some principle (commonly a well-known one) and all united in one chain” (Smith, 1985, Lecture XXIV). Smith’s audience understood that this was what he was attempting. As one former student summarized: “His Theory of Moral Sentiments founded on sympathy, a very ingenious attempt to account for the principal phenomena in the moral world from this one general principle, like that of gravity in the natural world” (Smith, 1982a, p. 3; see also Hetherington, 1983). But as Smith’s successor, the commonsense philosopher Thomas Reid, remarked, “I conceive this meaning of the word Sympathy is altogether new & that if one had not a hypothesis to serve by it he would never have dreamed that it is Sympathy that makes us blush for the impudence and rudeness of another” (quoted in Stewart-Robertson & Norton, 1984, p. 314). “Stoic pantheist” is a pleonasm, like Monty Python’s Department of Redundancy Department. As Smith explained, in Stoic philosophy, “the whole of Nature” was believed “to be animated by a Universal Deity, to be itself a Divinity, an Animal … whose body was the solid and sensible parts of Nature, and whose soul was that aetherial Fire, which penetrated and actuated the whole” (Smith, 1982b, p. 120, Accessed from http://oll.libertyfund.org/title/201/56020/916315). The Theory of Moral Sentiments, above all in its sixth and final edition, was, and literally began with, an advertisement for Stoicism, “that famous sect.” Smith calls God the great Conductor, but never the Creator. In contrast, Thomas Paine, an honest-to-God Deist, argued that: everything we behold carries in itself the internal evidence that it did not make itself … . And it is the conviction arising from this evidence, that carries us on, as it were, by necessity, to the belief of a first cause eternally existing, of a nature totally different to any material existence we know of, and by the power of which all things exist, and this first cause man calls God. (Paine, 1955, p. 688)

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Finally, Smith’s view of rhetoric. Aristotle wrote, “In Rhetoric, as in Dialectic, we should be able to argue on either side of a question; not with a view to putting both sides into practice we must not advocate evil but in order that no aspect of the case may escape us, and that if our opponents make unfair use of the arguments, we may be able to refute them” (Aristotle, 1932, I, 1; p. 6). But Adam Smith taught his students, “The Rhetorical discourse again endeavours by all means to persuade us; and for this purpose magnifies all the arguments on one side and diminishes or conceals those that might be brought on the side contrary to that which it is designed that we should favour” (Smith, 1985, p. 62, accessed from http://oll.libertyfund.org/title/202/55525). This is how Smith dismisses Augustine’s theory of utility, omitting to mention that he had until recently taught the same theory. 5. “Boswell was well known to Smith, who was his college teacher at Glasgow in 1759 1760. Boswell’s diaries show that despite the antipathy between Johnson and Smith, Boswell met Smith in London on several occasions, even going out of his way to visit him” (Schliesser, 2003, p. 330). 6. Note that Viner’s example also contradicts Stigler’s argument that established scholars do and should seek their own interest rather than the truth about their discipline. 7. The Adam Smith Problem is the apparent inconsistency between The Theory of Moral Sentiments and the Wealth of Nations: “Many writers, including the present author at an early stage of his study of Smith, have found these two works in some measure basically inconsistent” (Viner, 1991, p. 250). 8. “In such cases the important thing for the interpreter of Smith to note is how low down in this scale of psychological traits reason enters the picture as a factor influencing social behavior. ‘Sympathy’ is Smith’s term for the psychological mode of operation of the whole apparatus of ‘sentiments.’ All of this apparatus is peculiar to man, and is subrational. It begins where the animal instincts shared by men end, and it ends where human reason begins.” “Smith is debating with himself whether ‘the propensity to truck and barter’ is an elementary instinct in man, and thus has no conscious objective, or whether it has a rational foundation.” 9. The human person, on the other hand, writes Augustine, possesses “a rational soul” and therefore “subordinates to the peace of the rational soul all that part of his nature which he shares with the beasts, so that he may engage in deliberate thought and act in accordance with his thoughts” (Augustine, City of God, p. 873). 10. This paragraph is drawn from Redeeming Economics (pp. 356 357). 11. Walker Percy (1983, pp. 85 126) provides an accessible description and distinction of dyadic and tryadic communication in the central chapter of Lost in the Cosmos. One of Peirce’s more accessible passages is in Peirce (1894).

REFERENCES Aquinas, T. (1955 1957). Contra gentiles (A. C. Pegis, Trans.). New York, NY: Hanover House. Aquinas, T. (2007). Commentary on Aristotle’s Politics (R. J. Regan, Trans.). Indianapolis, IN: Hackett.

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Aristotle. (1932). In L. Copper (Trans.), The Rhetoric of Aristotle. New York, NY: D. Appleton-Century-Crofts. Aristotle. (1981). The Politics (rev. ed.). (L. Sinclair, Trans.). Harmondsworth, UK: Penguin Classics. Augustine. (2006). De Ordine 386 (S. Borruso, Trans.). South Bend, IN: St. Augustine’s Press. Burleigh, J. H. S. (1960). A church history of Scotland. London: Oxford University Press. Gilson, E. (1955). History of Christian philosophy in the middle ages. New York, NY: Random House. Halteman, J., & Noell, E. (2012). Reckoning with markets: Moral reflections in economics. New York, NY: Oxford University Press. Hetherington, N. S. (1983). Isaac Newton’s influence on Adam Smith’s natural laws in economics. Journal of the History of Ideas, 44(3), 495 505. Hume, D. (1896). A treatise of human nature. Oxford: Clarendon Press. Retrieved from oll. libertyfund.org/title/342 Leeson, R. (1997). The Chicago counter-revolution and the sociology of economic knowledge. Working Paper No. 159, Economics Department, Murdoch University, Murdoch, Australia. Levitt, S. D., & Dubner, S. J. (2005). Freakonomics: A rogue economist explores the hidden side of everything. New York, NY: William Morrow. Long, B. (2009). Adam Smith’s theism. In J. T. Young (Ed.), Elgar companion to Adam Smith (pp. 77 93). Cheltenham, UK: Edward Elgar. Marty, R. (1997). 76 Definitions of the sign by C. S. Peirce. Retrieved from www.cspeirce.com/ rsources/76DEFS/76defs.htm Mueller, J. D. (2006). How does fiscal policy affect the American worker? Notre Dame Journal of Law, Ethics, and Public Policy, 20(2), 563 619. Mueller, J. D. (2012). The demographic winter (how we got to where we are). Paper presented at the World Congress of Families, IV, May 25, Madrid, Spain. Retrieved from http:// congresomundial.es/wp-content/uploads/John-D.-Mueller-Ponencia-ENGLISH.pdf Paine, T. (1955). Thomas Paine: Collected writings. New York, NY: Library of America. Peart, S., & Levy, D. M. (2005). The “vanity of the philosopher”: From equality to hierarchy in postclassical economics. Ann Arbor, MI: University of Michigan Press. Peirce, C. S. (1894). What Is a sign? Retrieved from http://www.iupui.edu/∼peirce/ep/ep2/ ep2book/ch02/ep2ch2.htm Percy, W. (1983). Lost in the cosmos: The last self-help book. New York, NY: Farrar, Straus and Giroux. Rae, J. (1965). Life of Adam Smith. New York, NY: A. M. Kelley. Ross, I. S. (2010). The life of Adam Smith. Oxford: Oxford University Press. Schliesser, E. (2003). The obituary of a vain philosopher: Adam Smith’s reflections on hume’s life. Hume Studies, 29(2), 327 362. Smith, A. (1904). In E. Cannan, (Ed.), An inquiry into the nature and causes of the wealth of nations. London: Methuen. Retrieved from www.econlib.org/library/Smith/smWN.html Smith, A. (1982a). In D. Raphael & A. L. Macfie (Eds.), The theory of moral sentiments. Indianapolis, IN: Liberty Fund. Smith, A. (1982b). The history of astronomy. In W. P. D. Wightman & J. C. Bryce (Eds.), Essays on philosophical subjects (Vol. III). Indianapolis, IN: Liberty Fund. Smith, A. (1985). In J. C. Bryce (Ed.), Lectures on rhetoric and belles lettres. Indianapolis, IN: Liberty Fund.

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Stewart-Robertson, J. C., & Norton, D. F. (1984). Thomas Reid on Adam Smith’s theory of morals. Journal of the History of Ideas, 45(2), 309 321. Stigler, G. J. (1982 [1969]). Does economics have a useful past? In The economist as preacher and other essays. Chicago, IL: University of Chicago Press. Viner, J. (1927). Adam Smith and laissez faire. Journal of Political Economy, 35(2), 198 232. Viner, J. (1972). The role of providence in the social order: An essay in intellectual history. Philadelpia, PA: American Philosophical Society. Viner, J. (1978). In J. Melitz & D. Winch (Ed.), Religious thought and economic society: Four chapters of an unfinished work. Durham, NC: Duke University Press.

REINERT’S TRANSLATING EMPIRE Revisionism Gone Awry Robert B. Ekelund, Jr. Keywords: John Cary; classical political economy; mercantilism; free trade

Review essay on Reinert, S. A. (2011). Translating empire: Emulation and the origins of political economy (455p). Cambridge, MA: Harvard University Press. ISBN: 978-0674061514. $55.

Capitalism, free market efficiency, and the standard canon of ideas establishing economic theory and economic history have never been without criticism and rejection by some.1 That heterodox strain of thought aimed at both contemporary repositories of neoclassical economic theory and at historical narratives explaining the great leap forward of the English Industrial Revolution. Stephen A. Reinert uses a novel approach to tell the whole story of capitalism, its origins and the theory that undergirds it. His approach is to argue that we have been fooled all of three centuries by focusing on the wrong literature, one that establishes the standard received

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canon of economic theory. This occurred by ignoring how a neglected dissident to free market capitalism spread his ideas throughout Europe with translations. Standard economic theory from Smith to the present day represented the apex and operation of a system (free trade capitalism) that makes rivals who use it poorer and subservient to those advocating free trade but who got rich in other ways. This is a book that seeks no less than a complete revision of the origins and history of economic thought and economic history. Such great ambitions require high standards of proof and at least some ability to falsify. I begin by describing Reinert’s thesis in some detail and end with an analysis of the main thesis and some critical subsidiary issues. Reinert’s astonishing thesis is that the entire canon of the history of economic theory and economic history should be revised due to the writings and translation of a late seventeenth-century book published in England and subsequently translated into four other languages. The book titled An Essay on the State of England in Relation to Its Trade, Its Poor and its Taxes, for Carrying Out the Present War against France, published in 1695 by Bonny in Bristol, England, by one John Cary carries the entire weight of this thesis. Reinert believes that this work untangles the “twisted roots of political economy in the long eighteenth century” (p. 2). Reinert, in the introduction to his book, further maintains that “England, and Europe generally, industrialized while adhering to theories and pursuing policies which have little to do with the historiography of political economy invented retroactively in Britain in the second half of the nineteenth century” (p. 3). According to Reinert, the great truths and foundation of an alternative “economic theory” found in Cary’s book were spread about Europe engendering similar policies. This was accomplished by means of “emulation” (read “envy”) and were facilitated (importantly) by translation and expansion of Cary’s work into French, Italian and German versions, informing the German and Scandinavian tradition of cameralism.2 Chapter 1 of the book seeks to establish the rate of translation of Cary’s new “theory” and the subsequent attempts at emulation of the British model of economic development (as described by Cary). Reinert, with erudition in languages and history, argues against the proposition that “civic survival depended on international trade” (a la Montesquieu and other Enlightenment philosophers), but Reinert (and Cary) depicts trade as a violent act a cutthroat competition for dominance over competitors in the international sphere. Trade did not support peace; indeed, it was a mode of warfare that had to be carefully regulated. Political economy to Reinert (and Cary) becomes a “bellicose science.”

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The evidence adduced by Reinert consists of bar charts of translations of works related to “economics” into and out of English Dutch, German, Spanish, Italian, and French between the mid-sixteenth century and the mid-nineteenth century. Without specific calculations on numbers, Reinert concludes that Cary was generally translated at the peak levels of translation, but concedes that the locale of translation cannot be determined given the data.3 Reinert holds that “the data at hand hold precious heuristic value for understanding the dynamic interconnection of power, translation, and emulation from 1500 to 1849” (p. 45). Thus, Reinert finds growth, population, wages, and other aggregate measures from state to state to be correlated with economic works translated only one of which was by the unheralded Cary. (There were other books in the mix of course.) The relative number of translations means, for the author, that emulation was taking place, a truism. At most times England prospered, at others Italy and Spain were in relative decline (perhaps for other reasons). Obviously these data could be misleading, as Reinert notes regarding the dearth of German export of translations coexisting with the fact that they established the first chairs devoted to political economy (pp. 59 60), but “continental statesmen and translators in the long eighteenth-century had looked to authors and pamphleteers that were deemed more in line with actual British strategies at the time of its economic takeoff: now-neglected ‘mercantilists’ like Cary …” (p. 71). The coincidence of the international translation of economic textual material and economic growth means that the Industrial Revolution was spreading across Europe though in uneven fashion. It does not indicate cause and effect and Reinert does not maintain that it does.

