Research in the History of Economic Thought and Methodology, 27A: a Research Annual 9781848556560, 184855656X, 9781848556577, 1848556578

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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 Series Editors: Warren J. Samuels, Jeff E. Biddle, Ross B. Emmett and Marianne Johnson Recent Volumes: Volume 24A:

Research in the History of Economic Thought and Methodology: A Research Annual; Warren J. Samuels, Jeff E. Biddle and Ross B. Emmett; 2006

Volume 24B:

Research in the History of Economic Thought and Methodology: Further Documents from F. Taylor Ostrander; Warren J. Samuels; 2006

Volume 24C:

Research in the History of Economic Thought and Methodology: Documents From and On Economic Thought; Warren J. Samuels; 2006 Volume 25A: Research in the History of Economic Thought and Methodology: A Research Annual; Warren J. Samuels, Jeff E. Biddle and Ross B. Emmett; 2007 Volume 25B:

Research in the History of Economic Thought and Methodology: Documents From The History of Economic Thought; Warren J. Samuels; 2007

Volume 25C:

Research in the History of Economic Thought and Methodology: Further Documents From The History Of Economic Thought; Warren J. Samuels; 2007 Volume 26A: Research in the History of Economic Thought and Methodology: A Research Annual; Warren J. Samuels, Jeff E. Biddle and Ross B. Emmett; 2008 Volume 26B:

Research in the History of Economic Thought and Methodology: Further Documents From F. Taylor Ostrander; 2008

Volume 26C:

Research in the History of Economic Thought and Methodology: Further Documents From and On The History Of Economic Thought; Warren J. Samuels, Marianne Johnson and Kirk Johnson; 2008

RESEARCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY VOLUME 27-A

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

WARREN J. SAMUELS Department of Economics, Michigan State University, East Lansing, MI 48824, USA

JEFF E. BIDDLE Department of Economics, Michigan State University, East Lansing, MI 48824, USA

ROSS B. EMMETT James Madison College, Michigan State University, East Lansing, MI 48825, USA

United Kingdom – North America – Japan India – Malaysia – China

JAI Press is an imprint of Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2009 Copyright r 2009 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. No responsibility is accepted for the accuracy of information contained in the text, illustrations or advertisements. The opinions expressed in these chapters are not necessarily those of the Editor or the publisher. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-84855-656-0 ISSN: 0743-4154 (Series)

Awarded in recognition of Emerald’s production department’s adherence to quality systems and processes when preparing scholarly journals for print

CONTENTS LIST OF CONTRIBUTORS

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EDITORIAL BOARD

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ACKNOWLEDGMENTS

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TWO RELATIONAL CONCEPTIONS OF INDIVIDUALS: TEAMS AND NEUROECONOMICS John B. Davis

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COMPARING EDITORIAL PROBLEMS: THE HARROD PAPERS AND THE MAKING OF HABERLER’S PROSPERITY AND DEPRESSION Daniele Besomi

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SMITH’S DEVELOPMENT AS DIDACTIC LECTURER: EVIDENCE FROM THE LECTURES ON JURISPRUDENCE Willie Henderson

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JACOB VINER’S REMINISCENCES FROM THE NEW DEAL (FEBRUARY 11, 1953) Luca Fiorito and Sebastiano Nerozzi

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CONTENTS

DON LAVOIE’S GRADUATE LECTURES ON COMPARATIVE ECONOMIC SYSTEMS: GEORGE MASON UNIVERSITY, FALL 1985 Notes taken and edited by David L. Prychitko

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REVIEW ESSAYS McCraw’s PROPHET OF INNOVATION Schumpeter’s Best Move Arthur M. Diamond, Jr.

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McCloskey’s THE BOURGEOIS VIRTUES Two Cheers for McCloskey Stewart Davenport

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Dostaler’s KEYNES AND HIS BATTLES Fighting for the Possibility of Civilization Scott Newton

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Baumol, Litan & Schramm’s GOOD CAPITALISM, BAD CAPITALISM Capitalism and Economic Growth Andrea Maneschi

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Teixeira’s JACOB MINCER and Grossbard’s JACOB MINCER Jacob Mincer’s Contributions to Modern Labor Economics Bruce E. Kaufman

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Hatton, O’Rourke, and Taylor’s NEW COMPARATIVE ECONOMIC HISTORY Cliometrics Goes Comparative David Mitch

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Schonhardt-Bailey’s FROM THE CORN LAWS TO FREE TRADE One Case to Rule Them All: Theoretical Synthesis and the Repeal of the Corn Laws Robert Pahre

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Gordon’s POSTMODERNISM AND THE ENLIGHTENMENT Meta-Narratives, Enlightenment and Paradox Willie Henderson

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Van Overtveldt’s THE CHICAGO SCHOOL How Should the Rise of the Chicago School be Explained? Robert Van Horn

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Caldwell’s Edition of Hayek’s ROAD TO SERFDOM The Servants of Our Own Machinery? F. A. Hayek’s the Road to Serfdom Revisited Andrew Farrant

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LIST OF CONTRIBUTORS Daniele Besomi

Independent researcher. C.p. 7, 6950 Gola di Lago, Switzerland

Stewart Davenport

Department of History, Pepperdine University, USA

John B. Davis

Department of Economics, University of Amsterdam, The Netherlands; Department of Economics, Marquette University, USA

Arthur M. Diamond, Jr.

Department of Economics, University of Nebraska at Omaha, USA

Andrew Farrant

Department of Economics, Dickinson College, USA

Luca Fiorito

Department of Politics, Law and Society, University of Palermo, Italy

Willie Henderson

Alworth Institute for International Studies, University of Minnesota, Duluth, USA

Bruce E. Kaufman

Department of Economics, Georgia State University, USA

Andrea Maneschi

Department of Economics, Vanderbilt University, USA

David Mitch

Department of Economics, University of Maryland, Baltimore County, USA

Sebastiano Nerozzi

Department of Politics, Law and Society, University of Palermo, Italy

Scott Newton

Department of History and Welsh History, Cardiff University, Wales, UK

Robert Pahre

Department of Political Science, University of Illinois at Urbana-Champaign, USA

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LIST OF CONTRIBUTORS

David L. Prychitko

Department of Economics, Northern Michigan University, USA

Robert Van Horn

Department of Economics, University of Rhode Island, USA

EDITORIAL BOARD William Breit Trinity University, USA

Alon Kadish Hebrew University of Jerusalem, Israel

Bruce J. Caldwell Duke University, USA

S. Todd Lowry Washington and Lee University, USA

John B. Davis Marquette University, USA and University of Amsterdam, The Netherlands

Howard J. Sherman University of California, Riverside, USA

Craufurd D. Goodwin Duke University, USA

Andrew S. Skinner University of Glasgow, UK

Robert F. He´bert Auburn University, USA

Vincent J. Tarascio University of North Carolina, Chapel Hill, USA

Abraham Hirsch Brooklyn College, USA

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: Jack Amariglio Spencer Banzhaf Alan Bart Kathryn Blanchard Christopher Coyne Shelia Dow Zouhair Ghazzal Dan Hammond Marianne Johnson Randall Juris Laura Kovacek Harro Maas Doug McKenzie Perry Mehrling Phil Mirowski Ryan Muldoon Rachel Penn Robert Prasch Ayman Reda David Ruccio Neil Skaggs Matthew Stuart Anthony Waterman

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TWO RELATIONAL CONCEPTIONS OF INDIVIDUALS: TEAMS AND NEUROECONOMICS John B. Davis I have argued that taking atomistic individuals to be interactive beings in some way or another does not produce an adequate conception of the individual, because the subjectivism of these approaches does not permit interaction to overcome the deep problems in the atomistic conception (Davis, 2003). Suppose, then, that individuals are defined from the outset as interactive beings, rather than as atomistic individuals who are secondarily interactive. I characterize this as a ‘‘relational’’ type of conception of the individual and investigate it here in connection with two different approaches that define individuals in terms of their relation to and interaction with others. Relational conceptions of the individual are ‘‘externalist’’ rather than ‘‘internalist’’ conceptions in that they do not attempt to individuate persons – show how they are individual or are independent and distinct beings – in terms of fully private characteristics but rather in terms of their place in structures of social relationships. They thus avoid the circularity and questionbegging of using ‘‘own preferences’’ as a means to individuating persons, but they encounter their own individuation problem by having to explain how individuals are independent and distinct when they are defined in terms of relationships to others. This latter challenge is a serious one, but in my argument, it involves a decidedly better state of affairs than the circularity that internalist approaches involve. The further challenge externalist relational A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 1–21 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A005

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accounts encounter concerns the re-identification problem or how you reidentify a person shown to be individual across change in that individual’s characteristics. Internalist accounts of the individual do not even get to this problem, because they cannot individuate persons in the first place. For externalist relational accounts, re-identification is a problem if persons are individuated narrowly in terms of particular social relationships that are transitory. Persons who are individuated in terms of one set of social relationships may not be in terms of another set; that is, those social relationships that are individuating may not be long-lasting. Thus, relational conceptions can overcome some of the difficulties of the atomistic conception but end up still not being adequate to our ordinary view of individuals as enduring beings. In part, the recent relational approaches to the individual have been inspired by problems in standard decision theory and associated doubts about the atomistic individual conception. But there is also an empirical foundation for these alternative approaches in the Easterlin paradox and the voluminous literature that has followed in the past three decades. Using individuals’ subjective self-evaluations of happiness, Richard Easterlin argued that cross-sectional country data and within-country time-series show that there is no clear relation between wealth and happiness (Easterlin, 1974, 2001). As has been demonstrated many times since, happiness appears to rise with income and wealth until basic needs are met, and thereafter greater income and wealth appear to have little or diminishing effect on happiness (Layard, 2005). But more important, not only are ‘‘the effects of wealth are not large . . . [but] they are dwarfed by other influences, such as those of personality and social relationships’’ (Diener & Seligman, 2003, p. 10). Indeed, Easterlin originally attempted to explain his results as James Duesenberry (1949) had using a relative income hypothesis, and others have proposed relative consumption hypotheses, both of which emphasize the role of social relationships (Scitovsky, 1976; Hirsch, 1977; Frank, 2005). Happiness or being happy, of course, is not the same thing as being an individual, but as happiness surveys are the product of individuals’ subjective self-evaluations of happiness, happiness is closely connected to one’s sense of being an individual. Thus, since social relationships are an important source of happiness, we have good reason to investigate individuals from a relational perspective. But what does a relational conception of individuals involve? Outside of being a departure from the atomistic conception, there is obviously considerable ambiguity regarding what ‘‘relational’’ can mean, though one thing is clearly that it bases the account of the individual on social

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interaction. Accordingly, this chapter seeks to examine two representative views within this general framework. In the first section, I begin with theories of teams and team reasoning that use social identity theory and are developed within a game-theoretic framework. The second section moves on to game-theoretic neuroeconomic accounts of the individual and distinguishes two different types of relational conception of the individual. A brief conclusion closes the paper.

TEAMS AND TEAM REASONING Recent work on the theory of teams and team reasoning in game interactive settings is due principally to the late Michael Bacharach (Bacharach, 2006), who offers a conception of the individual as a team member, and also to Martin Hollis (1998) and Robert Sugden and Natalie Gold (Sugden, 2000; Gold & Sugden, 2007), and is motivated by the conflict between what ordinary experience suggests people often to do and what rationality prescribes for them, such as in prisoner’s dilemma games where individuals can choose to cooperate or defect. The source of the conflict, they suggest, is an ambiguity in the syntax of standard game theory, which is taken to pose the question individuals in games ask themselves as, ‘‘what should I do?,’’ but which might be taken to pose the question, particularly when individuals are working together with others as, ‘‘what should we do?’’ When taken in the latter way, each individual chooses according to what best promotes the team’s objective and then performs the role appropriate as a member of that team or group. Bacharach understood this change in focus in terms of the different possible cognitive frames that individuals use to think about the world and developed a variable frame theory for rational play in games in which the frame adopted for a decision problem determines what counts as rational play (Janssen, 2001; Casajus, 2001). In order to explain how someone acts, we have to take account of the representation or model of her situation that she is using as she thinks what to do. The model varies with the cognitive frame in which she does her thinking. Her frame stands to her thoughts as a set of axes does to a graph; it circumscribes the thoughts that are logically possible for her (not ever, but at that time). (Bacharach, 2006, p. 69)

Sugden understands this framing idea in terms of the theory of focal points following Thomas Schelling’s emphasis on the role of salience in coordination games (Schelling, 1960), and his theory similarly ties decision-making to the way the game is understood (Sugden, 1995). This

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all recalls what Tversky and Kahneman (1981, 1986) termed standard’s theory’s description invariance assumption, whose abandonment makes it possible to bring a variety of the insights from psychology to bear on rationality in economics. The key idea behind this approach to team reasoning is that to be rational in an instrumental sense requires one be clear about the unit of agency involved. Thus, the linkage in standard theory between rationality and the atomistic individual conception is recognized, but this linkage is questioned to also treat teams as rational agents. One accordingly distinguishes reasoning that is individually instrumental from reasoning that is instrumental to teams or groups. In the latter case, when reasoning schemes are formulated for teams and individuals acknowledge that they are members of these teams, agency is said to undergo a transformation. In such circumstances, it may be rational for members of teams to cooperate rather than defect in prisoner’s dilemma games since this is rational from the perspective of the team. Of course, the idea of agency transformation raises many questions regarding how teams are formed and how individuals come to identify with them – questions that have been addressed in a number of different ways in the small literature on teams and team reasoning in economics (Gold & Sugden, 2006, 2007) and have been investigated quite extensively in recent decades in social psychology. Bacharach’s own framing view draws on social psychology’s social identity theory, and he explicitly makes use of self-categorization theory (Turner, Hogg, Oakes, Reicher, & Wetherell, 1987) whereby individuals develop various selfconcepts of themselves associated with their identification with different social groups. This then makes group identification a psychological perception rather than the result of rational choice, though Bacharach allows that individuals must nonetheless recognize that they have a common interest in being members of a team. Indeed, it is this common interest that gets represented by a group utility or payoff function that individuals maximize by fulfilling their roles as members of the team (Bacharach, 2006, pp. 87ff). Therefore, while individuals do not choose to join teams to realize an expected common interest, when they find themselves to be members of them, they see this to be to their benefit. If individuals are understood to be members of teams or groups, however, do they lose their status as single individuals, and fragment across their many team and group memberships? In self-categorization theory, individuals are still seen as single beings in virtue of their being defined as the ‘‘intersection’’ of all their group identities (and also to a lesser degree in terms of features they possess, which are not tied to group memberships).

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In the brief remarks he makes on the subject of personal identity, Bacharach goes further, however, and replaces this relatively schematic idea of the individual as an intersection of a set of group identities with the idea that the individual is itself a team, where this means that the individual’s group memberships create a set of selves for the individual that themselves function as a team through time (Bacharach, 2006, pp. 88–89). My suggestion assimilates personhood to group identity more directly and more fully. Since a person is temporally extended, we can represent her as a sequence of adjacent, linked segments – ‘time-slices’, ‘dated subpersons’, or what have you. Each of these parts has the essential characteristics of an agent and, in particular, is the locus of the person’s thinking about what to do, now and later. (Bacharach, 2006, p. 89)

That each of these selves ‘‘is the locus of the person’s thinking’’ (emphasis added), where the person is a team, means that each acts as required as a member of that team. Thus, the individual as a team is a single being. Multiagent models of the single person are not new, Bacharach notes, though thinking of the multiple agents within a person as members of a team does seem to be. What is different is the idea that each of an individual’s selves identify with the person, just as individual members of a team or social group in self-categorization theory identify with the team or group. Thus, just as groups exist as agents based on the evidence that people identify with them, so individuals as teams exist based on the exercise of this same capacity with respect to the individual. Bacharach planned to write an entire chapter on the person as a team to further explain his view in which he intended to liken intrapersonal team reasoning to interpersonal team reasoning, but this chapter was not completed (Bacharach, 2006, p. 94n). Gold and Sugden, however, discuss his proposal at some length based on their knowledge of this unfinished writing, and this will help further illustrate the idea of the individual as a team (Gold & Sugden, 2006, pp. 191ff; also Gold & Sugden, 2007). As Gold and Sugden explain it, Bacharach was motivated to address the problematic absence of an enduring agent in dynamic choice theory. On the standard view, any agent at time t is treated as an independent rational decision-maker, so that the person ‘‘is just a collection of transient agents, who may happen to have certain common preferences and beliefs’’ (Gold & Sugden, 2006, p. 191). In effect, persons only exist accidentally, or rather exist as ad hoc constructs outside of the theory of rational agents. But does it make sense to define a person in this way in even a derivative fashion? Many people, it seems fair to say, would say that defining a person even implicitly as an accidental commonality of preferences and beliefs is either

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wrong or meaningless. Bacharach thus uses his variable frame view to respond to this concern by having these standard theory transient temporal agents all ask themselves the question, ‘‘what should we do?’’ That they are able to do this is defended on the evidence from psychology that identification with groups occurs, and the assumption that this capacity is no less active in connection with individuals’ temporal selves. This leads to a transformation of agency with ontological implications in that an agent is created – the person – within the boundaries of standard theory. In contrast, imagine the situation were these transient temporal agents only able to ask themselves, ‘‘what should I do?’’ As Gold and Sugden (2006, pp. 194–196) clearly demonstrate, this opens the door to hyperbolic preferences and present bias on the part of the ‘‘person,’’ due to each of a ‘‘person’s’’ temporal selves making rational choices that produce prisoner’s dilemma outcomes. This conflicts with our intuition that while people can exhibit present bias, they also show success in overcoming it. Bacharach’s framing approach thus shows us a way to escape the more skeptical result that standard theory produces by introducing the person as an agent. Consider, then, how Bacharach’s team view of the individual operates as a relational conception. Individuals have many temporal selves, because they belong to many different groups over time (and of course also at a point in time). These temporal selves, however, identify themselves at one and the same time as members of groups and as part of the person as a team. This double identification simultaneously ‘‘entifies,’’ as Bacharach puts it, both groups and the person (Bacharach, 2006, pp. 70ff). Thus, the team view of the individual is a relational conception, because it ties being a single individual to having relationships with others by one logic. Conversely, if an individual’s temporal selves are not seen as able to identify with others in groups, there is no apparent reason to say that they can identify with the person as a team. Notice the difference between this view and non-team multi-agent views of the individual. Such views fragment the individual into multiple selves, but as atomistic conceptions that make no essential reference to others they lack any principle external to themselves by which those multiple selves might function as a single being. Bacharach’s view achieves this by assigning an individual’s temporal selves a social capacity to identify with others in groups, and then using this same capacity to create a social conception of the single individual as a team. His view thus produces a relational conception of the individual both in mobilizing an external social reference for the individual and in the resulting social conception of the individual as a team. Does Bacharach’s team view show individuals to be distinct and independent, that is, does it satisfy the individuation criterion? It does if

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one is confident that the capacity to identify with social groups is also a capacity to identify with the person as a team. Or, if there are two related capacities rather than just one such capacity, it simply needs to be argued that there are good reasons to suppose people have the latter capacity. In fact, psychologists make extensive use of the idea of a self-concept (e.g., Stevens, 1996), arguably no less than the idea of social groups, and therefore, Bacharach’s assumption that an individual’s temporal selves identify with an enduring self is hardly unreasonable. This does not mean his team conception is correct per se, but it does mean that it offers reasonable grounds for individuating persons as distinct and separate beings. Supporting this conclusion are theories similar to his, which also arguably employ relational conceptions of individuals, and thereby succeed in individuating persons as distinct and separate beings. For example, some have emphasized commitment as a capacity individuals are able to exercise in interaction with others (Sen, 1977; Hollis, 1998; Minkler, 2008). Commitment may individuate the person who makes it if those to whom it is made see it as tying that person’s temporal selves together under one conception of the person (Davis, 2007a). Another approach concerns collective intentions (Tuomela & Miller, 1988; Gilbert, 1989; Searle, 1990; Davis, 2002; De Boer, 2008). These are intentions expressed in ‘‘we’’ language, and though the focus is on mental states rather than actions as in Bacharach’s account, they recall his question, ‘‘what should we do?’’ Collective intentions, it can then be argued, create obligations for those who express them, and this serves to individuate persons over and above their temporal selves (Davis, 2003, pp. 145ff). But if we have good reason to suppose that Bacharach’s team conception of the individual is successful in individuating persons as distinct beings, there are also good reasons to doubt his view allows us to re-identify individuals across change. Bacharach links the capacity our temporal selves have to identify with the person as a team to a capacity they have to identify with social groups. But as the social groups with which we identify change over time, his argument is that the person our temporal selves identify with can change over time also. In effect, then, we are as likely to be different teams over time rather than just one team, and this means we cannot be re-identified as single individuals. That is, if the person as a team is constantly changing, as many social group teams are, then it becomes unclear why we should refer to the person as a team through time at all. Thus, the very strength of Bacharach’s conception as relational conception ends up preventing him from addressing this problem, since his view ties individuation to identification with particular groups, either others or the

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individual as a team, that need not endure. Indeed, this same criticism applies to the other relational conceptions of the individual noted earlier, since they all individuate the person relative to temporally particular individuals or groups of individuals. This then tells us that relational conceptions of the individual in general do not go very far in capturing the enduringness of persons, thus emphasizing the importance of being able to explain individuals through change. In Bacharach’s case, it is nonetheless interesting how the limitations in his own relational view point us toward a possible way of dealing with the re-identification problem. The main limitation of his view lies in his reliance on a cognitive account of identification with groups. Individuals do not choose to identify with groups, but simply find that they do. On this argument, an individuals’ temporal selves can only find that they identify with the person as a team, and this sort of discovery offers a weak basis for seeing the individual as enduring through change. Yet, Bacharach’s framing emphasis is still important, because it signals one can ask a question such as, ‘‘what should we do?’’ As appropriate to his cognitivist emphasis, he does not explore why we are able to ask such questions, but a relatively obvious answer to why we can is that such questions are fairly endemic to the language space we occupy. That is, it is common for people to ask such things, but not because – or not solely because – people can be observed to switch back and forth between types of framing, but because these types of framing are standard language representations of choices in a world in which language structures behavior and interaction. Therefore, pushing back Bacharach’s naturalistic cognitivist emphasis a bit, we might offer his and other relational conceptions of the individual the existence of historical social structures as factors that additionally constrain and guide our temporal selves’ identification with others and ourselves over time to begin to make sense of how we re-identify groups and persons as relatively enduring. For Bacharach, then, a person is a team if in some fashion the social world we inherit somehow reinforces this. This argument, it turns out, can play an important role in neuroeconomics.

NEUROECONOMICS: NATURAL SCIENCE, ADD SOCIAL SCIENCE Neuroeconomics is widely seen to be an extension of behavioral economics that aims to secure additional and new evidence from neuroscientific

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research for many of the behavioral conclusions reached by psychologists (e.g., Camerer, Loewenstein, & Prelec, 2005). But this judgment is silent on the question of whether psychology’s behavioral decision research program has produced two lines of thinking regarding the individual, one that encourages economists to revise the utility conception of the individual and one that leads to the abandonment of this conception. In this section, I will argue that neuroeconomics better represents a development of this latter line of thinking, on the grounds that its principal result – that human behavior is not the product of one single activity within the brain – cannot be explained in connection with even a revised atomistic individual conception. Indeed, a chief problem neuroscience and neuroeconomics encounter is to explain how the brain’s multiple sources of neural processing are compatible with the resulting behavior belonging to one single individual. That is, neuroscience begins with the individuation problem and must accordingly ask what conception of the single individual it needs to work with from the very beginning. In the discussion here, I will accordingly focus specifically on the neuroeconomics literature that sees the way forward in this regard as depending on developing a relational conception of the individual. In effect, this line of interpretation argues that the multiple sources of behavior in brain activity work together because interaction between individuals brings about this result. But this is clearly a minority view in the literature, and most neuroeconomic researchers proceed as if social interaction is an incidental dimension of individual neural processing. For many, this view rests on a simple but remarkably persistent fallacy. That fallacy – recently characterized as the mereological fallacy (Bennett & Hacker, 2003, pp. 68–107) – is that the brain and the mind can be treated as equivalent. Of course, neuroeconomic researchers know the two are not the same, but they nonetheless consistently explain mental processes as brain processes. Indeed, it is the possibility that the former can somehow or in some degree be explained in terms of the latter that creates the appeal of neuroeconomic research and suggest that neuroeconomics is an avenue for extending behavioral economics. To see this, consider for the moment the opposite idea, namely, that brain processes are to be explained in terms of mental processes. This idea strikes most people as implausible or even absurd, because it means that the way people think influences or somehow causes how their brains work. But note that part of what explains the apparent implausibility of this idea is the view above that it is just the reverse, namely, that how we think is influenced or somehow caused by how our brains work. No doubt this view is true in important respects, but its persuasiveness also masks a tendency to assume mental processes are brain

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processes, whereas in fact they are entirely different categories. Brains do not think, except in a metaphorical sense. They are human organs whose functioning is only correctly described in physicalistic terms. If we are to capture, then, how brain functioning is related to human thought and behavior, we need to be very cautious about characterizing brain functioning in mentalistic terms, and then treating this as brain activity, because to do so smuggles in views about mental processes recast as biological processes. Mental processes – thought – are obviously complex and multidimensional. Almost certainly they must be explained socially in some degree, because how we think reflects social interaction. But brain processes, because they are located in individual bodies, are usually seen as not needing to be explained socially. Thus, the fallacy of treating mental processes as brain processes biases the formulation of research questions in an atomistic manner. This is especially an issue in neuroeconomics, because of the long history of thinking in atomistic individual terms in economics. For example, many researchers accept that decision-making can have affective or emotional components and use functional magnetic resonance imaging (fMRI) techniques to investigate brain processes thought to be associated with those components in experiments with subjects playing games. In one case, in games involving trust, cooperation, and punishment (McCabe, Houser, Ryan, Smith, & Trouard, 2001), players who cooperated were observed to have brain activity associated with regions of the brain linked by neuroscientists to affect and emotion. The inference, then, is that affect and emotion are behavioral determinants in social interaction. But why should these biological factors be premised over a whole variety of social factors that can equally explain social interaction? Why shouldn’t social interaction rather key and shape emotion? Presumably, many researchers if asked this question would say social factors are also important. Their research results, however, as in the case here continue to be framed in individualistic terms, so that the impression given is that it is basically biological brain activity that explains behavior. In general, this reflects the fallacy of equating mental processes with brain processes. An important consequence of this in the present context, then, is that researchers tend to lose sight of the relationship between neuroscience’s principal result – that human behavior is not the product of one single activity within the brain – and the problem of showing how that activity belongs to single individuals. Given that brains occupy individual bodies, when one equates mental processes with brain processes, one tends to assume that people are ‘‘naturally’’ individuated as separate (biological)

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persons. But as researchers in the fMRI study of cooperation must allow, social factors can also be responsible for individuals’ cooperation. Individuals’ mental processes, for example, can reflect norms and customs, and individuals’ emotional and affective responses in games and life may even be chiefly elicited by them. Yet, as there are many such social factors operating in the world, and as there are many types of brain activity, there is no obvious reason to think that people function as single individuals. Some parts of their brains respond to some circumstances, and other parts to others, and individuals could be fragmented into multiple selves. This view may be correct, but it can also be argued that a kind of unity is enforced upon individuals with multiple sources of brain activity through social interaction. Arguing that social interaction could then be individuating rather than fragmenting depends, I suggest, on giving up the atomistic conception of the individual in neuroeconomics, which cannot rule out fragmentation, and turning to a relational conception of the individual. In the balance of this section, I distinguish two different relational conceptions of the individual as part of a minority program in neuroeconomics: first, Ross’ conception, and the second, picturing personhood.

Don Ross The first view is that of Don Ross (2005, 2006, 2007) (Davis, 2007b). Ross’s conception of the individual is quite complex in that he characterizes individuals as communities of utility maximizing agents or sub-personal selves (Ainslie, 2001; Glimcher, 2003), who interact in games internal to the individual, and then relates these internal games to external games played between individuals as different communities. That is, whereas Bacharach’s team view of the individual links up individuals’ temporal selves by a principle of social identification with the single person as a team, Ross links them up through the games they all play with one another. Another difference is that whereas Bacharach individuates a person’s temporal selves according to their identification with groups, Ross individuates them in two connected ways. He takes it as primitive that ‘‘anything whose behavior is well modeled within the constraints of a small set of consistency axioms’’ is an agent (Ross, 2006, p. 247) and then argues that neuroscience gives us good reason to treat individual neurons as subpersonal economic agents (Ross, 2006, p. 251). But how then does Ross individuate whole persons? Indeed, it not clear on his view that we even need

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to individuate whole persons, since if individuals become communities of sub-personal agents, these sub-personal agents could play games directly with other sub-personal agents within other individuals, thus eliminating any talk about the person per se. Then, the analysis would be no different than a generalized game theoretic view of the world in which agents play different games with different agents, and there are no agents made up of collections or communities of agents. But this is not Ross’s view. Rather he adopts an evolutionary perspective and argues that social dynamics, or social interaction through time, essentially ‘‘sculpt’’ individuals into whole persons. Central to this argument is a special role he assigns human language. Science shows that humans are different from other animals in virtue of their particular capacities for language, and an important dimension of this is individuals’ self-narratives or accounts they create about themselves. Individuals’ self-narratives, in effect, are the representation of the whole individual that emerges simultaneously from the games played between an individual’s sub-personal selves and the games played between individuals as communities of sub-personal selves. The questions mentioned earlier about individuating the whole person, then, can be reformulated as follows: why should individuals’ internal games produce unitary and whole person-individuating self-narratives rather than just confused speech that is not individuating? Ross’s answer is that environments for social interaction are complex and highly interdependent, and therefore, to play games with others whole individuals need to make themselves predictable. They do this so they can play and resolve coordination games with others. (To be predictable to others, they must be predictable to themselves, and vice versa.) Then all of this is compounded by the fact that nature doesn’t exactly partition games the way analysts do in game theory texts. A person can’t keep the various games she simultaneously plays with different people in encapsulated silos, so a move in a game Gi with the stranger will also represent moves in other games Gk, . . . , n with more familiar partners – because these partners are watching, and will draw information relevant to Gk, . . . , n from what she does in Gi. (Ross, 2006, p. 250)

The complexity of social dynamics, then, constrains the games internal to individuals between their sub-personal selves to produce recognizable whole persons. Thus, ‘‘social dynamics are logically and ontogenetically prior to individual selves, because selves are sculpted into being by social processes’’ (Ross, 2006, p. 257). But note that this argument does not reduce to the simple (and potentially empty) claim that evolutionary processes individuate single persons. Evolutionary pressures indeed operate, but for Ross, we also have an additional factor operating in the form of the capacity humans have for language and in particular for self-narration. Indeed, without

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self-narration, it is doubtful persons are individuated on Ross’s view, since it is self-narration, as the name implies, which singles out the individual. Consider further, then, how this principle operates in Ross’s account. One element in it is the idea of a dynamic feedback principle operating from social interaction to the individual. This makes his conception of the individual a relational one, since individuals do not exist as single beings except in relation to others. But a second element is new, namely, a reflexivity idea, whereby the (game-theoretic) interaction within the individual and between individuals produces a representation of the whole, a self-report, rather than simply a representation of aspects of the whole. Reflexivity here is the idea that an individual’s collection of sub-personal selves take the community itself as the object of their narration, rather than something distinct from themselves, say, another community of selves. Nothing in Ross’s analysis of game-theoretic interaction between an individual’s sub-personal selves, however, suggests why there should be this orientation. Games internal to an individual could just be about those games and their sub-personal players, and as there are many of these, they fall well short of a view of the whole. One is consequently suddenly be struck by the question, where does this self-concept come from? In my view, Ross does not have an entirely clear answer to this question, but he offers a framework for one that can be set out in outline: individuals develop individuating self-concepts, because of their interaction with others (the relational aspect of his view), because of the interaction within themselves (the neuroeconomic aspect), and because of the special properties of human language. To see the difference language makes, however, one needs to understand Ross’s reliance on Daniel Dennett’s idea of an intentional stance (Dennett, 1987). Dennett’s intentional stance idea, or intentional stance functionalism, involves explaining the behavior of non-human entities by the concept of intentionality. An intention in the most basic sense is an orientation toward something, and its representation is always in the form of language as in expressions such as ‘‘believes,’’ ‘‘thinks,’’ and ‘‘wants’’. Thus, when we represent a non-human entity intentionally, we say, for example, a thermostat ‘‘perceives’’ a change in temperature, or a computer has a ‘‘memory’’ of certain files. Dennett’s goal in authorizing such expressions is not to undermine the language of intentionality as associated with human intentions, but rather to free it of its traditional association with so-called internal states of the human mind. This increases the power of attributions of intentions to all sorts of entities in the world, because rather than looking ‘‘deeper and deeper’’ into some sort of mysterious mind to understand those

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intentions, we are compelled to draw on features of the environment and the world to explain the nature of those intentions – a process of triangulation for Ross (Ross, 2005, pp. 49–50, 61). Thus, the intentional stance, as simply a principle of orientation requiring expression in a distinct kind of language, can be taken by all sorts of entities toward all sorts of things. A collection of sub-personal selves, accordingly, could conceivably take an intentional stance toward the individual as a whole no less than toward any other object in their environment, and in the former case, this stance could be characterized as producing a self-concept. The language of intentions, it should be emphasized, has syntactic and semantic properties. Their semantic character supports their breadth of reference, whereas their syntactic character structures this reference. We thus use language syntactically in subject–object relationships, but subjects, or selves, semantically speaking, can also be objects in language. Within this framework, Ross can thus say that the interaction of sub-personal selves within individuals combined with the interaction between individuals could tend to sculpt out whole persons. The argument is only an outline, because it is not clear just how the individual–individual interaction would drive within–individual interaction to produce self-concept type intentional stances toward the whole person on the part of the person’s sub-personal selves. In what later follows, I will go on to argue that this account needs to be further supported by an explanation of the structuring role language plays as an institution produced by (cultural) evolution, as suggested by Ross in connection with Andy Clark’s (1998) idea of external scaffolds. But here, I close the discussion of Ross’s view with comments on how it maps out the re-identification of individuals. The main idea he employs in this regard derives from the concept of a narrative (Dennett, 1991; Bruner, 1992, 2002). A narrative, including self-narratives, is a discursive structure that takes the form of a story, and as such must have a consistency and integrity as a single account of how events transpire for a subject or number of subjects. That is, a story must hold together, and in the case of self-narratives must do so for the subject at the center of that narrative (Eakin, 2007). Consequently, if a person’s selfconcept is seen in extended form as self-narrative, the whole person is individuated as a single being as long as that person’s story retains its integrity. Of course, saying that a story holds together is very subjective, but Ross has a way of avoiding this problem. His view is that social dynamics increasingly sculpt the person, narrowing the possibility space the individual’s life occupies as the individual ages, so that the continually reduced space in which the individual’s self-narrative takes place always

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defines the self, even if the ‘‘story’’ never comes down to one simple final message (Ross, 2007). This convergence argument arguably allows for a kind of dynamic re-identification of the individual as a single being, because the person at later points in time is always contained in the person at earlier points in time. The problem the view faces, however, is that of life reversals and discontinuities in a person’s story. Ross’s convergence view relies on treating identity as a kind of continuity, but continuity itself cannot be assumed in his framework. Since social interaction influences individuals’ formation of their self-concepts/self-narratives, large changes in it can contribute to significant changes and possible discontinuities in a person’s life story. Ross seems required to say that a new person emerges in such circumstances, but some people would wish to argue that the same person is there but with a new life story. I believe this latter position can be reasonably defended, but not solely on the basis of thinking of the identity of the individual through time in terms of self-narratives having integrity and consistency. Indeed, I will later argue that it is not the character of the story itself that is so important but rather the individual’s orientation or stance toward having a story that is most important. That is, the individual’s reflexive posture is what needs to be focused upon, where this has to do with a capacity the individual exercises rather than characteristics of the object of that posture, the story itself. Ross’s conception of the individual, nonetheless, goes some considerable distance toward adequately addressing both the individuation and the re-identification requirements of an adequate conception of the individual. It treats individuals as communities much as Bacharach treats them as teams, and like Bacharach’s view, it individuates those communities/teams as single persons through interaction with others. Both relational conceptions, however, encounter difficulties in explaining individuals as enduring beings, and do so for largely the same reason. That is, as persons are individuals in virtue of their relations to others, when those relations change, the status of their individuality from a re-identification perspective comes into question. How is one to overcome this shared difficulty? The following section discusses a second type of minority program in neuroeconomics that offers a blunt and direct solution.