CARY’S ESSAY INTERPRETED BY REINERT Reinert clearly regards Cary as having invented (or assembled perhaps) a science. As he put the matter “The science he had proposed was essentially a prolonged meditation on the consequences and possibilities of manufacturing and enlightenment, seen in terms of widespread education and social empowerment” (p. 128). Reinert (in Chapter 2) analyzes Cary’s mercantilism which has not been totally neglected (Schumpeter, 1954; Viner, 1937) but, according to Cary, misinterpreted. Cary, like his father, was a merchant of Bristol who was elected to the Society of Merchant Ventures in 1677 and to the Council of Bristol in 1688. His job was to lobby Parliament on behalf of the Bristol merchants for regulations or freedom from regulations that

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would benefit them.4 Starting from an assumption that self-interest was “the overthrow of all publique affairs,” Cary penned his Essay in 1696 as a means of encouraging war and trade to protect that industry ostensibly for the greater glory and power of England, presenting it as a general treatise so as not to be viewed as a “prospector” for the textile and other industries in Bristol. His primary points, according to Reinert, may be listed: (1) Cary believed that the competitive export of finished goods (not raw materials) mattered to the wealth of a nation; (2) International competition, in his view, was not and did not engender cooperation between trading nations competition for manufacturing production was part and parcel of empire building and was, in a real sense, part of warfare; (3) Private interests thwart the commonweal whereas protection and manipulation of trade by the state increases economic welfare for all; (4) He argued that wages would rise and that poor relief could be mitigated through the mercantile restrictions on trade he advocated; (5) Cary believed that imperial dominance did not depend on low wages (as other mercantilists believed) but on technological development and experience; Cary did support the slave trade however. (6) Cary defended the domestic production of fashion and luxury goods on the premise that it might induce technological development; (7) He believed that woolen manufacture should be monopolized by England and that foreign competition should be eliminated (p. 86); (8) Cary believed that the division of labor was both a result and a cause of societal development; (9) The nature of imports mattered to the nation’s wealth; manufactures were superior to agricultural or other raw materials in producing high wages and increased income.5 Thus, for all intents and purposes Cary was what is now regarded as a mercantilist, although his stance both dovetailed and differed with other writers of the period (e.g., as a defender of fashion productions and his position of the division of labor in society). As a mercantilist, Cary has been underestimated. But Reinert (citing Mokyr, 2006) goes much further: “From an English perspective, the great structural transformation from an agricultural to an industrial occurred during a period of intense economic policies to ensure precisely such a transition not ‘after’ the decline of so-called ‘mercantilism,’ And Cary was the architect of this process” (pp. 88 89). Government in its official role as the invoker of punitive tariffs and protector of favored manufacturing interests was a partner to the

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process and, following Cary’s logic, self-interest, and laissez faire were not part of the canon of theory and policy established by Cary.

CARY TRANSLATED Reinert’s scholarship in tracking down Cary’s “followers” and translators is admirable and interesting.6 France’s eternal rivalry with England led to a translation of Cary by Butel-Dumont (Essai sur l’Etat du Commerce d’Angleterre). The book appeared in two volumes of more than 1000 pages. Economic “jealousy” of England’s growing success resulted in the anonymously published book by Georges-Marie Butel-Dumont in 1755. With imperial greed and cutthroat competition as its theme Butel-Dumont reflecting debates among merchants and politicians concerning competition with England urged the reworking of Cary’s mercantile ideas for France or adapting it to the situation of particular nations. Next to Italy and yet another reworking of Cary’s text in the form of Antonio Genovesi’s Storia del commercio della Gran Brettagna (1757 1758), translated from the French but in three volumes of 1,500 pages. For Genovesi, political economy “was a science of national economic development in the tradition not only of the Essay but also of the revolutionary concept of greatnes … “allowing statesmen to ‘increase the greatness, power, and wealth of the Nation’” (p. 203). Genovesi considered a commerce without conquest (empire), unlike Cary and Butel-Dumont. Essentially, Genovesi sought to adapt Cary’s “science” to the decentralized Italian situation. Cary’s Essay underwent its final translation into German in 1788 with Wichmann’s O¨konomisch-politisch Commentarius, which included applications to the German states’ situation and institutions. Wichmann (quoted in Reinert, p. 259) hit the nail on the head in characterizing the goal(s) of Cary’s previous incarnations in English, French, and Italian: “[It was] nothing if not that of contributing to the promotion and raising of the economic welfare and political power of their respective motherlands through economic-political maxims that they, on the basis of their persuasion, thought worthy of attention and that every one, in their place, considered salutary.” It was, in short, a brief for nationalism, the growth of empire, and for the establishment of an economic-political “connection.” That appears to be, in precise terms, the essence of Cary’s original essay (Wichmann was in fact a defender of Physiocracy).7 The Epilogue to the book recapitulates Cary’s achievements and emphasizes Reinert’s view that the standard canon (Smith, Ricardo, etc.) in the history of economic theory and not be replaced with Cary’s “science” of

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political economy must be abandoned. These are, in fact, the two essential questions raised by the book. Specifically, must some new canon be developed in the history of economic thought given Cary’s essay? That is, were the laissez faire, invisible hand foundations of political economy “wrong” or outdated and used as a hammer to beggar the competitors of the United Kingdom throughout its dominance over the eighteenth and nineteenth centuries? Second, does the spurt of economic growth in England coincide with the decline in mercantilism based on the international trade policies Cary advocated? I argue that the answer is a resounding “no” to these questions.

DOES CARY’S ESSAY REQUIRE A NEW CANON IN ECONOMIC HISTORY OR HISTORY OF ECONOMIC THOUGHT? Cary, from my reading of the mercantile literature, including secondary sources such as Viner and Heckscher (1935), was just another rent-seeking lobbyist for textile interest groups. Cary’s motives in this direction were clear and other motives attributable to him (defending Protestantism, the economic welfare of the masses, etc.) were only a cover for textile interests in Bristol and elsewhere. Although obscured by the “generality,” Reinert maintains concerning Cary’s “science of political economy” Cary believed that would be the great “Wisdom of our Government to regulate all Foreign Trades by such Methods as may be make them useful in the promoting of our Manufactures” (Cary, quoted in Reinert, p. 90). Reinert makes it clear that Cary was a lobbyist in Parliament, first for Bristol and then for other interests. But what were “government” or “state” policies? How were they determined? These state policies (with the exception of monarchical fiat) were policies and regulations imposed on Parliament by interest groups with a quid pro quo of the MPs. Woolen and other textile manufacturers were the groups benefiting from these state policies. Projectors such as Cary, and there were many, were purveyors of such rent seeking for their own aggrandizement. Rationalizations of his position with other covers (promotion of Protestantism, the “general welfare,” etc.) were simply included as rationales for protection. Reinert makes the valuable but well known point that Enlightenment economics does not equate to laissez faire of Smith’s invisible hand or to Smith himself. But Enlightenment thought did not sanction bellicose trade.

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As Mokyr has put it “The post-Waterloo movement toward free trade would be unthinkable without the political economy that the Scottish Enlightenment produced” (2006, p. 284). Reinert’s indictment of Adam Smith is particularly off the mark. He states that “Scholars and laypeople alike continue to be obsessed by Adam Smith, but by the most lenient standards of historical evidence, we must accept that he was a treacherous guide to his age. For he was either eerily duplicitous or remarkably ignorant in claiming that ‘every town and country … in proportion as they have opened their ports to all nations, instead of being ruined by this free trade, as the principles of the commercial system [mercantilism] had been enriched by it.’” This, according to Reinert, “cannot but invoke doubts about the Scotsman’s intentions” (p. 283). Reinert, unfortunately, offers non-falsifiable examples of “free trade disasters” due in the main to “economic warfare” (Venice, Naples, Portugal). But worse, Reinert cherry-picks an early draft of Smith’s Wealth to the effect that Smith understood that a nation may not be in a condition or have resources to industrialize, a point that he did not make in his magnum opus. But contrary to Reinert, neither this view nor Ricardo’s “nefarious” theory of competitive advantage (as Reinert renders it, p. 284) are fallacious in maintaining the gains from trade of any kind (agricultural or manufactured goods). Reinert, it would seem, is under Cary’s mercantile delusion that the only path to progress is industrialized manufacturing.8 Different factor endowments are actually central to the gains from trade and the fact that governments sometimes obviate these gains with military of other restrictions does not invalidate the principles of trade (or of modern microeconomics). Monarchical autocracy and the mercantilism from which it flowed was the old canon of political economy and functioning. Under this system of regulation (including taxes and subsidies), monarchical grants were imposed in England. That system and its decline are well-known in the literature (Mokyr, 2006, 2010; Root, 1994). The decline of internal regulations was stark, but some manufacturing and agricultural interests, notably the wool trade, were successful at lobbying Parliament.9 The economic canon of some early mercantilists (John Hales, Mandeville, and others), of Smith and Ricardo and their progeny, so maligned by Reinert, was the new canon of political economy one that continues to this day. This most certainly did not mean that growth did not begin under mercantilism, especially after the Glorious Revolution and the ceding of much rent-seeking power to Parliament. Mercantilism as an “international system” survived for some industries (as it does today in all countries) but it

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declined. Mokyr (2006, p. 269) notes that long-term economic growth “began in earnest in Europe just about the time when classic mercantilism went on the defensive and eventually declined.” Cary was no “architect” of a system that powered economic growth and international “industrial policy” was not the cause of growth. (This same industrial policy of internal and international regulation was in place for several hundred years without the spurt in growth.) As writers such as Mokyr (2002) and McCloskey (2010) argue, the Industrial Revolution depended upon institutions that gave positive feedback to inventors and innovators which were, along with secure property rights and other factors, the key to the maintenance of the “takeoff.” The general acceptance of this emerging class of entrepreneurs and the ascendance of “bourgeois dignity” (McCloskey, 2010) and other determinants added to the growth potential and the great leap forward. Reinert’s thesis that England used the laissez faire canon to dominate other countries by imposing the new canon of free trade on them is unconvincing (the Venetian and Neapolitan examples notwithstanding). Similarly the idea that Cary’s advocacy of trade controls as the source of growing GDP is spurious. He notes statistics that purport to show that raw materials exports exceeded manufactured goods exports until mid-nineteenth century when they reversed (p. 88). These results were ostensibly the products of some state policy to beggar neighbors through the power of trade on GDP. However the very source that Reinert cites (Daudin et al., 2008) for these statistics shows clearly that total UK trade as a share of GDP remained almost constant between 1655 and 1840 one-fourth of GDP until 1830 only changing slightly in 1840. If trade policies were the key to domestic economic welfare, as Cary argued, international mercantile and post-mercantile periods would have had a nonlinear impact on economic growth of trade. The great leap of the Industrial Revolution was in the growth in per capita income. As McCloskey has argued, that grew from a per capita income of about $2 3 per day in 1800 to $120 per day today. That did not happen with a political economy dependent on government but on the basis of a system that encouraged innovation, invention and free trade and institutions receptive to these phenomena. Finally, Reinert has done a service in uncovering a mercantile writer that had undoubted influence in England and in Europe through translations. But Cary’s popularity is hardly surprising given the usual tendency for interest groups of all times to find rationales for rent seeking for redistributive purposes. Such behavior occurs in all nations. However, he has not convinced this reviewer that some kind of new canon in the history of

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political economy or in economic history one integrating forms of economic regulation sponsored by government for growth is justified or warranted.10 The author has himself engaged in “precursorism” to find a positive economic role for government, perhaps as part of some kind of system that might help to justify contemporary interventionist policies. That attempt has been vocal to an extent in contemporary economic theory among some historians of economic thought. Unfortunately, Reinert has based this quest solely on one garden variety mercantilist. Heuristic methods to reorient the whole corpus of economic theory and its history will not be successful following such tactics.

NOTES 1. Criticisms run from “romantics,” Marxists, utopians, English and German sociologists to modern day historicists such as Boldizzoni’s polemics on applications of economic theory to social science (2011). 2. Cameralism was a German counterpart to Colbert’s French system of mercantilism with an emphasis on the “science” of bureaucratic administration. 3. Reinert uses data from the Kress collection, from the OCED and bases his method on Milo (1984). Naturally a number of items, such as state censorship and literacy levels must be held constant in these calculations. 4. Reinert does not describe the exact nature of Cary’s employment as a lobbyist except that he represented several textile interests over his life. He probably (according to Reinert) spent time in prison for some kind of financial mismanagement, possibly for personal gain. 5. Cary defended protectionism and English “national identity” on numerous grounds “Protestantism, parliamentarism, militarism, commerce” (Reinert, 2011, p. 75). He was staunchly anti-papist and strongly Episcopalian. As a good protectionist he dedicated his career to the economic aggrandizement of England’s empire through conquest and commerce (Reinert, 2011, p. 75). 6. Given length constraints, this reviewer urges a separate reading of these chapters for those interested in the international spread of mercantile ideas. 7. It is also unsurprising that Cary’s ideas were assimilated by the cameralists who imitated Cobertism as an “administrative science” as a ground for policy. 8. Reinert presents statistics from Daudin, O’Rourke, and Prados de la Escosura (2008) that would appear to contradict this claim. In the early period (prior to mid-nineteenth century) England was a net exporter of raw materials a period which Reinert touts for its economic growth under a Cary-like regime. 9. According to Mokyr (2006, p. 281), rent seeking took place in particular industries despite the shift of power to Parliament: “Adam Smith was guilty of only a little exaggeration when he exclaimed that Britain’s woolen manufacturers have been more successful than any other class of workmen in persuading the legislature that the prosperity of the nation depended upon the success and extension of their particular business.”

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10. That does not mean of course that a role or roles for government have not been developed within the “invisible hand” paradigm of modern microeconomics.

REFERENCES Boldizzoni, F. (2011). The poverty of clio: Resurrecting economic history. Princeton, NJ: Princeton University Press. Daudin, G., O’Rourke, K. H., & Prados de la Escosura, L. (2008). Trade and empire, 1700 1870, OFCE Document de travail No. 200824. Retrieved from http://www.ofce. sciences-po.fr/pdf/dtravail/WP2008-24.pdf. Heckscher, E. (1935). Mercantilism (M. Shapiro, Trans, Vol. 2). London: George Allen. McCloskey, D. N. (2010). Bourgeois dignity: Why economics can’t explain the modern world. Chicago, IL: University of Chicago Press. Milo, D. (1984). La bourse modiale de la traduction: Un barome`tre culturel? Annales: E´conomies, Societies Civilizations, 39, 93 115. Mokyr, J. (2002). The gifts of Athena: Historical origins of the knowledge economy. Princeton, NJ: Princeton University Press. Mokyr, J. (2006). Mercantilism, the enlightenment, and the industrial revolution. In R. Findlay et al. (Eds.), Eli Heckscher, international trade, and economic history (pp. 269 303). Cambridge, MA: MIT Press. Mokyr, J. (2010). The enlightenment economy: An economic history of Britain, 1700 1850. New Haven, CT: Yale University Press. Root, H. (1994). The fountain of privilege: Political foundations of markets in old regime France and England. Berkeley, CA: University of California Press. Schumpeter, J. A. (1954). History of economic analysis. New York, NY: Oxford University Press. Viner, J. (1937). Studies in the theory of international trade. London: Allen & Unwin.

CLUNE’S AMERICAN LITERATURE AND THE FREE MARKET, 1945 2000 Economic Tools for Literary Toolboxes Sarah Skwire and Steven Horwitz Keywords: Literature and economics; William Burroughs; F. A. Hayek; Jane Jacobs; markets and literature

Review essay on Clune, M. (2010). American literature and the free market, 1945 2000 (220pp). Cambridge: Cambridge University Press. ISBN: 9780521513999. $93.

In the conclusion to his book American Literature and the Free Market, 1945 2000, Michael Clune, who is a professor of literature at Case Western Reserve University, provides a helpful outline of the most recent literary critical approaches to the esthetic and the economic.

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Some say that a single logic imposes an identical form on the economic and the esthetic (New Historicism); some think the economic and the esthetic are distinct forms of social value (Bourdieu); some think the esthetic offers a rival theory of the actual economy (New Economic Criticism). (p. 161)

Clune’s book offers a strikingly different approach comprising “theoretical and interpretive arguments about the peculiar form of fascination [exerted by the market] observed by writers … the peculiar form market relations take in these works, and the peculiar relation of art to the society they intimate” (pp. 4 5). We find Clune’s approach extremely promising. He has found a way to consider economics and literature that avoids the temptations of only looking at explicit economic exchange in texts, or only doing cultural studies style work on physical objects like coins, bills of trade, and the like. Instead Clune has considered various pieces of modern American literature from poems to novels to rap music in combination with significant economic texts, and has produced a book that is highly suggestive of the enormous gains from trade that can be realized by bringing these works into conversation. So enticing is this approach that our review will focus primarily on ways in which it can be pushed further, worked harder, and made even more productive. Thus, we want to note at the outset that while portions of this review may sound highly critical, they are not intended as criticism of the project or its approach. Instead they are meant to serve as a spur for other literary critics and economists, and teams of literary critics and economists, to continue with this approach and to expand and exchange the variety of tools in their toolboxes in order to accomplish more work of this type. The core of Clune’s argument comes on page 4, where he notes what is shared by all of the works he is analyzing: “In the space opened by these works, the market is a self-organizing system that links every object of an individual’s experience to every object of everyone’s experience. One sees things through price. In these novels, the price system structures subjectivity.” For Clune the idea that price structures perception exists in tension with the way mainstream economics understands price as a rather mechanical outcome of the interplay of preferences that are themselves independent of price. He also sees this view of prices as a contribution that literary criticism can make to understanding markets because of the way both the art itself and the critical appraisal of it offer a deeper understanding of human communication not captured by the standard economic model. Behavioral economics aside for the moment (and Clune does acknowledge its results), he is largely correct about the standard model and its limitations.

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In the book’s most successful chapter, “William Burroughs’ Virtual Mind,” Clune explores other understandings of the price system, such as the one(s) offered by Hayek and the Austrians, who seem more congenial to his argument. In this chapter, Clune explores Hayek’s vision of the price system as a kind of communication device, akin to language (see also Horwitz, 1992), that does indeed structure our attempts to understand the world of economic value. Of particular importance there is the way in which Clune analogizes Burroughs’ style to Hayek’s contextual understanding of price. Burroughs’ use of the “cutup” style, in which he would cut and paste various snippets of text or audiotapes in order to introduce into his creations “the unpredictable spontaneous factor with a pair of scissors,” was supplemented by the use of a set of “virtual symbols” that were a combination of vowels and colors. Clune (p. 91) argues that Burroughs was trying to capture the idea of “embodied experience” in which “a thing’s place in a context [is] what enables the thing to be experienced at all.” These fictional symbols, he argues further, do “the work performed in our world by norms.” Clune sees what Burroughs is doing as “formally identical” to the way Hayek talks about prices. In this section, Clune displays a very sophisticated understanding of Hayek’s work on prices in fact, far more sophisticated than most discussions of that work by economists. As Clune (p. 92) describes them: “Hayek’s prices, like Burroughs’ vowel-colors, are virtual symbols: they look like information and work like norms.” He later (p. 94) writes that the way prices function as norms is to place things in the “context of the entire market” and, in doing so, they do not just “give” people information (as many mainstream economists falsely claim about Hayek’s work on prices), “rather price effectively expands this immediate context.” Clune continues: It does this by adding an element to an individual’s experience of a thing that is connected to every other object of experience in the world. The “meaning” price conveys cannot be derived from any property of the thing itself, considered in isolation. Rather, price shows the place of that thing in the context of a constantly changing world. (p. 92)

This understanding of the role of price is, in our view, absolutely correct and an accurate reading of Hayek. Impressive though it is to find such a clear discussion of Hayek brought to bear on a discussion of Burroughs, the real insight of the chapter is not that this can be done. It is what happens when it is done. As Clune puts it: Hayek is concerned with economic problems; Burroughs with literary problems. Their unexpected intersection in an identical organizational model would then not provide evidence of a concern that transcends disciplinary boundaries. Rather, the juxtaposition

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of Hayek and Burroughs would provide evidence of how two separate, immanently evolving discourses happen to arrive at identity and compatibility … showing us something that is there to be seen by others, something that has in fact been seen by others, in different places, with different tools. (p. 98)

What is exciting about this for those who see the price system as Hayek does, then, is a replication of their theories by “an independent investigator.” The Hayekian view seems to be as accurate in the English department as it is across campus in the Economics department. And if the point is to understand how social institutions coordinate human choices, then such “replication” should be a point in favor of the Hayekian perspective. Somewhat lighter in theoretical content, Clune’s final chapter on rap music provides an intriguing reversal of the usual readings of rap as a site for status symbols and conspicuous consumption, arguing instead that the blinding bling of the rap star’s diamonds and chrome serves as a way of creating a protective, mystifying “invisibility” that speaks of power. Clune contrasts this powerful invisibility to the victimizing invisibility in such texts as Ellison’s Invisible Man, though he does not make the equally useful connection to the powerful invisibility of such literary figures as Shakespeare’s Henry IV who “being seldom seen, I could not stir. But like a comet I was wondered at” (3.2.46 7). Perhaps rap culture, when it values bling as a creator of the distance and invisibility that protect status, is hearkening back to images of royalty. Or perhaps this is a fantasy that is more about privacy as a sign of power an earthly analog to Tupac Shakur’s “Thugz Mansion” a “Chromed out mansion in paradise/In the sky” where “we can roll in peace” (Shakur, 2002). Other chapters are less satisfying, however. We found the book’s opening chapter on Sylvia Plath’s The Bell Jar, Paul Thomas Anderson’s film There Will be Blood (which falls outside Clune’s stated time period of 1945 2000 in both its literary antecedent and its filmic reproduction), and Amiri Baraka’s poem “Das Kapital” to be weakened by Clune’s apparent reluctance to define the term “social,” on which his argument relies. Depending on a reading of Karl Polanyi, Clune speaks of the way in which “In actually existing capitalism, this economic relation is always embedded in social relations” (p. 47). In, however, what Polanyi calls the “utopia” of the free market, economic relations are disentangled from social relations and “price begins to look capable of binding together a new world that can no longer be called social” (p. 47). Without a definition of social that helps us to discern whether Clune and Polanyi mean something more like “intimate,” or something more like “human rather than mechanical,” or something more like “intentional,” it is very hard to know how to respond to such a reading.

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What Clune, or at least those he is discussing, seems to miss is that it is a feature and not a bug of the price system that it facilitates social coordination among anonymous actors. If social is being used here to refer to face-to-face human interactions, then the price system is indeed not social. This is not a problem with the market. Facilitating coordination among anonymous actors is one of its advantages. It extends human communication beyond what can be accomplished face to face, and as Clune recognizes in the Burroughs chapter, beyond what we can express in statistics and language. By enabling us to coordinate in anonymity, the price system gives us a form of sociality that its critics often overlook: markets are interconnected webs of (often) unplanned and anonymous social cooperation. The way in which the division of labor and exchange are coordinated by the price system enables us, as a group, to do far more than any of us can do alone. The interconnectedness that arises from being thoroughly dependent on others for the satisfaction of our wants is strong reason to treat others as what Paul Seabright (2004) calls “honorary friends.” The work of Deirdre McCloskey (2006) on the “bourgeois virtues” produced by markets and Virgil Storr’s (2008) work on markets as “social spaces” are relevant here as well. Markets are deeply social, though not with the intentional sociality of a group consciously working together for a single, common end. As Hayek’s work reminds us, the intimate sociality of the family, firm, or other face-to-face organizations does not scale up to the entire social order. That is why markets and the price system are necessary. Their great advantage is that they give us a different kind of sociality that brings together people who do not know each other in webs of social cooperation and interdependence. Clune’s chapter on Frank O’Hara and Jane Jacobs focuses on issues of personal choice. He characterizes both O’Hara and Jacobs as presenting worlds in which individuals do not have actual preferences, but merely momentary desires, which are created and fulfilled in nearly the same instant. Choice, as he puts it, “is determined by an instant response to options presented by the immediate environment, rather than by the speaker’s fixed values, desires, or beliefs.” This reading has the effect of hollowing out the texts in question. Treating O’Hara’s piling up of acquisitions and decisions: “we go eat some fish and some ale it’s/cool but crowded we don’t like Lionel Trilling/we decide, we like Don Allen we don’t like/Henry James so much we like Herman Melville” as merely transitory and insignificant choices means that Clune misses the bite at the heart of this poem. When amid O’Hara’s “shopping without a list” he is told “Miles Davis was clubbed 12/times last night outside BIRDLAND by a cop” it is

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the emergence of that brutal detail amid the trivia that gives O’Hara’s poem its weight. We see the same technique used in O’Hara’s “The Day Lady Died,” which similarly heightens a tragedy in the world of art by allowing it to emerge shockingly from amid an exhaustive account of likes and dislikes. The move is also much like the one made at the end of “Personal Poem” when the poet’s beloved emerges all at once as the one person out of the 8,000,000 others in the city [who] is thinking of me as I shake hands with LeRoi and buy a strap for my wristwatch and go back to work happy at the thought possibly so

O’Hara’s desires are not meaningless, created from nothing and adding up to nothing. They are the humanizing daily detail that throws tragedy, loss, and love into high relief. Clune’s treatment of Jacobs also overstates the degree to which she sees choices as being driven by context. The options presented by the busy commercial life of the city make us aware of choices and preferences we may not have had before we engaged that life. However, as in other places in the book, Clune does not ask how that context emerged in the first place. As Jacobs demonstrates and Clune recognizes, the city is a spontaneous order, but that order emerges from the choices made by producers trying to anticipate the wants of consumers. Those producers are often making choices that are dependent not only on the existing context, but also upon independent perceptions of what others want. Clune seems to downplay the “human action” part of the phrase “of human action but not human design” that has long defined spontaneous orders such as the city. Clune is also somewhat unfair to Jacobs in referring to her description of an ideal, spontaneously ordered city as “fiction.” A more accurate term would be “conjectural history” as Jacobs’ work is informed by the actual history of cities. Though her point is to object to various forms of zoning and planning, the growth of most cities is still largely driven by the spontaneous ordering processes central to her conjectural history. Much like Carl Menger’s (1892) theory of the origin of money, her ideal city is a stylized version of actual history, rather than the product of pure imagination. Clune explicitly relies in this chapter on a Galbraithian understanding of the way in which markets are thought to manufacture our wants, rather than just serving as the process by which preexisting wants are satisfied.