Picturing Personhood This expression is the title of a book on brain scans and biomedical identity by Joseph Dumit (2004). Dumit writes as an anthropologist and from the

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perspective of science and technology studies about neuroscience rather than about neuroeconomics per se, but his views go to the same issues the neuroeconomics literature does. Indeed, much of his argument focuses on laboratory experimentation and thus immediately addresses issues neuroeconomists encounter in their laboratory research. These issues can be discussed in connection with the question of whether experimenters play unacknowledged meta-game with experimental subjects. As experimenters design experiments (and also as economists design markets), they arguably constitute the identity of experimental subjects in some fashion or another. But this issue is also at the root in the preference construction line of thinking in psychology’s challenge to economics. In both of these frameworks, however, little is offered to explain what might structure or determine how this identity construction occurs. Indeed, in the preference construction line of thinking, there seem to be no obvious grounds for even talking about the identity of experimental subjects. Dumit is interesting, then, because he has something to say about what drives identity construction, in his case in connection with scanning technologies used in neuroscience and neuroeconomics. Dumit’s academic professionalization is worth noting. As an anthropologist within the field of science and technology studies, he investigates relationships between neuroscientists and those individuals investigated with brain scans and does so in meta-level terms according to how those relationships are shaped by the development of investigative technologies (specifically scanning technologies). Thus, his approach not only employs a relational conception of individuals but also embeds this in a dynamic context understood itself in terms of a key historical institution. In this respect, his approach, like Ross’s, makes important use of Clark’s idea of external scaffolds but does so in a slightly different way from Ross. Clark’s (anti-Cartesian) idea of external scaffolds was developed following the thinking of psychologist Lev Vygotsky and sees human mental processing, whether involving cognitive or motor tasks, as relying on found and created features of the external world (Clark, 1998, pp. 45–47). For example, mathematical calculations are done with the assistance of paper and pencil, calculators, and computers; cooking food is done with recipes and various utensils. For both Ross and Clark, human language is a key external scaffold for humans. Dumit, then, investigates the construction of a particular scaffold, the technology of brain scans, and examines how this construction also constructs both the relationship between neuroscientists and experimental subjects and the identity of those subjects.

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A key case concerns using brain scans in connection with illnesses such as schizophrenia – a case which can be understood as an individual having multiple selves. From Dumit’s study of neuroscientific practices, we learn that to investigate such illnesses, a large heterogeneous team of researchers (physicists, chemists, nuclear chemists, biologists, computer scientists, electrical engineers, psychologists, etc.) needs to organize itself to first delineate ‘‘the boundaries of ‘normal human’ for purposes of study’’ (Dumit, 2004, p. 59). To do this, one begins with particular individuals where each ‘‘person’s state of mind and brain needs to be controlled for,’’ then ‘‘individual brainsets are transformed and normalized so that the individual’s brain locations can be correlated with those of others,’’ and once these ‘‘different brainsets [are] combined and checked for statistical significance,’’ one has ‘‘a collective group brainset’’ giving ‘‘the boundaries of ‘normal human’ ’’ (Dumit, 2004, p. 59). The dataset involved, however, comes in numerical form and is then re-represented in picture form: ‘‘First, colors are used to substitute for numbers in the dataset, and second, specific colored brainsets are selected to be produced and published. Coloring involves transforming numeric variation into a contour map, highlighting some differences at the expense of others’’ (Dumit, 2004, p. 59). In addition, there is the matching of particular colors with normal and abnormal conditions. Obviously, different colors elicit different feelings in people. Colors, in fact, are another kind of language. Thus, illness is generally matched with hot colors (red, orange, and yellow), and normal brain functioning is matched with cool colors (blue and green), and this communicates meaning just as do natural linguistic forms. But why use colors at all to represent brain scans if, particularly as compared to numerical representations, they have subjective associations which lack precision? The simple answer is the medical research community operates in an economic world, so that its output needs to be presented to non-specialists: ‘‘Images are shown to sell the process – to get grants, to demonstrate ability before the public, to show that better results are ‘on the way,’ given more research’’ (Dumit, 2004, p. 105). The point here, then, is not to criticize neuroscientific methods but rather to emphasize how a complex research/experimental investigation constructs the individual, the experimental subject possibly suffering from an illness such as schizophrenia. First, the technology involves a collection of specialized individuals, who function as a team according to the development of their respective sciences and the specific training of those individuals. Second, the individual subject is understood statistically relative to ‘‘a collective group brainset’’ with ‘‘the boundaries of ‘normal human,’ ’’

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so that the individual is a member of a team or rather a member of a class or set of objects. Third, this researcher–subject relationship is mediated by an external community that economically influences this relationship. Thus, if an individual is said to suffer from schizophrenia, the internal fragmentation this involves reflects the degree to which this occurs in others, the summary judgment of a heterogeneous collection of professional experts guided by rules as accumulated in the practices of neuroscience, and the opinions and perceptions of the nature and importance of mental illness and schizophrenia in the larger public. Thus, individuals with multiple selves are (or are not) single beings for a complex variety of reasons that require understanding of broad social institutional forces with extended histories. In principle, this is still a relational conception of the individual, because in contrast to the atomistic conception, persons are only defined as individuals in relation to others. But so many additional layers of the social natural world are now incorporated in this explanation that the ‘‘relational’’ label seems to miss the point. How then might we re-label this individual conception? Somehow, we need to place social relationships in a broader social context. The issue then is how does one go about explaining social context. I suggest briefly in conclusion that this is a matter of thinking further about how individuals are re-identified across change.

CONCLUDING REMARKS The mainstream of economics, of course, operates well within the confines of the atomistic individual conception, generally relying on utility functions as the preferred representation of the atomistic individual. Thus, both of the relational conceptions of individuals examined here constitute new avenues for investigating individuals in economics with appropriately new methods for their representation. I suggested that the stimulus for distinguishing a relational type approach to the individual are problems in game theory, which do not seem to be resolvable when formulated in terms of atomistic individuals plus an account of interaction. Thus, here, I looked at two kinds of views of the individual, which build their accounts of the individual directly around social interaction. My general conclusion is that they both are more successful than traditional accounts of individuals in that they give reasonable accounts of what it is involved in being a distinct and independent being. Ironically, the traditional atomistic account, which prima facie is taken to capture what is involved in being an individual, fails

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to escape the circularity involved in individuating persons by their own characteristics (i.e., their private preferences). At the same time, the relational conceptions discussed here still encounter an important difficulty involved in explaining individuals in connection with the problem of re-identifying them through time. If persons are individuated in terms of their social relations, but these social relations change over time, then we have no obvious way of saying that the same individual persists through time. Some may conclude this is what we indeed ought to think about individuals – that their identities are transient – but the structure of lifetime consumption in modern economies argues against this. That is, increasingly individuals consume goods (pensions, insurance, health care, education, etc.) that presuppose the same individual persists through time. Thus, the nature of consumption in modern economies presupposes we can re-identify individuals through time, and accordingly our conception of the individual needs to be such as to accommodate this requirement. I suggest, then, that relational conceptions of the individual need to be expanded or modified to include evolutionary-institutional themes that allow us to treat individuals as dynamic, persisting agents. This further investigation, however, falls beyond the scope of this paper.

REFERENCES Ainslie, G. (2001). Breakdown of the will. Cambridge: Cambridge University Press. Bacharach, M. (2006). Beyond individual choice: Teams and frames in game theory. Edited by N. Gold & R. Sugden. Princeton: Princeton University Press. Bennett, M., & Hacker, P. (2003). Philosophical foundations of neuroscience. Oxford: Blackwell. Bruner, J. (1992). Acts of meaning. Cambridge: Harvard University Press. Bruner, J. (2002). Making stories: Law, literature, life. New York: Farrar, Straus and Giroux. Camerer, C., Loewenstein, G., & Prelec, D. (2005). Neuroeconomics: How neuroscience can inform economics. Journal of Economic Literature, 43(1), 9–64. Casajus, A. (2001). Focal points in framed games: Breaking the symmetry. Berlin: SpringerVerlag. Clark, A. (1998). Being there. Cambridge: MIT Press. Davis, J. (2002). Collective intentionality and individual behavior. In: E. Fullbrook (Ed.), Intersubjectivity in economics. London: Routledge. Davis, J. (2003). The theory of the individual in economics: Identity and value. London: Routledge. Davis, J. (2007a). Identity and commitment: Sen’s fourth aspect of the self. In: B. Schmid & F. Peters (Eds), Rationality and commitment (pp. 313–335). Oxford: Oxford University Press. Davis, J. (2007b). Review of Economic theory and cognitive science. by Don Ross. Economics and Philosophy, 23, 245–252.

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De Boer, J. (2008). Collective intention, social identity, and rational choice. Journal of Economic Methodology, 15(2), 169–184. Dennett, D. (1987). The intentional stance. Cambridge: MIT Press. Dennett, D. (1991). Consciousness explained. Boston: Little Brown. Diener, E., & Seligman, M. (2003). Beyond money: Toward an economy of well-being. Psychological Science in the Public Interest, 5, 1–31. Duesenberry, J. (1949). Income, saving and the theory of consumer behavior. Cambridge: Harvard University Press. Dumit, J. (2004). Picturing personhood: Brain scans and biomedical identity. Princeton: Princeton University Press. Eakin, J. (2007). The economy of narrative identity. In: E. R. Weintraub & E. Forget (Eds), Economists’ lives: Biography and autobiography in the history of economics (pp. 117–133). Durham: Duke University Press. Easterlin, R. (1974). Does economic growth improve the human lot? Some empirical evidence. In: P. David & M. Reder (Eds), Nations and households in economic growth: Essays in honor of Moses Abramowitz (pp. 89–125). New York: Academic Press. Easterlin, R. (2001). Income and happiness: Towards a unified theory. Economic Journal, 111, 465–484. Frank, R. (2005). Choosing the right pond. New York: Oxford University Press. Gilbert, M. (1989). On social facts. London: Routledge. Glimcher, P. (2003). Decisions, uncertainty and the brain. Cambridge: MIT Press. Gold, N., & Sugden, R. (2006). Conclusion. In: N. Gold & R. Sugden (Eds), Beyond individual choice: Teams and frames in game theory (pp. 155–201). Princeton: Princeton University Press. Gold, N., & Sugden, R. (2007). Theories of team agency. In: F. Peter & H. Schmidt (Eds), Rationality and commitment. Oxford: Oxford University Press. Hirsch, F. (1977). Social limits to growth. London: Routledge. Hollis, M. (1998). Trust within reason. Cambridge: Cambridge University Press. Janssen, M. (2001). Rationalizing focal points. Theory and Decision, 50, 119–148. Layard, R. (2005). Happiness: Lessons from a new science. New York: Penguin. McCabe, K., Houser, D., Ryan, L., Smith, V., & Trouard, T. (2001). A functional imaging study of cooperation in two-person reciprocal exchange. Proceedings of the National Academy of Sciences of the United States of America, 98(20), 11832–11835. Minkler, L. (2008). Integrity and commitment: Economics when principles matter. Ann Arbor: University of Michigan Press. Ross, D. (2005). Economic theory and cognitive science: Microexplanation. Cambridge: MIT Press. Ross, D. (2006). The economic and evolutionary basis of selves. Cognitive Systems Research, 7, 246–258. Ross, D. (2007). H. sapiens as ecologically special: What does language contribute? Language Sciences, 29, 710–731. Schelling, T. (1960). The strategy of conflict. Cambridge: Harvard University Press. Scitovsky, T. (1976). The joyless economy: An inquiry into human satisfaction and consumer dissatisfaction. Oxford: Oxford University Press. Searle, J. (1990). Collective intentions and actions. In: P. Cohen, J. Morgan & M. Pollack (Eds), Intentions in communication. Cambridge: MIT Press.

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Sen, A. (1977). Rational fools: A critique of the behavioral foundations of economic theory. Philosophy and Public Affairs, 6, 317–344. Stevens, R. (Ed.) (1996). Understanding the self. Thousand Oaks: Sage. Sugden, R. (1995). A theory of focal points. Economic Journal, 105, 533–550. Sugden, R. (2000). Team preferences. Economics and Philosophy, 16, 175–204. Tuomela, R., & Miller, K. (1988). We-intentions. Philosophical Studies, 53, 367–389. Turner, J., Hogg, M., Oakes, P., Reicher, S., & Wetherell, M. (1987). Rediscovering the social group: A self-categorization theory. Oxford: Blackwell. Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211, 453–458. Tversky, A., & Kahneman, D. (1986). Rational choice and the framing of decisions. Journal of Business, 59(4, pt. 2), s251–s278.

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COMPARING EDITORIAL PROBLEMS: THE HARROD PAPERS AND THE MAKING OF HABERLER’S PROSPERITY AND DEPRESSION$ Daniele Besomi The different traditions in the praxis of scholarly textual editing have brought the development of a common set of standard editorial procedures. Such basic principles, however, are of a very general character and boil down to making the original texts available and understandable to later readers. This is done by supplying the instruments that enable users of the documents to adopt the viewpoint of the author, share his or her sources, become acquainted with his or her intended audience, and understand the conceptual, analytical, and methodological apparatus available to him or her at the time of writing. At the same time, the editor should devise an editorial apparatus as light as possible, respecting the peculiarities of the text1 without burdening it with excessive symbolism and should avoid

$

A preliminary version of this paper was read before the conference on ‘‘Editing economists papers,’’ Paris, 20–21, May 2006. A French version will be published in the conference proceedings (forthcoming in Cahiers d’E´conomie Politique ).

A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 23–51 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A006

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interfering with the reader’s own interpretation of the text.2 Yet, these editorial rules do not admit a mechanical interpretation, and the specific nature of each set of documents raises different practical difficulties. The purpose of this contribution is to illustrate the adaptation of standard editorial procedures to the specific problems encountered in the preparation for print of two corpuses of documents: The interwar papers and correspondence of Roy Harrod (Harrod, 2003) and the documents relating to the making of Gottfried Haberler’s Prosperity and depression. A theoretical analysis of cyclical movements (Haberler, 1937).3 The materials relating to these cases are to some extent contemporary to each other (there is also some overlapping in the correspondence between Harrod and Haberler), both contain correspondence, drafts, and notes, but have different origin, purpose, and peculiarities, and were produced in different contexts, and therefore raise different editorial problems requiring distinct solutions. Sections 1 to 4 illustrate the special character of these two corpuses and how the specific editorial problems to which they gave rise to are tackled. Section 5 examines how some editorial problems can be solved by means of an electronic edition, discussing as an example the digital version of the Harrod edition; in the appendix, the reception of this edition by the Internet users is investigated by means of an analysis of the web site and the search engine logs. In Section 6, the approach to editing the Harrod and Haberler documents is qualified in terms of the editorial approaches and strategies discussed in the literature.

1. THE CONTEXT Harrod’s interwar papers are the result of the normal activity of an Oxford don, without a secretary and writing by hand, in the first two decades of his professional life, at a time when email did not exist and phone calls were events to be agreed upon in advance.4 They include correspondence (private, professional, political, and administrative), lecture notes, reading notes, drafts of papers (published and unpublished), proceedings of committees and of research groups, cuttings from newspapers, offprints of Harrod’s own articles and of writings by others, and preliminary versions of his correspondents’ writings. Harrod was a compulsive hoarder, and his collection includes almost any written piece of papers that passed through his hands (including tailors’ bills and similar items).

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Correspondingly, the editorial project consisted in rendering these multi-faced professional activities. The edition is centered around Harrod himself: the events are presented as they would have been seen from Harrod’s own desk,5 and the annotations focus more on Harrod that on his correspondents. The Haberler editorial project has a different scope. In 1934, Haberler was hired by the League of Nations ‘‘to investigate the causes of economic depressions and later on [ . . . ] to make recommendations as to how to prevent the economic system from collapsing from time to time’’ (Haberler to R. Weidenhammer, 2 March 1934, carbon copy in League of Nations Archives, 10B/12809/12653, Jacket 1) (The second task was later dropped and postponed to a successive phase of the League’s project.).6 Haberler began by drafting a memorandum titled ‘‘Systematic analysis of the theories of the business cycle,’’ where he attempted ‘‘to gather various hypotheses of explanation and to compare them with the facts, with a view to selecting those which seem most promising and, so far as possible, to combine them in a later stage of this investigation, with a view to giving a rounded picture of the business cycle’’ (Haberler, 1934). The memo was printed in August 1934 by the League and circulated in the following months to about a hundred economists,7 practically a who’s who in business cycle research,8 for comments and criticism. On the basis of their reactions, Haberler revised and considerably extended his draft, and by June 1936 was able to produce a 300-page Enquiry into the causes of the recurrence of periods of economic depression, part I being a ‘‘Systematic analysis of the theories of the business cycle’’ and part II being a ‘‘Synthetic exposition of the nature and causes of the business cycle.’’ The League (after some negotiation on the invitation list with the Rockefeller Foundation) convened 14 economists9 to a four-day meeting to discuss the outcome, and subsequently, Haberler finalized his work producing the volume Prosperity and depression (1937), which became a classic and in the following years underwent a number of partial revisions, four further editions (1939, 1941, 1958, and 1964), and translations in several languages. Materials relating to these activities include Haberler’s memoranda, the correspondence with other economists, notes and correspondence exchanged between the people involved in the organization and the managing of the project (sometimes of an administrative character, but also concerning the scope and method of the inquiry), and verbatim records of the discussions.10 Haberler was the leading theoretical figure in the League’s plan. But the role of the League itself – in particular of the Director of the Economic and Financial Section, Alexander Loveday – and of the Rockefeller Foundation,

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which financed the project, has to be taken into account, for they channeled the purpose, the scope, and the procedure of the whole project. The edition of the materials relating to these activities, therefore, is not going to be centered on the person of Gottfried Haberler, but on the making of Prosperity and depression. This raises a first editorial problem, that of defining the corpus of documents to be edited by deciding whether and how to separate Haberler’s own professional correspondence on other topics from that relating to the League’s project. This is not always easy, for Haberler sometimes discussed several subjects at once and several streams of correspondence occasionally joined together. The strategy for disentangling different but intermingling streams of correspondence again depends on the context, which defines what is relevant and what must be omitted.11

2. THE REPOSITORIES The Harrod papers were collected, and to a large extent preliminarily sorted and arranged, by Harrod himself.12 His impressive collection was dismembered at his death and sold (through a book dealer) in seven batches to five buyers in three continents; the family still holds some materials; others have been handed to Harrod’s official biographer. Harrod’s working library and what was found in his office are now in possession of Nagoya University of Commerce and Business Administration in Nisshin-Shi, Japan. The main body of his professional correspondence is housed at another private University, Chiba University of Commerce in Ichikawa, Japan. A smaller collection, mainly including wartime materials and some professional correspondence, is at Tokyo University. Harrod’s correspondence with Douglas Woodruff (mainly private in character) is at Georgetown University in Washington, where the Woodruff papers are held. Finally, the main body of Harrod’s private correspondence was sold in three separate batches to the British Library in London.13 This procedure makes the collecting and editing of the materials to some extent problematic. The copyright in Harrod’s words was sold together with the documents now owned by the Japanese universities.14 These are free to give, or not to give, permission to publish; although there were no problems with the printed edition, one of these institutions decided not to grant permission to include their materials in the Web-based electronic version of the Harrod edition (see Section 5 for more details). There are also accessibility issues, due to not mere geographical distance and dispersion but

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the rules of use of the main collection at Chiba University of Commerce (CUC), which prevent scholars from using originals (although I was granted access in motivated circumstances) and making photocopies,15 and the fact that the whole Nagoya collection is now closed to researchers. Moreover, the catalogs of two of the Japanese collections were prepared not by professional archivists but by the bookseller who dealt with the papers. In some cases, there seems to have been some fiddling with the original arrangement prepared by Harrod himself.16 The main bulk of the documents relating to the making of Prosperity and depression are preserved among Haberler’s papers, held at Hoover institution in Stanford (most of which are in a box of unclassified materials, not yet listed in the archives’ finding aids), and in the archives of the League of Nations in Geneva. Most of the incoming correspondence was typed for reference by the League’s secretariat, so that fairly accurate copies (sometimes multiple) are available in Geneva. Haberler kept the originals, occasionally also a typescript, and carbon copies of his replies (when typed).17 Further carbon copies are occasionally found in Loveday’s papers and in the archives of Haberler’s correspondents to whom they were sent back. The sets of correspondence processed by the League seem to be fairly complete; Haberler, however, continued some of the discussions in private, and therefore only retained the incoming correspondence. At any rate, the editor should use as a copy-text the original sent by Haberler, whenever extant, in case there were last minute emendations or additions: this procedure (obviously also followed when gathering the materials for the publication of the Harrod papers, which eventually incorporated materials from almost 70 collections) requires one to explore the (potential) recipients’ archives.

3. SELECTION The major selection problem relating to the Haberler documents has already been mentioned in Section 1. The volume of documents is of a manageable size, so that the only actual constraint lies in the interest of the documents to be included. While the administrative part is rarely worth reproducing, the theoretical exchanges are all relevant. The verbatim reports of the discussion on the last memorandum, however, require further thought, for the quality of the transcriptions was harshly criticized by at least two of the participants.18 It is, at any rate, necessary to develop a strategy to deal with the omissions. The procedure devised for the Harrod edition may be applicable in its broad outline to the Haberler project. Harrod was a prolific writer and

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hoarded several thousand letters in his lifetime. A first decision regarded the period of interest: a natural starting point is the first part of Harrod’s professional life, which began at the end of the First World War, while an equally natural closing boundary is the outbreak of the Second World War. The interval includes the beginning and consolidation of Harrod’s academic career and reputation, an era during which Harrod produced an extraordinary number of theoretical tools and notions at a rate unequalled in the following years; it also coincides with two decades of unique theoretical inventiveness in economics, echoes of which are abundant in Harrod’s papers and correspondence. What remained was, however, still overabundant. Most of the private correspondence (about 3,000 letters in the interwar years alone), although fascinating would be of scarce interest to the intended readership, consisting of economists presumably more interested in what was going on in Harrod’s ‘‘mental laboratory’’ under the continuous stimulation of his correspondents’ inputs.19 Accordingly, materials were selected for inclusion precisely in so far as they provide insight into Harrod’s career as an economist, his contributions to this subject, his philosophical interests, his political passion and activities, and the debates in which he was engaged. A further distinction, between materials of utmost and partial interest, led to inclusion in full of the first kind of materials and an abstract in the form of diary entry, possibly quoting some relevant passages, for those of limited significance only. Such a choice is surely subjective and is bound to leave out materials of potential relevance to other researchers such as biographers or sociologists inquiring into the social relationships among Oxford dons (analogously, the purely administrative materials related to the Haberler and League project would be informative for researchers investigating the working of such an institution). It is therefore necessary to supply the reader with information on the location, and possibly also on the content in broad lines, of the omitted materials. While the editors of economists’ correspondence have scarcely paid attention to this aspect, in the Harrod edition, a special section is dedicated to a listing of such omissions.20 Something similar will have to be considered for the Haberler edition.

4. SPECIFIC PROBLEMS AND PECULIARITIES While Harrod’s papers and correspondence are entirely in English, an outstanding feature of the Haberler materials is the presence of documents in several languages. The official languages of the League were English and

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French, but Haberler also corresponded in German with colleagues sharing his mother tongue. Occasionally, there are also incoming letters in Italian, which were, however, translated into French by the League secretariat. This poses the problem of how to deal with these materials, a consistent fraction of the corpus. It is certainly opportune to retain the original language, but English readers (and especially English language publishers) will want materials in English. The difficulties in translating inhomogeneous materials, written by various authors using different terminologies (in exchanges often dealing precisely with terminological issues) and having different theoretical backgrounds, suggest that the original is supplemented by an extensive and detailed summary in English and that the original terminology is indexed separately. Another issue that may concern the Haberler project, while practically inexistent in the Harrod case, regards variants of texts. Harrod almost never introduced relevant changes to his articles, the only two exceptions in the interwar years being the essay where the marginal revenue concept was expounded and the famous ‘‘Essay in dynamic theory’’ (Harrod, 1939).21 The alterations have been so drastic that a variorum edition would not have made sense; the drafts are therefore included in the edition as independent essays (the critical apparatus does, however, point at the correspondence on the subject and at the corresponding alterations introduced in the published version). As to Haberler, the drafts of his memoranda do not seem to be extant. The second memorandum, however, deserves to be compared to the published version, at least in terms of a collation table (some work along this line has done by Boianovsky & Trautwein, 2006). This, however, is a decision that will be taken at a more advanced stage in the editing process. Some minor differences may be expected between the Haberler and Harrod projects in the decisions regarding the process of standardization of the text. To avoid disturbing the flow of reading, some standard elements in the text are made uniform throughout. Mathematical expressions, in particular, are reproduced in modern notation, using for instance the symbol ‘‘Z’’ instead of a barred ‘‘o’’ sign. This can be done in both editions. One author’s stylistic idiosyncrasies are worth reproducing as they stand, as they give the atmosphere of the correspondence form as opposed to a polished text. The reader quickly gets used to them. This, however, can be disturbing in a collection arranged thematically, where such peculiarities only appear rarely, and should be emended. For instance, Harrod never used apostrophes in contractions such as ‘‘don’t.’’ In the Harrod volumes, the reader quickly gets acquainted with this, and a general warning may suffice; when the Harrod’s letters to Haberler are reproduced in the

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League volumes, the reader could easily interpret the same passages as editorial typos. On the contrary, Haberler’s sometimes uncertain English (especially in the first year after his arrival in Geneva) is probably to be retained. Other editorial solutions adopted in the Harrod papers seem to be transposable to the Haberler project: the system of cross-references permitting to follow one specific exchange within the strictly chronological order of reproduction of documents, for instance, solved a problem that also appears in the Haberler correspondence. In the Harrod edition, three kinds of notes are distinguished. One, printed at the bottom of the page and indicated by a roman numeral, reproduce the author’s own or the recipient’s comments in the margin; a second one, printed at the end of each document and indicated by an Arabic numeral, refers to the editorial apparatus; and a third one, printed after the editorial notes and indicated by a lettered apex, is reserved to annotations regarding the source – reporting typos and the repository details.22 This also responds to a need arising in the Haberler edition.

5. ELECTRONIC EDITION In spite of making all editorial decisions explicit and of all efforts not to intrude on the text, some interference is unavoidable. The editor’s decision of what is interesting and what should be omitted is heavily subjective, not only so far as the general problem of drawing of the line is concerned but also because the actual judgment on each specific document depends on the editor’s understanding of the issues at stake. The editorial interference is even more explicit in the process of conceptualization unavoidably implied by the construction of the subject index. A traditional paper edition can limit the damage of the selection process by indicating where the materials can be located and by giving some information about their content and nature, but can hardly avoid the second problem. In the Harrod edition, the indexing problem was that of finding some common denominator through time, covering two decades during which a large number of topics were discussed and, for certain issues, the terminology, the analytical instruments, and the very theoretical concepts underwent dramatic changes. For the Haberler edition, the problem is somehow the reverse: in a short time span, a limited number of topics were tackled but with a variety of approaches, terms, and concepts (and, in some cases, the issue at stake was precisely the definition of terms: an aspect on

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which Haberler insisted with particular emphasis, as one of his points was that apparent conceptual differences between the position of various authors could be boiled down to terminological peculiarities while the substance of the arguments was not too dissimilar). Whatever solutions will be found, they are bound to reflect the editor’s understanding of the business cycle problem and the debates in those years, and therefore may leave some readers discontented. An antidote to this unsatisfactory state of things can be supplied by complementing the traditional printed edition with an electronic one. A pioneering attempt was done with the Harrod edition: the largest fraction of the transcriptions (the corresponding editorial apparatus included) is available online and free of charge at http://economia.unipv.it/harrod/ edition, through the generosity of most (but not all, see later) copyright holders and the far-sighted appreciation of the publisher, Edward Elgar, who agreed to let me post online, for free, the entire three-volume set a couple of months after publication in print.23 The choice of producing an open access site responded to the desire of both making the work accessible to a large public (the intended audience being the scholarly communities interested in disciplines such as economics, history of economic thought, philosophy, politics, and history of the interwar years, while the actual audience seems to be much broader than originally expected: see appendix) and integrating the work of Harrod and his correspondents in a broader and continuously expanding context, so that search engines can capture it among other potentially related documents; on the contrary, a closed access edition, such as on a CD-ROM attached to the printed volumes, would have limited searches to the selected corpus of documents. Such an electronic edition offers some obvious advantages. Posting costfree on the Web enables the editor to quickly update or correct pages, if new findings or the identification of errors require doing so. More importantly, it enables the editor to overcome some of the limits related to the necessity of being selective: the printed version can be enhanced with additions of materials and reproductions of original documents. The list of bonus materials – very much appreciated by users of the Harrod electronic edition (see appendix) – includes the transcription of two letters exchanged between Harrod and Ragnar Frisch in October 1936, found after the publication of the volumes; the abstracts of more than 600 additional letters of a personal and routine character; the transcription of a letter by Harrod to The Economist in 1933, found after the publication of the paper edition (the bibliography has been updated accordingly); a transcription of the

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extant personal correspondence between Henry F. Scott-Stokes and Harrod; and pdf scans of the originals of 19 documents supplementing the transcriptions in the printed edition. Apart from the inclusion of extra materials, the electronic version of Harrod’s edition is nothing more than a plain digital (in simple html format) rendering of the text (not of the pagination) of the version in print, with the additional convenience for the reader that all cross-references (to other letters, to page numbers, to the bibliographical references, to note numbers, etc.) are translated as active hypertextual links. The editorial apparatus thus remains that of a paper critical edition. This aspect is debated in the literature, as some authors argue that the removal of space limitations enables the editor to present the entire range of textual variants, thereby doing away with the need of postulating that some copy-text is the original state of the document, which is an act of interpretative intervention. Other writers, however, counter that the plain presentation of textual variants just shifts the burden of the rational reconstruction onto the readers’ shoulders and subtracts some value to the editorial process (for a survey, see Abram, 2002). In the case of the Harrod edition, the problem of textual variants only occurs occasionally. Nevertheless, a few drafts of notes and correspondence are reproduced among the bonus essays, enabling the readers to compare versions, under the guidance of the editorial apparatus referring to the copytext. Although this was possible only to a limited extent, as only a few documents could be reproduced as scan images for copyright reasons, this gives a taste of the mixed critical and facsimile editing permitted by digital technology. As the hypertextual links are constructed by the editor, moving around the text is to some extent a guided surfing, precisely as the categorization of the subject index in the printed edition reflects the editor’s understanding of text and context. The digital version of the text provides an additional degree of freedom to the reader by enabling him or her to perform searches within the text of the entire collection. Yet, the searches can only be performed by strings of text (including, of course, the usual Boolean combinations), they are limited by the author’s usage of words. As this is not necessarily consistent, nor does it necessarily correspond with modern terminology (Harrod, for instance, called ‘‘Relation’’ the acceleration principle), the search engine and the subject index are better used in conjunction with each other, so that the electronic edition is best thought as a complement, rather than an alternative, to the printed edition. An important issue regarding the electronic edition concerns its persistence in time. Limiting oneself to electronic publishing would be a

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very dangerous choice: standards, both in the hardware and in the software, are changing so rapidly that there is no guarantee that the product will be readable after a decade. Printed materials are instead capable of resisting centuries, if properly stored. The problem of preservation of digital materials is, of course, discussed by the main libraries in the world. They are working at identifying the sustainability factors (see Library of Congress, n.d.a), assessing the risk (see, e.g., McLeod, Bright & Wheatley, 2007), and setting standards in conjunction with software producers (see Library of Congress, n.d.b). At present, the feeling of most directors of the main libraries in the world is that the time is not ripe for a full transition to a digital era, in terms of both cost and risk. Summarizing the view of the curators of 15 national libraries, most of which with legal deposit responsibility, the British Library (2004) submits that digital is not generally viewed as a suitable long-term preservation archival surrogate for print. It is currently regarded more as an access medium. As a preservation medium, digital was generally seen as unstable, experimental, immature, unproven on a mass scale, and unreliable in the long term. Print is generally viewed as the archival format for national deposit libraries, to be stored in optimum storage conditions to ensure its longevity. Several national libraries are planning new storage facilities. Collecting and storing print formats are currently seen as insurance against the volatility of the current state of digital preservation. Digital is not generally viewed as a long-term preservation medium because of various reasons that are not just technical, but range from legal, political, strategic, financial, managerial, and organizational to the availability of appropriate skills. There is a general expectation that, when appropriate life cycle management actions are taken, it should become technically possible in the future to assure long-term preservation for digital content. Major concerns center around the sustainability of digital preservation from financial, strategic, and managerial angles.

The concerns of major libraries extend, even more so, to an amateurish web site such as the Harrod edition. The editing of papers and correspondence is a very laborious task (Harrod absorbed the best part of a decade), and an editor does not want to entrust the result only to a volatile medium that, moreover, does not yet grant any academic recognition and would not be listed as a professional product. At present, an electronic version can be at most a nice and useful (see appendix) complement to a traditional edition in print, not an alternative to it. At the top of this, some copyright holders – including academic ones – feel (whether reasonably or not) uneasy as to the posting online of their documents and may not grant permission to do so. This was indeed the case of the major repository of

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Harrod papers, which did not grant permission to include in the electronic version of the edition the transcription of the words of which they hold the rights,24 thereby considerably limiting its scope.25 Subject to such constraints, an exclusively electronic Harrod edition would simply not have made sense.