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For Galbraith, of course, this was a failing of the market that could be ameliorated by policy. By taking this perspective, Clune is subject to the same response that Hayek gave to Galbraith in “The Non Sequitur of the Dependence Effect.” It is particularly ironic that Clune follows this line of thinking about choice because Hayek argues that the fallacy at the heart of Galbraith’s position is made particularly clear when the desire for artistic productions is considered. How complete a nonsequitur Professor Galbraith’s conclusion represents is seen most clearly if we apply the argument to any product of the arts, be it music, painting, or literature. If the fact that people would not feel the need for something if it were not produced did prove that such products are of small value, all those highest products of human endeavor would be of small value. (Hayek, [1961] 1967, p. 314)

Many of the wants we have in a modern society are at least partially products of the culture that we inhabit, and that culture includes the market. Aside from very basic biological needs, the wants we have do not precede our engagement with the market, but emerge in interaction with it. Even among those basic needs, many of the things we actually “want” are specific cultural products, such as particular foods that would not exist in the absence of the market. As Hayek argues, however, to think that this is somehow a criticism of the market is a non sequitur. Nothing in the view that markets are part of the context of want-formation implies a failure, or even a critique, of the market. This is particularly true when markets are understood not as want-satisfying machines, but instead as extensions of human communication, as Clune sees them in the Burroughs chapter. An examination of different ways of understanding choices in a market context that is as complex as his examination of prices would have greatly improved the chapter. For example, taking some of the recent work in behavioral economics into account might have given Clune a perspective that fits more closely with the more complex way modern economics theorizes choice. As sophisticated as Clune’s understanding of prices and the market is in many places, it ends up being somewhat one-sided in a way that prevents him from exploring another dimension of the relationship between the free market and literature. All of the literature that Clune explores, and almost all of the ways he connects that work to the way markets are theorized, focus on the market as a space of consumption possibilities. Prices serve as norms of value and structure our behavior, according to Clune. But they do so almost exclusively in terms of how humans interact with markets in our role as consumers. What this misses is the arguably more important

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role that prices play as norms, or more accurately “knowledge surrogates,” on the production side of the market. Hayek’s work on prices and knowledge emerged out of the debate over the feasibility of rational economic calculation under socialism of the interwar years. Clune’s very nuanced discussion of Hayek’s perspective never considers its context, which was demonstrating that no form of planned economy, including the most democratic one imaginable, could act as effectively as the market in making use of knowledge to make production decisions. Without private property in the means of production and the prices that emerge from their exchange in a free market, producers would lack what Mises ([1920] 1935, p. 102) called the “aids to the mind” needed to determine which of the technologically feasible methods of production were the most economically rational. Without prices for capital goods, economies would be pure chaos, as entrepreneurs would be without the guides needed to determine value and thereby use resources most productively. The problem is not just what to produce but how to produce it. This is the production version of Clune’s insistence that market choices are always contextual. Producers cannot know how to use resources effectively without the context of prices that emerge from exchanges of privately owned capital goods The near absence of the production side in Clune’s book is important for two reasons. First, it would have enabled him to untangle some of the intellectual knots apparent in his concluding chapter, which attempts to bring the prior analyses back to larger questions of Marx and the possibility of transcending capitalism. The discussion is wide-ranging and includes a long section on Marx’s Critique of the Gotha Program. Clune is trying to find a way to rescue some of the critical power of classical Marxism while, admirably, recognizing both the error of the labor theory of value and the more complex understanding of the market that is shown in earlier chapters. The result is problematic from the perspective of modern economics, precisely because there is no real conception of the role of the market in guiding production decisions. Without delving into the calculation issues that confront the production side of the market, Clune lacks a set of ideas that is consistent with his view of the market and choice and that could also give him a way to understand better the limits of Marxian analyses. This observation leads to the second problem with Clune’s focus on consumption. A book on the free market and American literature that paid more attention to these questions of production could have found a great deal of interesting subject matter in 20th century literary work that actually explored the production side of the market. Post WWII business

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novels like Richard Powers’s Gain ([1998] 1999), which details the rise of a soap company from a small family business to an international conglomerate, or Philip Roth’s American Pastoral ([1997] 1998), about the glove manufacturer Swede Levov’s attempts to understand his daughter’s revolutionary politics, or John O’Hara’s From the Terrace, with its detailed “heart to heart talks about manufacturing” ([1959] 1999) are just a few potentially fruitful “production side” literary works that would have benefitted, and benefitted from, Clune’s attention. These critical comments should be seen in the context of our overall admiration for what Clune does in this volume. His alternative approach to the relationship between the ways in which economics and literature understand the market opens up a variety of new possibilities for collaborations between the humanities and social sciences. The most fascinating part is that a literary theorist would understand, for example, Hayek’s work on prices more clearly than most economists. It suggests that economists do have something to learn from how the humanities understand the world, as Clune’s discussion of Hayek clearly shows that gains from exchange are happening on one side of the market. The market is an institution populated by the same humans who are the subject matter and the creators of art, literature, and music. Markets and literature, as Clune rightly notes, are forms of communication that facilitate mutual understanding. That point alone provides a compass to guide scholars in both areas, and Clune’s book is a good step forward on the journey.

ACKNOWLEDGMENT The authors thank Ed Lopez for helpful discussions of rap culture.

REFERENCES Hayek, F. A. ([1961] 1967). The non sequitur of the “dependence effect.” In Studies in philosophy, politics, and economics. Chicago, IL: University of Chicago Press. Horwitz, S. (1992). Monetary exchange as an extra-linguistic social communication process. Review of Social Economy, 50(2), 193 214. McCloskey, D. N. (2006). The bourgeois virtues: Ethics for an age of commerce. Chicago, IL: University of Chicago Press. Menger, C. (1892). On the origin of money. Economic Journal, 2(6), 239 255.

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Mises, L. ([1920] 1935). Economic calculation in the socialist commonwealth. In F. A. Hayek (Ed.), Collectivist economic planning (pp. 87 130). Clifton, NY: Augustus M. Kelley. O’Hara, J. ([1959] 1999). From the terrace. New York, NY: Carroll and Graff. Powers, R. ([1998] 1999). Gain. New York, NY: Picador. Roth, P. ([1997] 1998). American pastoral. New York, NY: Vintage International. Seabright, P. (2004). The company of strangers. Princeton, NJ: Princeton University Press. Shakur, T. (2002). Thugz mansion. Better Dayz, Death Row Records. Storr, V. (2008). The market as a social space: On the meaningful extraeconomic conversations that can occur in markets. Review of Austrian Economics, 21(2 3), 135 150.

WENNERLIND’S CASUALTIES OF CREDIT The History of Fiduciary Money: A Work in Progress Richard Kleer Keywords: English financial revolution; South Sea Bubble; public finance; public credit; historiography; early modern monetary systems; slavery; death penalty

Review essay on Wennerlind, C. (2011). Casualties of credit: The English financial revolution, 1620 1720 (360pp). Cambridge, MA: Harvard University Press. ISBN 9780674047389. $39.95.

In Casualties of Credit, Carl Wennerlind assays a study of the early-modern English system of public credit, with a strong focus on paper money. He places the book within a tradition that “explicitly recognize[s] the cultural, social and political embeddedness of money” and in which scholars “think

A Research Annual Research in the History of Economic Thought and Methodology, Volume 31-A, 207 216 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2013)00031A008

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politically about economic matters” (p. 6). He has in mind two principal lines of investigation: historical accounts of early-modern paper money and credit in the English-speaking world and those works in “new economic” literary criticism that focus on eighteenth-century British fiction (p. 252, n18). Most readers of this research annual will find relatively little interest in works from the latter genre. For its exponents don’t approach the economic themes of the eighteenth-century literature as an opportunity to understand better how the monetary systems of the period operated or how people thought about them. Rather for the most part they mine early-modern fiction for proof of their prior conviction that “capitalism” is a heavily flawed socio-economic system. Almost all of them focus on the claim, first set out in Pocock (1975), that with the financial revolution belief or imagination became central to the British economy, insofar as large parts of it rested upon paper money or credit generally. And they follow Pocock in supposing that contemporaries somehow found this intrusion into modernity of “the unbridled power of fantasy” (1975, p. 455) deeply unsettling and even “traumatic” (1985, p. 108). A brief sampling should suffice to give a sense of the resulting commentary. Nicholson (1994) explores how Pope, Gay, and Swift probed the “radical dislocation” of former notions of self and society wrought by the arrival of the paper-money economy undermining the once-stable values associated with heritage and land. Sherman (1996) seeks to overturn Habermas’ view that in the eighteenth century the market conferred upon contemporaries an experience of independence. Defoe’s economic writings, far from championing bourgeois culture, actually reveal the corrosive impact of the market upon individuals’ sense of agency. Property rights fail to confer true autonomy because credit binds people into the “discursive matrices” of opinion (viz. the rise and fall of stock market valuations), so that the true worth of one’s property is ultimately determined by caprice. Brantlinger (1996) finds the link between credit and imagination important because it means that the modern war-mongering, imperialist state is ultimately founded upon a lie: a fetishized misrecognition of debt as wealth. He sees the period’s satirical fiction, poking fun at the inner emptiness of British credit, as the site of “both the growing hegemony of and the critical resistance to nationalism, national identity formation” (p. 4). In a chapter on the South Sea Bubble, Ingrassia (1998) draws attention to the way in which contemporaries voiced their criticisms through the heavy use of female images of credit and financial activity. This tactic is testament, she claims, to male anxiety about both the cultural impact of the spread of speculative activity

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and the possibilities created by finance for women to conceive a more liberated space for themselves within the social hierarchy. And Brown (2001) sees this whole strand of literary criticism as “a revisionist, antirationalist assessment of the financial revolution itself and, by implication, of liberal economic theory.” For collectively, it shows that the chief modern legacy of the eighteenth century consists in “the flights of fancy and credulity of the free market and stock speculation” (Brown, 2001, p. 102). In some parts of this literature it is apparent that fancy or imagination has a constructive role to play. There is a sense that because “capitalism” ultimately rests upon imagination it is also wide open to reform and even wholesale change. Brown (2001, p. 101) for instance talks of “the ‘Power of the Imagination’ to create a world of its own outside those rules [of the marketplace].” I suspect that in wording of this kind we are seeing the desire of literary scholars to counter the message they hear coming from mainstream economics: that real social change is not in the cards because a market system represents the end of history, the predictable and efficient result of individual rational decision-making. It may be no accident that the majority of these works began to appear in the 1990s, after the fall of Soviet-style socialism and when the Washington Consensus was all the rage. Ironically, today even some mainstream economists are trying hard to understand the sources and implications of the fundamental instability of opinion so glaringly exhibited in financial, commodity, and labor markets of late. But another explanation for this strand of new economic criticism is also possible. Any scholar who has spent time reading through the vast contemporary literature associated with the British financial revolution will have encountered the problem of finding something meaningful to say about it. The investment is an easy one upon which to get started; the broadsides, pamphlets, newspapers, plays and poems of the period usually make for quite enjoyable reading in their own right and have much to say, in passing, about the economic institutions and debates of the time. But it is all too easy to get caught up in the excitement of this kind of reading only to discover with a shock that somehow months and even years have gone by. Too late does one discover that it’s not easy to say something new and interesting about a literature through which predecessors have picked their way many times over. Under current university tenure and promotion systems, most scholars don’t really have the option available to commercial firms of writing off losses and salvaging the worthwhile parts of prior investments for their next project. Publish something now they must. It is easiest in this enterprise to build from the prejudices of the home discipline

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(in this case that capitalism is morally bankrupt). Then it is simply a matter of reading one’s own concerns back into the literature of another day and extracting from it, largely at random, whatever phrases and images will serve the purpose at hand. Either way, the result is a highly fictionalized account that has little or sometimes even nothing to do with the conflicts and concerns that exercised contemporaries.1 The angst one sees for instance in the pamphlets and prints that sprang into existence in the wake of the South Sea Bubble had nothing to do with an existential crisis of identity. Rather it reflected anger at the heavy losses sustained, envy of those who came out of the affair in much better shape, and the slim hope of getting loss-inducing contracts legislatively annulled mixed in with sheer political opportunism and no small measure of rueful self-recrimination. The products of the new economic criticism also seem vapid, almost intentionally designed never to lead to any clear or testable propositions. Its proponents appear uninterested in bringing the discussion to a head say in the form of an actual policy conclusion or two. Matters economic are left very vague. No one makes an effort by hard inquiry to learn whether public credit is indeed nothing more than an empty shell or if this proposition is just wishful self-delusion. For this the discipline of economics itself might be partly responsible. For as an intellectual system it does its very best to exclude outsiders and to confine serious investigation of concrete issues and meaningful policy debate to those widely recognized as the discipline’s brightest and most accomplished. What option besides fulmination does this leave to literary scholars interested in economic issues? In the new economic criticism of eighteenth-century economic writing Poovey (2008) is an exception; it affords promise of something substantial and useful for historians of economics. She acknowledges that “contemporary Literary critics’ treatments of texts differ so radically from the way readers not disciplined by graduate training read” and by implication are of little interest to any outside that discipline. She recognizes too that the resulting interpretations have a “presentist bias” that render them incapable of providing “evidence to support a historical argument, even one focused on something as amorphous as discourse” (Poovey, 2008, p. 20). What are literary scholars to do instead? She does not believe it will be possible for them “to recover the meanings a text once had” (Poovey, 2008, p. 344). Instead they should “focus on ‘compositional technologies,’ the material and generic conditions that made composition of particular texts possible, and on ‘historical deployments,’ the function to which texts were put by past readers.” In this way they can come to understand how some writers,

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but not others, could “acquire social authority …, produce disciplinary norms, and claim for themselves institutional positions (and professional status).” The second half of the book is an attempt to demonstrate just how such an approach might work. She aims to explain how economic writing developed from a discipline that in the eighteenth century shared much with literature (authors like Defoe for instance were quite willing to deploy fiction in their economic pamphlets) into a distinct genre that by the nineteenth century purported to dwell solely upon fact. Her story has much to offer the practitioners of our discipline. I hope they won’t follow her lead however in abandoning all attempts to recover the contemporary meaning of texts. There are certainly ways in which this task is indeed impossible. We cannot know the full resonance that particular pamphlets or poems might have had for contemporary readers in the same way that it is impossible for a teenager today to hear the Stones’. “Satisfaction” as it sounded to its first listeners. But surely there are aspects of contemporary meaning that can be unearthed. I have argued for instance that Smith’s celebrated chapter “On Rent” in the Wealth of Nations can be read as an effort to counter the contemporary conviction that rich countries were naturally destined to suffer a “decay of trade” and needed to arm themselves with all manner of mercantilist tools to avoid this fate. In the first half of the book Poovey focuses on another question of interest to historians of economics (or at least nonquantitative economic historians): how money comes to be “naturalized” reduced to a fact of everyday life without history or issue. She dwells on the writings associated with the South Sea Bubble of 1720 and the Bank of England’s suspension of specie redemption in 1797 precisely because there the central problem of modern credit instruments their representative nature for a time became visible again. What of those historians who think politically about matters economic? Wennerlind mentions six in particular: Appleby (1978), Linebaugh (1991), Finn (2003), de Goede (2005), Desan (2005), and Valenze (2006). I set Linebaugh and Finn aside since their books concentrate upon issues other than eighteenth-century public finance. The others I range along a scale of probable usefulness to economists interested in the political dimensions of early-modern money. Valenze, who works in the same department at Barnard College as Wennerlind, uses a professed interest in the “broad networks of social meaning” (Valenze, 2006, p. 2) within which English people regarded money in the eighteenth century as an occasion to explore a sizeable cross-section of contemporary currency-related documents and practices. The end result is a product not very dissimilar from the new economic criticism. Small pieces of text, each of them stripped of its

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contemporary context, are assembled from a wide range of sources into a larger whole that purports to deliver insights into, for instance, how “money became firmly attached to self-serving behavior in economic and social life” (Valenze, 2006, p. 14). Appleby surely is already well known to historians of economics. In her work texts are at least kept in closer proximity to the original debates from which they issued. But the net result is still highly fictional, what Winch has rightly called “a teleological or Whig history of liberalism in modern guise” (Winch, 1985, p. 288). Appleby was too busy making, say, Locke into a progenitor of possessive individualism to bother to listen carefully to his reflections on money. de Goede, like Poovey, wants to show that money, capital and finance are not “unmediated economic realities” but rather “contested historical articulations and practices of valuation” (de Goede, 2005, p. xxii). And she is interested in those “moments of openness” when choices need to be made and institutional change could occur. There is much to be learned from her accounts of eighteenth- and nineteenthcentury American legal rulings on whether economic speculation constituted gambling, the construction of the Dow Jones industrial average, and the regulation of risk in modern financial markets. But her chapter concerning the early-modern British debate on credit disappoints. From a hop, skip, and jump through the relevant literature she attempts to prove that accounting (as modeled in Defoe’s Compleat English Gentleman) was an (unsuccessful?) attempt to bring something that is fundamentally discursive under control and reduce it to a kind of orderly truth, distinct from the irrationality and fantasy of which credit is still ultimately composed. Desan is far more interesting. She offers the approach of Wesley Hohfeld to American legal theory as a model for the study of money. Hohfeld complained that lawyers used key terms like property or rights in ways that attributed to them a “false simplicity,” concealing the complex reality that lay beneath them. For example, to say that a person has a “property right” over a piece of land is not to say, simply, that the person has “a right to exclude” others from the land, although an owner may frequently have that capacity. Rather, it is to indicate a whole array of abilities and limitations specific to a particular time and place, that describe what an owner can do to the land and with it, and what the owner can demand of others, and they of the owner, where the land is concerned. (Desan, 2005, p. 24)

She points out that economists tend to use the term money in the same way. This is unfortunate in her view for, far from being a simple artifact that can be treated as a given, money always “embodies a particular history of claim, resistance, and rationalization” a history that can teach us

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much about the institution’s current nature and functions. She offers a quick overview of the history of early colonial paper money as an opportunity to recover the fundamentally political decisions whose effects are still embedded within our monetary system today: the struggles of legislative assemblies for self-determination as against the power of governors and empire, contests about who would pay the taxes needed to sustain the local value of money and about who would have the right to receive or reject payment in a particular medium, etc. Wennerlind’s book, unfortunately, lies closer to the approaches of Ingrassia and Brown than of Poovey and Desan. One indication of this is its title. The casualties of which it speaks are nominally the subjects of Parts II (Death Penalty and Credit) and III (Slavery and Credit). A subtheme of the book is that the triumph of modern systems of credit had its innocent victims. The credit of the notes of the Bank of England, so important to English public finance during the decades of war that followed the Bank’s establishment, demanded a sustained effort, Wennerlind maintains, to detect and punish those clipping silver coin. And the value of the massive quantity of stock at the foundation of the South Sea Company ultimately rested upon the misery of the slaves in which that corporation traded. Neither assertion has much historical merit. Bank notes were not yet in 1695 the year of the main legislative push to apprehend clippers a particularly important part of the English financial system. The nation already had a long history of capital punishment for clipping or counterfeiting coin. Slavery was only a token part of the Company’s overall operations. Gauging by Defoe (1712, pp. 22, 29) Harley’s ministry forced a trading component upon the Company’s original shareholders, who had wanted nothing to do with it. But perhaps it pays to appease disciplinary preferences and quietly join the chorus of those expressing knee-jerk disapproval of institutions “capitalist.” I am far from arguing the other side of the question. The credit revolution did have other, far more substantial and unhappy consequences, not least in creating an array of substantial interests that were quite willing to work together to facilitate repeated and lengthy military conflicts. Wennerlind also follows the latest trends in making much of the relationship between credit and imagination. This is the implicit focus of chapter three, large parts of which are designed to explore the central role of trust in contemporary designs for paper money. The theme emerges much more into the open in chapters five and six. There Wennerlind examines partisan efforts made in contemporary pamphlets and newspapers to influence public opinion, respectively, on the viability of the new South Sea Company itself and the prospects for its trade to Latin America what he

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frequently calls its “social imaginary.” Certainly there were all manner of attempts during this period to influence public opinion in aid of political and economic causes. Though they have already been studied at length elsewhere (for instance, in Downie, 1979 and Hartley, 2008), there is still much more to be said about them. Unfortunately Wennerlind seems content merely to describe the works by which contemporaries tried to influence public opinion about credit. He assembles an array of passages to build descriptions of “Whig” versus “Tory” sensibilities. It would have been much more fascinating had he tried to dig beneath the surface and help us to understand how pamphlets of this kind worked their effects, while allowing that what writers said was not always what they believed and that they often had very specific and momentary agendas in writing any given piece. The book also tends to give intellectuals more credit than they deserve. In chapter two Wennerlind argues that English projects for fractionalreserve banking ultimately originated from the alchemical researches of Samuel Hartlib and his commonwealth-era circle. By championing Bacon’s empirical methodology, the Hartlib Circle is alleged to have broken the hold of neo-Aristotelianism upon monetary thinkers, which had prevented them from grasping the very possibility of a widely circulating paper currency. And in chapter three Wennerlind examines the views of Hobbes and Locke on probability, claiming that their speculations on the range of credibility that can be attached to human statements afforded another part of the scaffolding for the flurry of monetary projects that came to the fore in the second half of the seventeenth century. The evidence for these propositions is slim. Perhaps this is because Wennerlind attaches no particular importance to them and they served him rather as plausible justification for including material he was reluctant to discard. But at the same time they are testament to a general willingness of many scholars to believe that deep reflection upon principles opens the door to new practical possibilities. In monetary matters at least, the causality is much more likely to run in the opposite direction, with theorists struggling to make some sense of innovations that emerged very slowly from the press of everyday affairs. Kerridge (1988), for instance, shows that paper credit, in the form of inland bills of exchange, gradually evolved to meet the needs of merchants and had become the dominant currency in London long before the mid-seventeenth century. The history of early modern paper money and of the systems of public credit that were built around it, is a fascinating subject deserving of further study. But little of lasting value will be gained from textual analysis built around vague themes like trust or imagination. Just as the new economic

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criticism must move to new techniques if it wants to escape its presentist bias, historians of monetary thinking will need to change their ways. Scholars interested in uncovering the politics of early-modern money need to pay close attention to the mechanics of the credit systems in question as set out in works like Horsefield (1960), Dickson (1967), Jones (1988), and Brewer (1990). From there the next best step is to identify concrete policy debates and diagnose the panoply of interests represented therein, as has been attempted for instance in Pincus and Wolfram (2011). The contemporary literature associated with such debates is often a highly unreliable basis for penetrating with any insight into the real political issues at stake. Then as now writers did their best to present the discussion in terms that appealed to contemporary prejudices and that skirted around the really contentious questions. And then even more than now few people outside a very narrow circle of government officials and well-connected financiers really understood the mechanisms at work and the quotidian pressures pushing particular policy debates to the fore or shaping the terms in which they were posed. If we want to have anything of substance and interest to say about the texts of the day, we will need to study them comparatively and in the full context of the occasions for which they were written a context that sometimes changed substantially from week to week. This will necessarily require works of longer gestation. Studies that have not yet fully matured in this way should be held back until some of their components can be reassembled into structures that will bear close attention and repeated reading.

NOTE 1. Historians of economics should not feel superior in this regard. Many of the same pressures and strategies are at work in our discipline too (though the prejudices are usually of rather a different kind), with similar effect.

REFERENCES Appleby, J. (1978). Economic thought and ideology in seventeenth century England. Princeton, NJ: Princeton University Press. Brantlinger, P. (1996). Fictions of state: Culture and credit in Britain, 1694 1994. Ithaca, NY: Cornell University Press. Brewer, J. (1990). The sinews of power: War, money and the English state, 1688 1783. Cambridge: Harvard University Press.