6. CONCLUSION Each corpus of document has its unique features and raises specific editorial problems and accordingly requires the standard editorial procedures to be adapted to its special needs. But this is not all, because these very differences have stimulated the development of different traditions, approaches, and procedural methods in the practice of scholarly editing of documents. The peculiarities of the Harrod and Haberler editions outlined in the earlier sections may help better qualify some basic choices that have been made, in comparison with other possible ones. The first decision was to produce a critical edition, rather than a facsimile one or a diplomatic transcription.26 In both the cases of Harrod and Haberler, my judgment is that economists and historians of thought want a uniform text to read, analyze, and cite, rather than struggling with a reproduction of the documents that may be difficult to read, contain typos and oddities, exist in multiple drafts, or have several layers of corrections and emendations not easily understood in their chronological order (readers, however, are given a taste of the original state of the documents by means of the facsimile reproductions made available in the electronic version of the Harrod edition). Critical editing examines and compares the various versions of a text (textual witnesses, in technical jargon) to be made available to reader. The classical approach to this problem aims at rendering the text that best represents the author’s intention. The later literature, in particular in the field of humanities, has pointed out that this idea is fraught with difficulties. The author’s intention is not an object given once and for all, but changes through time, and different versions of a document may well reflect different intentions. Moreover, when a document passes through several hands (a typist and a publisher, for instance), it undergoes further changes (whether or not intentionally), which are eventually approved by the author. Such problems may be more or less marked, depending on the kind of materials at hand. In poetry and literature, things are very complicated, as

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the form matters as much as the content. For technical texts, stylistic emendations are things that can normally be easily dealt with in the annotations or even ignored altogether, unless, of course, they carry semantic implications. In the case of Harrod’s correspondence, the problem of the author’s intention could be easily solved in most cases. The final authoritative version, which I have systematically chosen as copy-text, is the one sent to his correspondents as actually found in the latter’s archives. Harrod rarely introduced emendations, and almost all of his interwar letters were written by hand. Some of Harrod’s unpublished essays were slightly more problematic, as passages were changed, added, or deleted, and on a few occasions, different drafts are extant. But also in this case, the final version can be taken as copy-text, and the variants (where significant, not merely grammatical or stylistic) are transcribed in the annotations. In Haberler’s case, things are going to be more complicated. A large part of his correspondence was typed out by the League’s secretariat. This aspect is both fortunate and unfortunate: multiple copies of the correspondence are extant, but the original manuscripts do not seem to have survived, so that the typists’ version is all we have. The memoranda involve additional problems, as the versions eventually distributed are likely to have been tampered with by the League’s officers – probably with Haberler’s ex-post approval, but nonetheless interfering with his own original wording (which does not seem to be extant). The English (especially that of the first memorandum, August 1934 – see note 6 for details) is likely to have been edited, and some contents may have been altered following discussions with members of the Financial Section. The text to be presented is quite neat, but its authorship is to some extent collective. Things are even more complicated in the case of the verbatim records of discussions. Although they report discussion of the utmost relevance, the errors and confusions in the minutes of the meetings (see note 18) render their documentary value dubious and make the reconstruction of an authoritative intention an almost impossible task. Of the various procedures developed to cope with these problems (for a brief survey, see Buzzetti & McGann, 2006), the one that suits me most is the ‘‘genetic’’ one. My way of looking at the Harrod and Haberler corpuses of texts is driven by my curiosity concerning the development of Harrod’s thought and the making of Haberler’s Prosperity and depression. If the dynamic character of their documents is a philological challenge, at the same time, it is also the main clue for the understanding of the ways in

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which their views evolved through time. Their solutions to the theoretical problems they were facing resulted from their own elaboration of past doctrine, which interacted with their political outlook, the historical and institutional context, and especially the influence of the exchanges of opinion with fellow economists and other people. The analysis of such development is not, of course, pertinent to the editorial procedure. But the documents can be presented in their genetic relationship, giving particular emphasis to the process that brought to the formation of the particular texts where the relevant ideas are expounded and further elaborated. In the Harrod edition, this is done in the editorial apparatus by means of reconstruction of the theoretical, historical, and institutional context, by linking together by means of cross-references the various documents relevant to each other and by reproducing (usually in the endnotes, when not self-standing) the preparatory documents eventually leading to the drafting of the copy-text. The comparison of the Harrod and Haberler cases illustrates that textual editing is more a challenge than a straightforward mechanical process. Each corpus of documents has specific peculiarities that should be respected, and each poses specific problems that cannot be solved in a standardized way. The editorial choices and the editorial apparatus are therefore the result of both the procedures codified by philologists and the ad hoc solution to the individual problems raised by the specific circumstances linked to the nature of the materials, their accessibility, the topic(s) under discussion, the authors’ idiosyncrasies, the historical context where the documents were produced, and so on. Preparing a scholarly edition is thus a long and painful process. A long time has to be invested in the search of small details (such as obscure references, or the evidence that some document is not extant or that, on the contrary, it is available in other repositories with trifling emendations), the product of which is the composition of two-line notes that must be written even if one knows in advance that scarcely anyone will ever read them. In an environment greedy for publications, this kind of activity is a luxury sometimes difficult to afford. There is, however, a reward for it. There is the excitement of discovery and the feeling of being able to find and place the pieces of a jigsaw puzzle (often a multi-level one) and eventually seeing the overall picture emerge from thousands of pieces of paper. To the feeling of satisfaction also contributes the solution of the specific problems accompanying from the outset every editorial enterprise – the success of which is measured by the lack of perception that there even was a problem.

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NOTES 1. What has to be retained and what can be omitted is not given once and for all but depends on circumstances. For instance, the implications of the author changing a word in his text, or deleting a comma, breaking a line at one point instead of another, using alternative spelling and abbreviations, or having misspelt a word are rather different in poetry, literary texts, lecture notes, correspondence, or technical writings. 2. Basic as they are, these principles do not always seem to be appreciated by readers and would-be editors alike. The Harrod edition was criticized for having failed to comment on Harrod’s texts in terms of the secondary literature developed in the half a century following his writings (Young, 2005; for a rejoinder and a restatement of the editorial principles, see Besomi, 2006a). On the editorial side, researchers are often tempted to submit for publication isolated archival findings, often nice and instructive but severed from the corpus of documents to which they belong, thus failing to present the full context and making successive scholarly editions more difficult; major journals seem to be keen to accept such pieces. (My younger self was also guilty of such an approach when publishing Harrod (1996); the piece is now more appropriately included in the Harrod edition (Harrod, 2003), where cross-references to and from the relevant correspondence could be given. A comparison of the respective editorial apparatuses illustrates the point.) 3. An edition of these documents is in preparation, edited by myself. Presently (August 2008), the collection and transcription of documents are at an advanced stage, so that most problems related to the nature of the materials are already apparent; specific editorial problems are naturally likely to arise at later stages of the process. 4. Harrod’s letters preserve traces of such agreements: refer for instance Harrod to Keynes, 26 October 1934, in Harrod (2003, p. 315). 5. I have used this illustration in the introduction of the Harrod volumes without remembering that it had already been used by Sraffa (1951, p. xiv); this was pointed out to me by Cristina Marcuzzo. The image is obviously powerful enough to have stuck in the back of my mind. 6. The League’s inquiry into economic depressions was rather articulated. It consisted in four phases, the first of which was planned at least since September 1930. On 2 October 1930, the General Assembly resolved that the Economic and Financial Organization of the League ‘‘should undertake the study of the course and phases of the present depression and the circumstances which led up to it, and for this purpose it should collect the information compiled by institutions already in existence in different countries, centralise such information and, where necessary, fill up any gaps that exist. For this purpose the Economic and Financial Organisation [ . . . ] should put itself in touch with national organisations whether consultative or planning councils or research institutions concerned with this matter, and should further, with their aid, consider by what means the work now being conducted on the problem of the recurrence of periods of economic depression may be co-ordinated’’ (League of Nations, 1930, p. 196, resolution 16). Both the Economic and the Financial Committees interpreted the mandate as consisting in two wholly distinct parts: one concerned with the present depression and the second regarding the broader problem of the recurrence of economic

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depressions (Economic Committee, ‘‘Study of the course and phases of the present economic depression’’, document E.641, 28 October 1930, in: Comite´ e´conomique. Docs Nos. E.626–E.650, T. 41, 1930, vol. 939; Financial Committee, ‘‘Study of the course and phases of the present economic depression’’, document F.853, 3 November 1930, in Comite´ financier, F.831–865, 1930, vol. 1417). The former problem was tackled first: the League organized three meetings with representatives of various ‘‘conjuncture institutes,’’ on the basis of memoranda submitted by the latter. The result of the discussions was presented in a report by Ohlin (1931) addressed to the Assembly. The problem of the recurrence of economic depressions was approached later, by means of a complex analysis and synthesis of the existing theories of the trade cycle, conducted by Gottfried Haberler between 1934 and 1937, and continued by a statistical analysis led by Tinbergen in 1936–1938, eventually published in 1939 (Tinbergen, 1939). Meanwhile (in 1937) the Assembly entrusted a delegation with proposing remedies. Accordingly, a Delegation on Economic Depressions was formed in 1938; it met three times and had prepared a preliminary draft for a report that was not published due to the outbreak of the war. The draft report, however, was not left dormant but was further elaborated by Loveday in view of the problems raised by the conflict and eventually perfected by the Delegates who reported in two volumes (Delegation of Economic Depressions, 1943, 1945). All four branches of research were conducted with a common method: meetings were held with experts in the respective fields, with the participation of a number of officers from the League (Loveday, in particular, was personally involved in most discussions) and the International Labour Office, and the results (on the basis of extensive minutes) were elaborated upon and summarized by one of the experts. The reports were thus the results of a somehow collective enterprise, regarding which an abundant documentation is extant enabling one to follow the process of elaboration in most of its stages. There was also some overlapping between the four stages: meetings of the business cycle institutes kept taking place, with Haberler’s participation, in the second half of the 1930s, while the theoretical analysis was well under way. Haberler also advised as to the choice of the statistician to take over his job, participated in some discussions of Tinbergen’s work and in some of the meetings of the Delegation of Economic Depressions. 7. The first print totaled 150 copies, but in November 1934, 100 more were reprinted due to the high demand. A list of 65 addressees is cited by Boianovsky & Trautwein (2006, p. 49n), but more can be inferred from the surviving correspondence. 8. The reason for the handful of important exceptions of which Haberler could not be thought to be unaware constitute an interesting puzzle. Two of these, Mitchell and Fisher, are cited by Boianovsky & Trautwein (2006, p. 49n). Others – Lo¨we, Kuznets, and Pribram – are more intriguing. 9. Eleven of whom eventually attended (along with Haberler, Loveday, and some officials of the League and of the International Labour Organization): Oskar Anderson, J. M. Clark, Le´on Dupriez, Alvin Hansen, Oskar Morgenstern, Bertil Ohlin, Charles Rist, Lionel Robbins, Dennis Robertson, Wilhelm Ro¨pke, and

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Jan Tinbergen. Bresciani-Turroni declined for health reasons; Mitchell and Schumpeter also declined to be able to work at their Business Cycles volumes. 10. For an overview and evaluation of the procedure that led to Haberler’s book, including a survey of the unpublished sources, see Boianovsky and Trautwein (2006). 11. Haberler’s correspondence with Knight, for instance, not only dealt with the 1934 cycles memorandum (referred to in note 6) but also with capital theory, and the discussion was taken up, with explicit reference to this exchange, with other correspondents as well (in particular, Machlup, Neisser, and Hayek). The Harrod– Haberler correspondence is a further example of this problem. It regarded both the Haberler memorandum and an article by Harrod on credit policy, and a number of letters carry discussion of both these topics. While this did not pose any problem of inclusion for the Harrod-centered edition, for the Haberler-League edition, it will be necessary to determine in each case whether the part of the correspondence uniquely dealing with Harrod’s article is relevant to the making up of Haberler’s mind as to his League book, or at any rate for the understanding of the remainder of the correspondence. 12. Harrod had prepared and labeled the documents for the benefit of ‘‘future historians of thought,’’ to whom he left messages and comments. See, in particular, a note, dated 8 May 1945 and reproduced in Harrod (2003, p. 1067), accompanying the documents certifying he had independently discovered the notion of marginal revenue before the publication by T. Yntema in 1928, beginning, ‘‘This letter is of some interest for the history of economic thought.’’ 13. For a detailed description of these collections and an evaluation of their usefulness for an assessment of Harrod’s contribution to economics, see Besomi (2003a). 14. Copyright problems distinguish the two editorial projects presented here from the editing of older materials. While rights on ancient texts have expired, writings dating from the interwar years are often not yet in the public domain. Obtaining permission to proceed requires first to identify the holders of rights for each and every writer cited (the writer if still alive, or his/her estate, which may be an academic institution or one or more descendants or even some unrelated person), then to actually get in touch with them and obtain permission. Often one is faced with lack of replies, which force repeated requests until one can prove good faith. This can result in literally hundreds of letters and emails being sent. 15. This occasionally created difficulties in transcribing particularly convoluted handwritten materials, for the impossibility of photocopying documents prevented showing them to colleagues for advice. The rules for the use of the Harrod Papers are posted at www.lib.cuc.ac.jp/english/rules.html 16. An additional problem relates to the long-term preservation of documents: the last time I saw them, some materials were kept in plastic envelopes where molds thrived and where static charges detached ink from documents. 17. Not all his correspondence was typed by the League’s secretariat: frequently Haberler wrote his letters himself by hand (and had the annoying habit of not dating letters). Richard Kahn malignantly commented, ‘‘I have noticed from some time that [Haberler] has been writing me letters in his own handwriting. Surely Rockefeller has provided him with an adequate staff of typists. I have a feeling that he is rather anxious to regard our correspondence with him as of a private nature, so that it need

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not appear in the files of the Secretariat where, to his embarrassment, any enquirer might be able to read it’’ (letter to Harrod, 25 November 1934, in Harrod, 2003, p. 354). 18. Haberler described them as ‘‘not very well done’’ (letter to Morgenstern, carbon copy in League of Nations Archives file 10B/21852/12653); Robbins commented that ‘‘the transcription was really most inaccurate – in many cases making one say exactly the opposite of what one intended to say & what one must actually have said if ones colleague did not then and there call ones whole statement in question’’ and added that he ‘‘often had to correct my own interjections completely unable to make rhyme or reason of the statements I was supposed to be [illegible word] & I imagine mine is not an isolated experience’’ (undated letter to Haberler, stamped as received on 17 September 1936, League of Nations Archives file 10B/21852/12653). Robertson found ‘‘some of my own remarks so unintelligible that I cannot correct them, & suggest that in these cases they might be omitted!’’ (letter to the League of Nations (perhaps Felkin), 13 October 1936, League of Nations Archives file 10B/21852/12653). Indeed, Ohlin’s corrections to the only surviving copy often emend the report of his words by reversing their meaning. 19. The actual, as distinct from intended, readership, at least so far as the electronic edition is concerned, shows a different preference. See the appendix. 20. This aspect is being very much appreciated by the users of the electronic edition of the Harrod papers. See the appendix. 21. The first version of the marginal revenue essay was submitted to the Economic Journal in 1928, rejected for reasons connected to another part of the argument, and eventually published with a complete shift of emphasis in 1930 (Harrod, 1930). More than half of the ‘‘Essay in dynamic theory’’ (Harrod, 1939) was rewritten due to Keynes’s criticism in 1938. 22. Although, strictly speaking, the two latter kinds of notes both belong to the editorial apparatus, the lettered one are likely to be of scarce interest to the intended readership of economists. If readers are prepared to trust the editor, they are facilitated in recognizing the notes should be disregarded. 23. This is surely the first electronic edition of economic materials. Other electronic editions are available, especially in the humanities field, but normally on subscription, and are therefore not accessible to the general public. 24. The documents that have been included in the printed version but which could not be posted online consist in about 40 pieces of correspondence (including some of the most interesting ones), 13 of the 22 previously unpublished essays, and two newspaper articles. For a detailed list, see http://economia.unipv.it/harrod/edition/ editionstuff/missing.htm 25. On the contrary, the Faculty of Economics of the University of Tokyo posted online in its entirety their collection of Harrodiana (www.lib.e.u-tokyo.ac.jp/ keynes_harrod/index.htm); their facsimile reproductions are linked to from their transcriptions in the electronic Harrod edition. 26. For a general discussion of the problems related to the choice between facsimile and critical editions, with special regard to the editing of economic writings, see Fusco (1992).

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ACKNOWLEDGMENTS I am grateful to Ottavio Besomi for several conversations on the issues discussed in this chapter, to an anonymous referee for challenging criticism, and to the following people for permission to cite from unpublished writings: Helmut F. Furth and to Peter Haberler for Gottfried Haberler’s writings, Christopher Johnson for Lionel Robbins’s words, and Judith M. R. Brown for the citation by Dennis Robertson.

REFERENCES Abram, K. (2002). Electronic textuality: A bibliographic essay. Available at www.mantex. co.uk/ou/resource/elec_txt.htm. Accessed on July 21, 2008. Besomi, D. (2003a). The papers of Roy Harrod. History of Economics Review, 37, 19–40. Besomi, D. (Ed.) (2003b). General introduction. The interwar papers and correspondence of Roy Harrod. Cheltenham, UK: Edward Elgar. Besomi, D. (2006a). A note on textual editing: A rejoinder to Young. Journal of the History of Economic Thought, 28(3), 375–381. Besomi, D. (2006b). The electronic edition of Harrod’s papers: A preliminary report from the visitor’s logs. Storia del Pensiero Economico, 3(2), 257–259. Boianovsky, M., & Trautwein, H.-M. (2006). Haberler, the League of Nations, and the quest for consensus in business cycle theory in the 1930s. History of Political Economy, 38(1), 45–89. British Library. (2004). Digital versus print as a preservation format—Expert views from international comparator libraries. Available at www.bl.uk/aboutus/stratpolprog/ccare/ introduction/digital/digitalvprint/index.html. Accessed on July 20, 2008. The document was originally dated 2002 and updated in 2004, but on 14 April 2009 it still prominently featured in the library’s ‘‘digital preservation’’ web site. Buzzetti, D., & McGann, J. (2006). Electronic textual editing: Critical editing in a digital horizon. In: L. Burnard, K. O’Brien O’Keeffe & J. Unsworth (Eds), Electronic textual editing. New York: Modern Language Association. Delegation on Economic Depressions. (1943). The transition from war to peace economy. Report of the Delegation on Economic Depressions, Pt. I. League of Nations, Geneva. Delegation on Economic Depressions. (1945). Economic stability in the post-war world. The conditions of prosperity after the transition from war to peace. Report of the Delegation on Economic Depressions, Pt. II. League of Nations, Geneva. Fusco, A.-M. (1992). Editions anastatiques, e´ditions diplomatiques, e´ditions critiques: Lumie`res et ombres d’une taˆche ingrate. Revue Europe´enne des Sciences Sociales, 30(92), 325–339. Haberler, G. (1934). Systematic analysis of the theories of the business cycle (Mimeo). Geneva: League of Nations. Haberler, G. (1937). Prosperity and depression. A theoretical analysis of cyclical movements. Geneva: League of Nations. Harrod, R. F. (1930). Notes on supply. Economic Journal, 40(158), 233–241.

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Harrod, R. F. (1939). An essay in dynamic theory. Economic Journal, 49(193), 14–33. Harrod, R. F. (1996). An essay in dynamic theory (1938 draft). D. Besomi (Ed.), History of Political Economy, 28(2), 253–280. Harrod, R. F. (2003). The interwar papers and correspondence of Roy Harrod. D. Besomi (Ed.). Cheltenham: Edward Elgar. League of Nations. (1930). Records of the Eleventh Ordinary Session of the Assembly. Plenary meetings. Text of the debate. Geneva: League of Nations. Library of Congress. (n.d.a). Sustainability of digital formats: Sustainability factors. Available at www.digitalpreservation.gov/formats/sustain/sustain.shtml. Accessed on July 20, 2008. Library of Congress. (n.d.b). Meeting the challenge: Setting standards. Available at http:// www.digitalpreservation.gov/library/challenge/formats_challenge.html. Accessed on July 20, 2008. McLeod, R., Bright, P., & Wheatley, P. (2007). Risk assessment 2007. British Library, Digital Preservation Team. Available at www.bl.uk/aboutus/stratpolprog/ccare/introduction/ digital/riskassessment.pdf Ohlin, B. (1931). The course and phases of the world economic depression. Geneva: League of Nations. Ramsey, F. P. (1928). A mathematical theory of saving. Economic Journal, 38(152), 543–559. Sraffa, P. (1951). Introductory notes to the correspondence. In: P. Sraffa (Ed.), with collaboration of M.H. Dobb, The Works and Correspondence of David Ricardo, Vol. 6: Letters 1810–1815. Cambridge: Cambridge University Press. Tinbergen, J. (1939). Statistical testing of business cycles theories. I: A method and its applications to investment activity. II. Business cycles in the United States of America 1919–1932. Geneva: League of Nations. Young, W. (2005). Review of The collected interwar papers and correspondence of Roy Harrod. D. Besomi (Ed.), Journal of the History of Economic Thought, 27(4), 459–462.

APPENDIX. THE USAGE OF THE ELECTRONIC EDITION OF HARROD’S PAPERS AND CORRESPONDENCE The Harrod electronic edition was posted online on 1 September 2003 as part of the Harrod home page at http://economia.unipv.it/harrod. Google picked it up within three weeks, but the site was advertised only on 9 December 2003 by means of a posting on the History of Economics Society mailing list (soon taken up by a posting on the Post-Keynesian mailing list). Having run for almost five years, the logs of the hosting site offer the chance of assessing whether the original aims (as outlined in Section 5) have been achieved. The search engine keeps track of all searches performed, and the cumulative log shows the number of accesses to each page (the site is constructed in such a way that all independent elements of the editorial apparatus – editorial and general introduction, tables of contents, bibliographies, and biographical entries – and each document in the printed

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edition – letters, essays, and press items – are reproduced as separate Web pages). Conjointly, these two logs permit one to evaluate what the readers are looking for in the materials included in this web site. The results are rather surprising and suggestive as to some of the editorial strategies. The log’s statistics have been analyzed at two different times, based on the logs produced on 15 July 2006 and 15 July 2008, when the edition page had been running respectively just over 1,000 and 1,700 days (counting from the time when Google started listing its pages). The results of the first analysis were summarized in a short note published in Storia del Pensiero Economico (Besomi 2006 b).1 Two years later, the conclusions were supported by a larger set of data showing a remarkable consistency – measured in terms of number of visits to each page per day – with the pattern identified in 2006. The results are now updated, re-elaborated and expounded in more detail, and compared with the previous data (which are listed in brackets unless otherwise stated). The Harrod home page, which incorporates the edition web site, accounts for 6.47% of the traffic (in bytes) of the entire domain http://economia. unipv.it. This corresponds to more than 2.8 million requests. The edition web site includes approximately 2,200 pages; on average, each page was thus visited about 1,200 times. Some, of course, were seen much more often. The 15 top scorers have been visited between two and nine times a day on average, the next 75 received between one and two hits daily; the top 800 pages were visited more than three times every four days, while the 1,500th page scored 0.6 visits per day. The main index of the Harrod home page totaled 16,800 hits, corresponding to an average of 9.7 visits per day (down from the 10.8 daily visits in 2006, corresponding to about 10,500 hits), while the welcome page of the electronic edition counted just under 8,000 hits – that is, about nine visits each day.2 This does not mean that as many people visited parts of the site, on the one hand, external search engines and links from other sites permit visitors to enter the Harrod edition from other points. On the other hand, after having accessed the welcome page one can exit it, and indeed only 3,300 visited the next visible page, the ‘‘introduction to the project’’ (where the aim and scope of the electronic version are expounded), to which one can also jump from the main menu. Of the editorial apparatus, the general introduction totaled 4,500 visits (previously 3,150), the editorial introduction was seen by over 2,600 users (1,600), and the foreword (written by Warren Samuels) by 2,200 readers (1,400). The page listing the textual symbols was consulted 3,800 times (3,200), providing a minimum estimate of the number of careful

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examinations of the documents. Also, the 1,600 visitors of the list of documents not found (previously 1,000), the existence of which is known, were surely interested in following the details. The list of personal and routine correspondence was seen almost 5,400 times (4,000 in 2006) – quite naturally, perhaps, because it includes most of the names of Harrod’s correspondents and is therefore quite likely to be frequently picked up by search engines, internal and external to the site. More surprising are the more than 1,700 visits to the first line index (previously 900).3 The list of items that had to be omitted from the electronic reason for copyright reasons was visited more than 1,500 times. The references are divided into two parts, Harrod’s own (to which there is a direct link whenever they are cited) and other references cited frequently.4 The menu link to references, visited 1,750 times (600 more than on the previous count), leads to a simple menu enabling user to access the two subsections. Readers would use this mostly to see the ‘‘other references,’’ which were indeed visited over 1,100 times, while Harrod’s bibliography was consulted 6,300 times (3,900) – probably mainly by way of the direct links provided with every citation of Harrod’s writings in the editorial apparatus. The tables of contents are naturally among the most visited pages: the general table of contents was visited about 3,300 times (2,100), the list of letters by correspondents 6,600 times (4,700), the list of essays almost 2,900 times (up 1,000 in two years), and the list of newspaper articles almost 2,300 times (1,400). Among the year-by-year chronological lists of letters, the most frequently seen was the contents for 1938, almost 2,500 times, closely followed by 1933 – 2,350 times – then 1937, 1935, 1936, and 1934, seen between 2,100 and 1,900 times. Generally speaking, almost all pages of the editorial apparatus have been visited sensibly less frequently between 2006 and 2008 than in the first three years in which the page was running, some of them losing between one and three visitors per day.5 As most other pages have retained a similar visiting frequency, or at any rate their losses have been much more contained, this fact calls for an explanation. One can perhaps conjecture that readers have become better acquainted with the apparatus and need in lesser measure to refer to it, or that as external search engines have incorporated and ranked the textual pages, one is drawn directly to the text one needs and less energy is devoted to exploring the context. The lion’s share in the editorial apparatus is taken by the biographical entries. The index was seen 9,100 times (previously 6,600), more than 40 entries have been seen over 1,500 times – that is, almost daily.6 The most frequently visited one is a notice on Maurice Bowra with almost 5,000 hits

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(up from 2,800, with a slight increase in the daily number of visits), followed by Cyril Connolly with 3,700 visits (Connolly was previously fourth in this ranking), F. A. Lindemann (‘‘The Prof.’’) with 3,300 hits (previously 2,250), Diana Mitford was seen 3,000 times (2,200), Carr-Saunders, Gilbert Murray, Charles Morgan Webb, D. V. Glass, and the first economist (if he was perceived as an economist by visitors) Hubert Henderson with 2,200 hits (1,300). The following economists in the list, interspersed between politicians, literary figures and philosophers, or simply Harrod’s friends, are Colin Clark with 2,100 visits, G. D. A. MacDougall – less than 2,000 hits, down in frequency from the previous count – Keynes (neck to neck with Winston Churchill at over 1,900), Thomas Balogh at 1,700 (now 18th in the overall ranking of biographies, up from the 25th position in 2006), Hawtrey at 1,640 (up some positions), and Joan Robinson (down several positions from the previous count). Beveridge, Phelps Brown, Sraffa (down a few positions), Haberler, Robertson (up several positions), and Taussig follow, the latter at 1,400 hits. This predominance of figures other than economists also appears in the visits to the documents reproduced. First, it must be observed the proportion between correspondence, essays, and articles written for the press in the printed edition (respectively 75%, 17%, and 8%) is almost reversed in the readership of the Web pages. Among the 150 most frequently visited pages, totaling more than 1,600 hits each, there are 14 essays, out of the 22 included in the edition; 24 press items (out of 36); 30 biographical notices; 40 pages relating to editorial matters (tables of contents, introductions, etc.); and only 42 letters. It should be noted that the proportion of essays and print items among the top scoring pages has decreased with respect to 2006, when 28 newspaper articles and 16 essays scored in the top 110 pages. The press items can be divided into three main blocks: 21 concern policy, 5 the anti-appeasement politics of the ‘‘popular fronts’’ in 1938–1939 (Harrod’s main engagement from the end of 1938 to the outbreak of the war), and 10 the population problem (with which Harrod was obsessed).7 Among the five top scorers – both overall and in the last two years, with a readership of 2,000–2,800 and 850–1,300 respectively – there are two pieces on population, two political items, and only one concerning policy; the latter actually went down a position with respect to 2006. All other press items were visited between 1,500 and 1,800 times each (i.e., approximately once a day). As to the essays, most of which deal with economics or policy, among the top scorers we find a broadcast for sixth formers on Karl Marx (second

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among the essays with 2,150 hits), a sketch for a Popular Front manifesto (sixth essay with 1,750 hits; down a position with respect to 2006), and a memorandum drafted for the New Fabian Research Bureau (seventh at 1,700 hits).8 The other essays at the top of the list are ‘‘Notes on Interviews with entrepreneurs,’’ concerning the inquiry on prices by the Oxford Economists’ Research Group in 1937 (2,550 hits), the 1938 draft of the ‘‘Essay in dynamic theory’’ – one of those not visible for copyright reasons – (1,900 attempted visits), and ‘‘The choice of a currency policy’’ of 1936 (just under 1,850 hits). Of the correspondence, some of the usual suspects are indeed very well represented among the most visited documents (letters are often seen in groups, for each one is linked to the others belonging to the same exchange). Several items of the exchange between Harrod and Keynes in summer 1938, with the famous methodological debate on models, are well represented in the top scoring list (up to over 2,400 hits). Also, the 1935 exchange on the draft of the General theory is often visited (up to 1,700 hits). Keynes’s comments on Harrod’s International economics was also often visited (about 1,600 times), including some related correspondence between Keynes and Robertson. Actually, a note by Robertson on the foreign trade multiplier is one of the most read documents, with over 2,150 hits. Keynes’s notes on Harrod’s Trade cycle were visited about 1,500 times. But the top scoring economic correspondence, with several letters having been seen between 1,800 and 2,500 times, is an exchange between Harrod and Kahn in October 1934 concerning a debate Harrod was carrying out with Haberler and Robertson on policy and theoretical issues concerning credit in the columns of The Economist and of Economica.9 The related correspondence between Harrod and Haberler also scored well. Although these exchanges were frequently seen also before 2006, in the past two years, they have decidedly improved their position. Also concerned with policy was a collective letter to President Roosevelt written by Harrod and signed by a group of Oxford economists: the letter itself was accessed more than 2,100 times, some of the related correspondence was visited over 1,500 times. Next in the list comes Harrod’s correspondence with Cannan in December 1933 on currency, banking and credit (almost 1,900 visits), and an exchange with Joan Robinson in March 1933 on imperfect competition scored more or less at the same level. An exchange with Ramsey on the latter’s ‘‘Mathematical Theory of Saving’’ (Ramsey, 1928) was seen over 1,600 times, while a letter from Ramsey where he recanted his rejection of Harrod’s paper on the marginal returns curve received more than 1,400 hits;

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the abstract of a personal letter from Ramsey (not included in the printed edition) was seen almost 1,000 times. The next exchange, in order of importance, took place with Kaldor in 1938 on capital, interest, and wages; it was seen about 1,600 times. Also a letter from Harrod on Kaldor’s ‘‘Equilibrium of the firm’’ in 1933 obtained 1,300 hits. There follows a letter from Hicks on neutrality of technological progress and a letter from Keynes on Pigou (about 1,600 hits each). Pigou’s name, it should be noted, scored quite well, considering that only a handful of documents written by him are represented in Harrod’s correspondence: a note sent to Harrod in 1936 concerning Harrod’s comments on the General theory as well as a letter from Beveridge concerning Harrod’s review of Pigou’s Theory of unemployment were seen about 1,500 times each, while a letter from Pigou dated 8 December 1930 was seen 1,300 times. Besides this economic correspondence, the top list is punctuated with Harrod’s correspondence on different subjects. The top scorer among all documents is by far a letter from the philosopher Alfred Ayer of December 1933, which was seen by almost 8,800 visitors.10 This was the highest scorer also in 2006, and the frequency of visits has remained almost constant (five hits a day). A second letter by Ayer belonging to the same exchange ranks ninth, at over 2,000 visits. The most inexplicably highest ranking letter (second overall, with almost 2,900 hits and approximately the same frequency of visits as in 2006) is an item not included in the printed edition, of which the electronic version only gives a short abstract. It was written by Sadler on 23 March 1931 concerning a dissenting report written by Harrod on the re-organization of the Bodleian Library in Oxford. The page does not seem to have been linked from outside, nor are there cited names or places likely to be frequently referred too in search engines. Different is the case of the seventh scorer of all letters (fourth in 2006), written to Douglas Woodruff on 8 September 1924; only a passage is cited, but what may have attracted the 2,150 visitors is the list of Harrod’s friends, including F.A. Lindemann, Cyril Connolly, Harold Acton, Maurice Bowra, and Bryan Guinness; the biographical notices of all of these also feature among the top scorers, and another letter – written to E. Sackville-West in December 1925, mentioning most of them – was also seen 1,400 times. Some political correspondence, related to Harrod’s activities aimed at favoring an alliance between Conservative dissenters and the opposition in an anti-appeasement front in 1939, was examined by numerous visitors. More than 1,600 hits were totaled by a letter Harrod wrote to a number

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of Conservative MPs, a letter to Archibald Sinclair in October 1938 was seen by 1,800 surfers, and 1,600 saw his correspondence with Churchill. The search engine’s log is not as interesting. The search form was accessed 1,600 times, less than 1,300 searches were actually performed, most of which in multiple sessions with refinements, alternate spelling, or reformulation of the query. Most of the searches concern people, with only a few names being searched several times (multiple searches within the same search session are counted once only). The top search is Keynes (30, of which nine in the past two years). Among economists, he is followed by Beveridge, Meade, Hicks, Abate, Sraffa, and Tinbergen (four); Colin Clark and Lo¨we (three); and Pigou and Kalecki (twice). Among philosophers, Bertrand Russell was searched four times; Isaiah Berlin three times; Ramsey (who is obviously cross-border with economists) five times (three of which in the past two years); and Ayer twice and Whitehead once. Among politicians, Lindsay was searched four times; Lord Mind three; and Runciman, Strabolgi, Churchill, and Lloyd George once. Francis Bourdillon, who organized an inquiry for the General Trade Union Federation in 1925 in which Harrod took part, was the subject of four searches. Among Harrod’s personal friends, Douglas Woodruff, Desmond Parson, and Guy Burgess were searched three times; Warburg, Betjeman, and Cranborne twice; and Acton and Gilbert Murray once. These lists focus on the names corresponding to the files named earlier, but are not exhaustive, for a number of other names were searched once or twice. Among theoretical concepts, the most frequently searched one is the foreign trade multiplier (eight), followed by dynamics (five), growth (five, in different combinations with various adjectives and qualifications), multiplier (four), and liquidity and interest (twice). Most search sessions clearly had a specific theme; besides those linked to the people and concepts named earlier, ‘‘population’’ should be added (six sessions). The picture emerging from the logs is rather instructive. As to the explicit aims of the electronic edition, one must record a success and a failure. The failure lies in the lack of use of the search engine as a complement to the subject index. Indeed, the search engine was used quite rarely, indicating that readers access the Harrod page by other means, either moving through the tables of contents or the internal links, or guided by some external search engine. This is confirmed and strengthened by the data relating to the past two years, showing a marked drop in the usage rate of the search engine (about 270 searches). The most frequently seen pages are indeed fairly high in the Google ranking using the full name as a search term.11

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The success lies in the high number of visits. The document seen less frequently (the abstract, not included in the paper edition, of a 1938 letter from Polka to Harrod) received 824 visits, corresponding to a frequency of 0.47 visits daily. The entire three-volume set has thus been perused online in its entirety, page by page, once every other day since publication. But, of course, ‘‘seeing’’ is not equivalent to ‘‘reading,’’ and even less to ‘‘reading carefully,’’ but the result is nonetheless encouraging. The second aim of publishing online site was that of overcoming the space limitation of the printed edition. This is appreciated by readers. The index of the ‘‘bonus’’ materials not included in the printed edition was accessed by 2,250 users. Practically, all the transcription of the letters by Henry Scott-Stokes to Harrod (not included in the printed edition) have been seen between 900 and 1,000 times, the index of this correspondence was visited more than 1,400 times. The pictures of Harrod have all been seen between 850 and 1,050 times. The image reproductions of the originals of some documents transcribed in the printed edition have been accessed between 950 and 1,300 times, the favorite being Harrod’s 1937 essay on ‘‘Business Experience and Economists’ Assumptions’’ followed by some of Keynes’s annotations in the margin of his copy of Harrod’s The trade cycle (1,250 hits). The main body of Harrod’s professional writings directly concerns economics, a discipline to which he greatly contributed in the first two decades of his academic life. Accordingly, the selection criteria for inclusion in the printed version of the edition overemphasized Harrod’s writings in economics, and the intended audience of the edition of his papers and correspondence was mainly composed by economists. Harrod’s choice, however, was not dictated by enthusiasm but by necessity: his real interests were philosophy and politics, as it emerges especially from the early correspondence and is witnessed by his attempts to steer the course of the political debate and by his philosophical parerZou (as Robertson qualified Harrod’s article on Utilitarianism: letter of 17 May 1936; see Besomi, 2003b, pp. lx–lxi). In contrast to professional economists and historians of thought, who emphasized in their reviews Harrod’s contributions to the economic debate, Internet readers focused instead on the ‘‘other’’ Harrod, thus giving his primary passions more recognition that could emerge from the mere proportion of the number of words devoted in the edition to specific disciplines. On the one hand, this indicates that the editorial decision not to conceal the materials not deemed to be ‘‘of interest’’ (as defined in Section 3) but to list and describe them was not only correct but appreciated by users. On the other hand, it raises a hope. Perhaps, this web site will stimulate scholarly research into Harrod’s multifarious pursuits in the archives where

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Harrod’s papers are preserved, so that this edition may one day be completed with the publication of further documentation and perhaps of a biography giving a more balanced view of Harrod’s commitments. There is already an indication that this may happen: the list of library abbreviations has already been checked 3,800 times so far – more than twice a day, with a slight increase in the frequency of visits in the past two years.