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Brown, L. (2001). Fables of modernity: Literature and culture in the English eighteenth century. Ithaca, NY: Cornell University Press. de Goede, M. (2005). Virtue, fortune and faith: A genealogy of finance. Minneapolis, MN: University of Minnesota Press. Defoe, D. (1712). In J. Baker (Ed.), An essay on the South-Sea trade. With an enquiry into the grounds and reasons of the present dislike and complaint against the settlement of a South-Sea Company, (2nd ed.). London. Desan, C. (2005). The market as a matter of money: Denaturalizing economic currency in American constitutional history. Law and Social Inquiry, 30(1), 1 60. Dickson, P. G. M. (1967). The financial revolution in England: A study in the development of public credit, 1688 1756. London: Macmillan. Downie, J. A. (1979). Robert Harley and the press: Propaganda and public opinion in the age of Swift and Defoe. Cambridge: Cambridge University Press. Finn, M. (2003). The character of credit: Personal debt in English culture, 1740 1914. Cambridge: Cambridge University Press. Hartley, J. E. (2008). The chameleon Daniel Defoe: Public writing in the age before economic theory. In C. I. McGrath & C. J. Fauske (Eds.), Money, power and print: Interdisciplinary studies on the financial revolution in the British Isles. (pp. 26 50). Newark, DE: University of Delaware Press. Horsefield, J. K. (1960). British monetary experiments, 1650 1710. Cambridge, MA: Harvard University Press. Ingrassia, C. (1998). Authorship, commerce and gender in early eighteenth-century England: A culture of paper credit. Cambridge: Cambridge University Press. Jones, D. W. (1988). War and economy in the age of William III and Marlborough. Oxford: Blackwell. Kerridge, E. (1988). Trade and banking in early modern England. Manchester: Manchester University Press. Linebaugh, P. (1991). London hanged: Crime and civil society in the eighteenth century. Harmondsworth: Allen Lane. Nicholson, C. (1994). Writing and the rise of finance: Capital satires of the early eighteenth century. Cambridge: Cambridge University Press. Pincus, S., & Wolfram, A. (2011). A proactive state? The land bank, investment and party politics in the 1690s. In P. Gauci (Ed.), Regulating the British economy, 1660 1850 (pp. 41 62). Burlington, VT: Ashgate. Pocock, J. G. A. (1975). Neo-Machiavellian political economy: The Augustan debate over land, trade and credit. In The Machiavellian moment: Florentine political thought and the Atlantic republican tradition (pp. 423 461). Princeton, NJ: Princeton University Press. Pocock, J. G. A. (1985). The mobility of property and the rise of eighteenth-century sociology. In Virtue, commerce and history: Essays on political thought and history, chiefly in the eighteenth century (pp. 103 24). Cambridge: Cambridge University Press. Poovey, M. (2008). Genres of the credit economy: Mediating value in eighteenth- and nineteenthcentury Britain. Chicago, IL: University of Chicago Press. Sherman, S. (1996). Finance and fictionality in the early eighteenth century: Accounting for Defoe. Cambridge: Cambridge University Press. Valenze, D. (2006). The social life of money in the English past. Cambridge: Cambridge University Press. Winch, D. (1985). Economic liberalism as ideology: The Appleby version. Economic History Review, 38(2), 287 97.

BOCKMAN’S MARKETS IN THE NAME OF SOCIALISM The Political Ambiguities of Neoclassical Economics Angus Burgin Keywords: Neoliberalism; Yugoslavia; market socialism; Hungary; socialism; neoclassical economics

Review essay on Bockman, J. (2011). Markets in the name of socialism: The left-wing origins of neoliberalism (352pp). Stanford, CA: Stanford University Press. ISBN 9780804775663. $55.

In Markets in the Name of Socialism, Johanna Bockman argues that recent work on the history of economic thought has helped to perpetuate a false dichotomy between socialism and the market mechanism. By focusing on points of intersection between socialist politics and neoclassical economics, she seeks to dismantle the boundaries that scholars have erected between

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them, and thereby to demonstrate that the origins of neoliberalism were more dynamic and contested than some have implied. Bockman introduces her analysis by contesting the idea that support for the free market and government intervention are necessarily opposed. Conventional treatments of neoliberalism, she argues, have all suffered from the same assumption: “that economists have always taken a side either for the state or for the market and thus that every economist can be located on a state-market axis” (p. 2). In her view, such an approach obscures a more complicated reality. Markets in the Name of Socialism provides a tour of these complications, including early neoclassical thought experiments with the idea of an omniscient planner, Oskar Lange’s model for the rational determination of prices within a socialist economy, Yugoslavian experiments with worker self-management, and Hungarian attempts to construct a socialist society based on the market mechanism. In Bockman’s representation, the idea of socialism played a crucial role in the theoretical development of neoclassical economics, and markets were embraced by a broad range of socialists throughout the twentieth century. These complex interconnections suggest that the relationship between the market and the state cannot be plotted within any linear diagram, but rather should be seen as variegated and dynamic. In criticizing simplistic accounts of the relationship between the market and the state, Bockman challenges another binary in the history of economic thought: the distinction between the economics profession as it developed in the “socialist” East and the “capitalist” West. After expressing concerns that historians of economic thought have largely ignored theoretical developments in the Eastern Bloc, she devotes much of the book to reconstructing patterns of communication that traversed its fraught borders. Although Stalin’s leadership severed most communications, she dates a transatlantic conversation back to the years immediately preceding his ascendance. By working “behind the scenes” on issues “directly related to mathematical neoclassical economics,” she argues that Russian economists laid “the groundwork for future dialogues” that became possible following the death of Stalin and the decline of McCarthyism (pp. 39, 49). Two of the book’s central chapters are devoted to the flowering of these dialogues in Yugoslavia and Hungary. Following Yugoslavia’s expulsion from the Cominform in 1948, Bockman writes that its economists and political leaders “aimed to decentralize the state and the economy, create worker-based economic democracy, move away from state ownership of the means of production … and expand the role of the market in the economy.” This was nothing less than a “new economics of socialism,” in which

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markets would play an “essential” role (pp. 77 79). These ideas did not emerge from the ether: Yugoslavian economists cultivated them through exchanges of ideas with counterparts in Europe and the United States, as manifested in the reviews, scholarly exchanges, and international conferences that Bockman carefully recounts. Over time Yugoslavians came to embrace econometrics, input output modeling, and linear programming, and by the 1960s its universities had made microeconomics a major component of the economics curriculum (pp. 89, 91). This exchange of ideas, Bockman emphasizes, was not unidirectional. Americans watched the unfolding experiment in Yugoslavia with fascination, and the leading journals included extensive debates about the practicability and implications of its attempt to integrate socialism and the market mechanism. As Yugoslavia’s economy rapidly grew, interest turned to admiration, and in the 1960s and 1970s it enjoyed a brief period as a “global model for development” (p. 77). Due to their position within the Soviet Union, Hungarian economists during these years confronted a very different horizon of possibilities. They enjoyed a brief period of experimentation under Imre Nagy’s leadership between 1953 and 1956, during which they engaged in open discussions about market-based socialism and incorporated aspects of neoclassical economics into the curriculum at the Karl Marx University of Economics (pp. 105 115). But many were subsequently forced into exile, from which they could only sustain dialogue across the Iron Curtain with the aid of the Ford Foundation and the United States government. Ultimately, their efforts bore fruit in the implementation of the New Economic Mechanism in 1968, which removed output targets and adopted a market-based pricing system that many considered a close parallel to the model Lange had developed decades earlier (pp. 125 129). Although Hungary never adopted Yugoslavia’s approach to worker self-management, the NEM showed that market-based approaches to socialism were possible even within the umbrella of the Soviet Union, and demonstrated to the world that socialists could embrace rather than defy the lessons of neoclassical economics. Bockman’s close attention to the Hungarian and Yugoslavian cases allows her to explain how, in this period, socialist and neoclassical economics became intertwined. She readily acknowledges that most Marxists repudiated neoclassical economics: Marx’s early followers, as well as those who managed the Soviet economy following Stalin’s rise to power, condemned its insights as “bourgeois” and predicated their worldview on its unconditional rejection. But she suggests that an excessive attention to these arguments has led scholars to neglect the broad penumbra of socialists who

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sought to make use of neoclassical methods. According to Bockman, this myopia has particularly distorted scholarship on the events that unfolded after the collapse of Soviet Union in 1989. This period is frequently invoked as a pivotal moment in the ascendance of neoclassical economics and the apotheosis of capitalism across the globe. She argues that the story is more complicated: many leading economists initially saw the dissolution of the Soviet Union as a unique moment of opportunity for the market-based approaches to socialism that its leaders had long spurned (p. 217). Although Bockman does not dwell at length on contemporary political concerns, she depicts this period as a lost opportunity for those who were sympathetic to neoclassical economics but skeptical of a neoliberal worldview. In its careful attention to Hungary, Yugoslavia, and other points of intersection between socialism and neoclassical economics, Markets in the Name of Socialism achieves Bockman’s goal of complicating established narratives in the postwar history of economic thought. The book’s originality derives in large part from its exploration of sources long relegated to the margins of disciplinary history. Historians of economic thought have tended to build their narratives around heroic figures who produced analytical breakthroughs or articulated broadly influential philosophies of political economy. These points of emphasis are defensible, as they help to illuminate transformative moments in the theory, practice, and dissemination of economics, but an excessive focus on major figures can occlude understanding of the everyday practice of the discipline and the differences that shaped its appropriations within different temporal, geographical, or ideological environments. In Bockman’s welcome corrective, the focus is no longer on the familiar economists who transformed the profession from within its leading research centers; instead, it is directed to those economists in Eastern Europe and Italy who pieced together new versions of socialism based on the neoclassical insights they derived from their halting communications with colleagues around the globe. Bockman also avoids reproducing a superficial narrative in which American and British economists developed a theoretical apparatus that was subsequently projected outward to a periphery. Instead, she draws upon impressive multilingual research to embed her analyses in specific national contexts, and reveals the dynamic relationship between economists’ theories and the unique political and economic situations they confronted. In this sense, her work contributes to a rich and growing literature that examines the uses of economic thought in developing nations during the 1960s and 1970s (Offner, 2012; Simpson, 2008; Valde´s, 1995). Exploring such problems requires a close attention to interpersonal and institutional

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networks, and Bockman illuminates some of the ways in which economists and students were able to develop lines of communication with neoclassical economists in the midst of a political culture that still considered their ideas transgressive. At times, however, Markets in the Name of Socialism presents a distorted view of prior scholarship in order to overstate the originality of its observations. Although its evidentiary base is novel, many of the book’s assertions are less controversial than Bockman suggests. Her claim that most scholars situate economists within a dichotomy in which they are either “for the state or for the market,” for example, does a disservice to the enormous literature that deals with the complexity of this relationship. Some midcentury market advocates did represent their support for the market as the obverse of a contrary impulse toward “planning”; most prominently, Friedrich Hayek relied on inferences of this kind in The Road to Serfdom (Hayek, 1994, pp. 39 41). Even at the time, however, such arguments were sharply contested by scholars including Karl Polanyi (1944) who emphasized the vigorous state interventions that were required to support an ostensibly “free” market. Most historians and sociologists today remain sympathetic to Polanyi’s emphasis on the imbrication of the market and the state, and readily acknowledge that their points of intersection are layered and complex: business enterprises rely heavily on a governmental support structure, and many forms of socialism have a deeply ambivalent relationship with state power. Recent work has dwelled heavily on leading neoliberals’ suspicions of popular democracy and occasional expressions of approbation for authoritarianism, complicating attempts to associate market advocacy with “freedom” from the state (Klein, 2007; Robin, 2011; Valde´s, 1995). Bockman’s efforts to complicate our understanding of the relationship between socialism and free markets is laudable, and her explanation of the trajectory of “market socialism” in the postwar years is innovative, but the foundations of her argument reaffirm rather than reject the views of many leading scholars in the field. The book’s claim to have discovered the “left-wing origins of neoliberalism” is also overstated, and in some ways misleading. In supporting this assertion she cites the long history of neoclassical thought experiments involving a hypothetical socialist state, and the Western economists who expressed interest in the Yugoslavian and Hungarian attempts to implement a market-based socialism. The former will come as no surprise to most historians of economic thought, and suggests more about the political indeterminacy of neoclassical economics (a useful, if not entirely novel, observation) than it does about the specific origins of “neoliberal” political

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economy. The attention paid to Hungary and Yugoslavia is interesting, but hardly surprising, as economists are notoriously starved of empirical data and eager to examine the real-world performance of alternative economic systems. Few readers of the book will be convinced that the dialogue between Eastern European economists and their Western counterparts had a transformative influence on the theory or practice of “neoliberalism.” Markets in the Name of Socialism makes a compelling case that neoclassical economics were appropriated by scholars and politicians with a remarkably fluid range of political inclinations over the course of the twentieth century, but by dressing that claim in the garb of a revisionist account of the “origins of neoliberalism” it both distorts and exaggerates its analytical reach. If the book’s claim to have discovered “origins” are dubious, so too is its characterization of “neoliberalism.” Because few historical actors have applied the term to themselves, scholars who use it need to provide their own definitions. As references to “neoliberalism” have proliferated in recent years, its meaning has proven notoriously variable: a brief comparison of David Harvey’s one-sentence description with Philip Mirowski’s eleven-postulate exegesis suggests its continued indeterminacy (Harvey, 2005, p. 2; Mirowski & Plehwe, 2009, pp. 434 440). Neoliberalism has become an expression of opprobrium for a loose cluster of beliefs that are said to have become increasingly hegemonic since the political ascendance of Thatcher and Reagan (Harvey, 2005; Mirowski & Plehwe, 2009; Stedman-Jones, 2012). Its ambiguities have aided its proliferation, at times allowing scholars to imply the persistence of unity, consensus, and shared intent in the face of the internal differentiations that Foucault (2008) first charted decades ago. Considering these definitional challenges, Bockman deserves credit for attempting to adopt a precise explanation of the term. She writes: In sum, neoliberalism avidly supports all of the following: 1. 2. 3. 4.