NOTES TO APPENDIX 1. The article is accessible online in the Harrod edition site itself. It has been visited 550 times since posting in May 2007, on average 1.3 times a day – that is, above the average frequency of usage of the web site as a whole. This raises the question of whether some knowledge of the users’ preferences has influenced the choices of those who examined the article; I have, however, no means of assessing this. 2. Other parts of the Harrod home page, not belonging to the Edition subset, have obtained very high scores. The bibliographies of secondary literature (divided into two parts) have been visited more than 6,100 times (almost twice as many as on the previous count), while a chronology of Harrod’s work and career has been examined 3,100 times, that is, 1.3 times per day. (The Harrod home page has been running since May 2001 but is hosted in its present location only since December 2001; the log starts from the end of September 2002. The figures quoted in this note thus refer to a longer time span than the Edition pages). 3. Economists are not accustomed to first-line indexes, and indeed one of the reviewers found it scarcely useful. The purpose of such an index is not to help the reader of the volume where the document is printed but to facilitate the identification of letters included in the collection if compared to other documents found by future researchers. Normally, one compares the document’s date, but some people had the habit of rarely dating their outgoing correspondence – of those included in this collection, cases in point are Joan Robinson, Gottfried Haberler, and A. C. Pigou. 4. One of the reviewers found this a ‘‘rather strange criterion.’’ Its rationale is not to avoid citing ‘‘minor’’ literature. Texts being referred to only occasionally are cited in full in the endnotes, to spare the reader from moving back and forth in the book and in the web site. The writings a reader is likely to meet several times, on the contrary, are only cited in abbreviated form in the notes and in full in the reference list. The names and subject index naturally captures all occurrences. 5. The Edition welcome page, only consisting in the reproduction of the cover of the printed volume and linking to the Introduction to the project, has lost between 2006 and 2008 6.6 of its eight daily visitors. This suggests that the other pages are accessed more and more often by ways other than the main gateway. 6. The index of the biographical entries has suffered a severe loss of readership between 2006 and 2008, as the average daily number of visitors dropped from 6.6 in

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2003–2006 to 3.4 in 2006–2008. Yet, its 2,500 visitors still account for the second highest score in the past two years. 7. Two articles are in common between these two categories, as Harrod argued that rearmament would boost the economy out of the 1937–1938 recession. 8. The relative positions of the other top scoring essays have not changed since 2006. 9. On this exchange, see the end of Section 1; two further branches of this correspondence, not represented here, took place between Haberler and Kahn and Robertson. Kaldor was also involved. 10. The Yahoo and AltaVista search engines have found over 130 external web pages linking to this letter, most of which from pages dedicated to Ayer or, more rarely, to philosophical issues. This seems to be an exception: an analogous search relating to the other top scorers in the correspondence, essays, press items, and biographical entries sections only found two or less external links. This explains the huge gap between the visits to Ayer’s letter and to the remainder of the web site and indicates that most pages are reached through thematic searches by means of external search engines or via internal navigation. 11. The internal search engine captures the text of the documents, which could not be incorporated in the electronic edition for copyright reasons, while the external engines cannot do so. After noting, in 2006, that the search engine was scarcely used, I have stressed this feature in the menu, next to the link to the search engine. This has not prevented the usage rate from dramatically dropping.

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SMITH’S DEVELOPMENT AS DIDACTIC LECTURER: EVIDENCE FROM THE LECTURES ON JURISPRUDENCE Willie Henderson Smith was considered, in his day, to possess great abilities as a public teacher who trusted, according to John Millar, ‘‘almost entirely on extemporary elocution’’ (Stewart, [1793] 1980, p. 275). Millar also notes ‘‘the usefulness and variety of his illustrations’’ as well as Smith’s capacity to expand a topic and ‘‘afterwards’’ trace it ‘‘backwards to that original proposition or general truth from which this beautiful train of speculation had proceeded’’ (Stewart, [1793] 1980, p. 276).1 However, we also know that the young Smith, initially at any rate, lacked the spontaneity of his own teacher Francis Hutcheson (‘‘the never to be forgotten Hutcheson’’) and once having attempted Hutcheson’s lively approach, ‘‘soon relinquished the Attempt and read with propriety, all the rest of his valuable lectures from the Desk’’ (James Wodrow, librarian at the University, quoted in Ross (1995a, p. 126)). These are contradictory reports as are the reports on Smith’s attitude to notetakers. So who is right here, Millar or Wodrow? It is clear from the biographical accounts that Smith’s reputation was based both on the content and on the way in which that content was delivered. When he fastidiously refunded the fees for his class cut short by his decision to travel to France, as tutor to the Duke of Buccleuch, the A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 53–74 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A007

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students supported one of their number who declared that ‘‘the instruction and pleasure he had already received was much more than he either had repaid or ever could compensate’’ (Rae, [1895] 1990, p. 170). Ross shows that James Boswell, another student of Smith’s, found Smith’s approach to one of ‘‘accuracy and elegance of exposition’’ (Ross, 1995a, p. 133), a feature that suggests that Millar’s judgment is only part of the story. ‘‘[A]ccuracy and elegance of exposition,’’ in my experience, are founded upon careful planning and consideration, which may be subsequently enlivened by ‘‘extemporary elocution.’’ Smith, by his own telling, monitored his performance by observing his listeners reactions and changed ‘‘the subject or the style’’ of his lecture according to the perceived reactions (Ross, 1995a, p. 127). His lecturing was effective. This chapter explores, using close analysis, the account of Lectures on jurisprudence (Lectures) given in the record supplied in LJ(A). The analyses are rooted in the text rather than in extra-textual discussion. It also explores the Lectures as transitional from the Ciceronian, and what Brown has identified as the dialogical, rhetorical approach taken in the Theory of moral sentiments (TMS) and the systematic and ‘‘scientific’’ approach taken in the Wealth of nations (WN) which Brown has called ‘‘monological.’’ The distinctions basically draw attention to a shift from a discourse constructed in narrative and interactive terms to one that is more like a unidirectional lecture. Smith’s subject in TMS is drawn out from experience of the passions, from recognizable social contexts and constructed within the possibility of a dialog between personal experience, the experience of others, and the views of an impartial spectator. The Lectures are constructed on the basis of ‘‘system’’ that informs his understanding of what it is to study law. Smith, in writing to Lord Shelburne concerning the education of Mr. Fitzmaurice, stresses the importance of understanding ‘‘Principles,’’ a ‘‘System of law,’’ ‘‘parts,’’ and how such parts ‘‘ought to be arranged’’ (Mossner & Ross, 1977, letter 30). Smith stresses that he who has studied such a system will be able to carry the ‘‘Idea of System’’ to the study of the law of other countries. The lectures are also constructed on the basis of Smith’s understanding of rhetoric, his notion of didactic rhetoric in particular. This chapter proposes to answer a number of questions concerning Smith’s development as a lecturer. How did Smith plan his series as a whole and what are the implications of such planning for the content and structure of individual lectures? How in delivery did he signal his intentions? How far can the formal identification of textual signals help the identification of unmarked lectures in the student record? How did he develop, use, and

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integrate examples for the benefit of his students? What evidence is there that Smith was ‘‘student-aware’’? The concern is not with his wider duties nor with his curriculum innovation – themes covered by Ross in works already cited – but with his performance in lecturing (Ross, 1995b, 750). The analysis will produce a number of outcomes. It will reveal Smith’s skill as a systematic and didactic teacher and add a new and distinctive flavor to existing judgments on the organization of the Lectures. In addition, it will support a reflection on the development of Smith as a university teacher as well as specifying the origins of Smith’s capacity to specify, construct, and manipulate formal economic examples, in the context of his understanding of ‘‘didactic’’ rhetoric, later brought to perfection in WN. The primary source of evidence is the set of notes published in the Lectures under the heading ‘‘Report of 1762–63,’’ known as LJ(A). LJ(A) is held to be closer to Smith’s spoken delivery and hence can be seen as capturing Smith in the act of teaching. These notes, together with those of the ‘‘Report dated 1766,’’ known in short as LJ(B), are generally taken to point to an authentic set of lectures delivered by Smith and to have enough in common to be pointing to a similar set of lectures though delivered at different time periods. It is not directly concerned with questioning the veracity of the reports or with engaging in the minutiae of what is written. As the aim is to explore Smith’s teaching, it will deal only with LJ(A) in detail, on the reasoning given earlier, and will make little reference to LJ(B).2 The justification for concentrating on the notes that make up LJ(A) is that they are closer in format to a set of notes taken down at lecture and are deemed by the editors of the Lectures to have been rewritten as such. Ross concurs with the judgment that LJ(A) is ‘‘the better guide to Smith’s delivery of the lectures’’ (Ross, 1995a, p. 123). The re-writing of LJ(B) is accomplished in a manner that results in a less direct relationship with the lecture as genre.

THE OVERALL STRUCTURE AND ORGANIZATION OF THE LECTURES ON JURISPRUDENCE: LJ(A) This section will explore the macro-organization of the lectures and the way or ways in which Smith actively signals how the lecture series fits together. The starting point is the lecture, and series of lectures, as genre.

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There are two questions that derive from an understanding of genre. The first is ‘‘What is the macro-structure and how does this relate to the particular structure, content and delivery of the series of individual lectures?’’ Answering this question requires an examination of overall themes, articulated (say) in the opening lecture, and found in opening and in closing sections of individual lectures or in some other ways, at this stage yet to be identified, in the text of individual lectures. A second question, the subject mater of the next main sections, is concerned with exploring the structure, content, and signaling of individual lectures.3 What constitutes a lecture can be approached through the notion of genre, a literary category that is shaped by social assumptions and expectations. Today, a lecture or set of lectures is a formal and often unidirectional teaching device that is expected to exhibit coherence of theme or themes, over a time period, and to be framed in such a way as to demonstrate to novices what is involved in achieving a growing understanding of the topic as developed. Conventionally, a lecture is of not more than one hour’s duration (a convention which, according to the editors of the Lectures, was observed in principle in the University of Glasgow and by Smith, at the time Smith lectured; see Smith, 1978, p. 14), adjusted downward in teaching contexts to allow for the movement of students.4 It is difficult to be more precise in terms of the 18th century about the social expectations of a lecture, though formality is to be expected. Gibbon’s Memoirs (1794, vol. 1, p. 36) provide a minimal clue: The hour of the lecture enforces attendance; attention is fixed by the presence and voice of the teacher; the most idle will carry something away, and the more diligent will compare the instructions which they have heard with the volumes which they pursue in their chamber.

In this version, students are expected to attend, to listen passively, and afterward reflect on the subject matter and compare it to that found in recommended texts. No mention is made of evaluation. Smith is reported both as giving permission to take notes and as having disliked ‘‘scribblers’’ (Smith, 1983, p. 3). Reid, Smith’s near contemporary, recommended listening during the lecture and reflecting and writing-up afterward as the best method of enhancing understanding. LJ(A) seems to have been taken down in class, whereas LJ(B) seems to be, like the notes that form the record of Smith’s Lectures on rhetoric and belles letters (hereafter LRBL), a reflective reconstruction. Joseph Priestley’s view that students should offer a critique of the lecture is probably radical if it implies going beyond the comparisons suggested by Gibbon.

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We can take it that given the classical model of exposition, say that of Aristotle, with which 18th century Scottish academics would be familiar, a series of lectures were intended to present a coherent analysis of the subject matter and an accumulative expansion of content. The content and intention of the set of lectures, a subset of Smith’s entire program, is clearly set out in the report LJ(A): ‘‘Jurisprudence is the theory of the rules by which civil governments ought to be directed’’ (i.1). This is taken down as a clear, direct statement.5 The terms ‘‘theory’’ and ‘‘ought’’ reminds us that Smith’s lectures were located within the course in Moral Philosophy. This is supported by the next sentence, recorded as a separate paragraph: ‘‘It attempts to shew [show] the foundation of the different system of government in different countries and to show how far they are founded in reason.’’ This type of precision as an opening move in a discourse is evidenced in each of the first paragraphs of each of the first three chapters in Book one of the WN. It reads like authentic Smith, especially in the way that the ‘‘to show’’ is modified by the hedge ‘‘attempts’’ (Henderson, 2005). These two statements lead into a third: ‘‘We will find that there are four things which will be the design of every government.’’ The record of the four things (listed by a numbering system that is only partially followed) takes up much of the space from here to the end of paragraph nine. These things are justice (or the ‘‘internal peace, or peace within doors’’); ‘‘promoting the opulence of the ‘state’ or ‘police’; the ‘expence’ [‘expense’] of the state, which must be supported; the means of external defense and the ‘‘laws of peace and war.’’ The material up to the end of paragraph nine constitutes an introduction to the course of lectures as a whole and, as will be shown, the textual elements are constructed accordingly. Smith engaged in defining the subject matter, its scope, and its methods. The subject matter is theoretical and systematic; it is concerned with ‘‘ought’’ and it is evaluated by or constructed upon ‘‘reason.’’ Smith is not recorded as saying what he means, explicitly, by reason. It soon becomes obvious that reason is likely to imply the application of the historical and comparative method, that is, stadial theory of social organization and development. Smith’s methodological intention for the development of the work is inherent in the statements made about future exploration of the subsidiary topics. Statements predictive of content contain comparative elements variously composed: ‘‘different countries’’; ‘‘ancient as well as modern times’’; ‘‘different methods . . . in different countries’’; ‘‘various species of armed forces that have been used in antient [ancient] and modern states’’; ‘‘suited to different natures of the governments’’; ‘‘how these regulations vary according[ly] as the independent states are of a republican,

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or monarchical, or aristocraticall [aristocratical] form.’’ Even if he did not make, in fact, a single explicit methodological statement, in the opening section, Smith had clearly signaled the significance of the comparative historical method of analysis. Later, in what is unlikely to be the same lecture – the third according to the editors – the record adds a systematic element that forms a key part of the context of his work: Before we consider exactly this or any of the other methods by which property is acquired it will be proper to observe that the regulations concerning them must vary considerably according to the state or age society is in at that time. There are found distinct states which mankind pass thro: - 1st, the Age of Hunters; 2dly, the Age of Shepherds; 3rdly, the Age of Agriculture; and 4thly, the Age of Commerce. (i.27)

The methodological apparatus for the series as a whole is as a result now in place, both explicitly and implicitly and the recurring elements of the subsequent discussions familiarized. The stadial theory of development, essentially outlined earlier though lacking a link to ‘‘customs and manners,’’ is put to use immediately following its initial statement. Even if it is not used specifically, a methodological implication is that there will be statements made elsewhere that follow an historical sequence. This is an implication of not only the stadial theory but also of Smith’s notion of the didactic method of exposition when dealing with the narration of historical events and circumstances (LRBL). The only missing methodological element is Smith’s concept of human nature. This he treats in its ‘‘normal aspect’’ – normally neither children nor the insane – through examples of located, individual actions, and collective beliefs. The first lecture ‘‘Of Jurisprudence’’ is intended to be predictive of all of what is to come. This is implied by the organization of the opening paragraphs. It is further implied by the way in which Smith engages with the material of his lecture. The first major paragraph divides the subject into two parts (‘‘indoor peace’’ and ‘‘police’’). The second major paragraph makes a lengthy comment on ‘‘police,’’ and Smith signals its special significance to the individuality of his overall theme by providing a historical example of some significance. What is of interest, given the biographical information on Smith, is how quickly the lecture engages with an example that gives an immediacy and practical significance to the subtopic ‘‘police.’’ The textual details illustrate Smith’s dedication to the exploration of the stated content. With respect to ‘‘police,’’ the commitment is explicit: This is the most important branch of police and is what we shall consider when we come to treat of police; and in handling it we shall consider the different regulations that have

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subsisted in different countries and how far they have answered the intentions of the governments that constituted them; and this we shall [?] to ancient as well as modern times. (i.4)

Similar future-oriented statements indicative of what is to come are made with respect to expence [‘‘expense’’]: In treating of that branch of jurisprudence which relates to government, we shall consider the different methods which have been taken to raise the sum necessary for the expense of the state in different countries, and how far they are adapted to do this with the least loss or hindrance to the industry of the people, which ought to be the chief thing in view. For it will also be shewn [shown] that the same summ [sum] may be raised in some ways which would mightily discourage the industry and improvement of the country and in others which would have those bad effect in a much less proportion. (i.6)

The statements for ‘‘protecting the state for foreign injuries’’ and the ‘‘jura belli et pacis’’ are each similarly predictive and are each located with respect to the rest of the discourse in a similar manner. There is no need to reproduce the passages here. Each statement that is predictive of future discussion follows an overview statement of the general issues and is of approximately the same length as the explanatory passages. The overall organization of the set of statements is significant. It can be summarized as following a textual pattern: statement of topic followed by definition of explanation of its significance followed by a commitment to explore a developed notion of the topic at some future time. The consideration of ‘‘police’’ is a modification of this pattern (the explanatory section is recorded as of much longer duration) but the modification is not great. As these passages are pre-organizing a whole series, action verbs are in the future tense. Smith normally follows through on such commitments. Smith also signals the structured nature of the course of study through the system of classification and numbering of topic elements that are such a feature of the first lecture, trace elements of which also appear in the ‘‘Report dated 1766’’ (LJ(B)). The ordering system is first based around ‘‘four things’’ interrupted by a threefold categorization of the element of ‘‘police.’’ A topic and subtopic numbering system is found in the systematic sections of the WN. Lists in that work tend to carry systematic material that is thought to be significant and enduring. Claims within lists are normally made in the present tense to distinguish them from propositions that are historically contingent. There is adequate internal evidence between the two versions of the lectures to assume that an explicit ordering system was used by Smith for the benefit of himself and his students. Ordering and system were implications of Smith’s views of what is required to be judged as being in command of any subject matter as

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recommended for didactic discourse in LRBL. The equivalent over-view lecture in LRBL is not recorded, so no direct comparison can be made. Bryce concludes, of LRBL, that ‘‘readers of the lectures are more likely to complain of being led by the hand than of bafflement’’ and assumes that an ordered and signaled introduction was in fact delivered (Smith, 1983, p. 13). Such leading by the hand is a feature of both established and relatively recent stylistic judgments made on the WN (Henderson, 2005). Smith’s contemporaries noticed the difference in rhetoric between TMS and the WN, holding that the later was not informed by Ciceronian rhetoric (Smith, 1983, p. 11). The testing ground for the development of his didactic writing is to be found in the approach to the development of the Lectures. Smith took his educational craft seriously and on a sustained basis.

SERIES STRUCTURE AND THE RELATIONSHIP WITH THE ‘‘IMPLIED’’ INDIVIDUAL LECTURES The overall pattern just outlined is different from that used by Smith when dealing with topics to be covered within a given lecture or a subset of a lecture. This internal pattern, predictive of the linear organization of a given lecture, is illustrated in the section of the lecture (treated by the editors of the Glasgow edition as a new lecture delivered on Monday 27th December), which develops the topic (from paragraph 10 onward) of the preservation of ‘‘justice’’: ‘‘We shall consider in the first place those rights that belong to a man as a man . . . ’’ This is followed by a new paragraph, ‘‘A man merely as a man may be injured . . . ’’ This pattern is repeated when dealing with ‘‘real rights’’ and the proximity is textually even closer: ‘‘We shall first consider the real rights; they are four of them as they are enumerated in the civil law’’ (i.17). The statements predictive of the elements relevant to the exploration of the topic are found to precede directly the exploration of such elements. Verbs shift from the future to the present or to some form appropriate to the analysis. A numbering system is used to link the development of the topic within the lecture to the overall themes. This is a pattern found elsewhere in the lectures. The Glasgow edition suggests as a result of ‘‘best guesses’’ that the second lecture, that potentially of Monday 27 December 1762, ends at the end of the overview section. The textual evidence is not conclusive. It is clear that this is a natural break in the sense that having supplied an overview a major purpose has been achieved and this would suggest the opportunity for

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closure. However, if the contents are read aloud at a slow pace suitable for comprehension and notetaking, the content of the record takes no more than 10 minutes to read. This could suggest notes derived from a very short lecture. Such an approach, however, is problematic. Assumptions are made about student concentration and capacity to take notes, as well as of Smith’s lecturing pace. If we assume that LJ(A) was produced by a diligent student, then it would not be unreasonable to expect that approximately one hour of lecturing would produce notes that would take around 20–30 minutes to read aloud. On the contrary, the lecture dated ‘‘Monday Febry. 7th 1763,’’ even with a gap in the manuscript, also suggests (other things being equal) a short lecture. Smith may not have used all of the lecturing time available to him each time that he lectured. The first lecture may have been short as most of the work to be done is in the future. In contrast to the time it takes to read the proposed ending of the opening lecture, the content of the lecture dated Thursday, 6 January 1763, takes, at the same pace, 40 minutes, though if the editors of the Glasgow edition are correct, this latter ought to be considered as ending at i.103. Textually, this would make i.104 a break with the first paragraph making a backward link to the previous lecture and the second predicting the new content for a new lecture. The notion that the ‘‘natural break’’ is also the actual break may be reinforced by the opening sentence in section 10: ‘‘the first and chief design of all civill [civil] governments, is, as I observed, to preserve justice amongst the members of the state . . . ’’ (i.10). The phrase, ‘‘as I observed,’’ could be a reference to a previous lecture but it could equally be a reference to an earlier part of an existing lecture (as in ‘‘as I observed, just now’’). The patterning is similar in construct to that found for dated lectures, in as much as a simple statement makes a backward link to what has already been delivered. But in dated lectures, such statements are usually followed by an exploration of some further examples to round up the previous discussion, that is, the closure is achieved within the new lecture before moving on to the new topic. In this example, since the topic of ‘‘justice’’ was barely introduced, the expansion is entirely new. It is not that there are no ‘‘natural’’ sections with reasonably clear signals. Rather, there seems to be no clear ways of knowing textually that a ‘‘natural’’ break is also a break between one lecture and another. LRBL seems to exhibit a systematic approach in which a lecture tends to close with a summative statement and open with a statement predictive of what is to follow. It is unfortunate that in the recording of the Lectures, the patterns are not so predictable. Smith in the WN muses on the fact that what is ‘‘natural’’ is, because of intervening

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historical circumstances, not always what is found in the progressive development of human affairs. He would have laughed at our bewilderment. The proposed second lecture in the eyes of the editors goes from one overview statement to an introductory statement that signals a new stage in the discussion of the topic: ‘‘We shall consider in the first place . . . ’’ In addition, the editors set themselves the task of distributing the lectures over an assumed timetable. This makes the problem even more complex as there can never be any certainty that if a lecture was scheduled it was actually delivered. Even although the methodology here is explicit, the division of lectures continues to be ‘‘conjectural’’ as this brief analysis faces the same uncertainties that were faced by the editors (Smith, 1978, p. 19). What is significant is that there is no lack of textual signals and the other investigations here are not hindered by the lack of finality in the proposed lecture breaks.

STRUCTURAL ANALYSIS OF A NUMBER OF DATED LECTURES AND EXAMPLES The analysis focuses mainly on dated lectures identified by the student recorder. What is presented here is composed of two parts. First, there is a general reflection on signals in the text and, second, there is a preliminary analysis of the role of examples. Opening moves for some dated lectures will be examined. If we start with those for which there is a dated lecture as an immediate follow on, some idea of the structure of introductory moves can be gleaned. Take ‘‘Monday Febry. 7th 1763’’ as an example: I proposed in treating of justice to consider the rights of men on which it is founded under three heads: 1st, those which belong to a man as a man; 2d, those which belong to a man as a member of a family; and thirdly, those that belong to a man as a member of a society. I have now said all that I think necessary concerning the first branch of rights, under the 3 different classes of the right one has to his person, to his character, and property, and the injuries which may be done one in each of these respects. I now come to consider the rights that belong to a man and the corresponding injuries that may be done to a man as A Member of a Family (iii.1)

The first paragraph is a powerful signal that a whole sequence of analysis – that of ‘‘a man as a man’’ – has come to an end. The statement is summative and hence integrative. It is backwardly linked and also predictive of new content (see later). The statement reminds the listeners that the

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particular topic was set within a threefold division of subject matter organization as specified as part of the macro-structure of the lectures (i.e., an organizing principle of the development of the topic above the level of the individual lecture). What is also of interest is the fact that it is hard to trace for any given lecture any distinct closing moves. The links between topics go from start of lecture to start of lecture, and any summarization of the lecture takes place, if it is required, before the new topic is introduced. In the case of the lecture dated ‘‘Monday Febry. 7th. 1763,’’ this does not happen. The topic had been explored at length over the span of previous lectures. But it is illustrated in principle by the break that the editors propose between the lecture for Tuesday February 8. 1763 and the lecture for the following Wednesday. At (iii.23): This is the general account of marriage in Rome and the European nations. Divorce amongst all rude nations is considered as in the power of the husband but not of the wife. The Romans afterwards extended this to both parties equally; and lastly the clergy took it away in all cases, unless where the marriage was null from the beginning. I shall now proceed to consider another species of marriage very different in many respects from the former . . .

This suggested break is not without problems though only if we hold to a notion of consistency of delivery in practice. The first paragraph is summative and constructed as a small-scale historical sequence, in line with topic content and over-arching methodological implications. Such summaries are predictive of a new stage in the development of a topic. Normally, Smith links his topic with a verb in the past tense, as in the opening moves of the lecture for ‘‘Tuesday February 8. 1763’’: ‘‘In yesterday’s lecture I gave you some account of the origin of the perpetuity of marriage, and also of the power of divorce which was generally supposed to be possessed by the husband’’ (iii.6). For the proposed break between Tuesday and Wednesday, the initial verb is in the present tense. Such a tense is implied, however, by the fact that this ‘‘general account’’ is still held to be valid. Nonetheless, if there were such a break, and Smith did not give a double lecture, I concur with the judgment of the editors that there is no other break that is as clearly signaled as a possible break than is this one. However (see the opening move for the lecture of ‘‘Wednesday February 16th 1763’’), a backward link is not always recorded. It is useful to illustrate Smith’s way of structuring examples. Examples here, as later in the WN, can be real or imaginary; they can be short or extended; they can be used to extract principles or to illustrate them. There is a sense, throughout Smith’s work, in which an example is always at hand.

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I picture him as an enthusiastic collector and user of examples – a source of the vitality and rhetorical success of the WN. This is, of course, merely to restate Millar’s view on the ‘‘usefulness and variety of his illustrations.’’ His masterful selection, construction, and manipulation of economic examples in the WN must have been based, to some extent at least, on earlier experience as a teacher. We know that the Lectures were a source from with the WN developed. It would seem reasonable to examine the construction and textual role of examples in his lectures to see if Smith’s skills in selection and specification and use of examples developed.6 A perfect, though not unique, example of the formal use of a small-scale example to help the development of students’ understanding of a topic is given at LJ(A) (i.18). Smith introduces a term, defines its meaning, and illustrates the meaning through a simple example within the experience of his students. The textual pattern is that of ‘‘rule-example,’’ commonly found in modern-day economics textbooks where any new terminology is introduced, defined and almost immediately familiarized through a specific example (Henderson & Hewings, 1987): The 2d species of real rights therefore is servitudes. [sentence 1] These are precisely the giving up of some part of the full right of property. [sentence 2] As if a mans farm lies betwixt me and the publick [public] road or any market town, I may by agreement or by law (as we shall hereafterwards observe) obtain a servitude (that is, relaxation of his exclusive right) by which I am allowed to travel on horse or foot or drive carriages thro’’ his farm. [sentence 3] (i.18)

Smith is engaged in setting out a development of the ‘‘real rights’’ (‘‘four of them’’) mentioned earlier in the lecture. His numbered introduction reminds the students as to the location of the subtopic. ‘‘[S]ervitudes’’ are introduced, then simply and directly defined in the second sentence and the definition slightly varied and given in the singular form in context of the example set out in the third. The final sentence demonstrates in a brief, hypothetical but realistic example what the general notion means in a particular context. The ‘‘personalization’’ indicted by the use of the first person singular simplifies the discourse. The story is short and to the point: he uses no adornment, no appeal to the emotions. Legalistic language would be inappropriate at this stage of the students’ development. Notice too that the students are not expected to know the legal process involved in obtaining servitude (‘‘as we shall hereafterward observe’’). In the micro-details of the text, Smith is acknowledging the linearity of topic development. This smallscale textual episode is located in the topic and in time and is focused on the

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task of incrementally increasing student understanding. The example is nonetheless formal. Another example found at the end of a formal passage dealing with ‘‘property acquired by occupation’’ (i.32–i.37) is worth close examination. The passage is carefully signaled, and the analysis opens with a formal statement that is then turned into a question with a specific focus, that of ‘‘a man pulling an apple’’: The first thing to be attended to is how occupation, that is the bare possession of a subject, comes to give an exclusive right to the subject so acquired. [sentence 1] – How is it that a man pulling an apple should be imagined to have a right to that apple and a power of excluding all others from it – and that an injury should be conceived to be done when such a subject is taken [from] the possessor. [sentence 2]

The proposition in sentence one is generic and abstract. It applies to all possible cases of ‘‘occupation.’’ Sentence two concretizes the proposition in the first half of the sentence and extends, in the second half, the implications of ‘‘occupation.’’ The textual pattern is ‘‘general: specific.’’ Surrounding discourse heightens the sense of audience awareness and Smith’s desire to sustain a longer discussion (‘‘we proceed as we proposed’’; ‘‘I have already explain’d, you will remember that I told you that we may conceive an injury . . . ’’). The exposition continues in formal terms, making use of notions of third-party observation (‘‘the spectator’’) and ‘‘sympathy’’ with mention made of the ‘‘apple’’ only once and indirectly as ‘‘fruit.’’ The passage could conclude without any further mention of it. The closing move returns, however, to the example. The language changes, becomes almost colloquial as the point of view shifts from the holder of the ‘‘apple’’ to the one who wishes to take it: You may ask indeed, as this apple is as fit for your use as it is for mine, what title have I to detain it from you. You may go to the forest (says one to me) and pull another. You may go as well as I, replied I. And besides it is more reasonable that you should, as I have gone already and bestowed my time and pains in procuring the fruit. (i. 37)

Smith here not only changes the perspective but also the register. There is a feeling of extemporization or of linguistic displacement that arises from setting the formal analysis aside. This could be an instance of Smith, suddenly aware that his audience was not following the formal exposition, changing his ‘‘style’’ to match the circumstances as experienced by his students (Ross, 1995a, p. 127). The formal analysis, involving the ‘‘spectator,’’ is replaced by dialog (story) informed by everyday language and common sense. The key point is punched home: human effort secured the title to the fruit. Smith uses the ‘‘apple’’ again in a later illustration (i.44)

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as a means of switching from the general and formal to the more realistic everyday setting closer to student lived experience.

STRUCTURAL ANALYSIS OF AN INDIVIDUAL LECTURE AND EXAMPLES: ‘‘TUESDAY. FEBRUARY. 15TH. 1763’’ The opening moves for this lecture refer back to the organizing tripartite division of rights within the family that has shaped the subset going back to the lecture delivered on Monday, 7 February. The new topic is the rights that arise in the context of ‘‘master or servants’’ (iii.87). Smith draws an analogy between the power of the ‘‘father of the family over the other members’’ and that of the power of the father over the servants. This provides a further link with the material that had been delivered earlier in the course of lectures and therefore contributes to the integration of the series whilst also allowing the listeners to rework their existing knowledge. A series of sentences are then devoted to the ways in which the power of the father was encouraged by the weakness of government. However, Smith is quick to point out that social relations beyond the immediate family mitigate the power of the father, for example, the concerns of the wife’s relatives in both the wife’s treatment and the treatment of her children. Smith then points to the lack of similar constraints in the context of weak government on ‘‘masters over their servants’’ (iii.90). Although he does not always use the term ‘‘mitigation,’’ it must have been evident to a reflective listener by this stage in the series that Smith, in line with his notion of development, usually looks for some sort of progressive amelioration of laws and customs. The implication of this lack of mitigation is neatly stated: the servants were no better than slaves and as a result ‘‘Their condition was very grievous in many different ways’’ (iii.90). The next set of statements are ordered under three headings (‘‘arbitrary’’ authority; lack of ‘‘liberty’’; no rights in ‘‘property’’ – ideas that are, listeners later learn, in need of extension) outlining the ways in which the authority was ‘‘unlike’’ that of the ‘‘father over his children.’’ The approach is implicitly one of compare and contrast and the links, or lack of them, with paternal authority and concerns within the lived experience of his students. A telling example of arbitrary power (power based essentially on whim or caprice) is illustrated with respect to the slave of V[edius] Pollio and the consequences of the slave’s fear, demonstrated to the Emperor Augustus, of

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a horrid death (likely punishment for a minor accident) at his master’s command. The Emperor, moved by the slave’s fear, decided to punish Pollio’s excesses by enforcing, by his individual discretion or whim, as it happens, an act of manumission (iii.93). The telling of a human interest story with its own unspoken irony in the hierarchy of arbitrary power heightens and dramatizes the issues in an otherwise workman-like passage. Smith, who also delighted in aspects of Ciceronian rhetoric, no doubt relished the use of ‘‘pathos’’ (the appeal to the emotions in classical rhetoric) as a buttress to his use of ‘‘logos’’ (the use of rational argument). Unlike the familiarization of a definition (illustrated earlier), the example is cumulative and worked on through both reason, tracing out a ‘‘beautiful train of speculation’’ in the manner described by Millar, and emotions. Smith extends the analysis: ‘‘But beside these hardships which are commonly taken notice of by writers, they laboured under severall [several] others which are not so generally attended to’’ (iii.94). Here, we see evidence of Smith extending the chain of reasoning (‘‘commonly taken notice of’’ points to existing knowledge and ‘‘not so generally attended to’’ points to new knowledge). Two others are textually identified, one by ‘‘in the 1st place’’ and the other by ‘‘But.’’ Smith is signaling to his students his own understanding that his analysis is innovative. Slaves were ‘‘reckoned incapable of marriage’’ and as having ‘‘no God.’’ In both of these key senses, though this is not explicitly said in the text, they are outside society and hence they and their issue are not subject to mitigating constraints that could have been otherwise imposed by right of marriage or religious commitments. Interesting examples are supplied to support the systematic theoretical analysis. This analysis – a chain of reasoning founded on economic motives – demonstrates that conjugal associations were not sustainable in the context. The closing stage of the lecture reminds the students of a significant fact. This is not just ancient history, but contemporary reality: ‘‘We are apt to imagine that slavery is entirely abolished at this time, without considering that this is the case in only a small part of Europe . . . ’’ (iii.102). The signaling, structure, and content of this lecture can be used to illustrate a number of general points. Smith’s carefully articulated statements about purposes, topics, and methods recur in various forms through the series, drawing the lecturers together into a unity. Smith signals what he has done and what he will do in ways that help to integrate the delivery by referring backward and forward in clearly articulated ways. His concern is to keep the themes together in the students’ mind. In addition, he organizes the material where he can in terms of subtopics signaled by a

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numbering system, one that is not always strictly adhered to. Inconsistencies may be a consequence of choices made by the notetaker. The contrasts between children and other family members and servants and slaves embody the comparative method, identified earlier as an essential part of his methodology. Even if he does not overtly state the comparisons as such he looks at different societies – here, essentially, Rome and the contemporary world but elsewhere the whole range of ‘‘Ages’’ in human social development – they are fundamental to the structure of his delivery. To order his argument, he also uses a sustainable analogy – a formal argument by comparison of relationships – based on paternal authority and mitigations. He uses reason with an economic base in line with his notions of the significance of economic interest to examine institutional consequences for unprotected slaves. He combines ‘‘reason’’ and telling examples to engage both the mind and the emotions of his audience. Smith sustains his concerns with respect to slavery and returns to the issue in the WN. Even in the reduced form of writing that we have, Smith’s essential humanity and his skill with words still shine through: ‘‘It was therefore very hard that they who stood most in the need of some consolation in this way should be entirely barred from all religious societies’’ (iii.98). This is also the case with the opening line of the lecture for ‘‘Wednesday February 16th 1763’’ (the following day’s lecture) where the record captures Smith at his pithy and analytical best: ‘‘We may observe here that the state of slavery is a much more tolerable one in a [a] poor and barbarous people than in a rich and polished one’’ (iii.105). And again, hear Smith’s ‘‘voice’’ in another balanced sentence in the same lecture: ‘‘the greater (the) freedom of the free, the more intollerable [intolerable] is the slavery of the slaves’’ (iii.111). The recording of these elegant sentences, predictive of similarly constructed and subsequently well-known aphorisms in WN, reinforce the notion, mentioned earlier, that Smith may have talked at dictation speed. The lecture of February 15, and others like it, would pass Boswell’s test of ‘‘accuracy and elegance of exposition’’ (Ross, 1995a, p. 133). The examples quoted are in line with Smith’s view of aptness and style as set out in LRBL.

OUTCOMES This chapter has explored the extent to which the record of Smith’s lectures as provided in LJ(A) helps us evaluate biographical material concerning Smith’s approach to teaching. From the kind of analysis undertaken, it is clear that Smith worked out the overall structure of his course and set out to

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provide a clear sense of purpose and direction to his students. The structure and signaling that takes place in what is deemed to be the first lecture is entirely about scope and familiarization. It is also clear that Smith did not cease to signal new departures or to give formal signals concerning the stage in the argument or exposition that had been reached. At many points in the recorded text, statements are made that help draw the material together. Bryce’s judgment on LRBL was that ‘‘readers’’ could legitimately complain of being ‘‘led by the hand’’ (Smith, 1983). The same judgment could be said to apply to the Lectures though students are likely to have judged this as advantageous. It is a sustained judgment on WN that Smith leads his leaders by the hand. Exercises in rhetoric, applied to the Jurisprudence lectures, come to fruition in the rhetorical strategies of the WN. Summarizations of past content or elaborations upon past content are generally predictive of the likelihood of new content. A ‘‘list’’ method of textual ordering is a recurrent feature of the text as recorded. Lists help sustain the systematic nature of the exposition. Such lists, mainly absent from TMS and LRBL, are essential to the scientific rhetoric of WN. The methodological indications given in the opening lecture concerning ‘‘reason’’ and the comparative method are met with in practice in the individual lectures and expectations created are fulfilled. Micro-aspects of the text reflect macro-aims. The impression is that students were faced with a potentially interesting, varied but nonetheless ordered, and predictable classroom environment. The use of examples, whilst not as neat or as studied as those found in WN, often adds emotional force to the historical reasoning or reasoning from human nature. The formal analysis illustrates that the genre assumptions of what a single lecture is and what a series of lectures is are largely met even in the text as recorded by Smith’s student. The question of the accuracy by which we can demarcate those lectures that have no independent existence in the student’s record remains open. The evidence of textual signaling is sometimes supportive of the editors’ division and sometimes not. What has been achieved reinforces the judgment already made by the editors of the Glasgow edition concerning the conjectural nature of their original ‘‘best guesses.’’ The discussion here has brought to the surface formally some of the issues that they must have dealt with informally and has therefore the advantage of explicitness. Given that in such long stretches of text, familiar signals exist, the fault (if it can be called that notetaking at a lecture serves the specific purposes of the notetaker and normally does not reproduce everything that is potentially available in it) is not necessarily with Smith. His lectures if they

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had no precise closing moves will have had opening moves (other than the mere fact of the changed date) along the lines of those for which the record is extant. It is difficult to reach conclusions concerning Millar’s views on ‘‘extemporary elocution.’’ The textual evidence as recorded suggests a series of lectures that had as their basis a carefully worked out purpose and plan. This does not mean that there was no extemporization: Smith was surely too good a teacher to let an opportunity pass. It does mean that any such extemporization is likely to have been buttressed heavily by careful preparation. Such preparation does not have to be written preparation but could have been based on clear mental exercise and reflection. Extemporization, where notes exist, is usually signaled by a change in position such as moving away from a desk or by a setting aside of lecture notes or by increased eye contact with the audience. None of this is likely to find its way into notetaking, though the LRBL scribes record ‘‘sine Libro’’ for much of lecture 14 (Smith, 1983, p. 142), suggesting, in my reading, that this was not the usual experience. A change of register, such as in the ‘‘apple’’ dialog illustrated earlier, could be a signal of extemporization. It could be that the textual pattern of summarization plus additional elaboration found in some of the lectures is a result of over-extemporization in the preceding lecture. This is simply to be as conjectural as the editors with respect to the division between one lecture and another. Though we can question the precise meaning of and contexts for extemporization, we have to take Millar’s word as a reliable witness (in Hume’s sense) that Smith extemporized. We must imagine that Smith would have learned something from experience, indeed he tells us as much in the WN when he reflects upon topic development and what is to be gained by their repetition. One year’s extemporization could easily become the following year’s set piece. The systematic presentation of the signaled subject matter is likely to have required advance organization and a set of carefully prepared notes. The same sort of reasoning too suggests that Smith’s historical examples must have been studiously gathered together and written up in advance to assist in carefully placing them within each lecture. My judgment, from the textual evidence, is that Smith was not essentially an ‘‘inspirational’’ lecturer who taught mainly by excitability and enthusiasm. The brief textual analyses presented here suggest a measured approach, consistent with his understanding of the intellectual significance of ‘‘system.’’ Nor was he a muddled or ‘‘amorphous’’ lecturer: the evidence of structure is too significant for that to have been the case. Although subject-focused and subject-led, Smith was also student-aware. Once the influence of Hutcheson’s example faded, he

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probably learned to play to his strengths: he was essentially a systematic lecturer who worked to be clear and helpful to his students. Millar’s other judgments are textually supported in that the examples are varied and often of human interest. The notion that Smith traced his speculations ‘‘backwards to that original proposition or general truth’’ is reinforced to some extent at least by the concern to remind students where they had been and how far they had come in the course of the lectures to date. Skill with a chain of reasoning is found in many parts of the lectures but is particularly evident with respect to the denial of marriage to slaves. Smith is not simply reporting on the work of others but extending and developing the subject. This is recognized both at the macro-level of textual organization (the significance of ‘‘police’’) and at the micro-level (‘‘But besides these hardships which are commonly taken notice of by writers . . . ’’). This in itself would have been very attractive to students who had an additional reason to listen and record. Boswell’s judgment of ‘‘accuracy and elegance of composition’’ is one that, despite the deficiencies in the notes, also seems highly appropriate. Given Smith’s writing in the WN, the authentic Smith shines through in the student notes with respect to the carefully constructed examples, the long and complex sentences and the striking highly polished phrases captured in the student record. In particular, the passages on the plight of slaves allowed Smith to balance in his delivery, careful and speculative reasoning with significant emotional impact, a balancing skill that he admired in Rousseau (Force, 2004). Such sentences, exemplified earlier, that have an ‘‘authentic’’ feel, owe their origins not only sustained literary practice but also to being heard. The systematic approach to lecturing pre-figures the systematic approach to the ‘‘teacherly’’ WN (Henderson, 2001). Smith appreciates the need for pre-organizing sections in his lectures to help students into the topic just as in the WN he illustrates overarching themes in advance for the work as a whole and for individual books. He also understands that those new to the subject require a step-by-step approach and examples that make sense to their contexts, experiences, and purposes. His students were young and being young did not share the characteristics of the target readers of TMS. Smith used, to adapt a phrase from Rousseau’s Emile, ‘‘words, more words, still more words,’’ but endeavored, through the careful construction and manipulation of examples to point to ‘‘things, things’’ (Gay, 1987, p. xiv). Examples specify, concretize, and locate. Examples are carefully located and any analogies are usually developed within the general experience of the students. Opportunities for recap and recall and for repositioning the

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student in relation to the developing narrative are provided. The use of planned repetition in the WN (think, for example, of the reuse of the pin factory and then the substitution of ‘‘nails’’ for ‘‘pins’’) is probably more worked than in LJ(A). Smith’s lecture course is implicitly hermeneutically informed in the sense that he goes from the whole to the part and from the part back to the whole. Smith also appreciates the need for variation within a predictable framework and changes the formal relationship with the students through illustrations, formal demonstrations, planned repetitions, and apt examples and varied formal ways of recognizing the student presence. He distinguishes what is established from what is new. By spelling out a chain of reasoning and where appropriate incorporating a story with emotional content (as in his treatment of slavery), he educates, shocks (‘‘We are apt to imagine that slavery is entirely abolished at this time . . . ’’), involves, and entertains his students. We should keep in mind that the student who refused the refund declared that he had had both ‘‘instruction’’ and ‘‘pleasure.’’ In both content and process terms, the development of the Lectures informs the communication strategies that sustain the WN. The textual evidence suggests that Smith, who had experienced both good and bad teaching, understood the conventions of the lecturing genre and the importance of adapting details of the teaching to the experience and interests of his students. The idiosyncrasies of Smith’s temperament not withstanding the textual evidence supplied by LJ(A) suggest that Smith was an exemplary lecturer. Does this mean that Smith had a theory of education? The textual evidence suggests that Smith understood the conventions of the lecturing as well as the needs of his student audience. He must have appreciated his students need to be given at least mentally the opportunity to engage through their experience, hence the aptness of the examples and the variety of methods that he uses within the formal context to engage their minds. By switching from formal analysis to concrete example and story, Smith moves closer to his students. The fact that Smith enjoyed his teaching and wrote on a range of educational issues in WN suggests that he would have reflected upon and learned from his experiences as a lecturer. Whilst his approach stops short of modern psychological insights into teaching and learning in which students coconstruct and explore, elements of his approach, constrained by the formality of the lecture, resonate with aspects of learning theory. The impetus for Smith’s approach to teaching is, however, located in his understanding of the communicative aspects of rhetoric and sustained by knowledge of what is required to legitimately persuade. Organization was, for Smith, a hallmark of understanding, particularly for understanding

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social and historical analyses. The challenge in teaching is to organize in a manner that leads to the development of understanding on the part of others. Smith implicitly understood this and demonstrated it in his lectures. His own knowledge would be demonstrated by his capacity to be systematic. Student knowledge would be evidenced by their capacity to systematize. There is extra-textual evidence of his belief in the educational value of system: ‘‘one who has studied the civil law at least knows what a System of law is, what parts it consists of, and how these ought to be arranged’’ (Mossner & Ross, 1977, p. 30). These transferable skills are essentially systematic and rhetorical. His range of approaches to delivery is influenced by his notion of style, of aptness, and by his self-understanding that what he was developing was new and essentially didactic. The Lectures is also of interest because its content and textual processes are relevant to the development of WN as a didactic and ‘‘teacherly’’ text.

NOTES 1. Smith’s friend, David Hume, talks about his own notion of a ‘‘compleat [complete] chain of reasoning’’ in several places in his Treatise of human nature. 2. Extracts analyzed will not carry with them the detailed restrictions on particular words or symbols as supplied in the Lectures as edited by Meek, Raphael, and Stein. All passages analyzed will be drawn from the text of the Glasgow edition, and the reader who requires full textual detail can find it therein. 3. Structure can be taken to mean the organizing principles that shape the lecture. These could be: compare and contrast; advantage/disadvantage; lists numbered and ranked; or the sequence of a story (ways of presenting material found in Smith’s WN) (Henderson, 2001). Concern with structure will also include, as it does here, the selection, development, and integration of examples. 4. The 19th-century University of Glasgow (located on Gilmour Hill) had a fiveminute bell that tolled after the hour was sounded. When the five-minute bell ceased, no entry was allowed into lecture theatres. 5. As it will be tedious to constantly refer to the record, a convention that will be pursued in this chapter is to refer to Smith rather than to the student record of Smith. 6. The exploration of the construction and use of examples is a topic in itself and the two examples provided here are merely illustrative of the methods Smith uses to put a point across.

ACKNOWLEDGMENTS I am grateful to Roger Backhouse, David Cole, David Gore, Sebastian Mitchell, Linda Thomas, Jack Russell Weinstein, Jan Woods, and Warren Samuels for comments on an earlier draft.

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REFERENCES Force, P. (2004). Self-interest before Adam Smith: A genealogy of economic science. Cambridge: Cambridge University Press. Gay, P. (1987). Introduction. In: D. A. Cress (Ed.), Jean-Jacques Rousseau. The basic political writings (pp. vii–xvii). Indianapolis: Hackett. Henderson, W. (2001). Exemplification strategy in Adam Smith’s wealth of nations. In: M. Hewings (Ed.), Academic writing in context: Implications and applications. Birmingham: University of Birmingham Press. Henderson, W. (2005). A very polite or a very cautious Dr. Smith?: Hedging in the wealth of nations. Adam Smith Review, 1, 60–81. Henderson, W., & Hewings, A. (1987). Economics terminology: The problem of vocabulary. Economics, (Winter). Mossner, E. C., & Ross, I. S. (Eds). (1977). Correspondence of Adam Smith. Oxford: Oxford University Press. Rae, J. (1895[1990]). Life of Adam Smith. London: Thoemmes. Ross, I. S. (1995a). The life of Adam Smith. Oxford: Clarendon Press. Ross, I. S. (1995b). Adam Smith’s ‘‘happiest’’ years as a Glasgow professor. In: A. Hook & R. B. Sher (Eds), The Glasgow enlightenment. East Lothian: Tuckwell Press. Smith, A. (1978). In: R. L. Meek, D. D. Raphael & P. G. Stein (Eds), Lectures on jurisprudence. Oxford: Clarendon Press. Smith, A. (1983). In: J. C. Bryce (Ed.), Lectures on rhetoric and belles letters. Oxford: Clarendon Press. Stewart, D. (1793[1980]). Account of the life and writings of Adam Smith, LL.D. In: W. P. D. Wightman, J. C. Bryce & I. S. Ross (Eds), In A. Smith, Essays on philosophical subjects. Oxford: Clarendon Press.

JACOB VINER’S REMINISCENCES FROM THE NEW DEAL (FEBRUARY 11, 1953)$ Luca Fiorito and Sebastiano Nerozzi INTRODUCTION According to what is reported by the North America Oral History Association, oral history was established in 1948 as a modern technique for historical documentation when Columbia University historian Allan Nevins began recording the memoirs of people who had played a significant role in American public life. While working on a biography of President Grover Cleveland, Nevins found that Cleveland’s associates left few of the kinds of personal records – private correspondences, diaries, and memoirs – that biographers generally rely on for their historical reconstructions. Nevins thus came up then with the idea of filling the gaps in the official records with narratives and anecdotes from living memory. Accordingly, he conducted his first interview in 1948 with New York civic leader George $

Jacob Viner’s reminiscences are published with the permission of Viner’s family and the Columbia University Oral History Research Office. As we learn from the preliminary notice, this interview ‘‘is one of a series in which the subject was unable to edit, or to complete the editing of his work and it had therefore been submitted in this form.’’ To present the material as it is currently available at Columbia, we have decided to reproduce it in its unedited and unabridged version, adding a sic between brackets whenever the sentence appears to be awkward or a word transcribed incorrectly from the tape-recorded interview.

A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 75–136 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A008

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McAneny, and both the Columbia Oral History Research Office – the largest archival collection of oral history interviews in the world – and the contemporary oral history movement were born (Thomson, 1998). Since then, oral history – defined by Ronald J. Grele as ‘‘the interviewing of eye-witness participants in the event of the pasts for the purpose of historical reconstruction’’ (Grele, 1996, p. 63) – has become a precious methodology for twentieth-century historians. Scholars turn to oral history both for snippets of quotable facts and experience and as supplementary narrative providing general background. The use of memoirs as historical evidence makes available opportunities to explore aspects of historical experience that are rarely reported in published records, offering a rich evidence about the subjective or personal meaning of past events. In spite of all this, however, historians of economic thought generally tend to ignore, or at least underutilize, oral history. Among the most notable exceptions, we may mention the interviews with leading American economists of the 1930s and 1940s on the coming of Keynesianism in the United States conducted by David C. Colander and Harry Landreth (1996), Ross Emmett’s Chicago Economics Oral History Project (Emmett, 2007), and interviews conducted with American radical economists (Mata & Lee, 2007).1 But apart from these isolated cases we can affirm that, although oral history sources are consulted regularly by historians of several genres, their use in the history of twentieth-century economics has been quite limited (see Weintraub & Forget, 2007). There are several reasons for this neglect: oral history, we admit, is not an unproblematic source. Some critics, for instance, have pointed out the unreliability of recorded memoirs, arguing – not without a cause – that memory is often distorted by physical ‘‘decline’’ and nostalgia in old age, by the personal bias of both interviewer and interviewee, and by the influence of shared and established narratives of the past. Other critics have affirmed that the highly individual, personal perspective of an interview tend to overstate individual agency (Thomson, 1998). Yet, even if we (at least partially) admit the cogency of these criticisms, it cannot be denied that oral history interviews remain valuable as sources of new knowledge about the past and as new interpretive perspectives on it. They have to be taken cum granu salis. The task of any scholar is to establish a dialogue among the different historiographic sources – including oral history – and set a clear hierarchy among them according to the different historical aspects and perspectives under examination. Clearly, the amount of oral history material available to historians of economics is not vast. The Economists’ Papers Project at Duke University – the

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largest archive for historians of economic thought – lists only few recorded interviews. ‘‘The Arrow papers, for example, contain his 1985 Tanner Lecture and an interview with Arrow by George Feiwel, and the Patinkin papers contain a 1972 interview with Paul Samuelson, all on audiotape’’ (Weintraub, Meardon, Gayer, & Banzhaf, 1998, p. 1499). As far as the United States is concerned, the richest collection of recorded memoirs of economists is to be found at the Oral History Research Office of Columbia University. This is not unexpected, given the pioneering role played by Allan Nevins in starting the oral history movement. What is surprising is the almost absolute neglect of these memoirs by historians of economic thought – even more surprising, we may add, if one thinks that the Columbia archives have been a proficuous source of inspiration for many scholars (for information on economists’ papers in the Columbia archives, see Asso & Fiorito, 2004). The bulk of interviews held at Columbia refer to economists who were particularly active in the United States during the interwar period and the immediate post war years. The people interviewed include, among others Arthur E. Burns, Evelyn M. Burns (three interviews), Mordecai Ezekiel, Alvin H. Hansen, Alvin S. Johnson, Leon H. Keyserling (two interviews), Isador Lubin, Gunnar Myrdal, Henry C. Taylor, Rexford G. Tugwell, Jacob Viner, and Leo Wolman. Each interview differs substantially in length and method of conduct. As far as the content is concerned some of the memoirs primarily deal with the role played by the interviewee in connection to U.S. economic policy; others have a more marked autobiographical tone; whereas others focus on more general aspects of the political, intellectual, and academic environment of the time. The Jacob Viner’s reminiscences – reproduced later in their unabridged version – cover, to a certain degree, all three aspects. In terms of style, this interview represents an exception with respect to the other documents held at Columbia, since it is essentially a long monologue by Viner with no interaction whatsoever with the interviewer. The decision to publish Viner’s memoirs is twofold. First of all, the interview has a specific interest in connection to Viner’s contribution as an economist in public service during the New Deal. From 1933 to 1945 he served at the Treasury and, later, at the State Department until 1952. In those years, Viner was one of the few economists to be almost continuously engaged as adviser to the Federal Government while continuing his academic and research achievements which placed him at the top of the profession in United States at the time. Second, Viner’s memories represent an excellent example of how oral history may be able to expand the information available to the researcher on the history of economic thought. It is our hope,

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therefore, that this publication may serve as a further stimulus for other scholars to work on the several economists’ interviews held at Columbia. The Canadian born Jacob Viner (1892–1970) is certainly one of the outstanding ‘‘American’’ economists in the first half of the twentieth century. His contributions to the discipline cover an impressive range of topics: public finance and welfare economics, international economics and politics, supply side microeconomics and price theory, history of economic thought and methodology. Viner was especially involved in the debate that enlivened international economics in those extraordinary years of economic and theoretic turmoil, which ran from the first war world to the second. His famous defence of a Marshallian type ‘‘real cost’’ approach to the theory of international trade against the ‘‘opportunity cost’’ approach held by Gottfried Haberler, Lionel Robbins, and Frank Knight was coupled with a strenuous effort to maintain the importance of price changes and gold movements in the analysis of the balance of payments adjustment, though conceding relevance, in a world charged by growing trade barriers and exchange controls, to the new income–expenditures approach expounded by Ohlin, Robertson, and Keynes (Viner, 1924a, 1937; Flanders, 1989). From the peaks of ‘‘high theory’’ Viner drew applications and analysis concerning specific issues of international economic policy: he gave important and path-breaking contributions on such topics as tariffs regulation and effects (Viner, 1919, 1921, 1923, 1924b, 1925a, 1925b, 1926b, 1931), dumping (Viner, 1922, 1923, 1926a), international economic institutions (Viner, 1943b, [1944] 1951), trade between free trade and state controlled economies (Viner, 1943a), customs unions (Viner, 1950a), and foreign trade and economic development (Viner, 1952). His contribution to the contemporary debate was solidly grounded on the examination of an astonishing amount of bibliographical sources from the Mercantilist era to his time, by which he was able to sign an enduring landmark in the history of international trade theory (Viner, 1937) together with other important contributions especially to the history of the classical school of political economy (Viner, 1927, 1949, 1960, 1965, 1976, 1978, 1991; see also Boulding, 1979; Winch, 1981, 1983; Groenewegen, 1994); moreover, Viner punctuated his career with important methodological reflection concerning the status and the evolution of economics (Viner, 1917, 1925c, 1950b, 1955; see also Hutchison, 1994; Stein, 1995). This extensive scholarly activity was matched with his teaching at the University of Chicago: from 1920 to 1945 he trained Chicago’s graduate students in the fields of public finance, international economy, and price

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theory. At the same time he served as co-editor of the Journal of Political Economy together with Frank Knight. In 1945, he moved to Princeton where he taught for the rest of his career, and where he received in 1962 the prestigious Frank Walker Medal (more biographical details are provided by Bloomfield (1992); see also the recollections gathered by Robbins (1970), Samuelson (1972), and Machlup (1972)). Even from these sketchy biographical notes we can appreciate that Viner was, first of all, an eminent scholar in the field of economics and history of economic thought: anyway he was all but a pure theoreticians. He regarded himself as an epigone of the Marshallian type of economist and felt compelled to manage and adapt the tools of economic theory to the single economic and social problems of his time. Though he was not a social reformer in the Irving Fisher’s wave, he got deeply involved in the economic policy debate of his time and served as an economic adviser on many occasions, devoting much of his energies to this over long periods of time. Viner’s first experiences in the government date back to World War I when he was still a graduate student at Harvard: it was his Ph.D. tutor Frank Taussig who recruited him into the economic staff of the Tariff Commission, designed to provide a rationale for a relaxation of U.S. tariff regime. Then, in 1918, shortly before the end of the World War I, he was entrusted by the U.S. Shipping Board and served there for a couple of years. Yet it is with the onset of the Great Depression that Viner began a 20 years’ period of service into the government. In 1931–1933, many economists raised their voices against the laissez-faire creed and came to support a bold public intervention to stop the Depression: the Harris Foundation Conference held in Chicago in January 1932 concluded with a famous telegram, signed by 24 economists and addressed to President Herbert Hoover, which recommended a wide set of expansionary measures (Davis, 1971, pp. 107–131). Viner, who played an important role in the organization of the conference and in the writing of the telegram, had been one of the first American economists to advocate fiscal deficits and open market operations to rise prices and production and defeat the Depression (for differing views on Viner’s policy analysis in this period, see Davis (1971, pp. 39–46), Steindl (1995, pp. 41–43, 83–85), and Laidler (1999, pp. 236–239)). In the summer of 1933, Viner was called up for economic counselling by Henry Morgenthau, Jr. who was at the time head of the Farm Credit Administration and one of the closest men to President Franklin D. Roosevelt. In January 1934, Morgenthau became Secretary of the Treasury and invited Viner to join him as his special assistant. During his first tenure at the Treasury in 1934, Viner was deeply involved in most of the wide range

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of activities of that department, which was becoming more and more prominent in the economic policy of the government (Johnson, 1939; Blum, 1959). In the summer, he recruited a group of 15 young scholars, known as the ‘‘Freshmen brain trust’’ and entrusted them to work out an overall analysis of the fiscal, banking, and monetary policies of the administration to make proposals and recommendations for appropriate actions and reforms (Phillips, 1994, p. 559; Meltzer, 2003, pp. 470–473). During the following years, from 1935 to 1945, Viner continued to act as consultant assistant to Morgenthau, while carrying on his teaching and scholarly activity in Chicago: at the request of the secretary he sent his commented and advised on the problems and proposals submitted to him and, from time to time, travelled to Washington to converse with the Treasury staff or examine particularly complex issues falling into his set of competence. Only in September 1939, at the onset of the war, and in January 1942, after the entrance of the United States into the conflict, he was recalled for a three months’ tenure as special assistant to the Secretary of the Treasury. From 1939 on Viner also served as adviser to the State Department. This cooperation, which was mainly concerned with the plans for a new international economic order after the war, began informally: Viner was involved in the War and Peace Study Group Project, set up by the Council on Foreign Relations in close connection with the State Department (Nerozzi, 2009, forthcoming). Within the War and Peace Study Groups Project, Viner was appointed, together with Alvin H. Hansen, as rappourteur of the Economic and Financial Group, formed by economists, bankers, and businessmen. The group was entrusted to analyse the international economic problems related to the war, point out its desirable outcomes and make proposals and recommendations for a durable, pacific, and stabilized economic order after its ending. Despite its private and informal character, the Economic and Financial Group is regarded to have played an important and timely role in supporting the building the foreign policy strategy which led to the AngloAmerican official talks in 1943, the Bretton Woods Conference in 1944, and the Havana conference in 1947 (Shoup, 1975, pp. 11–14; Domhoff, 1990, pp. 118–34; Ikenberry, 1993, p. 165). However, Viner’s cooperation with the Department of State was not limited to the Council on Foreign Relations. From 1943 to 1952, Viner was directly entrusted as consultant expert, with a special concern on commercial policy and trade agreements. During this period, he was called up to give his comments, memoranda, and lectures to the department’s economic staff, headed by his former student Leroy Stinebower.

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As we can see, Viner’s involvement in economic policy was neither superficial nor episodic. As we know from recent studies, economists’ recruitment into government activity became quite common during the New Deal (Bernstein, 2001). Most of them, however, either lost their academic posts and became full time officers or covered only short-term appointments, without assuming any long-term involvement. Viner was probably one of the few economists who was able to couple academic life with almost continuous and occasionally highly visible public service. Unfortunately, Viner’s activity as economic adviser has received only a minor and fragmentary attention by both historians of economic thought and general historians of the Roosevelt and Truman administrations. The absence of an intellectual biography providing an overall picture of his scientific contributions as well as of his teaching and public service is certainly a serious gap in the history of American economics. But Viner cannot be considered a lone wolf in this respect: such eminent economists as Irving Fisher, Frank Taussig, John H. Williams, John R. Commons share his obscure fate. The interview released by Viner for the Columbia Oral History Project gives us a valuable opportunity to throw light on his advisory activity. In the following pages, we refrain from synthesising the content of the interview, which is quite clear and enjoyable without any further support. We try instead to make a critical appraisal of the story Viner tells us and to state the contribution it can provide to our general knowledge of the period and to the profile of the protagonists he talks about. In addition, we also attempt to find out some biographical and interpretative elements useful to understanding Viner’s own vision and his contribution to important economic policy processes, especially during the New Deal. A first perspective from which we can appreciate Viner’s interview is represented by the insights he gave us about the general history of the United States. We can find references to the commercial policy of the United States and especially to the changes that occurred during the 1920s, with the adoption of the Most Favoured Nation Clause in its unconditional form. Most interesting is the story Viner tells about the difficult negotiations between the Chang Kai-Shek government and the US Treasury, which has been essentially confirmed by later reconstructions (Blum, 1965), but that was at the time of the interview almost unknown. The interview is filled with anecdotes and reflections on the main protagonist of his time, that is, President Roosevelt: Viner recalls his first meeting with FDR, his confidences about the administrative disorder he was trying to defeat; the various ‘‘secret’’ meetings held by FDR with his closest

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affiliates and the rivalries between them. Many pages in the interview are devoted to criticism of Roosevelt’s aides for their lack of competence, their arrogance and personal ambitions. Roosevelt himself is portrayed almost as an hostage in the hands of his generals, unable to impress a precise line of economic policy, unwilling to remove the less competent men from their posts, too proud to admit his errors and change his strategy. General historians and biographer perhaps may find some interest in this and the recollection that Viner makes on Roosevelt and his staff. Yet the main focus and interest of Viner’s interview is Viner himself, his experience as economic advisor, his vision of economic policy, the influence he was able to exert on the process of decision making. Viner’s recollections of his work at the Tariff commission and the Shipping Board, to cite just an example, provide us with information and inner insight, which would have been difficult to attain from other sources. Concerning the Tariff Commission, it is of a certain interest his claim to have played an important role in converting the attitude of the commission toward the unconditional Most Favoured Nation Clause, whose adoption was, as we noted, a fundamental turning point in the history of American commercial policy. The bulk of the interview is devoted to the New Deal and the Treasury. Viner speaks at length about his first meetings with Morgenthau and Roosevelt in summer 1933, his ‘‘secret’’ mission in Europe, where he had to report the reaction of the financial and political community to the policy of gold revaluation and managed flotation of the dollar in the currency markets engaged by the administration during the fall of that year. Viner’s recollections in this case are a very important element for assessing his role in this respect, to which only Morgenthau’s biographer makes a short reference (Blum, 1959, p. 120). However, Viner fails to note Morgenthau’s own commitment to the policy of dollar devaluation and, generally speaking, tends to defend his record as Secretary of the Treasury. Viner’s criticisms instead focus on the NRA and other policies undertaken by the administration which, according to him, conflicted with the need to revive business confidence and restart the economy on the safer basis of new investments on the part of the private sector. It is quite surprising how little attention Viner paid to his activity as Morgenthau’s special assistant, from March to December 1934. Little information is provided on what was, as we noted earlier, the most intensive and prolonged period spent by Viner as a public servant. A further important element which seems to emerge from Viner’s interview is related to the general lack of a stable economic staff, not only in the Treasury but also in other departments: economists were often

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consulted, but the development of economic staff was not at the top of the agenda, at least at the beginning of the New Deal. Similarly, we can find some interest in pointing out the difficulties which Viner himself had to face within the Treasury: diffidence within Morgenthau’s staff, lack of coordination, difficulties in formulating and implementing long-term programs in the organization of the Treasury, whose action appeared to be mainly based on a day-by-day agenda. Also relating to the years of service at the Treasury, when Viner used to travel up and down from Washington to Chicago to carry on his strange ‘‘double life,’’ little information is provided by the Canadian-born economist. Nothing is said about another episode pointed out by the literature, that is, the role he played in the preparation of the tripartite agreement between the American, French, and English government, which in September 1936 committed the three countries to stabilize the exchange rates of their currencies (discussed by Blum, 1959, pp. 131, 144–145; Clarke, 1977, pp. 12–14; Meltzer, 2003, pp. 534–536). The interview becomes particularly when the causes and cures of the recession occurred in 1937–1938 are discussed. Viner claims to have played an important ‘‘conservative’’ role in this concern which the literature mentions only superficially (for a short reference, see Stein (1969, p. 102)) and around which Viner provides many details and interesting reflections. The Chicago economist recounts providing Morgenthau with a set of critical arguments against the bold program of public expenditures and deliberate resort to fiscal deficits advanced by the ‘‘spending wing’’ of the administration in April 1938. The problem, according to Viner, was not deficit spending or unbalanced budget (which in fact he advocated since 1931 as a proper cure for the depression); he criticized instead the ill-designed and improvised character of the expenses the administration was engaging in. This sort of deficit spending would have had little, if not a negative, influence on private investments, especially as long as it was not coupled with other measures that are able to foster business confidence and reduce the conflict between business and the government. Yet Viner’s arguments were dismissed by Roosevelt’s staff, and on April 14, 1938 he felt compelled to give his resignation from the Treasury. Other interesting aspects of the interview are related to the period of World War II. First of all, Viner points out, without providing many details, his initial cooperation with the Department of State and its role of liaison between that department and the Treasury. Second, he claims to have played an important role with respect to the negotiations between the Chinese government and the U.S. Treasury concerning a huge request for financial aid, which was finally accorded in February 1942.