Competitive markets Smaller, authoritarian states Hierarchical firms, management, and owners Capitalism

Someone who supports only one of these elements, even competitive markets but not the others, is not necessarily neoliberal (Bockman, 2011, p. 4).

The apparent rigor of this description, however, raises basic questions about to whom it applies. Although their views on Chile were complicated and notoriously problematic, paradigmatic neoliberals like Hayek or

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Friedman can hardly be said to have “avidly” supported authoritarian states. They struggled to reconcile liberal sympathies for representative institutions with a desire to protect the market mechanism from legislative encroachment, resulting in ambiguous and conflicted positions (Burgin, 2012). In the absence of further explanations of the imputed meaning of “capitalism” or hierarchy, or consensus on what is required to make markets “competitive,” those postulates are of limited utility as well. Markets in the Name of Socialism devotes little attention to clarifying these points of uncertainty in the meaning of “neoliberalism,” restricting its discussion of the term primarily to a discussion of Jeffrey Sachs and the adoption of shock therapies after 1989. In contrast to Bockman’s sensitive treatment of the varying appropriations of neoclassical economics, her attempt to adopt a static definition of neoliberalism raises more questions than it addresses. Rather than framing Markets in the Name of Socialism as another contribution to the burgeoning literature on the origins of neoliberalism, she would have been better served to emphasize its attentiveness to questions about the history of economic thought that recent accounts have too often overlooked. The book is, after all, only peripherally about neoliberalism: its primary subject is the ongoing attempt since the birth of neoclassical economics to reconcile socialist ideals with the market mechanism. This is a fascinating and important theme, which raises a host of questions about economic theory, social philosophy, political history, and network formation, and Bockman’s exploration of it helps to reveal the political fluidity of postwar economics. The resulting narrative is not an origin story for current ideas about political economy, but rather a series of incipient experiments with alternative paths. Although the collapse of these alternatives after 1989 may have signified the ascendance of neoliberalism, contemporary scholars should avoid imposing the dominant rubrics of the present on their reconstructions of the past. Bockman’s treatment of the intersections between socialism and the market is more interesting for its exploration of views that have since been largely abandoned than for its explanation of those that endured.

REFERENCES Burgin, A. (2012). The great persuasion: Reinventing free markets since the depression. Cambridge, MA: Harvard University Press.

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Foucault, M. (2008). The birth of biopolitics: Lectures at the Colle`ge de France, 1978 79. In M. Sellenart (Ed.), Burchell, G. (Trans.). Houndmills Basingstoke, UK: Palgrave Macmillan. Harvey, D. (2005). A brief history of neoliberalism. Oxford: Oxford University Press. Hayek, F. A. (1994). The road to serfdom. (50th anniversary ed.). Chicago, IL: University of Chicago Press. Klein, N. (2007). The shock doctrine: The rise of disaster capitalism. New York, NY: Picador. Mirowski, P., & Plehwe, D. (Eds.). (2009). The road from Mont Pe`lerin: The making of the neoliberal thought collective. Cambridge, MA: Harvard University Press. Offner, A. (2012). Anti-poverty programs, social conflict, and economic thought in Colombia and the United States, 1948 1980. Ph.D. thesis, Columbia University. Polanyi, K. (1944). The great transformation: The political and economic origins of our time. Boston, MA: Beacon Press. Robin, C. (2011). The reactionary mind: Conservatism from Edmund Burke to Sarah Palin. Oxford: Oxford University Press. Simpson, B. (2008). Economists with guns: Authoritarian Development and U.S.-Indonesian relations, 1960 1968. Stanford, CA: Stanford University Press. Stedman-Jones, D. (2012). Masters of the Universe: Hayek, Friedman, and the birth of neoliberal politics. Princeton, NJ: Princeton University Press. Valde´s, J. G. (1995). Pinochet’s economists: The Chicago school in Chile. Cambridge: Cambridge University Press.

VAN HORN, MIROWSKI, AND STAPLEFORD’S BUILDING CHICAGO ECONOMICS In Search of a Chicago School Stephen Martin Keywords: Chicago School; Milton Friedman; T. W. Schultz; neoliberalism

Review essay on Van Horn, R., Mirowski, P., & Stapleford, T. A. (Eds.) (2011). Building chicago economics (454pp). Cambridge: Cambridge University Press. ISBN: 9781107013414. $110. [I]deologies are not simply lies; they are truthful statements about what a man thinks he sees. Schumpeter (1949, p. 349)

There is a large literature on the Chicago School of Economics. A far from complete set of references would include Chamberlin (1950), Samuels

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(1976), Posner (1979), Reder (1982), Kitch (1983), Schmidt and Rittaler (1989), Van Overtveldt (2007), and Pitofsky (2008). To compound the matter, this list does not touch on the flood of previous work by the editors and chapter authors of this book.1 To paraphrase Stigler (1964), no one has the right to invite attention to another contribution to this literature without advance indication of the justification for doing so. The editors offer their justification in a nine-page blueprint for this volume on the foundations of the postwar Chicago School. They identify four themes of the book ─ that the rise of the Chicago School was the consequence of a deliberate strategy to provide a platform for its core concepts, that those concepts changed over time, that Chicago economics was shaped to influence policy, and that understanding “the relationship between political ideology and economic knowledge” is essential to “understanding the growth of the Chicago School.” They present the book as (p. xviii) “Drawing on new research into archival and published sources” to offer “a new historical perspective on the foundations of the postwar Chicago School.” This is the task they have set themselves, and the standard against which the book should be judged.

A READER’S GUIDE Milton Friedman Milton Friedman is the focal point of five chapters, and a main character in two others (those which deal with Chicago’s version of evolutionary biology). “Blueprints” opens with reference to the announcement, in 2008, of the establishment of the Milton Friedman Institute. Edward Nik-Khah, in the final chapter of the book, goes into detail about the establishment of the MFI and argues that it can be a vehicle to continue the distinctive characteristics of the Chicago School, as outlined first by the editors and as developed throughout the book. Jamie Peck’s “Orientation: In Search of the Chicago School” is positioned after the editors’ introduction and before Part I (“Economics built for policy: The legacy of Milton Friedman”). The location is apt. Peck introduces topics that recur in later chapters Frank H. Knight, Henry Simons and economics at Chicago before the post-World War II Chicago School, the relationship between the post-World War II Chicago School

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and neoliberalism, Friedrich Hayek, and the Mont Pe`lerin Society (MPS),2 conflict with the Cowles Commission. But the piece revolves around Milton Friedman, sketching his itinerary from graduate school at Chicago onward. In this account, others who played a role in the development of the second Chicago School are lesser lights. Thomas A. Stapleford’s chapter, “Positive Economics for Democratic Policy: Milton Friedman, Institutionalism, and the Science of History,” highlights the conception, shared by Milton Friedman and Wesley C. Mitchell, of economics as a science that could deliver objective findings for the use of policymakers. He cites Friedman’s “dogged commitment to objective analysis.” Some will fail to recognize objectivity as a defining characteristic of the postwar Chicago School. Stapleford notes the short step, taken by some later Chicagoans, from “Economics is an objective science” to (pp. 29 30) “If economics was a policy science and science was objective, then anyone promoting policies that conflicted with one’s own ‘scientific findings’ was clearly biased ... it was easy to suggest that they had left the bounds of scientific economics entirely.”3 On the basis of Friedman’s and Mitchell’s similar views, Stapleford urges the existence of an underappreciated link between Friedman and institutional economics. He also urges that acceptance of (p. 31) “economics as an objective policy science is tantamount to believing in the potential for an objective scientific history: The causal relationships that have governed human social interactions in the past must be amenable to formulation as quantified models and must be assumed to hold true in the future.” It is then ironic that economists by and large are no longer taught economic history (or the history of economic thought, as far as that goes).4 In the penultimate chapter of the book, Be´atrice Cherrier elaborates on the themes raised by Peck and Stapleford. She relates the ambiance in which Friedman’s personal and professional world view formed to his academic research and concludes that (p. 362) “the consistency between Friedman’s science and politics cannot be reduced to a deliberate or unconscious distortion of assumptions, models, results, and policy advice to fit … one’s political convictions.” The organizing question of J. Daniel Hammond’s “Markets, Politics, and Democracy at Chicago: Taking Economics Seriously” is “How do we explain the passion that Friedman evoked?” Friedman’s trajectory is contrasted with those of J. Kenneth Galbraith, seen as aiming to “build a new economics fully consistent with Democratic party politics” and Paul A. Samuelson, who “had considerable leeway to match policy judgments with political preferences, for his scholarly work in mathematical economics had only the most

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general implications for policy.”5 The last four pages of the chapter document that “Friedman was condemned for going to Chile, [Gerhard] Tintner, [Joan] Robinson and Galbraith were not condemned for going to Russia and China.” The chapter concludes with the observation that “The appeal of communism remains one of the puzzles of the intellectual and political culture of the West in the twentieth century.” The connection of this observation with the passion that Friedman evoked is not made clear. In separate chapters, Jack Vromen and Philip Mirowski detail Chicago’s encounter with evolutionary biology,6 an encounter in which Milton Friedman played a pivotal role. For Mirowski, the basic message of Alchian (1950), for which Milton Friedman was the accepting editor, is that “Economic theory will still be able to validate neoclassical outcomes if the market mechanism is understood to be functioning as a selection mechanism, selecting over different manifestations of firm (or individual) behavior with profit as the motive underlying the evolutionary process.” He points to Chicago contributions (p. 259) “over the course of the 1950s and 1960s” by which “appeals to evolution became progressively associated with the development of neoliberal politics, both at Chicago and Mont Pe`lerin.”7 At the end of his contribution, Mirowski documents Hayek’s movement along a path that diverged from the “thin evolution” of Chicago. In “Edifying Evolutionary Biology Rather than Economic Theory,” Jack Vromen contrasts the views of first-generation (Alchian and Friedman) and second-generation (Tullock, Becker, Hirschleifer) Chicagoans on evolutionary biology. While (p. 212) “the only thing Friedman seemed to be interested in was to restore and boost confidence in maximization hypotheses and marginal analyses in economics,” Alchian (pp. 211 212) admitted that evolutionary processes need not lead to the outcomes predicted by neoclassical economics. As for Tullock, Becker, and Hirschleifer, (p. 232) “the three were simply not very interested in what was actually going on in evolutionary biology,” aiming rather to export the constrained optimization approach of economics to evolutionary biology. But for Vromen (p. 231), “If the relevant criterion is whether or not they contributed to the spread of the constrained maximization framework in evolutionary biology, their inroads were not very successful.”

Empire Building (and Builders) Chapters 3 and 4 complement each other. In Chapter 3, Paul Burnett makes the case that despite 15 years’ service as chairman of the University

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of Chicago’s Department of Economics, with central roles in developing the workshop system and obtaining funding that enabled expansion of the graduate program, Theodore W. Schultz followed his own path, working for an expanded role for market forces (p. 85) “within the framework of state-supported agriculture” and seeing a role for government (p. 90) “in critical research and development functions, which individual farmers could not afford to undertake.” The picture of Schultz that emerges is one of an immensely practical person. In Chapter 4, Ross B. Emmett details the development of the Chicago workshop system, in which Schultz played a crucial role, and which Emmett argues catalyzed the success of the Chicago School. Edward Nik-Khah opens his chapter quoting Warren Samuels to the effect that Stigler was in some ways more important than Friedman in building Chicago economics. Samuels’ reference is to Stigler’s reformulation of Chicago price theory. Nik-Khah mentions Stigler’s membership in (and presidency of) the MPS, and the transformation of his views that came about “largely as a result of his participation in the” MPS. But the causal relationship, if such it was, is not documented. The portrayal in this chapter is rather of Stigler as empire builder, holder of the Walgreen Professorship and creating the Center for the Study of the Economy and the State to make the Graduate School of Business, along with the Law School and the Department of Economics, one of “three pillars” of the Chicago School.