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From this brief overview, we can see that no mention is given to aspects which the subsequent literature has given a certain relevance. First of all Viner doesn’t recall the setup, under his own guide, of the so called ‘‘Freshmen brain trust’’ (Rees, 1973; Sandilands, 1990); and nothing is said about the role Viner played in the recruitment in government service of two young scholars who were later to became very powerful into the administration: namely Harry D. White and Lauchlin Currie. Both Currie and White received their Ph.D. training at Harvard under John H. Williams and Frank Taussig, respectively. In 1932–1933, their common commitment to monetary expansion and budget deficits to combat the depression exposed them to severe hostility on the part of the senior faculty which eventually prevented them from gaining tenure at Harvard (Laidler & Sandilands, [2002] 2003). In the summer of 1934, Currie and White were recruited by Jacob Viner in his ‘‘freshmen brain trust’’: Currie, whose monetary and banking studies Viner deeply appreciated, was entrusted to produce two important reports on ‘‘Monetary control in the United States’’ and ‘‘Deposit Insurance’’; whereas White produced a memorandum on the analysis of different exchange rates systems for the United States. As a consequence of their technical expertise, both men were to start rapid careers within the administration. Currie was appointed shortly thereafter by Marriner Eccles as his personal adviser at the Federal Reserve Board, where he designed the 1935 Banking Act and continued to exert a strong influence over credit and monetary management. In 1934, together with Martin Krost, and under Viner’s suggestion, he developed the ‘‘pump-priming deficit series,’’ which estimated the impact of government expenses on the GNP. In 1938, by means of a refined version of these statistical series, he was able to convince many people within the administration and Roosevelt himself of the need to counteract the sharp recession started in 1937 with of a massive increase of public expenditures and investments (Sandilands, 2004, p. 179). Despite their relevant differences of point of view, especially concerning fiscal policy in 1937–1938, Currie and Viner continued a friendly relationship reinforced by their mutual esteem, which is testified by their correspondences and Currie’s own later recollections (Currie, 2004, pp. 201–202). Yet, quite surprisingly, Currie received only one passing reference in Viner’s interview. White’s record with Viner is far less positive. Many pages of the Morgenthau diaries testified how White held Viner in low esteem, especially on political grounds.2 After the conclusion of the ‘‘Fresh men brain trust,’’ White was hired by the Treasury where he played a growing role in international monetary issues. In 1938, he became Director of Monetary

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Research and entered the group of Morgenthau’s closest officials (Rees, 1973, p. 67). In December 1941, few hours after Pearl Harbour, he was appointed assistant secretary and entrusted to develop his ‘‘Suggested Plan for a United States Nations Stabilization Fund and a Bank of Reconstruction of the United and Associated Nations.’’ According to Domhoff (1990, pp. 168–170) Viner participated in the preparation of the plan for the IMF, which Harry D. White was carrying out precisely at that time. Viner was called to the Treasury on January 1, 1942 and remunerated from the ‘‘Exchange Stabilization Fund.’’ A second version of the plan was delivered to Morgenthau in March 1942, shortly after Viner’s departure from Washington.3 Moreover, according to Morgenthau diaries, the Secretary of the Treasury urged Viner’s participation in White’s work: while rejecting Viner’s participation in domestic policy affairs where their contrasts were sharper, White guaranteed Viner’s involvement in any issue of international policy. Thus, it may be quite surprising that in his 1953 interview, Viner denies any involvement in the Bretton Woods Agreements or in their preparation. In addition he says nothing about his above-mentioned intensive work as leader of the Economic and Financial Group set up by the Council on Foreign Relations in connection with the State Department, which exerted some influence in preparing the ground for the Bretton Woods Conference. In the absence of further documentary evidences, we shall trust Viner’s own account as the most correct. Yet, even though he did not take any part in the preparation of White’s plan nor exerted any positive influence on it, Viner was certainly well acquainted with it at a very early stage of its conception and probably mined its insights to write two influential pieces related to the postwar monetary order (Viner, 1942, 1943b). His deep knowledge of Treasury’s plan and objectives, allowed him, in the summer of 1943, to play a role in convincing Keynes to put aside his ‘‘Clearing Union Plan’’ and accept the American one as a more realistic basis for AngloAmerican negotiations (see Nerozzi, 2009). On the possible reasons for Viner’s silence about topics, which are recalled by the literature, we cannot make any clear-cut conclusion. In some case, Viner’s interview may correct overstatements contained in the literature which could have been based on partial or indirect information; in other cases, where the records of the literature or archival documents are more wide and precise, the exclusion, more or less intentional, from Viner’s recollections calls for some tentative reflection. It is noted that many of the ‘‘censored’’ episodes are related to facts and projects where Lauchlin Currie and Harry D. White played an important

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role. Although Currie is never mentioned in the interview, White is cited only when criticized for his selfish and ambitious attitude. The time and context of the interview can provide some element to understand Viner’s attitude: the interview took place in 1953 when McCarthy’s campaign was at its peak. Both Currie and White had been investigated as suspected communist spies and the latter died of a heart attack shortly after the process. The republicans were in the government and the New Deal was accused of favoring a sort of communist conspiracy within the administration. Viner’s silence may thus be regarded as an attempt to disassociate himself from any connection with that discredited environment. At the same time, Viner defended Morgenthau and also Roosevelt from any involvement in the alleged communist conspiracy, and speaks about a different conspiracy, which certainly had involved White, designed to defend the New Deal from its opponents. What emerges from Viner’s interview is the testimony of an economist who, for almost two decades, from the Great Depression to the onset of the Cold War, was deeply involved in the process of economic policy making. Viner’s unrepenting liberalism and his solid belief in the virtues of a wellfunctioning and open market economy did not prevent him from acquiring an acute and disenchanted perception of its serious shortcomings and failures in a world of growing price rigidities, international monetary instability, and social turmoil. Viner’s commitment to devising and supporting effective cures for the economic and social diseases of his time made him a moderate supporter of government intervention designed to provide economic stability and recovery by means of wise fiscal and monetary policies. In fact, his initially positive attitude toward the Roosevelt administration was suddenly reversed by a very critical assessment of the New Deal: as long as increasing government operations and deficit spending were coupled with ill-devised measures of monetary management, restriction of competitive markets, price regulation, and heavy business taxation, any prospect of a strong and self-sustaining recovery would be indefinitely delayed. Yet Viner, not only offered his loyal and valid collaboration to the Treasury and other Federal Agencies, but unreservedly supported some of the measures and processes which were carried on by the administration especially in the field of international economic relations. Viner’s interview is reproduced later as an interesting and relevant document. As long as the New Deal and interwar American economics continue to be researched, Viner’s interview deserves careful consideration, especially by historians of economic thought and policy.

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INTERVIEW WITH DR. JACOB VINER BY MR. WENDELL H. LINK Wednesday, February 11, 1953, at Western Way, Princeton, New Jersey Edited by Luca Fiorito and Sebastiano Nerozzi My first contact with Franklin Roosevelt was in, I believe, February 1933 before Roosevelt took office. I was asked to come down to Washington by an officer of the State Department just to thresh over the policy with respect to advice to the incoming administration. My next contact was in July 1933 when I was on my way from Chicago to New York, motoring, and was about to go to Europe with my family. When I got to New York, I found that Henry Morgenthau, who was then head of the Farm Credit Administration,4 had been trying to reach me. I didn’t know him. I didn’t even know of him. I finally got in contact with him on a Saturday, I believe, and arranged to go up from New York to his home in Dutchess County on Sunday. I didn’t have a clear notion of what this was about. Morgenthau questioned me what I thought about this and what I thought about that. Finally, he said that President Roosevelt wanted to see me, and could I be in Washington Tuesday morning? I said yes. He also asked me if I would be receptive to a post in the government. I said that I wasn’t interested in government work. That wasn’t my line. In any case, I had commitments to spend the year teaching in Switzerland and was about to sail.5 He said, ‘‘Will you come down to Washington anyway?’’ I got to Washington, I think, on Monday night, ready for a Tuesday morning meeting. I was having breakfast at the Cosmos Club when I saw Irving Fisher,6 George Warren7 of Cornell, and I think also James Harvey Rogers8 of Yale – although I’m not sure now that he was there. The other two were there, though. From the conversation I gathered that they also were going to be at this meeting at the Farm Credit Administration. So I dallied and sat around talking to them, thinking that they would know when the time was and we would go together. Suddenly I found, through something one of them said, that they were not going there. I was already late. I still remember that when I got there, I got a thorough scolding for being late for my appointment. When I explained my mistake, Morgenthau said, ‘‘I’ve got nothing to do with Fisher and he has nothing to do with me.’’ I haven’t got a vivid memory of what happened that day, I think it was on a Tuesday, but the exact date can be checked. All day I sat talking with various groups of the staff, in which they were asking me technical questions and I was saying what I thought. Morgenthau also told me that either that

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day or the next – I’ve forgotten which – I had an engagement with President and was to go to the White House for tea. I went to the White House. The President wasn’t there but his daughter received me. I had tea with her, waiting for him. He came late and was very gracious apologetic for being late, but he thought he had an adequate apology. He said he’d had a cabinet meeting. He thought he’d accomplished something important. I said, ‘‘Yes, I know, I’ve seen the afternoon paper.’’ He said, ‘‘Is it already in there? They are quick, aren’t they? What did the headlines say?’’ I said, ‘‘The headlines said, ‘President Appoints Super-Cabinet.’ ’’ He laughed and said, ‘‘I’ll explain to you what it was.’’

When I was assistant secretary of the navy under Wilson, President Wilson could not be interested in administrative questions. Things were going in all directions – departments interfering with each other, duplicating each other, confusing each other. You never could persuade Wilson to give his attention to it, straighten it out and get a clean, efficient administration. When I took office, I made up my mind that that was not going to happen in my administration. ‘‘But the other night I wasn’t sleeping very well, and so I thought I would just take a bird’s eye view of my administration. I realized at once that exactly the same thing was happening to me that had happened to Wilson. I decided I had to find a cure. I think I’ve found it.’’ That’s the anecdote of the story. For background, I believe that the supercabinet was the appointment of Frank Walker,9 who later on was made Postmaster general, who was to be in-between the President and the departments, and sort of co-ordinate them. That was the first of about five or six different attempts of the same sort, probably none of which did any good, but that’s for a public administration expert who studies the regime to say. He never got confusion out of his administration. It may also be that the confusion is inevitable, that the scale of the American government now is so great that you can’t get order. Each remedy creates its new problems and new confusions. In any case, what ought to go into the record is his feeling about it and his reference to his own experience under Wilson. That’s something that probably nobody else has picked up. Another time I had a contact with him, was when I was called, as a member of a joint group of State Department and Treasury, to go to the White House and present a problem to him, for which we hadn’t been able to agree on a solution. I can’t remember now what the problem was. I know

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that we had a sort of little document and weren’t happy about it. It was on some international issue. We presented it to him and he listened to us, saying, ‘‘Why don’t you put it this way?’’ That just solved the problem. We were all agreed that it was just right. He had hit it and we had failed. In either 1937 or 1938 he started to have a series of weekly evening meetings in the White House. It was quiet then. He wouldn’t be interfered with by the ordinary run of business. Moreover, the reporters didn’t watch the White House in the evening, because they did not know that he ever met with anybody in the evening. So the press would not know who was there. The group was his group, was selected by him. As far as I can recall, Morgenthau was in it, Ickes,10 Harry Hopkins,11 Joseph Kennedy,12 later ambassador to England – I don’t remember what his position in the government was then – and Jesse Jones,13 I think. That was the group. Morgenthau apparently asked whether he could bring me along and the President said yes. For a while I was there – I believe at about four of them. Then the President said he didn’t want me there anymore. There was an air of mutual confidence and privacy about this and I have a suspicion that he wasn’t too happy about my being there. I wasn’t an intimate of his. Probably it was spoiling the atmosphere a little, although if he had had any notions that these other men all mutually trusted each other and were cooperative, then he had gross illusions. They were watching each other like hawks, disliked each other, and were unscrupulous, I believe, in dealing with each other. He was a most gracious host. We had drinks. He served them and mixed them, and did it very graciously. The atmosphere was very nice, but the whole group were [sic] either silent or yessing him. In all those four meetings not once did I think that I heard a useful suggestion being made to him by the group. He was doing the initiating and the thinking. They were saying, ‘‘That’s fine. That’s splendid,’’ and so on. I was somewhat overawed, as I always was in his presence. Moreover, I knew that I was there sort of by sufferance, didn’t belong, and wasn’t here on their status. I don’t believe that in the four meetings I said more than four or five sentences. Two of the sentences perhaps are interesting. In one instance, he tried out on the group an idea he had of renewing his warfare against business, prodding business. They all agreed that what he is suggesting was clever, would be effective politically, and so on. I spoke up and said that I didn’t think that was exactly what the country needed, that while he felt things were quiet, it still was true that there had been no reconciliation between the New Deal and business. Business still was

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suspicious and hostile. There still were anywhere from six to nine million unemployed after three or four years of the New Deal. He had failed to produce real recovery. I said that my own guess as an economist was that the major reason was that businessmen just were living in an atmosphere of lack of long-run confidence, and therefore were not investing and were not optimistic. Therefore, what he was thinking of doing was a mistake. He said, ‘‘Viner, you don’t understand my problem. If I’m going to succeed and if my administration is going to succeed, I have to maintain a strong hold on my public. In order to maintain a firm hold on public I have to do something startling every once in a while. I mustn’t let them ever take me for granted.’’ The other case in which I spoke out was this. As many people know, he didn’t always follow his departmental lines of organization. If something was bothering him, he was likely to pick up the phone and phone some old Groton friend, or some acquaintance, and ask them for advice. Very often he’d go off on a tangent, follow the advice, without considering the department, and then get into trouble with the department. Very often he would have to retreat and be apologetic. At one of these evening meetings he read a long letter. I still remember it. It was on folio paper in two sheets, at least, which were typewritten. It was a long letter from Russell C. Leffingwell,14 the New York banker. I think, on the whole, as I recall it, it was a very good letter and was on the lines of what I had said at the previous meeting about the fact that full recovery would not come until peace was made between business and New Deal. Most of it was soberly written, courteously written, and not provocative. But there was one unfortunate sentence in this letter in which he personally blamed Roosevelt for the state of nerves, and so on. The President read the whole letter in a monotone. He made it sound flat. He certainly wasn’t reading it to win approval for it, but when he came to that sentence, he put venom into his voice and malice into it, and made sound it pretty bad. As I recall it, it was a pretty bad sentence, although not necessarily untrue. When he came to the end of the letter, he turned to the group and said, ‘‘What can you do with people like that?’’ Nobody said a word. I couldn’t keep silent. I said, ‘‘But Mr. President, except for that one sentence, I believe that’s a very helpful, very wise, very fair letter. I think you ought to give that letter very careful consideration.’’ What he then said to me, or what I replied, I don’t know, but my vague recollection is that Morgenthau received instructions not to bring me along after that second time that I spoke up.

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These evening sessions usually lasted, by the way, from about eight to ten. We sat in his study in the executive part, as I recall it, not in the White House proper. I’m not so sure, though. I think we came in through that underground way from the Treasury, rather than from Pennsylvania Avenue. The sessions lasted 2 h or so. They were leisurely. There was no rush, no agenda. Coming back to my first meeting with him in 1933, as I recall it, he didn’t ask me questions, but said, ‘‘What would you like to talk to me about?’’ I talked to him about the NRA.15 That was the one thing I talked to him about that I can still recall. NRA was still a project and he still was supposed to be threshing whether to adopt it or not. I spoke very strongly against it, both on the grounds of economics and on the grounds that it was not in the American pattern, that it would work badly and that he would regret it. He listened very politely. I got the impression that I was possibly even impressing him with my views. He said he had not made up his mind and that he didn’t know what the outcome would be of his thinking about the matter. He asked me if I would be willing to accept a post in the administration. I said no and I told him about the year in Europe. He said Morgenthau had told him about that and he was sorry, but he said, ‘‘I’ve a mission for you. Something I want you to do for me in Europe. I want you to send me a weekly letter, telling me what my administration looks like looked at from Europe. I want your view and also your view of what Europe sees it like.’’ He told me to send it directly to him and to keep it confident. About two days later we sailed for Europe – this was in July 1933. The ship newspaper, while we were crossing, announced the NRA. I was mad as hell. I didn’t do anything at all about this mission I’d accepted, which I must say, for selfish reasons, I wasn’t enthusiastic about. I wasn’t so happy about the responsibility of writing a letter each week, keeping tab without the facilitation and conveniences. I had no confidential private secretary. As a matter of fact, the only letter I wrote, I wrote it by hand because I was afraid of leakage. I just didn’t write at all. My wife kept on saying, ‘‘You can’t do that. The President of the United States has asked you to write and you’ve undertaken to write. You at least have to tell him why you’re not writing.’’ Finally, just before we were to leave England to go to the continent, though I would have been happier not writing, I sat down and wrote a long letter by hand. As far as I can recall, I didn’t even make a copy of it. I told him I hadn’t written because I didn’t like what was going on.

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I complained about two things. One was the NRA that I complained about. I said, ‘‘You’ll rue the day you ever got involved in it. You may think that it’s working well and that these parades, and so on, are good, but they look too much like a cheap imitation of what the Nazis can do better.’’ It was a very sharp, long letter. I never heard a word about it from anybody, except later on I think it was Morgenthau who told me that the President had received it. There was no other word. During the early period, the administration was going in every possible way. Nobody, as far as I know, had yet gathered it together. However, if you see the statements of some people like Rexford Tugwell,16 Adolph Berle,17 or Henry Wallace,18 you see that they were deliberately freeing themselves from all anchors, from all stereotypes, and they said so – including democracy, freedom of enterprise and everything else. They were just going to look at the problem and work out solutions fresh. That’s a very dangerous position. It disregards history. It disregards basic non-emergency values, and so on. They acted like firemen at a big fire, and definitely got their minds set that way. The NRA was one of the aspects of that. They hadn’t thought it through in its implications. It did turn out to be dangerous in some ways, except it became a sick cat. The resistance of the American individual and the chiseler [sic] helped to break it down. I still think I was absolutely right, and, of course, it did turn out to be a net loss to the New Deal. There was no profit to it. They had to abandon it. It was at the end of August or the beginning of September that I wrote to the President this letter. Then we went over to Geneva where I was going to teach. I heard nothing. I got a request from the State Department to act as deputy for James Harvey Rogers, who was the American representative at the economic committee of the League of Nations,19 to present certain views of Cordell Hull’s.20 There had been a World Economic Conference at London,21 which the President had blown up. If I remember rightly, I mentioned that in my letter as another serious mistake on his part, in his way of handling it, and so on. The conference practically collapsed and one of the few things that lived was a resolution of the conference that the economic committee of the League of Nations should execute certain resolutions with respect to raw materials, including silver particularly and copper. So silver survived. Silver survived because it was a pit [sic] interest of Key Pittman’s,22 who was a leader in the Democratic party and had some powerful hold on the President. He got what he wanted. I didn’t believe in the silver and I didn’t believe in the proposal for an international cartel on copper.

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I went to this meeting in Geneva. The economic committee was hostile to this, largely on free trade grounds, anti-cartel grounds. It was a little funny that Hull’s should have been pressing them in that direction and they should have been resisting him on the other direction. Although I participated in other matters in which I could follow my free trade prejudices freely, without feeling that I was going to counter to American policy, on these matters I made it perfectly clear that I was acting under instructions and that my views were not involved. There were two economists, at least, there in the committee who knew me by reputation, if not otherwise. They prodded me, trying to get me to admit that I didn’t believe in what I was propounding. I said, ‘‘I am a deputy here and I have been asked to submit certain views to you. That’s all I am willing to do at an official meeting on this topic. If you want to stay over afterwards, I’ll give you a lecture on my personal views on these matters.’’ I reported back on the copper, as I recall, particularly. The present wheat agreement (1953), which was developed after a lot of delay, stemmed from these meetings. I believe nothing came of the copper, however. About two months later, in November of 1933, I believe, we were at a dinner party in Geneva at which there were some distinguished Swiss, a Belgian who had been in the government in Belgium and a diplomatic officer, and a former important official in the French Foreign Office. It was a mixed group of that sort. While we were sitting at the table, the butler came in and said in French that, ‘‘Washington wishes to speak to Professor Viner.’’ This was a trans-Atlantic phone call. 1933 was early for transAtlantic phone calls. I’m not sure it wasn’t the first one that had reached Geneva. Everybody there was excited. The phone was in the hall and when I went out there, some of the group followed me. It was Morgenthau talking. He said that this was very secret. I tried to tell him that circumstances in which I was in were not such that I could talk freely if it was very secret. He told me he wanted me to go to Paris and to London to get information on certain things and to report to him with utmost secrecy. I was to report from embassies, to report from London preferably and to report in a secret code, because he didn’t trust the open phone. He thought that the French and the English would be listening in. He also said, ‘‘I suppose you know the news?’’ The news was, apparently, that in that morning’s New York Times it had been announced that he had been made acting secretary of the Treasury, because William Woodin was sick.23 He assumed I knew. I didn’t have any idea. It hadn’t reached Geneva. I didn’t get any afternoon papers in Geneva and in Geneva that wasn’t as big news as it was in New York or Washington. He did tell me that.

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He also assumed that I would know just what he had in mind. He spoke very cryptically to me. What was going on at that time was that they were manipulating the dollar. They were playing with the rubber dollar. As best I could judge, what he wanted me to do was to go to London and Paris, to use my own contacts, not going with official credentials of any sort, to talk to people, and find out what they thought about what was going on in the United States. He wanted me to go at once – even that night. I said, ‘‘That’s impossible. The best I can do is to go tomorrow night.’’ The next morning I went down to the American Consulate in Geneva. We weren’t recognizing the League of Nations.24 I went to the consulate, told them the story and said, ‘‘I’m not clear at all as to what my instructions are. I want to phone to Morgenthau to have them repeated.’’ They said, ’All right, but you’ll have to put down the money. Until we’re sure that we’ll be reimbursed we can’t let you use the phone.’’ The cost was about 75 dollars. I said, ‘‘That’s all right. I’ll take the risk and will back on the bill if the State Department, or Treasury doesn’t meet it.’’ I got through to him on the phone. He didn’t tell me much more. He said, ‘‘I’m afraid of being overheard. You’ll just have to use your own judgment as to just what it is I want you to do.’’ He didn’t tell me much more. I went to Paris and saw a few key people – bankers, a big official at the Banque de France – using my contacts. I saw a State Department officer, H. Merle Cochran,25 who’s now (1953) American Minister to Indonesia. He had been reporting to the Treasury. I found him very well-informed and very wise but, nevertheless, in my two days in Paris, I picked up a lot of material that he hadn’t known about such as [sic] views, and so on. I then went to London and there also saw people in various places, including banks, using my own contacts. There I did get in touch with embassy and I sent over a cable. I was worried about cable charges, and that, in terms in which they were operating, was foolish. I clipped it and shortened it. Really, given the expense of my travel, it was all ridiculous. The pattern was repeated two or three times that autumn. I would get these sudden calls. Then I’d have to go to Paris and London, making these reports. I never got any response as to whether they were interesting or not, or whether they were of any use. I did it without enthusiasm. Travel was difficult. The French railway system was not very good. Once I had to go to London on the 23rd or 22nd of December, stay there a little while and try to get back for Christmas. The trains were jammed. The cross-channel ships were jammed. There was a sleet storm and fog. The whole railway system of

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southeastern England and northern France net on the rocks. There was a terrible accident – one of the worst railway accidents in history. About 125 were killed on a train. All trains were out of schedule. I worked my way back and got back to Geneva at noon, instead of the evening before, which was pretty good in terms of what things were like. As I say, for me it was no fun. I didn’t know really what it was all about, or whether these cables of mine were of any use. In one cable I said, ‘‘Everybody here says they can’t make me head or tail out of what you’re doing over there. If it interests you, neither can I.’’ That was the last time I heard from them. When Morgenthau had been made Secretary of the Treasury instead of acting secretary, probably in January 1934,26 he phoned me again. He wanted me to come over to the Treasury as his adviser. I said I couldn’t say yes at once. I was tied there. I couldn’t leave them in the lurch, unless I could find a substitute. I wanted to know more about it. I said, ‘‘I even, unfortunately, have to be a little interested in finances, because I live on my salary.’’ We negotiated. I find a substitute – an English economist – and made my peace with the institute, although they weren’t happy about my leaving and thought I was making a mistake. I went to Washington, leaving my family on Geneva for the rest of the year. We had an apartment. The children were going to school and I saw no point in bringing them to Washington. I agreed to come for six months – that was for the spring and the summer. Then I planned to go back to Chicago for a quarter, or three months, and then to come back for another quarter. Later on, Morgenthau persuaded me to stay for nine months, or until the end of the year, and then released me from my promise to come back for a quarter. That’s all I agreed to. I didn’t agreed to come as anything like a continuing adviser. When I got to Washington, I resisted all the attempts to build me into staff with administrative responsibilities. All I was, or wanted to be, was an adviser on call. If they wanted to consul me on anything, all right, but I didn’t want any other duties. I operated that way, except that Morgenthau and Herman Oliphant,27 who was general counsel, forced me really into organizing two study groups that summer on problems of the Treasury. When I came to the Treasury in March 1934, there was a little research and statistics staff there. John Kieley,28 regarded himself as economic advisor to the previous secretary of the Treasury under Hoover.29 He had carried over, but Morgenthau didn’t trust him and didn’t like him. He never saw him and there was no contact between them. He made no contact with

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me when I came. I never went there and he never came to me, except when I had been there about two weeks, he said he wanted to know where he stood and where I stood. He wanted me to know that he regarded himself as the economic advisor to the Secretary of the Treasury. He wanted to know where I belonged and make it clear that he would not accept any orders from me. I said, ‘‘All right.’’ I told him the circumstances under which I came. I wasn’t looking for a career. It wasn’t up to me. I said, ‘‘I may ask you to do things for me. If you don’t want to do it, just say no. I will not attempt to give you any orders. You can go on as you please and I’ll act as I please.’’ There was no contact really between me and his office, nor between the secretary and his office. That little group was in isolation. The only thing that I know that they did was to forecast the revenues, the tax yield. It was, of course, a thoroughly unsatisfactory state of affairs. I think there were then 56,000 employees in the Treasury and he and Miss Burr,30 who later on went to the Federal Reserve, were the only economists in the whole staff of the Treasury. I had no staff and refused a staff. I borrowed one young man, a former student of mine, from the State Department when the silver issue came up and I needed help on working to advise the secretary on it. I borrowed him sort of by force from the State Department. They were reluctant to yield him. They needed him and they went to Hull. Hull raised a stink about it and made Morgenthau give him back. It was just a borrowing arrangement, anyway. I was very reluctant to hire people, because I didn’t intend to stay any longer than I wanted to and I didn’t want to build up into it. I also didn’t want anybody of the staff there to feel that they had to maneuver me in terms of their own careers in any way. I wanted them to realize that I was sort of extraneous, with no ambition inside the Treasury, and just there temporary so that they could deal with me without feeling that they had anything at stake. Moreover, I didn’t regard myself as an administrator, and moreover, I thought it was foolish for me, as I didn’t intend to stay, to start anything. So I was very careful to avoid that building up of staff. One of the things that they talked to me about was staffing, however, so that the Treasury would have an adequate economic staff. I made out a plan for them which they rejected.31 I made out a plan for a tax research group and another plan for a monitoring debt policy group. No, Morgenthau, wanted one man to be his economic adviser and the head of his staff after I left, and that man to have these as subdivisions. He had the man in mind, which I didn’t know. The man was George Haas,32 who had been his economic adviser over at Farm Credit.

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After that my connections with the treasury were intermittent. Every once in a while he’d ask me to come, and I’d come for a quarter. I think that’s the longest I was at the Treasury continuously after 1934, but I kept on coming when asked and pressed. I’d come for summers, and I’d come occasionally for another quarter. I could leave Chicago, because they were on the quarter system. I was in on a variety of things. In fact, most of the things that the Treasury had to deal with during that period, I participated in as a member of a group, as an adviser. At times Morgenthau sort of forgot I was there and wasn’t using me heavily. At other times he used me very heavily. On silver, which came up I believe in 1934 during my first stay, I was definitely hostile to the silver purchase proposal.33 Morgenthau was hostile to it on my advice, but Morgenthau was pressed into just going along. He went along at first not even graciously, then later graciously enough, but saying all along that he didn’t believe in it, but it was the will of Congress and it became the will of the President. There Oliphant was a silver crank himself, and intriguing. He had direct access to Senators and possibly to the White House. He was really circumventing Morgenthau somewhat. So there was support from the Treasury for the Silver Purchase Act, but never from Morgenthau himself. I was known to be an opponent. When the bill was finally presented by Pittman, I believe in his first paragraph he gave thanks to Morgenthau for his cooperation, and said the thanks was owing even more to Morgenthau because it was notorious that his economic staff were hostile and advising strongly against it. The only economic staff was me. There was nobody else there. That’s a valuable part of my record, because knowing that I was the economic adviser to the Treasury, and knowing that this became an administration measure, people wanted to know what I had to do with this foolish measure, which turned out to be fatal. I think that’s the explanation of what happened to China. One of the arguments against the bill was that it was unfair to China, that China had never been on anything except a metallic currency basis and that she would be squeezed if she stayed on metal and have a deflation. The government was too weak to stand that. If they went on paper, they wouldn’t be able to manage it. It would lead to inflation and corruption. Standards of integrity and honesty were not high enough there for a paper currency to operate respectably. It all turned out to be true. The corruption of the government came largely from the collapse of their traditional, historical currency system. There was easy money in all directions. There was disorganization, economically and otherwise. It was easy to steal and the stealing became quite general. Moreover, the inflation

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squeezed certain elements of the population, which were sober, decent, and useful, and made them critical of the existing government, so that the Communists were working not against the peasant class, but with the business class. It created frictions and tensions there. It created contempt for the government, because there was notorious dishonesty. So, in that sense, the Silver Purchase Act was an important factor. Moreover, I know that at that time the Chinese experts in the State Department were forecasting that China couldn’t take that. In other words, they kept on agreeing with me that the Chinese could not handle a paper currency and that it would create all sorts of disaster. I felt, at times, that they were somewhat hysterical, but now I see that they were even more right than I was. They knew China and I didn’t. I was just using my general knowledge as an economist not any special knowledge of Chinese social life, culture and so on. The fairly light34 recession of 1937 or 1938 has never been written up as to what the issues were within the government, or what took place. I was somewhat central in it, so I think my story might go in the record. It was more subtle and more complicated than the outside public knew, and even more so than my insiders knew. Morgenthau had turned quite conservative on the fiscal, monetary side. It’s quite possible that that was largely a response to my influence. I was concerned constantly with the failure of the New Deal to bring about what I regarded as genuine recovery. I was concerned all along with the fact that the New Deal was using more machinery, and even more money, than any American had ever used, even in proportion to the size of the economy, and yet was the biggest failure in American history in bringing about restoration from a depression. Unemployment was lasting as it had never lasted before in American history. The historians still don’t go that straight. There were eight million unemployed in 1940. It took the rearmament to clear up that situation. Even when we entered the war, there were at least six or seven million unemployed, which was major. So in that sense the New Deal was a tremendous failure, or something had happened in history. I was constantly concerned with that. My constant effort was to try to keep Morgenthau, the Treasury, and indirectly the President, from claiming that the New Deal was a success and boasting about what they had done. Of course, I couldn’t do that. The President was never able to admit a failure. For instance, and I don’t know if anyone has written up the story of NRA, he kept on refusing to admit that NRA was a failure. When everybody was agreed that it was a sick cat, he still struggled to find a rehabilitation of his own record on it. His way of doing it was to appoint different men, one after

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the other, to first try and salvage it, and to investigate its record, so that there would be, as he said, a sober, thorough and objective appraisal before it was condemned outright. He tried to get Robert Hutchins35 to rescue it. Hutchins came to consult me about advice. He was then beginning to have some trouble at Chicago and would have been glad for an escape, if a proper opening were made for him. He was offered the headship of the NRA to succeed Hugh Johnson36 and was to decide whether to continue it in a reformed way, or to close it up. He came to me for advice. I was then on the staff of the Treasury. I advised him strongly not to take it, except on his own terms. I advised him in detail to make conditions. I didn’t tell him not to accept. I said, ‘‘Maybe it’s your duty to accept.’’ I told him it would probably be a dirty job. I said, ‘‘My guess will be that your advice will be to end it. But even if you continue it, it must be reformed. You have to iron out the question of your authority.’’ There was an NRA board and I insisted that he insist [sic] not only on the powers that general Johnson had had on the board, but on more. So he would be practically the board. One of the men on the board was Donald Richberg.37 Richberg would have been made, on my advice, a sort of an adviser, or a message boy, but not co-ordinate with him. My own hunch is that Richberg pressed hard that Hutchins should not be appointed after Hutchins had stated his conditions. He made his conditions in writing and I advised him strongly to say that he would not accept the appointment unless it was made in the light of these conditions, and that these conditions should be stated in the letter in which he would receive his appointment, or the offer of the appointment. He never heard from Roosevelt after that. Roosevelt never replied. Roosevelt asked him to take it. His reply was that he would take it, with these conditions. Roosevelt never replied. For some weeks Hutchins didn’t know whether it was yes or no and then the newspapers announced that Richberg had been appointed. L.C. Marshall,38 who was a former professor at Chicago, was appointed to carry out an investigation as to (the state of the) NRA. Leon Henderson39 was also appointed. There was a whole series of people appointed to try and rescue that sick cat, or else to try to study its record and bring out an appraisal. In one case, I know, although I couldn’t approve it, that the persons appointed to make the study got a distinct impression from Roosevelt that the longer they took, the better he’d like it. In other words, he was just postponing having to admit that it was dead. Finally the thing just evaporated, with Supreme Court adverse decisions and so on.40 He never really had to say it was a mistake, because the

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Supreme Court took him out of a jam. He never did admit that it was a mistake. The recession of 1937–1938 seemed to be fairly serious. There had already been a lot of unemployment. There was a pressure from the New Deal elements in the administration for a spending program. There was resistance from the Treasury to a spending program alone. The Treasury’s position was that we had been spending, running deficits, the unemployment had been pretty severe even before the recession, so there was something wrong, something lacking. Therefore, if we were going to launch on a spending program, we were going to scare the conservative parts of the country. They were already scared and we were going to scare them still more. It was not likely to work, and therefore the President had to make peace with the business world. We had to consult with them, had to try to get a joint program, had to try to get a program which would have a lot of support on both sides of Congress. We also felt that we hadn’t been spending enough. Deficit financing obviously hadn’t sufficed. It might be possible to engage in much heavier deficit financing than before, and yet to alarm the public and the conservatives much less. That was the Treasury position. The President would have nothing of any admission that there had been anything wrong before. This recession was an act of God and not due to anything he’d done. The way to get rid of it was to spend it out. There were good things to be done with money. There was no limit at all to the useful things on which money could be spent to drown out the unemployment. So the President thought. I advised Morgenthau that I didn’t believe that was so, or at least if it were, the administration didn’t know what these ways to spend money were and wasn’t ready for them. I said, ‘‘You, as the Secretary of the Treasury, ought to insist that you will not give your approval to any enlarged spending program unless a very detailed program of the projects, the allocations, the methods and the purposes is submitted to the Treasury.’’ It was made pretty clear that if the President turned this down, Morgenthau would resign. The President never liked resignations. He liked Morgenthau. He knew that Morgenthau was perfectly loyal to him. He knew that a resignation by Morgenthau, whom the public, and particularly Wall Street, insisted on regarding as just his message boy, his yes man, which he wasn’t, would be taken very seriously. People would feel that if even Morgenthau couldn’t take it, the program must be very bad. So the President, probably with some resentment, felt that he was being held up, but he said, ‘‘All right. It can be done.’’ He turned to Hopkins and Ickes, at

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a meeting at which I was present, and said, ‘‘How long will it take you? You know my programs and you’re ready.’’ They both said, ‘‘Oh yes, we have no problem at all in building up a big spending program on good things.’’ He gave them two weeks. In two weeks they came in with a spending program. It was sent over to the Treasury. It was a big, mimeographed document. The Secretary of the Treasury met him with the staff and said, ‘‘How about that?’’ We only had one copy. We were to study it and then to break up the parts and write separate memoranda to the secretary on them. I was assigned the task of writing a memorandum on the general economic philosophy of this thing as a whole. I got the first shot at the document. When I began going through it, I discovered it was a mechanical joining of two documents that had obviously been prepared by two different groups. There was contradiction and overlapping between the two – lot of it. This was rushed and crude work. It gave all signs of being hasty. Any claims that the President made, and that Hopkins and Ickes made, that this had all been ready beforehand and these were projects all carefully worked out, I was able to show, in a short and pungent memorandum, were fraudulent. There were all sorts of things jumbled together with some difference in the general character of Hopkins’s projects and of Ickes’s. Ickes’s were longer and more durable. Hopkins’s were more of leaf-raking character, but nevertheless there was much overlapping. There was much question as to whether these things had been planned, as to whether engineers had worked out any of these things. Some of them were really silly. I wrote a sharp memorandum, intended as an internal memorandum. Others did their piece in other parts of it. Morgenthau liked my memorandum. He read it aloud to the group. I was a little embarrassed. It was not only an internal memorandum, but I had thought it was a personal one from me to Morgenthau. He read it before the group and said. ‘‘I’m going to take it to the Cabinet meeting tomorrow and I’m going to read it to the Cabinet.’’ There were 14 of us there – I remember that because there was a vote – and there was unanimous feeling, including myself, that he should not take it to the Cabinet. I insisted that it wasn’t written in such a way as to be taken. I said, ‘‘You can’t do it. It’s not polite. It’s not a courteous document. I wrote it as an internal document. It would at least have to be re-written and stated in another way if you’re going to present that as a Treasury document going to the Cabinet.’’ I had a copy of it and he had a copy. There were only two copies. I had one, and he had one. He folded his copy, put it in his pocket and said,

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‘‘Well. I’ll probably follow your advice, but I want to have it in my pocket at the Cabinet meeting. We’ll see what turns up there.’’ Morgenthau was not a good debater and was not quick and nimble with words. He was probably being overridden by the President, by Hopkins and by Ickes at the Cabinet meeting. In defense he took this document out and read it.41 Apparently the President went through the roof. He was furious! This was on Thursday I believe. I have never found out to this day, and I have never recognized the voice, but somebody phoned me that night and said, ‘‘Have you got your trunk packed?’’ I said, ‘‘I haven’t, but what is this.’ ’’ He said, ‘‘Well, you might as well.’’

I didn’t know what it was all about. Friday evening in the newspapers there came out the notice of a 17 billion spending program, or maybe more than that, that was Ickes–Hopkins thing. The President had accepted the Ickes–Hopkins document. Morgenthau offered his resignation and the President refused it. What he told Morgenthau about me, I don’t know, but I knew at once that I didn’t want to stay anymore. I said, ‘‘To hell with it’’ and I did start to pack. I didn’t want to stay in the Treasury. Something had leaked out to the press, as I recall it, and I knew there had had been a big discussion there. Nobody knew, I believe, that Morgenthau had offered his resignation, and that the President had insisted he mustn’t resign, but must carry on. Why Morgenthau did come to office on Monday, or what happened I don’t know, but I couldn’t get to him personally. I wanted to resign on Monday and wanted to resign to him personally. So on Monday I just killed time. On Tuesday I went in with my letter of resignation.42 It was a short letter. I explained that I was not against the spending program. On the contrary, I was for it, but I thought a spending program alone would not solve the problem, and might even deepen the problem. In other words, what was needed was a reconciliation with business. I said I was resigning and I gave a letter to Morgenthau. He said, ‘‘I should leave too, but the President persuaded me to stay. It would be very difficult for you to stay, however.’’ What that meant, I don’t know. But my assumption has been all along that FDR told him to get rid of me, because he had presented this thing to the Cabinet as a memo written by me. Nevertheless, before long they were pulling me in again. They used me particularly when the war broke out. It was in Norway at the time. The [missing word] was in Sweden.43 We came back together on a cutter when

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the war broke out. I went into the Treasury, doing my duty as a citizen, but again not wanting to be there. There was nothing to do. There was no program. I cooled my heels for three months. Still there was no plan, no program, and really no preparedness of any account. The one thing I did was to get the technical people there, such as the government accounts people, to make an analysis of our military budget. As this crisis was supposed to be developing, you would have supposed that we were building our strength. As I recall the figures that they showed from their accounts, and there would be an important margin of error because they had to classify these things in certain ways, [missing words] from the time FDR took over in 1933 to the end of 1939 the percentage of our army appropriations – I leave the Navy out – that could be said to be going to fighting weapons had grown from three percent to seven percent. The bulk of it went on salaries, uniforms, homes for officers, homes for sergeants, lawnmowers, obstetrical instruments for the army stations, officers’ cars – just junk and paraphernalia, really impediments, to a military force. Although the army had been asking for more, as the Budget Bureau or White House cut their request, the army would cut their expenditures on military weapons and spend on these impediments. So in 1939 they were building things on the following scale. I still remember the scale that was allowed – $22,000 for a colonel’s house, $20,000 for a major’s, $18,000 for a captain, and so on, going down to about $12,000 for a sergeant’s house. They were still building, and re-building, these army camps at political locations, or at historically obsolete ones. The President, in all his leadership, never used military strength as one of the item of leadership, unless he used the navy, and I never studied the navy. He did that in part because he had the illusion, until very late, that If he could only get to talk to the Germans or Mussolini, he could win them over to decency. Of course, I think one of the funniest pieces of diplomatic history was the mission of Sumner Welles,44 in which they were both foolish – the President was foolish for sending him and Sumner Welles was foolish in thinking he was on an important mission, where he thought he could go over and talk to Mussolini and win him over. The President still thought that blandishments would work, particularly with Mussolini. It must be remembered that the President congratulated England and the world on Munich. FDR there again gets a little lop-sided. His leadership was intermittent and I think never very carefully thought out. The State Department under Hull wasn’t much better. Hull was a fanatic on trade and other things. He usually wasn’t much good, nor very understanding.

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When we entered the war, again they called me in.45 Unenthusiastically I came. I had no very important function to perform. I worked a little on the E-bonds.46 Some of the people attribute to my part in that the fact that they were not a marketable bonds. I had become the Treasury liaison man when I was in Washington with the State Department. When I was in Washington I would represent the Treasury, sometimes alone, for a time with Marriner Eccles,47 on interdepartmental, international committee in Washington. I had become unhappy at the Treasury. I wasn’t built to be a routine civil servant. I wanted to get back always to the campus. My relations with Morgenthau were always fine, and, for that matter, with the rest of the Treasury staff. Haas had become very powerful and important. I never felt that he was very solid or wise. I thought he was always building himself in permanently, going with the wind, and always thinking in terms of ‘‘What makes my tenure secure’’ rather than other considerations. I also thought he was incompetent. I still think it. Harry White48 had also grown in power. I was always ill at ease with him, although I had brought him originally to the Treasury. I hadn’t known him, but had brought him on the strength of his books and publications. I always felt there was intrigue in the air. I’m not saying that I smelt out communism, because the intrigue that I felt was a different kind of one. I now think I know that the other intrigues were going on. But of any entanglements of White’s with the Communists I just know what I read in the papers. I saw nothing of that. However, there was a sort of a conspiracy to protect the New Deal and FDR against internal sabotagers. I suspect I was one of the men regarded as a sabotager. They had people practically all over Washington in every department. Lauchlin Currie49 was one of the men in that group. Harry White was one. Tommy Corcoran50 was the telephone operator, probably brought them together at meetings and so on. I found quite a few people had sensed that. Later on, I spoke to Morgenthau and he said yes, he knew of that. I don’t know at what stage he knew, but he knew it was going on. I also didn’t like the relations between Morgenthau and Harry White, because Harry White always began to operate as if he had something up his sleeve, as if he had some strength somewhere. Morgenthau acted as if he disliked him, and would beat him down and slap him down at a large staff meeting. Relations were very unpleasant. Yet, Morgenthau kept on following his advice. Morgenthau was aware of the internal group that was protecting the President and the New Deal, but I wouldn’t say he was aware of the communist group. On my own knowledge I never had any suspicion or idea

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of the communist group. Of course, I wasn’t there all the time. I don’t know when the ones who had suspicions had those suspicions start. By 1942 I was practically out of the Treasury. I hardly ever came there. Once in a while I went back. I vaguely remember going to a tax conference, and occasional things of that sort. Moreover, my relations with Harry White had become very strained. Our views weren’t quite the same on pre-Bretton Woods. When it came to Bretton Woods, the Treasury didn’t even ask me to participate for them. I had nothing to do with Bretton Woods. The State Department had asked me to become a consultant for them, so I moved over and worked on their planning for postwar work. I did not move over as an employee, but just came in for a few days once in a while. I was a consultant without remuneration. I worked with Clair Wilcox,51 Paul Nitze,52 and Winthrop Brown.53 I never mastered their set up and it was changed with each Secretary of State. What would happen was that they’d all call me. They’d send me some documents, sometime a briefing me beforehand. For two or three days I would sit in conferences, or they would move me around, as they were operating their own staff conferences. I would listen to what was going on. If I had anything to say, I would advise them. I never had to solve any of their administration problems. Some of the important figures there were Harry Hawkins,54 Leroy Stinebower,55 and Willard Thorp.56 These were the men I dealt with. They were the top economic staff there, from the Assistant Secretary, Willard Thorp, down. I’d meet with varying numbers. Sometimes they’d ask me to talk on some technical problem. There might be 15, 20, or 25 even gathered there for the purpose. Again, I had no administrative responsibilities, no authority of any sort. I was happier in my relations with them and those I had had at the Treasury. When I was at the Treasury Department something had blown up in China – aid to the Generalissimo,57 or something like that. I got word from the secretary that I was to go to the White House and be there at nine o’clock on Monday morning. What the exact matter was, I don’t know, but I think it was an urgent call for financial help from the Generalissimo. We were shown up to the President’s bedroom. It was as simple room as a boy’s room at college. What touched me was that I saw his braces standing in the corner, and I saw how formidable they were – tremendous. He had three or four newspapers spread over his counterpane. He’d had his breakfast and we were talking business. There had been a weekend guests at the White House and I know that Eleanor58 was busy fussing with them. I know that

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the Herbert Lehman’s59 were there. They were making their farewells. Some point would come up and Eleanor would come into the room every once in a while, breaking in about some household affair. I thought at the time that we were dealing with a major business and it was trifles that she was interrupting with. Finally, I felt that the President thought that too. He said: ‘‘Eleanor, can’t you leave us alone for a few minutes? This is important business that we have to discuss.’’ That’s just a little home touch. Many analyses of the recession on 1937–1938 blame it on the Federal Reserve and on the Treasury, who had become afraid of the inflation and had gone too far with controls. Actually, I don’t recall the period enough to remember my 1936 or 1937 psychology, or whether I had any important part in those affairs. I do recall vaguely that there was some friction between the Treasury and the Federal Reserve as to who would do the restricting. They were both agreed that there should be restriction. As far as I was concerned, I was always during that period unhappy about mere restriction, because I was always conscious of the fact that there were these eight, or nine, or ten million unemployed. That was not health. I felt myself that as long as the President kept on fighting business, he couldn’t cure the unemployment. Therefore, what you might get was inflation and unemployment. If I had any part in it – I don’t recall now – and if I supported the restrictions by the Federal Reserve and by the Treasury before that, it would be on those grounds. I was in Washington also during World War I. I was a youngster then. I was doing some of the same things I did in World War II. I was working at the Tariff Commission, under Frank Taussig,60 who had been my teacher at Harvard. He had brought me there. Most of the time at the Tariff Commission I was working on historical material. The work that I was doing there, with others, laid the ground for a reversal in the historical American policy with respect to the most favored nation clause (Hornbeck, Viner, Day, & Palmer, 1919). I worked mainly with Stanley Hornbeck,61 who later on was a Chinese expert of the State Department. We were a team. Until the last stages we were co-ordinate. Or sometimes I worked independently. Somehow or other I worked with Walter B. Palmer. He had done his doctor’s thesis on the most favored nation clause and he had defended the traditional American practices. He still defended it at that time.62 The material that I mostly dug up, and also my free trade views helped to change his mind. He had a lot of material to deal with that I was preparing which seemed to shake his convictions. Actually, we didn’t write the conclusions, or if we did, we drafted them for the commissioners to sign. They were not my conclusions and I take no responsibility in that document.

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The conclusions, as I recall them, asked for a serious consideration as to whether a change of policy was appropriate, but didn’t actually recommend it. One of the commissioners was W.C. Culbertson,63 who later on was our minister to Rumania. He was a Republican of the William Allen White64 group, a Kansan. Culbertson was put to thinking about it and he became a convert to what was my position. The Republicans came in 1920 and he was still a tariff commissioner. He got the ear of Secretary of State Charles Evans Hughes.65 The State Department negotiated a commercial treaty with Germany, as well as a couple of agreements with other countries. In this treaty, we departed from our so-called conditional most favored nation interpretation to the unconditional. I don’t need to go into the technicalities here. The external history of this I’ve written up and it is published (Viner, 1924b), but not any internal history. Culbertson persuaded Hughes. Hughes persuaded the Senate, with neither the Senators, nor Hughes, knowing what it was all about or understanding at all about it. Hughes admitted that and said that Culbertson knew more than anybody else in the world about this most favored nation clause. He had him testify and also present a brief on this matter. That was in 1922, I believe. That later on was to become a basic element in the Cordell–Hull program in the New Deal foreign relations program. It is our policy now (1953) – non-discriminating unconditional most favored nation treaties. So in the World War I period I had a hand in that. Also at that time President Wilson was working on his 14 points. He asked Taussig to help him on his point three, which was supposed to be unconditional most favored nation treatment. He asked Taussig whether our country in any way was then in a position of violation of a point of that he would make in his 14 points. Taussig asked an international lawyer on the Tariff Commission staff and myself to work [sic] on this. We worked from the State Department secret file and prepared, as I recall it, a 55-page memorandum, of which we had a number of copies, though neither of us retained a copy. As I understand it, one copy went to the State Department, one copy went to Taussig or to the Tariff Commission files, and one went to the White House. Now I have no copy of that document. This document showed that our major departure from this idea was with respect to Brazil where the history was filthy. It dated back to about 1908 or 1909. A flour concern, the Pillsbury people, who had contributed to the Republican campaign fund, was being paid in pressure on Brazil to give a preference to American flour, as against Argentine and neighboring countries. It was an outright preference. It was dressed up with other concessions on

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cornets [sic], windmills and other things that didn’t matter. The pressure on the Brazilians was that otherwise we’d put a penalty duty on their coffee. Coffee was their major export, their source of livelihood, and so on. That created a lot of sensation in Latin America. Each year the thing had to be done. The Brazilian Congress wouldn’t accept it and therefore it was done by executive degree. Each year it created a sort of little political crisis in Brazil. The Argentine press was always very angry about it. It was a violation of all comity and decent international relations. I insisted that the President, on the strength of that memorandum, in a speech, while discussing postwar peace, acknowledged our sinfulness with respect to that Brazil thing and said, ‘‘If Brazil wants to abandon it, there’ll be no protest from this country.’’ I have told this to a number of Woodrow Wilson scholars, and I’m sure I’m right, and yet they cannot find that reference in a speech. My guess is that it could be found if one were to search the newspaper reports of the speech, but it was taken out of the official record. It was mobile speech on foreign policy in which he said it. The newspapers of the next day would have it, but it was taken out in the official record. Harding66 later on made a similar statement. Again Culbertson, through Hughes, got that across. The Brazilians thought it was too good to be true. They moved very cautiously and took some years to eliminate the preference in our favor because they were scare to take the President’s word. I’ve always felt sad that the credit for that should have gone to Harding instead of to Wilson, because it was much more in the spirit of Wilson than of Harding to clean up that spot. There is a general impression that I have, which is relevant to certain events of the last month or so (January 1953) in the United States, that the record of businessmen in the World War I was very bad when they were dealing with their own industries. I got tired with what I was doing at the Tariff Commission. Taussig, to whom I was devoted, had gone off to many important missions, things of one sort or another, and had lost track of me. I got lost in the shuffle, even on salary. I felt that what I was working on wasn’t important enough to keep me out of the army and that I ought to enlist. So I got unhappy and finally resigned from the Tariff Commission. I was very tired and it was very hot in this summer of 1918. The war, I felt, was going badly. It seemed to be at its worst in the summer. I decided I would go for a two week’s vacation and then I would enlist. I went on my vacation. I was in New Hampshire. It was hot there, so I fled to Maine. I got two telegrams from two different agencies working on war things, hearing that I was free and wanting me to work for them. They’d heard

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I was going to enlist, and both telegrams told me I was a darn fool if I did that. I wouldn’t be much good as an average soldier, but I had skills, and so on. I said ‘‘All right. I’ll come back and talk to you.’’ I went back and I found that the two things were really related. One of them released me to the other. I went to work for the Shipping Board67 in its division of research and statistics on import controls in wartime to conserve shipping. That was the important consideration. I not only had some interesting assignments there, but we all shared our work together. We had staff meetings and talked about each other’s problems. So I saw the whole sweep of it. There was a lot of dirty work going on. We had a lot of shipping on perfectly trivial and safe operations, whereas England was just on the edge because of the U-boat campaign. We were getting frantic messages from England – from Americans over there and from the British government. The American Merchant marine was being protected by officials in Washington who were from the industry, but were protecting their own firms. Finally, through the work of our group, its London agencies, the English, and others – some of these people being business men: not all professors, but businessmen working on something that had nothing at all to do with their routine business – we explained that we got a statistical statement of the situation and a very, very severe statement of the military risks we were taking and of the abuses. It was pushed to the President, so that we all signed a resolution that our chief, who was Edwin F. Gay,68 who later became editor of the New York Post, and was a Harvard professor who later went out to Cal Tech, had a duty to get to the President, to get the President interested and to get action from him. Gay was the spark plug of this whole movement. Gay broke through and got action from Woodrow Wilson. My memory is a little hazy and I don’t remember exactly who the main offender in all this was, but whoever he was fired. He was fired without newspaper scandal. He was just sort of superannuated and told to stay out of the Shipping Board. A deputy was appointed to take charge of his allocation function. He had been in charge of the authority to allocate ships. He was allocating them to carrying Brazil nuts, rubber for chewing gum from the Dutch East Indies, and saving valuable ships for purely unnecessary civilian purposes when there was need for a military function. I was also with the League for International Cooperation,69 which was not of any importance. It was like UNESCO, and I don’t think UNESCO was of any importance from what I know. I don’t know much about it. For most of participants it was a junket. A lot of countries would be represented. They’d come all intent on making a speech so that they could report home

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to their countries that they made a speech. The speech might be irrelevant and mediocre. I went to a conference of that organization in May 1933.70 I went on a short trip just to go to that conference and the [World] economic conference was under way then also. They were both underway in London. The League for International Cooperation Conference worked in two panels. One panel dealt with the role of the state in economic life. The Nazis were represented. The Fascists were represented. The English were compromising and appeasing [sic] at this conference. Some of the Americans were on what the economic conference was dealing with – imperial preferences, discrimination and most favored nation clause. That was discussed in our panel. The other panel, in which the Nazis and the Fascists performed, I wasn’t in. In fact, I didn’t discover what was going on there until when by accident later on I found there was a printed record of it, including my own participation. I found that there Americans and English were saying to the Nazis, ‘‘Perhaps there’s something in what you’re doing. We have to find a new way of life. Your system perhaps goes too far. Ours has been too much in the other way,’’ and so on. They did that instead of standing up firmly. It just showed their general confusion in the light of the world depression and of the rise of vigor on the part of fascism in Italy and vigor on the part of this new Nazi regime in Germany. It’s difficult to tell whether my group such as the International Cooperation group brings any pressure to bear on the government that result in action. The process of education is always a very diffused one and you never can tell about that. Ideas spread, whether they’re good or bad. I think in the United States now (1953) if you want ideas to spread fast, you must get a business group to sponsor them. You have to educate a business group and then let the business group present them as its ideas. If I had zeal for spreading views, getting them to government, getting government, and particularly Congress, to respond, and getting the press to respond, I think I’d choose the CED – Council for Economic Development71 – and try and work through them if possible. I would not only try to convert them, but would have them absorb the ideas adopt them as their own, possibly changing them somewhat in the process. Because at the present time if there are any good ideas that you want to get accepted, get a prominent business man to get them across. He’s got the prestige and he’s got the confidence in himself. This may just be temporary. Businessmen were in the dog house not so long ago, but at the present moment I’d say that even in public health, a cure

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for cancer, if you want almost any major action in a hurry, try and get a businessman. What I would try and do is to get a very wealthy one and a very reactionary one who still could be convinced on something, because he would have the most powerful influence at the present time with Congress and with the press. However, this is probably temporary. Farm organizations and trade union organizations, within limits, are powerful. They’d be still more powerful if they had more educated leadership that used skill and subtlety and watched their public relations. I’m not criticizing them. I think they’ve done very well on the whole. I’m saying that they could do still better. They have lost out, I think, in the last few years, because they’ve been pursuing things clumsily and things probably not to their good. That has lost them a lot of support from outside. On the other hand, I think that business has gained in wisdom and in public spirit tremendously. They are serving their self-interest that way. It was urgent for them that they become enlightened, because that way they’ll get much more of what’s good for them than remaining the way they did in the 1920s. Charges were made against Leo Crowley72 on the ground of the record of his family, himself, and his brothers, with respect to a bank that under the pressure of the depression was in trouble. The charge was made by another high officer of the government. The matter was brought to the President. The President set up a little ad hoc committee to investigate it, of which Morgenthau was a member, I think. They found that instead of Leo Crowley’s record being doubtful in any way, he was the man who had cleaned up the trouble. His brothers were involved. To clean up the family name, he had thrown in everything he had, had worked and rescued the bank. Crowley was a very devout Catholic. The Crowley family in Wisconsin were very prominent in Catholic circles. Leo thought he had a religious obligation to clear a well-known, notorious, if you like, Catholic family from this blot on them. Apparently, no debtor lost a dollar in the bank. That’s how I recall the story. I had part of it from Morgenthau and part of it from Crowley. I haven’t mentioned the name of the man who made the attack, because, while it might be interesting, I don’t see any point in it. I was asked to go to Hyde Park by Morgenthau, while the President was resting up there. Again, my guess is that if FDR had been left to his own pleasure, he never would have met me and I never would have met him. My guess is that I was always being pressed on him by Morgenthau. In any case, Morgenthau told me that I was to go up with him to Hyde Park on a Saturday.

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When we got there, The President had an interesting little room. He had a tiny little study right near the door. It was all cluttered-up and crowded, but the most modest little thing. That was his room. It was his mother’s house, not his, and apparently this was his room. He was very much upset. He greeted us and then he said he wanted to speak to Morgenthau privately. What they talked about was that Lewis Douglas,73 who had been director of the budget, had been sulking for a long time. He didn’t like the New Deal’s program. He had been thinking about whether he should break openly with them or not. He finally decided to resign. He had sent a note to the President, saying he wanted to see him. The President had said, ‘‘Come up to Hyde Park and spend a weekend with me.’’ As I recall the story, Lewis Douglas said that he couldn’t spend a weekend, but he would come up on Friday. He came up and abruptly presented his resignation. He couldn’t it any more. He was leaving. It upset FDR very, very much. Apparently, FDR had beseeched him not to resign, to postpone the resignation. He told Morgenthau that and he said that the newspapers very soon would probably have Lewis Douglas’s resignation and a blast by him against FDR’s program. He regretted it very much. So far as I know that was representative. Even if a man was fighting him inside, the President didn’t want a man to resign. Also, he could be influenced by the threat to resign if men knew that. Whether anybody used it effectively against him, I don’t know. I do feel that he was so concerned that a person shouldn’t resign that he would have compromised on his position at time to keep a man from resigning if they pressed him hard. We had lunch there. Of course, Mrs. Roosevelt, Sr.,74 presided. I sat on her left. She said to me, ‘‘They tell me you’re an expert on the budget. Some of my friends tell me and write that my son, Franklin, is doing very funny things about he budget. Will you explain it to me?’’ Unless they embarrassed him seriously with the public, Roosevelt enjoyed fights. He really was almost like a referee, umpire, or just a spectator, watching with interest to see who would win out. He let the fight go on and not settle it. One case is most amusing, although I don’t think it was good governmental administration. There was a lot of pressure on the administration to develop a system of industrial loans to small business on the ground that there was a shortage of credit at the banks, and that the banks were scared to lend and were discriminating in favor of big business, and so on. Without any zeal for it probably, Jesse Jones, nevertheless, moved in and developed a program whereby Reconstruction Finance Corporation (RFC)

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would do such lending – not because he believed it, but because if there was something to be done, he wanted to do it, whether it was a good thing or a bad thing. The Federal Reserve also was interested – not because they believed in it, or had any enthusiasm for it, because when Federal Deposit Insurance Corporation (FDIC)75 was set up some of the Federal Reserve money was used as their beginning capital or reserve fund. The Federal Reserve had cooked up a scheme whereby they’d lend Treasury money, but repayments would be used to restore to the Federal Reserve $194,000,000, as I remember the figure. All of this, of course, could be checked in the accounts and histories of the RFC. So they developed a bill for lending to the Federal Reserve regional banks. There was absolutely nonsense in two nationwide systems being set up for making industrial loans and working autonomously and independently of each other. It was obvious that one or the other should be dropped. The President wouldn’t move. He wasn’t going to offend Jesse Jones. He wasn’t going to offend Eccles. He was interested to see who would win with Congress. The result was that they both won. They were both set up. There was no sense to that. I don’t suppose any justified, assuming that the whole scheme had any sense, setting up two parallel agencies like that. The Federal Reserve was really not only interested, but was cold to the whole idea. However, its purpose was to get back, and I think it did, some of that money that had been sort of impounded for FDIC use. I was called from Chicago on the special problem of helping with the debt with China,76 the Generalissimo and his demand for aid. I have tried my story on Herbert Feis,77 who is writing a book on the Chinese things (Feis, 1953). He wrote a book on Pearl Harbor (Feis, 1950) and now he’s writing a book on the Chinese thing. He couldn’t fit this story into the records, and yet I know absolutely that I’m telling the truth and that my memory isn’t playing me any tricks. I just can’t fit it as to the year. I could if I start digging up records or newspaper files, however. This involved a request from the Generalissimo for $500,000,000. It was not to be called a loan. There was to be no discussion with him as to whether it was to be ever repaid, or if so, the conditions of repayment. He gave a clear hint that he’d stop fighting the Japs if we didn’t come through. This was before we were in the war. That I know. He needed this for prestige and it had to be given to him in such a way that his prestige would be augmented and not diminished. He sent this message over to the Chinese Ambassador in Washington.78 I can’t even remember his name. I know that it was not Hu Shih.79 Feis says

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that he probably occurred earlier than the period he’s worked on. He doesn’t deny it. The whole story gets so circumstantial that I could not possibly have cooked it up. Anyway, the Chinese Minister came to the Treasury instead of the State Department. He said that he know that the Treasury was a friend of China and that the State Department was not. Therefore, he came for advice. He knew that this would be turned down and that the United States wouldn’t accept it. He thought it was his duty to protect the Generalissimo, his superior, by not following his instructions, but instead telling him why, in its present form at least, he was sure that he would be turned down, and therefore he had not followed his instructions of presenting it. The minister came to Morgenthau and at that stage the secretary phoned me and asked me to come down at once. As I recall it, I came down. It was a Friday afternoon, I think. I know that I had a reservation on the Capitol Limited, the B&O train from Chicago, which left Washington, going back to Chicago at five o’clock that afternoon. I was going back and therefore anything I was going to do had to end by five o’clock.80 The minister came with a draft letter for advice. He was going to send this letter to the Generalissimo. The question was, ‘‘What shall we tell him?’’ Morgenthau wanted to tell him not to send the letter and to start talking to the minister to see what could be worked out, and also to go to the President and find out what could be done. I insisted that Morgenthau had absolutely no right to operate that way. This was foreign relations, foreign policy. To do these things without informing the State Department, I said, was just bad administration. I said I wasn’t even sure that it wasn’t illegal. Later on I was convinced that it was illegal and that he could have been impeached. There’s the Logan Act, for instance. He was not empowered to carry on high diplomacy with China. That was the function of the Secretary of State or the President. In any case he oughtn’t to do it unless he had direct authority from the President. The President couldn’t do anything without doing the equivalent of asking Cordell Hull to resign. I said, ‘‘You must at once inform the State Department of what’s going on.’’ Morgenthau a number of times called me the ambassador of the State Department at the Treasury. He called me that that time but he followed my advice, phoned Cordell Hull, and told him there was an important matter concerning China up which involved the State Department. He wanted the State Department to be informed. Would Mr. Hull want to come up or would he want to send some of his staff? Mr. Hull said, ‘‘Well, I think I’ll send you my Chinese experts.’’ Hull sent Maxwell Hamilton81 and Hornbeck was the man I had worked with in World War I.

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At the Treasury we all agreed that the letter saying that there was no hope and no chance should not be sent to the Generalissimo. We felt that the Chinese Minister should be told something that would be rather encouraging to the Generalissimo – not necessarily that this would be accepted, but that he should be told that the American government was willing to talk to him and help him. That was the Treasury position. When the two men came over from the State Department, Hornbeck was concerned about the protocol. The minister of China had absolutely no business to disobey the order of his superior. Second, he had no business in coming to the Treasury. He should have come to State Department. This went on in detail. Moreover, the Generalissimo was correct. If aid should be given, it should be doled out with strings attached. The Generalissimo had foreseen just that and said, ‘‘I won’t have it that way.’’ Some of it would probably be stolen. So thought Hornbeck. I kept on urging that the question of discipline in the Chinese foreign service was not the Treasury’s business, nor probably even the State Department’s business. In any case, this discussion of the protocol was going on and on and on. I finally said, ‘‘I’m sorry, but I’m going to catch a five o’clock train. I’d like to do something to come out of this discussion before I leave, if it’s possible. We haven’t really come to discuss the substance of it.’’ The Hornbeck said, ‘‘In any case, why are we involved? This isn’t our war.’’ I said, ‘‘Would you object if I take those words down and record them, because if that’s the case and that’s the attitude in which we’re going to operate, I know that nothing is going to come out of this conference . . . ’’ Hamilton broke in and said, ‘‘I bet that if Viner would come to me and would give us another room here, in half an hour we could work out a procedure that would meet the view of both departments.’’ Hornbeck said, ‘‘All right, go ahead and try it.’’ We worked out something. It was accepted, and even Hornbeck accepted it. Don’t ask me now what the particulars were, but it was, I’m sure, that the letter drafted by the Chinese Minister should not go back. Another letter was sent, indicating that there was a hope. Something would be done. It would have to be worked out. Powers of the President and the Treasury were not unlimited and that the State Department and Congress would have to operate also. Whatever was worked out would have to be presented in a way acceptable to Congress. But we were certainly sympathetic to his needs and sympathetic to helping him. Actually he didn’t quite get the $500,000,000, but he got the $500,000,000. It wasn’t called a loan or a grant. It was called aid. Nothing was said in the appropriation about repayment. His major conditions were met, but the one

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thing he didn’t get was just $500,000,000 deposited to his credit in a bank, it was to be deposited in sections of $100,000,000. The first $100,000,000 had no strings really, but with respect to the second $100,000,000, if too much had been stolen from the first $100,000,000, we still had strings on the second, and so on. He never got all the $500,000,000. I can’t recall now, but I think we got into the war and the whole thing got swamped out in something else.82 When the thing was worked out, I was called to work out the actual terms of it. Then it was to be presented as a bill to Congress. We had to meet with the committees. I stayed over as they regarded as being a major event to present this difficult thing to the committees and get the agreement to sponsor it on the floors of the two houses. In the morning, we went to the House committee. I think it was the foreign affairs committee. In the afternoon, it was the Senate committee. I went in the morning, thinking I would go in the afternoon. But it was like a wet firecracker. It was a dud. I was told then that there probably was the most impressive array of Cabinet that ever had appeared to support a measure before a committee. Morgenthau was there. James Dunn,83 I believe, was there for the State Department – not Hull. Henry Stimson,84 as Secretary of War was there, as Jesse Jones, of the RFC and the financial wise man. There was a fifth – another Cabinet member. Each one of them got up and made a speech. All of them were rotten except Stimson’s. Stimson’s was fine in his manner, delivery relevance, and punch. They particularly expected trouble from a woman Congressman. She was supposed to be an isolationists and a Republican. I think it was Jeanette Rankin.85 However, she was the one who said, ‘‘What’s all this talking about? It’s obvious that we have to do it. You don’t have to convert us, but just tell us what are the arguments we should present to Congress on the floor.’’ It went through both houses that way. The administration was scared to death about it. They thought it was a daring thing and there would be tremendous opposition, but there wasn’t.

NOTES 1. A few other examples are listed by Weintraub et al. (1998). 2. For example, White’s opposition in December 1944 to Viner’s possible appointment as Secretary of State’s economic adviser (see MD, book 804, p. 202). 3. Some evidence of Viner’s assistance to White are in MD, book 483, p. 180 (mentioned by Domhoff, 1990, p. 169); book 498, p. 111; book 504, p. 212.