Doctrinal Shifts These parts of the book relate to policy issues raised by microeconomics. In Chapter 6, Steven Medema traces the evolution of Chicago price theory from the Marshallian, market-centric approach of Knight, Viner, Friedman, and Stigler to the individual-focused approach of Stigler and Becker. He sees in that evolution the roots of a lagged, parallel change in Chicago law and economics, from Simons (who here receives the rather short shrift that is characteristic of later Chicagoans) and Director (“never interested in the extension of economic analysis to other disciplines” that is the hallmark of what Medema labels “the rational choice approach”) to Posner (influenced especially by Stigler and Becker) and Landes (influenced especially by Becker). Medema notes that the “rational choice” approach did not originate with the Chicago School; he mentions the (“anathema to Friedman and

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Stigler”) general equilibrium work of Arrow and Debreu, among others, as antecedent.8 Later Chicago price theory looked more at the micro foundations of market relationships than did earlier Chicago price theory. As Medema documents the adjustments, this shift in focus was part and parcel of a parallel shift in focus throughout the economics profession. At least two questions present themselves at the end of this chapter. Was the transformation in Chicago price theory as stark as it is here made out to be?9 Were the transitions in Chicago price theory and in Chicago law and economics linked at a fundamental level? In Chapter 7, Van Horn and Klaes (p. 193) “trace the emergence of the Chicago School’s pro-patent position and link this position to the Chicagobased effort to reconstitute the liberal doctrine.” Indeed, they document that at the 1947 inaugural meeting of the MPS, Hayek, Director, and others shared the patent-skepticism of Knight, Simons, and Chicago fellow-travelers like Polani and Arnold Plant.10 They further match the timing of shifts in Director’s views with the playing out of the Free Market Study (1946 1952) and the Antitrust Project (1952 1956).11 Questions remain. What was the empirical basis, if any, behind that fact that “By the early 1950s, the [Free Market] Study had reached the conclusion that concentrations of industrial power large corporations or industrial monopoly would eventually always be supplanted by the forces of competition.”12 If Van Horn and Klaes in Chapter 7 highlight the role of the MPS in the emergence of Chicago neoliberalism, Van Horn in Chapter 10 gives pride of place to the 1946 1952 Free Market Study “and its sister,” the 1952 1956 Antitrust Project, both under the charge of Aaron Director. The agenda was to challenge the inevitability of “collectivism.” Van Horn presents the pursuit of this agenda against the backdrop of Henry Simons’ Positive Program for Laissez Faire, with its call for government ownership of railroads and of firms in that limited number of other sectors of the economy seen as being immune to the charms of competition ─ and more immediately to the project that led to Stocking and Watkins (1951), with its advocacy of deconcentration measures of the kind Stigler as late as 1956 referred to as “the only real remedy” for anticompetitive elements in oligopoly.13 Van Horn’s assessment (p. 295) is that “it is premature to claim that the Free Market Study adopted a far less critical attitude toward concentrations of business power solely because of its empirical investigations.” The chapter concludes with a discussion of the divergence between the classical liberal views of Jacob Viner and the neoliberal views of his one-time students.

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Bruce Caldwell’s chapter on “The Chicago School, Hayek, and Neoliberalism” is the part of the book that comes closest to explaining, or perhaps, explaining in a satisfactory way, the early-1950s Chicago shift away from support for a vigilant antitrust policy.14 Caldwell praises Van Horn and Mirowski’s archival spadework to place (p. 302) “Hayek, Henry Simons, and Aaron Director at the heart of the action” in “the formation of the Chicago School(s).” By the end of the chapter, the praise brings to mind the kind words about Brutus in the opening of Mark Anthony’s funeral oration for Julius Caesar. In his first section, Caldwell balances out the roles of Henry Simons and Friedrich Hayek in laying the foundation for the post-World War II Chicago School. The second section contrasts classical liberalism and neoliberalism and takes from the Van Horn-Mirowski conference presentation the depiction of a post-Free Market Study/Antitrust Project Chicago view that “Corporations can do no wrong.”15 Caldwell also represents Van Horn/Mirowski as holding the view that the post-World War II shift in Chicago’s position on monopoly can be traced to the influence of the corporate think tanks that helped finance Chicago School academic activities.16 In the third section of the chapter, Caldwell explains why he does not find this view compelling.17 His own view is at least a reasoned alternative explanation (2011, p. 329): A much simpler, and more straightforward story may be told about Hayek and the Chicago School economists. In the 1930s the few remaining intellectuals who were prepared to defend liberalism were on the defensive. Their critics accused them of embracing a policy of pure laissez faire. In response, they insisted that there was a role for the state in creating an environment in which competition could flourish ─ and they sometimes used the term neoliberalism to distinguish their views from laissez faire liberalism. Many of them initially thought that promoting a competitive environment required fairly strict control of corporations, a view that was rampant in the 1930s. As they studied the matter more closely after the war, they came to the conclusion that the rule of reason should be used in deciding antitrust cases rather than a per se rule, which was hardly a radical finding.

From the perhaps parochial viewpoint of an industrial economist, it would be useful to have more detail about “as they studied the matter more closely after the war.”18 In a short final section, “Why this debate will never go away,” Caldwell remarks on the cyclical nature of the debate on the usefulness, or not, of public policy as support for market competition (see also Martin, 2008), and laments the failure of industrial organization to answer “key questions” like “the tendency to monopoly” back in the days when “the study of industrial organization was highly empirical.”19

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CONTRIBUTIONS Does Building Chicago Economics accomplish the goals its editors set out in their Blueprints? Does drawing on archival sources offer new insights? That Chicago aimed to influence policy is made clear in detail from the discussions of Milton Friedman. Much of this is not new, but the emphasis may be different from that of earlier treatments. The chapters of Part Two, “Constructing the Institutional Foundations of the Chicago School,” document the deliberate efforts of Schultz, Stigler, and others to create a school at Chicago. Here the answer to both questions is yes. That some of the core concepts of Chicago doctrine changed attitudes toward patents and antitrust policy is made clear. The change in George Stigler’s views has long been known. There is much new detail in Building Chicago Economics about the Free Market Study and the Antitrust Project. A causal relationship between the two, or their funding, and Chicago paradigm shifts is sometimes suggested. On this matter, the Scottish verdict, “not proven,” seems appropriate. The history of economic thought is, in particular, history. For some likely readers of this book, history is biography. That is the strong point of Building Chicago Economics. The reader will learn some things here about the characters of Friedman, Schultz, Stigler (Knight, Simons, Viner, Hayek, Director). These are valuable contributions. For other likely readers of this book, the unfolding of history, including the history of economics, is the outcome of broad movements that are largely independent of individual players, however great the roles they play. It is with respect to this latter conception that I think the book does not come into focus. There is much material in the book from which to draw about the relationship between Chicago, the MPS, and neoliberalism. The reader will come away from the book convinced that the fourth theme of the book, knowing that the relationship between political ideology and economic knowledge is essential to understanding the growth of the Chicago School, is correct. But there remain things about the way in which the relationship between political ideology and economic impacted the growth of the Chicago School that are still to be understood.

NOTES 1. At a minimum, not venturing citations to journal articles, Mirowski and Plehwe (2009), Emmett (2010), Peck (2010).

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2. The MPS was formed in 1947 on the initiative of Friedrich Hayek. The three topics, neoliberalism, MPS, and Hayek, blend together, although far from seamlessly, throughout the book. 3. See, for example, Posner (1979, pp. 929 930, footnote omitted): “[I]n the 1950’s and early 1960’s, industrial organization, the field of economics that studies monopoly questions, tended to be untheoretical, descriptive, ‘institutional,’ and even metaphorical. Casual observation of business behavior, colorful characterizations (such as the term ‘barrier to entry’), eclectic forays into sociology and psychology, descriptive statistics, and verifications by plausibility took the place of the careful definitions and parsimonious logical structure of economy theory. The result was that industrial organization regularly advanced propositions that contradicted economic theory.” 4. It is not clear that scarce acquaintance with economic history represents a change for the economics profession; Callender (1913, p. 82) writes that “The chief economic writers of our day are as innocent of any thorough knowledge of history in the broad sense as ever were Ricardo and his followers. Moreover not a few of them show even less familiarity with the concrete facts of economic life of their own time and quite as great a liking for abstract treatment of the subject.” For a nuanced assessment of the history of economic thought, see Stigler (1969). 5. A certain amount of Samuelson’s work was not mathematical economics (unless one defines mathematical economics as research in economics that uses mathematics, a definition that would today be thought quixotic) and directly aimed at informing policy. Scholarly work may have implications for policy even if such implications are not the work’s immediate purpose; see, for example, Samuelson (1968). On the other side of the coin, Milton Friedman had his forays into mathematical economics; see the discussion of Samuelson (1947, pp. 180 183). 6. For later discussion of the relation between economics and biology, see Samuelson (1985). 7. Stigler, in Stocking et al. (1956) and the “survivor” approach to estimating minimum efficient scale might have been included among such efforts. In his opening footnote, Stigler cites Friedman (1955, p. 237), which includes the nonfalsifiable, “survival of the fittest” proposition “If we ask what size firm has minimum costs and define ‘minimum costs’ in a sense in which it is in a firm’s own interest to achieve it, surely the obvious answer is: firms of existing size.” 8. One may view the “rational choice” approach as simply an analysis of the micro foundations of aggregate, market-level relationships. Rational choices of owners (or managers) of firms determine firms’ supply curves, which aggregate to the market supply curve, an approach traceable to Marshall (Opocher & Steedman, 2008). Rational choices of individual consumers determine individual demands, which aggregate to market demand, an approach explicit in Hotelling (1929). In this perspective, rational choice foundations of market relationships long precede general equilibrium modeling. 9. The first question brings to mind Stigler’s (1969) observation that “New ideas are sold very much the way new automobiles are sold: by exaggerating their superiority over the older models.” 10. Van Horn and Klaes begin their discussion with the 1930s and 1940s. But the skepticism of the economics profession toward patents considerably antedates this period; see Machlup and Penrose (1950). There is modern research (Cohen,

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Nelson, & Walsh, 2000; Levin et al., 1987) consistent with this early skepticism, and arguments are made that whatever purposes are served by intellectual property rights, the promotion of creativity is not among them (Boldrin & Levine, 2004). 11. In this regard, Van Horn and Klaes discuss the Chicago School Single Monopoly Profit Theorem (Director & Levi, 1956), noting that it has appeared in “prominent antitrust casebooks” and quote Justice Breyer to the effect that several members of the Supreme Court regard the Theorem as “widely accepted,” although “counterintuitive.” It might have been appropriate to note as well the consensus among economists that the Single Monopoly Profit Theorem, “although insightful, turns out to be rather special” (Whinston, 2006, p. 140). 12. The United States Cast Iron Pipe and Foundry Company was formed in the wake of Addyston Pipe and Steel (85 F. 271, 1898), with a 75 percent market share. It required some 25 years before it faced enough competitive pressure to rationalize its operations (Whitney, 1958, Chapter 10). Economists now accept that U.S. Steel possessed market power when it faced antitrust challenge (Mullin, Mullin, & Mullin, 1995). Figure 4-1 of Weiss (1971, p. 160) illustrates the 70-year erosion of U.S. Steel’s market share. It is difficult to argue that competition had broken out in the U.S. Steel industry by the end of the twentieth-century (Brook, 2005). These examples suggest that “eventually always” may be a very long time indeed. 13. Stigler renounced this view. 14. It also illustrates the point that Building Chicago Economics is not a standalone piece of work. It is part of a large literature to which the authors of the various chapters, and others, contribute. Caldwell’s chapter is a critical commentary on conference presentations that morphed into Van Horn and Mirowski (2009), Van Horn (2009), and more (see Caldwell’s opening unnumbered footnote). It has in common with other parts of the book an aspect of listening to one side of a cellphone conversation in a public place ─ possibly interesting and often informative, but inevitably incomplete. 15. Caldwell cites pages 28 and 29 of the 2008 Van Horn-Mirowski conference paper. In Mirowski (2009, p. 438) one finds as one tenet of neoliberalism “Corporations can do no wrong, or at least they are not to be blamed if they do.” 16. Corporate supporters come up for discussion in Chapter 4, in connection with the funding of workshops, and in Chapter 5 in connection with George Stigler’s empire building. Probably in both instances, and certainly in the latter, it is Chicago that is pictured as handling the foundations rather than the other way around. 17. One point he does not raise is the issue of simultaneous causality: did postWorld War II Chicagoans change their view on antitrust because “they were turned by their corporate handlers,” or did the shift in views on antitrust attract corporate funding? 18. Caldwell refers (p. 317) to the view of Van Horn (2008) that Nutter (1951) and Weston (1953) were studies that “in part” provided empirical support for the Chicago shift on antitrust. There are issues of timing about which I am not clear ─ one or both of these works may have appeared after the Chicago antitrust epiphany ─ and the works, in their day, were far from commanding universal assent.

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19. There are cycles in industrial organization too, and Caldwell’s remark in footnote 50 that “industrial organization has moved away from empirical studies and today is so dominated by game theory” is an accurate description of the previous cycle, but not the present one. This is not to say that the current version of empirical research in industrial organization is without criticism; see Einav and Levin (2010).

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