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4. Henry Morgenthau, Jr., (1891–1967), Secretary of the Treasury from 1934 to 1945, was one of Franklin D. Roosevelt’s closest assistants during his campaign for the Governorship of the State of New York. Henry Morgenthau Jr., son of the diplomat Henry Morgenthau, had distinguished himself as a valuable ‘‘Conservation Commissioner’’ entrusted to manage a wide set of agricultural reforms directed to fostering farm productiveness and reforestation. Once at the White House, Roosevelt entrusted him to head the Farm Credit Administration, an agency designed to support farmers by converting their heavy debts into a lower rate of interest. Yet Morgenthau’s influence went far beyond the FCA and extended to the overall economic policy, especially in the monetary field, where at the time Morgenthau was supporting the plan proposed by George Warren for a sudden depreciation of the dollar. In Viner’s later recollections, it was Herman Oliphant who suggested his name to Morgenthau (Viner to Currie, July 9, 1966, LC, Box 9). During their meetings, Morgenthau and Viner discussed the policies of the Farm Credit Administration. In particular, Viner blamed the establishment of the so-called Processing tax which was designed to finance the farmers’ relief under the Agricultural Adjustment Agency but, according to the Chicago economist, placed an excessive burden on urban workers and the unemployed (Viner to Morgenthau, June 1933, MP, box 301, file Viner, Jacob). On Morgenthau’s activities during the New Deal, see Blum (1970). 5. Viner had been appointed visiting professor at the Institut Universitaire des Haute E´tudes Internationales of Geneva for the academic year 1933–1934. In those years eminent scholars such as Gustav Cassel, Paul Mantoux, and Frank Graham were teaching at the famous institute founded by Michael A. Heilperin and William E. Rappard. Viner had also taught in Geneva from 1930 to 1931. The correspondence between Viner and Rappard from 1929 to 1958 is in JVP, box 22, folder 4. 6. Fisher, Irving (1867–1947) was probably at the time the most popular American economist, well-known to the lay public not only for his studies on money and the business cycle, but also for his bestsellers on healthcare and eugenics. Fisher had been campaigning for monetary management and reforms since 1911. Viner and Fisher had been cooperating quite closely since the summer of 1931 and together played an important role in preparing the manifesto of 24 economists, which was presented in Chicago during the Harris Foundation Conference in January 1932. The manifesto called for a sudden and wide monetary expansion, supported by public works and other measures of foreign economic policy. According to William Barber (1996, p. 29), it was Fisher who suggested Viner’s name as worthy of a post in the administration. Yet, once at the Treasury, Viner made a strong effort to contrast Fisher’s influence on the administration, especially as the Yale economist was supporting further monetary inflation, 100% reserve banking reform and other radical measures that Viner felt scared businesses and hindered the needed recovery of private investment (see Nerozzi, 2007). The correspondence between Viner and Fisher from 1929 to 1944 is in JVP, box 10, folder 14. 7. George F. Warren (1874–1938), professor of agricultural economics and farm management at Cornell University, had been consultant to Morgenthau since the days of the New York State Administration. Along with Frank Pearson, Warren had proposed a program designed to raise the price level, especially farm prices, by

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devaluating the gold value of the dollar. The program was based on the alleged correlation between the price of gold and those of basic agricultural products. Although Fisher endorsed the so-called ‘‘Warren–Pearson doctrine’’ Viner was extremely critical. In Viner’s opinion, this program was erroneous in its economic foundations, ineffective in attaining its declared aims, and dangerous for its international consequences. By devaluing the dollar in the currency markets, the program induced competitive devaluations and the raising of trade barriers against the United States, which the Smoot–Hawley Tariff act had already induced on a large scale. Moreover, the destabilization of foreign exchange rates risked disrupting any prospect of international monetary cooperation. In Viner’s view only an international stabilization of exchange rates could foster the recovery of international trade and foreign investments, which were absolutely necessary for the prosperity of the American economy (Viner to Morgenthau, November 27, 1933, MP, box 301, file Viner, Jacob). 8. James Harvey Rogers (1886–1939), economist, was a full time professor of political economy at Yale starting in 1930. His statistical studies in monetary economics and the business cycle, his collaboration with Irving Fisher, and his 1931 bestseller, America Weight Her Gold, prepared him for his deep involvement as a consultant for the Roosevelt Administration. In 1931–1932, Viner and Rogers along with Fisher, John H. Commons and others, collaborated quite closely in formulating proposals of monetary expansion. During his first term at the Treasury, and after having provided Morgenthau with a list of economist experts in monetary policy, Viner added the name of James H. Rogers (Viner to Morgenthau, n.d., MP, box 301, file Viner, Jacob). In the summer of 1934, Rogers was consultant at the Treasury and together with Viner supported the need for measures of fiscal expansion to raise prices and employment (MD book I, September 12, 1934). The correspondence between Rogers and Viner is in JVP, box 22, folder 22. On Rogers’ analysis of the Great Depression and policy proposals, see Steindl (1995, pp. 105–110). 9. Frank Comerford Walker (1886–1959), politician, postmaster general, and businessman. In March of 1933, he was appointed executive secretary to the President’s council to coordinate emergency relief efforts with cabinet agencies. In December of the same year, Walker became director of the National Emergency Council (NEC). Walker also created the U.S. Information Service (USIS) to serve as a clearinghouse on information about relief and recovery programs. Taking a break from June 1934 to April 1935, Walker continued as joint director of the NEC and the USIS until 1936, when he returned to his family business, serving as occasional consultant or intervening during the electoral campaigns for Roosevelt’s reelection. On Walker’s career as administrator, see Ferrell (1997). 10. Harold Le Clair Ickes (1874–1952), secretary of the interior under Franklin D. Roosevelt and (briefly) Harry S. Truman. From 1933 to 1939, Ickes directed the Public Works Administration (PWA), one of the spending agencies entrusted to enroll unemployed workers and carry out important building projects all over the country. Recurrent conflicts with Wallace and Hopkins did not prevent Ickes from acquiring a growing power within the administration and accumulating a wide set of administrative prerogatives under his department. 11. Harry Lloyd Hopkins (1890–1946), New Deal administrator and presidential adviser. Hopkins headed the Federal Emergency Relief Administration (FERA)

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starting in 1933, which was designed to provide direct relief to the unemployed, while the following year he proposed and attained the institution of the Civil Works Administration (CWA) to provide work relief for all able-bodied unemployed workers. With the establishment of the Work Progress Administration (WPA) in 1935, Hopkins managed a wide set of public works projects. After a three year term as Secretary of Commerce (1938–1940), Hopkins devoted his last years to organizing the Lend and Lease Program, designing and managing a system of allocation for American material among the Allies during the war, and fostering the realization of a postwar peaceful order with the establishment of the UN. Suffering from serious health problems caused by stomach cancer, he died in 1945, a few months after Roosevelt’s death. 12. Joseph Patrick Kennedy (1888–1969), businessman and public official. Profiting from his huge fortune and his manifold connections, Joseph Kennedy had been a major contributor to the Democratic Party and a powerful supporter of Franklin D. Roosevelt. In 1934, Roosevelt rewarded him with an appointment to the Securities and Exchange Commission (SEC) and a brief term of service as chairman of the U.S. Maritime Commission. In 1937, Kennedy persuaded Roosevelt to appoint him ambassador to Great Britain. In this role, at such a crucial time, he supported appeasement toward Nazism and isolationism after the breakout of the war. This unhappy record led to his removal in November 1940 and prevented the continuation of his political ambitions, which were later to be pursued by two of his nine sons, John and Robert. 13. Jesse Holman Jones (1874–1956), businessman, federal agency head, and cabinet member. A member of the board of the Reconstruction Finance Corporation (RFC) since its establishment in 1932, Jones was entrusted to its chairmanship by Roosevelt and ran this powerful agency, directly or indirectly, until 1945. Initially designed to provide financial support to banks involved in industrial credit, the RFC had progressively extended its powers during the Roosevelt administration, strengthening its prominent role in direct federal lending, especially in connection with the war mobilization effort. In 1939, after a formal resignation from the RFC, Jones was appointed head of the Home Loan Credit Corporations and, in 1940, he became Secretary of Commerce. 14. Russell Cornell Leffingwell (1878–1960), banker. He was partner and then chairman of JP Morgan, and trustee of the Carnegie Corporation. During War World I he served as assistant secretary to the Treasury. 15. The National Recovery Administration (NRA) was established in July 1933 by Title I of the National Industrial Recovery Act (NIRA), with the task of fostering recovery in industrial prices and employment. The new agency, guided by general Hugh Johnson and supported by a highly qualified staff of economists and officials, promoted the voluntary acceptance of special codes of fair competition designed to keep industrial prices and wages stable, maintain employment and improve labor conditions. On May 27, 1935, the U.S. Supreme Court declared the mandatory codes section of NIRA unconstitutional. Despite new attempts to revitalize its role as a promoter of industrial cooperation and a source of economic studies, the NRA was abolished at the end of 1935. For an early appraisal of the NRA, see Lyon et al. (1935). 16. Rexford Guy Tugwell (1891–1979), professor of agricultural economics at Columbia University and member of Roosevelt’s Brain Trust. Quite a prolific writer

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he devoted much of his studies to the American agricultural system and to the maladjustments it was suffering after World War I. In 1932 Raymond Moley, senior professor at Columbia and member of Roosevelt’s electoral staff, asked him to join what was later known as the Brain Trust. After Roosevelt’s election, Tugwell was deeply involved in the administration’s economic policies: as Assistant Secretary of Agriculture (1933–1936), he was engaged in the implementation of the Agricultural Adjustment Act, especially with his agriculture allotment plan which intended to promote a huge reallocation of land use. Moreover, he was involved in the formulation and the review of the NRA, and suggested a host of programs to replace the NRA when the Supreme Court declared its unconstitutionality in 1935. His continuous support for strong government intervention and overall economic planning aroused a strong opposition from liberal sides within and outside the administration and caused his marginalization after 1936. On Tugwell’s life and career, see Namorato (1988). 17. Adolf Augustus Berle (1895–1971), lawyer and statesman. Together with Gardner C. Means, he was the author of the influential, The Modern Corporation and Private Property (1932), New York: Macmillan. In 1932, the Columbia University professor Raymond Moley invited him to join Roosevelt’s ‘‘Brain Trust.’’ After Roosevelt’s inauguration, Berle preferred to return to his New York business and accepted only brief appointments as consultant or assistant to other members of Roosevelt’s staff. In 1938, Berle accepted Roosevelt’s request to become assistant Secretary of State with the responsibility of economic policy. For Berle’s life and career, see Schwarz (1987). 18. Henry Agard Wallace (1888–1965), Secretary of Agriculture since 1933 and vice president of the United States since 1940. By the Agricultural Adjustment Act of 1933 Wallace promoted an increase in farm prices by restrictions in output and centralized accumulation of stocks. The Commodity Credit Corporation financed farmers in exchange for the storage of their crops. With the Farm Security Administration (1937), he provided relief to poor farmers and promoted their move to more fertile lands or to urban areas. By these and others policies he grew more and more popular among farmers as well as urban people. In 1940, Roosevelt, overcoming a strong opposition in the party, chose him as vice president. During the war years, Wallace enlarged his vision to foreign policy and supported a cooperative effort with the Soviet Union to build up a new economic and political international order. His peaceful and optimistic vision, along with its radicalism in economic and social issues, hindered Roosevelt’s attempts to nominate him to the party in the 1944 Presidential Campaign. The choice made by the Democratic Convention fell on Harry Truman. When Truman became President upon Roosevelt’s death in April 1945, he appointed Wallace, who was still largely popular, as secretary of Commerce. Yet Wallace expressed strong criticism of the Truman’s Foreign policy toward the USSR and resigned in September of 1946. During the presidential campaign of 1948, Wallace ran for President against Truman and the Republican candidate, enjoying the support of old New Dealers and communists, but attained poor electoral results. On his life and career, see Schapsmeier, Frederick, and Wallace (1968). 19. James Harvey Rogers (see note 5) was a member of the League of Nations’ Economic Committee from 1933 to 1937. In 1934, he was also a special representative of the U.S. Treasury in China, Japan, and India.

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20. Cordell Hull (1871–1955), Democratic Congressman and Secretary of State from 1933 to 1945. After a longstanding political career in the Democratic Party, while he sat on the House of Representatives from 1906 to 1933, Hull was appointed Secretary of State by Roosevelt. Hull’s first foreign mission was the World Economic Conference in London, where the U.S. delegation was blamed by other countries for its lack of initiative and the sharp contrasts within it. In the following years, Hull devoted his appointment to opening up a new era in the U.S. tariff policy by promoting and signing the Reciprocal Tariff Act in 1934, which entrusted the government with inedited powers to concede tariff reductions and apply the most favored nation clause in its unconditional form. 21. When the World Economic Conference opened in London on June 12, 1933, with the participation of 64 countries, it was widely looked on as the last opportunity to foster economic recovery on an international basis. The most important problems at stake were the reduction of trade barriers, the settlement of war debts, the stabilization of exchange rates, and the coordination of monetary policies to further an increase in price levels. Yet strong national interests and divergent points of views were not easy to overcome. Although France and Belgium were not willing to give up their peg to gold and urged other countries to return to the old standard, Great Britain had built up a moderate level of protectionism within the Commonwealth by means of the ‘‘Imperial preference system’’ and was willing to inflate its price level without being bound to new external constraints. After the abandonment of the Gold Standard, Roosevelt followed quite an uncertain policy, letting the dollar fluctuate in the foreign markets and addressing proposals of stabilization to France and Great Britain. After having preliminarily attained the exclusion of war debts from the conference’s agenda, the U.S. delegation was offering the stabilization of the dollar in the foreign markets in exchange for the abolition of the imperial preferences and the reduction of French and Belgian trade barriers. An agreement seemed to be in sight, when the message from President Roosevelt on July 3, brought the conference to an end. Following the Warren–Pearson Doctrine, Roosevelt was determined to re-inflate the price level by manipulating the gold value of the dollar and disrupting the conference by stating that he was not willing to sacrifice the American people to the ‘‘fetish’’ of the gold standard or fixed exchange rates. 22. Key Pittman (1872–1940), U.S. senator and lawyer. A Senator from Nevada and leader of the silver bloc in the Senate where he sat from 1912 to his death in 1940, supporting measures sustaining the price of silver. In 1934 and 1939, he played a key role in the passage of the Silver Purchase Acts. An effective supporter of Roosevelt during the 1932 electoral campaign, Pittman was rewarded with membership to the U.S. delegation at the World Economic Conference in 1933, were he managed to secure an international agreement designed to stabilize the international price of silver. 23. William Hartman Woodin (1868–1934), business executive and secretary of the Treasury. A personal friend to Franklin D. Roosevelt since the 1920s, notwithstanding his Republican connections, Woodin was asked by Roosevelt to support his campaign for Presidential election and, later, to serve as his Secretary of the Treasury. In the first hundred days, he played a paramount role in managing the banking crisis and implementing a set of financial and monetary measures designed to stop the decline in prices, output, and employment. In the fall of that year,

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Woodin’s health rapidly deteriorated. He was compelled to resign in December 1933 and died after a few months. On his work at the Treasury, see Bogen and Nadler (1933) and Johnson (1939). 24. The League of Nations was born as a consequence of President Woodrow Wilson’s 14th point, and its statute had been largely drawn up by him during the 1919 Peace Conference. Yet the Republican majority in Congress refused to adhere to the League of Nations, asking for substantial modification of its statute which was resolutely opposed by Wilson. After a negative vote in Congress, the victory of the Republican candidate Warren G. Harding in the Presidential election of the same year killed any further chance of ratification. Thus, though having played such a paramount role in its foundation, the United States, quite paradoxically, failed to become a member of The League of Nations. 25. Horace Merle Cochran (1892–1973), foreign service officer. Cochran was consul in Paris from 1929 to 1932 and then moved to Basel where he remained until the onset of World War II. In 1949, he was appointed to U.S. Ambassador in Indonesia. 26. Morgenthau’s appointment as Undersecretary of the Treasury in midNovember 1933, was to be rapidly followed by his promotion to Secretary in January 1934, when the dying William Woodin resigned. Morgenthau’s rapid rise to the head of the Treasury, was partially due to the gold devaluation program of the dollar in the foreign exchange markets, which he had supported since its very beginning, whereas former undersecretary of the Treasury Dean Acheson had opposed (Blum, 1970, pp. 48–53). 27. Herman Oliphant (1884–1939), legal educator and government officer. After his studies in philology and philosophy, Oliphant graduated from the University of Chicago Law School and in 1915 became an instructor. In few years, he attained a full professorship at the Chicago Law School and moved to Columbia Law School in 1921. Embracing the movement of legal realism, he promoted the use of quantitative and statistic analysis in law studies and the use of law as a means to foster social reforms and public policy. Involved in government service since World War I, Oliphant was appointed general counsel to the Farm Credit Administration in March 1933, under Henry Morgenthau and held that post when the latter became Secretary of the Treasury. In 1938, Oliphant had a heart attack and died a few months later. 28. We could not find any information on this Treasury Officer. 29. Herbert Clark Hoover (1874–1964), 31st President of the United States (1928–1932). 30. We could not find any information on this Treasury employee. 31. A three-page memo containing proposals for the establishment of an economic staff, sent by Viner to Morgenthau on September 27, 1934, is preserved in MP, box 301, folder Viner Jacob & Family 1933–1934. 32. George C. Haas, was one of Morgenthau’s closest aides since he had been with the Farm Credit Administration. Once at the Treasury, he was appointed director of research and statistics. Along with Herman Oliphant, Roswell Magill and Viner himself, Hass took part in the Tax Study Group and was involved in the negotiations for the Tripartite Agreement. 33. The Silver Purchase Act signed on June 19, 1934 authorized the Treasury to purchase silver until it either constituted one-fourth of the national gold reserves or

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reached the price of $1.29 per ounce (whereas in 1933 the international price was about $45). Morgenthau had opposed the requests on silver purchases since January 1934. He tried to weaken the strong ‘‘silver block’’ in Congress by compiling a list of silver speculators among the supporter of the silver purchases, and by making inquiries on the actual conditions of silver in foreign markets and reserves. In February 1933, he sent James Harvey Rogers to China to assess the likely impact of such a program on its economic and political stability (see note 5). Viner was deeply involved in these monetary inquiries and was particularly concerned with the inflationary consequences of huge silver purchases on the national economy as well as its international repercussions (Viner to Morgenthau 25 April and 7 May, 1934, MP, box 301, file Viner, Jacob). Forced to compromise with the silver block, Morgenthau attained the freedom to make such operations ‘‘at such rates, at such times, and upon such terms and conditions as he may deem reasonable and most advantageous to the public interest’’ from Congress. After the passage of the bill, Morgenthau managed to enact his provisions to limit as much as possible its inflationary impact. 34. Viner’s account of the 1938 recession does not seem to be accurate, the recession being ‘‘in terms of speed if not duration [ . . . ] the most serious in the nation’s history.’’ In the nine months between September 1937 and June 1938, industrial production declined by a third, industrial stock averages by 50%, profits by 78%, and payrolls by 35%. Unemployment rose from 14.3% in 1937 to 19% in 1938 (Renshaw, 1999, pp. 337–364). 35. Robert Maynard Hutchins (1899–1977), university administrator and philanthropic foundation executive. Hutchins’ national reputation grew in the 1930s. He was considered for various New Deal posts under Franklin D. Roosevelt. 36. Hugh Samuel Johnson (1882–1942), army officer and government administrator. During the war he served as the Army’s representative in the War Industrial Board and headed the new Purchase and Supply Branch. In 1927, Johnson became Bernard Baruch’s assistant, dealing mostly with economic matters. In 1932, he was involved in Roosevelt’s brain trust and, later, took part in the drafting of the National Industrial Recovery Act. Entrusted to administer the system of fair-trade codes under Title 1, Johnson carried out his mission with great vigor, arousing a strong and diffuse opposition against him and the NRA. After the suppression of the NRA, Johnson became an outspoken critic of Roosevelt’s fiscal and anti monopoly policies. On his life and service, see Ohl (1985). 37. Donald Randall Richberg (1881–1960), lawyer and government official. He worked for Roosevelt in the 1932 presidential campaign and was later recruited by Hugh Johnson to help draft the National Industrial Recovery Act, giving special attention to the labor clauses. When Johnson became head of the NRA, Richberg was appointed general counsel. 38. Leon C. Marshall (1879), economist. Viner refers to Lyon et al. (1935). 39. Leon Henderson (1895–1986), economist and government official. In 1934, Henderson entered NRA as adviser on consumer problems, becoming within two months its chief economist and head of the Research and Planning Division. Operating within the NRA, Henderson repeatedly objected to unnecessary price increases in many industries. As early as 1934 Henderson called for an antitrust investigation to uncover monopolistic practices that resulted in inflexible prices.

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After NRA’s cessation, Henderson was hired by Harry Hopkins (see note 8) as economic adviser to the Work Progress Administration. Validly siding with the ‘‘spending wing’’ within the administration, Henderson foresaw the 1937 recession and urged the adoption of a massive program of government expenditures. From 1938 to 1941, Henderson guided the National Economic Committee (TNEC) entrusted to make a wide-ranging inquiry into the structure of the American financial and industrial systems, which, however, failed to produce substantial legislative action. In 1941, Henderson was put in charge of the Office of Price Administration (OPA), designed to foster the War mobilization effort and curb inflation on civilian commodities. By stubbornly enacting an almost complete system of price ceilings and controls, Henderson caused a wide spread hostility in Congress and was forced to resign in December 1942. 40. On May 27, 1935, the U.S. Supreme Court declared the mandatory codes section of NIRA unconstitutional. Remainder of Title I was extended until April 1, 1936, by joint resolution (49 Stat. 375), June 14, 1935. 41. A very similar episode is quoted in Ickes’s diaries, but it referred to the Autumn of 1934 ‘‘With great unction Morgenthau then started reading a statement prepared by Jacob Viner [ . . . ] He had not gotten very far before the President began to laugh and I could not help joining him. I don’t pretend to be an economist, but the argument presented was so ridiculous to be absurd [ . . . ] Morgenthau was willing to desist, but the President told him to go ahead as he wanted to hear what Viner had written [ . . . ] It was clear that the Viner argument had made no impression at all on the President. In fact, it hadn’t on any of us, although undoubtedly Morgenthau had thought it was perfectly devastating. After he had concluded, Morgenthau swung clearly around. He was in favour of the public works program and was willing to do anything he could put it into effect’’ (Ickes, 1953, pp. 223–224). Since Ickes’s dates seem difficult to contest and we cannot find any other references in either Viner or Morgenthau’s papers about this 1938 Treasury meeting, we can suppose that in the 1953 interview Viner merged his recollections from two different (and perhaps similar) episodes that actually occurred in 1934 and 1938. 42. Viner’s letter of resignation is preserved in Morgenthau papers ‘‘My dear Mr. Secretary. It is with the deepest regret and distress that I find myself impelled to submit you my resignation as a member of the Treasury staff to take effect immediately [ . . . ] I have for a long time [ . . . ] had serious misgivings as to aspects of the Administration’s financial and economic policies which have not been under your control, and what I just learned as to the financial program of the President for the coming year convinces me that these misgivings were more than justified. I believe that heavy deficit spending, at this time, if unaccompanied by genuine and courageous effort to eliminate the factors which made our recovery only a halting and incomplete one, and which now have forced us into a renewal of severe depression, and if unaccompanied also by willingness on the part of the President to acknowledge the existence and importance of these factors, will involve serious danger for the political as well as the economic health of our country’’ (Viner to Morgenthau, April 14, 1938, MP, Folder 2, Viner Jacob and Family, 1935–1943). 43. When the German Army invaded Poland on September 1, 1939, Viner was attending the International Conference of International Studies in Bergen (Norway)

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‘‘When the war broke out, I was in Norway for the international Studies Conference, and was summoned immediately by the Treasury. I came back from Bergen to New York in a U.S. coast guard vessel of small destroyer type and size. In spite of bad weather, it was a delightful experience, as I am a good sailor’’ (Viner to Robertson, November 16, 1940, JVP, box 22, folder 16). 44. Sumner Welles (1892–1961), diplomat and author. In February 1940, Roosevelt sent Welles to Rome, Berlin, Paris, and London to meet with European leaders and explore possibilities for peace. 45. From January to March 1942, Viner served as special assistant to Morgenthau. Looking at the Morgenthau Diaries we can state that Viner’s role was wider than he was to recall in 1953, and he was actively engaged in activities such as stabilization agreements with various countries (MD 491, 237, Mr. Dietrich to Morgenthau, February 2, 1942, Stabilization Agreements) and financial aid to China (January 12, 1942, MD 485, 93; February 3, 1942, MD 491, 270). He also worked on taxation and public finance with Herman Oliphant, Daniel Bell, and Roy Blough (January 7, 1942, MD 483, 9). In February, the negotiations with England for the signing of the Mutual Aid Agreement (February 23, 1942) were being discussed and Viner took part in many interdepartmental meetings. On February 18, he met British Ambassador Lord Halifax and Sir Fredrich Phillips, economic representative to Washington. 46. The e-bonds were issued by the Treasury in May 1941 and raised a huge amount of money to support the War effort. At the same time, by drawing purchasing power from circulation, they were an effective means of keeping inflation under control. Their non-marketability increased their anti-inflationary effects and helped keep interest rates relatively low. From 1941 to 1946, more than $185 billion dollars worth of bonds were sold by the government to a mass of 85 million Americans. It was one of the most successful experiments in the history of war finance. 47. Marriner S. Eccles (1890–1970), banker and public officer. After a brief service as adviser in the FCA and the Treasury, Eccles was appointed governor of the Federal Reserve Board in November 1934 and, profiting from Lauchlin Currie’s assistance, designed the 1935 Banking Reform, which provided the board with undivided authority and strengthened its control on the national money supply. Eccles enjoyed Morgenthau’s esteem, which was a determining factor in his appointment. Yet after his appointment as Governor, their relationship worsened: different points of view regarding monetary and fiscal policy, coupled with their strong personalities, led to frequent conflicts between them. Viner’s role was often that of conciliator and liaison between them. This can be seen, for example, in his role in 1936 regarding the strategy preferred by the Treasury and the FED to prevent inflation or his attempts to have the FED acquainted with the secret negotiations leading to the Tripartite Agreement (MD 230, pp. 135–137; Blum, 1959, pp. 164–165, 377). In December 1936, Viner was personally invited by Eccles to give his advice to the FED ‘‘Dear Dr. Viner, I greatly appreciated your coming to Washington on December 18th for the purpose of discussing certain matters and giving your opinion. I hope to be able to keep in touch with you in the future and have the benefit of your counsel [ . . . ]’’ (Eccles to Viner, January, 5, 1957, JVP, box 27, folder 1). In June 1941, Viner mildly supported Eccles’s proposals for a tax anticipation to

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control inflation, facing Morgenthau’s and Harry D. White’s opposition (MD 416, 36). On Eccles’s action at the Fed, see Meltzer (2003). 48. Harry Dexter White (1892–1948), economist and public officer. White, like Viner, had been previously trained at Harvard, completing his Ph.D. training under Taussig’s guidance. White’s doctoral dissertations, as well as Viner and John H. Williams’, are commonly regarded as among the best empirical studies on the workings of the balance payments adjustment mechanism during the period of the classical Gold Standard. Arriving at the Treasury as a member of Viner’s Freshmen Brain Trust, White was hired on a regular basis in the autumn of that year and was especially involved in international monetary affairs. His 1935 European mission provided an important background to the negotiations culminating in the Tripartite Agreement of September 1936. He had advocated measures of outright monetary expansion and budget deficits to combat the Depression since 1932 and continued to support these ideas within the Treasury, though with little success. Appointed Director of Monetary Research on March 25, 1938, White entered the ‘‘9,30 Group,’’ which included the senior officials of Morgenthau’s staff. In December 1941, a few hours after Pearl Harbor, he was appointed Assistant Secretary in connection to his plan for stabilizing the U.S. economy. On Viner’s participation in the first revision of the plan and his relationship with White, see the Introduction. White’s biography is provided by Rees (1973). 49. Lauchlin Currie (1902–1993), economist and public official. Born in Canada, he attended his economic training at the London School of Economics, and in 1927 arrived in Harvard, where he served as assistant to Allyin A. Young, John H. Williams, and Joseph. A. Schumpeter. In the Summer of 1934, he was recruited by Jacob Viner in the Treasury’s ‘‘freshmen brain trust.’’ Shortly thereafter he was called by Marriner Eccles to serve as his adviser at the Federal Reserve Board and to design the bill for the 1935 Banking Act. In 1939, Currie was the first to be appointed as FDR’s White House economist. In 1941, he was sent on a special mission to China and then joined the lend– lease administration. He ran the Foreign Economic Administration from 1943 to 1944 and took part in negotiations for the Bretton Woods Agreements and the U.S. loans to the British and the Russians. After the war he was accused of being a communist spy and of having passed on secret information to the USSR. His longstanding friendship with Viner is demonstrated by their correspondence preserved in JVP box 7, folder 22. On his activity at the Treasury see references in the Introduction section. A comprehensive biography of Currie is Sandilands (1990); see also Sandilands (2000) and Sandilands and Boughton (2003). On his work as the head of the first World Bank’s General Mission in Columbia in 1949, see Alacevich (2005). 50. Thomas Gardiner Corcoran (1900–1981), government official and presidential adviser. He graduated as valedictorian from Brown University, and worked under the influential Professor Felix Frankfurter at the Harvard Law School. From 1927 to 1932 he practiced law in Wall Street. He then entered the newborn RFC, where he served until 1940. His expertise in finance and security law, together with his writing ability, made him one of the closest men to the President, and author or reviewer of many of his most famous speeches. His involvement in many of the most delicate and controversial policy issues associated with the first and second Roosevelt administration, arose wide spread hostility in Congress, which led to his career in the administration coming to a sudden end in 1940.

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51. Clair Wilcox (1898–1970), economist and public officer. Professor of economics at the Swarthmore College from 1927 to 1965. In the mid-1940s, he was head of the Office of International Trade Policy. In 1947, Wilcox headed the U.S. delegation and chaired the Havana Conference. Substantial correspondence with Viner is preserved in JVP, box 28, folder 17, 1931–1952; 1966. 52. Paul H. Nitze (1907–2004), public officer. From 1941 to 1944, Nitze served as financial director for the Coordinator of Inter-American Affairs, chief of the Board of Economic Welfare’s Metals and Minerals Branch, director of the Foreign Procurement and Development Branch within the Foreign Economic Administration. He was also appointed special consultant to the War Department. 53. Wintrhop J. Brown (1907–1987), public officer and diplomat. From 1941 to 1945, he served as executive officer of the Mission for Economic Affairs to the U.S. embassy in London. 54. Harry C. Hawkins (1894), economist and public officer. After a tenure as assistant professor of Commerce at The University of Virginia, he accepted a post as economic adviser in the State Department in 1927, where he remained for more than two decades. Regarded as ‘‘Hull’s right hand’’ for commercial affairs, in 1942 he was appointed Chief of the Division for Commercial Policy and then of the Trade Agreements Division. In this role, Hawkins was deeply involved in the set up of the U.S. plans for a post war commercial order and in Anglo-American negotiations for the establishment of ITO and GATT. 55. Leroy D. Stinebower (1904–1976), economist and public officer. From 1934 to 1952 he served in the State Department as economic adviser for international economic affairs. A former student of Viner in Chicago, Stinebower was introduced to the State Department’s economic adviser Herbert Feis by his teacher, who at the time was looking for an economist to take part in the U.S. delegation to the World Economic Conference in London (see note 19). In 1943, he was appointed chief of the Division for Economic Studies working on postwar planning and took part in most of the U.S. delegations to the International Conferences of those years, such as Bretton Woods, San Francisco, Havana, Quebec, and Paris. His longstanding friendship with Viner is testified by their correspondence preserved in JVP box 25, folder 9. Viner began his cooperation with the State Department in 1943 working especially with Stinebower at the Division for Commercial Policy. In 1952, both Viner and Stinebower left the State Department, the latter taking a position in the Standard Oil Company (Viner to Stinebower, February, 1 and 8, 1952). 56. Willard L. Thorp (1899–1992), economist and public officer. Member of the NBER staff and professor at Amherst College starting in 1927, Thorp was called to Washington in 1933 to reorganize the gathering of statistical data within the Department of State. In 1934, he took part, along with Rexford Tugwell, Herbert Feis and others, in the drafting of the Reciprocal Trade Agreements Act. During the 1930s he received other appointments in the NRA, the Department of Commerce, and the TNEC. In 1944, he was invited by Edward Mason and Will Clayton to join the States Department’s Economic Staff. He served as assistant secretary of State for Economic Affairs from 1946 to 1952, was a member of the U.S. delegation serving as special adviser on economic matters at the Paris Peace Conference in 1946, and was the American representative to the United Nations General Assembly from 1947 to 1948. The first contact between Thorp and Viner was in 1940. Their relationship

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intensified from 1945 onward: Thorp invited Viner to send his comments on a memorandum and took part in meetings held in Washington. Substantial correspondence from 1940 to 1952 is preserved in JVP, box 26, folder 10. 57. Chiang Kai-shek (1887–1975), Chinese statesman. During the inter war period he led the Chinese resistance against Japanese expansionism and, later, the civil war against the communist movement. After his final defeat in 1949, he retired to Taiwan were he ruled as President of the ‘‘Republic of China’’ until his death. 58. Anna Eleanor Roosevelt (1884–1962), political leader and wife of President Franklin Roosevelt. A very popular figure, she was effective in building consensus to Roosevelt’s New Deal and played an important role, especially in the establishment of the UN and in the drafting and approving of the Universal Declaration of Human Rights. 59. Herbert Henry Lehman (1878–1963), banker and politician. After serving as acting governor under Roosevelt’s New York State governorship (1928–1932), Lehman was elected governor in his own state for three terms from 1932 to 1942. Under his leadership New York adopted a set of relief and reform measures known as the ‘‘Little New Deal.’’ During World War II, Lehman was appointed head of the Office of Foreign Relief and Rehabilitation Operations (OFRRO). In November 1943, Lehman was elected as director general of the newly created United Nations Relief and Rehabilitation Administration (UNRRA). In the postwar years, Lehman sat in the Senate and tried, with little success, to implement Truman’s Fair Deal by making its provisions more progressive. While supporting Truman’s anticommunist foreign policy, he became a resolute opponent to McCarthyism in the 1950s. 60. Frank William Taussig (1859–1940), economist. Taussig spent his entire academic career at Harvard, where he had attended completed his education. For more than four decades he served as editor of the Quarterly Journal of Economics and was among the founders of the Harvard Business School. Specializing from the beginning in international trade, Taussig wrote the fundamental The Tariff History of the United States (Taussig 1888) and International Trade (Taussig 1927). His Principles of Economics (Taussig 1911), had several editions and was widely adopted in American Universities. From 1917 to 1919, Taussig served as chairman of the newly created U.S. Tariff Commission, providing it with a highly qualified staff. Viner had been a graduate student of Taussig since 1914 and under his tutorship, wrote a Ph.D. thesis covering the workings of the balance of payments adjustment mechanism under the classical gold standard (see references from the Introduction section). Correspondence between Viner and Taussig is preserved in JVP, box 26, folders 1–2. On Frank Taussig, see Schumpeter, Cole, and Mason (1941) and Viner (1936, pp. 3–12). 61. Hornbeck, Stanley Kuhl (1883–1966), diplomat and public officer. As a State Department official he was deeply involved in East Asian affairs. 62. See Palmer (1919). 63. William Smith Culbertson (1884–1966), diplomat and public officer. He graduated from the Yale Law School and was an expert in international trade legislation devoting many books and articles to the subject. Since its creation in 1916 he served as a member of the U.S. Tariff Commission and in 1922 became its president. In the following years he was U.S. Ambassador to Romania (1925–1928) and Chile (1928–1933). In later years, he became a Colonel in the U.S. army.

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Correspondence between Viner and Culbertson from 1919 to 1935 is preserved in JVP, box 7, folder 21. 64. William Allen White (1868–1944), journalist and author. A Republican from Kansas, then allied with Theodore Roosevelt, White supported the foundation of the Progressive Party in 1912. 65. Charles Evans Hughes (1862–1948), governor of New York, secretary of state, and chief justice of the U.S. Supreme Court. 66. Warren Gamaliel Harding (1865–1923), 29th president of the United States. 67. The Shipping Board was established in 1916 with the aim of regulating and developing maritime trade and ensuring its security during the war. In 1933–1934, the board was abolished and most of its functions absorbed by the Department of Commerce. Viner’s correspondence regarding his appointment and work with the Shipping Board is preserved in JVP, box 37, folder 8. 68. Edwin F. Gay (1867–1946), economic historian and co-founder of the National Bureau of Economic Research. Gay was the first dean of the Harvard Business School (1908–1919). In 1919, he became editor and president of the New York Post, which had just been purchased by Thomas W. Lamont. In 1924, he returned to Harvard. Gay was the first president of the Economic History Association and a president of the American Economic Association (1929). Correspondence with Viner between 1930 and 1933 is preserved in JVP, box 11, folder 13. Other correspondence, related to Viner and Gay’s activity within the council on Foreign Relations in 1932–1933, is in box 7, folder 14. He was among the directors of the CFR from 1921 to 1945. For Gay’s life and career, see Heaton (1952). 69. The International Institute of Intellectual Cooperation (1922–1946) was established by the League of Nations with the aim of promoting intellectual work and international relationships between members of intellectual professions and improving their working conditions. Its committee enjoyed the membership of such personalities as Henri Bergson, Albert Einstein, Marie Curie, Be´la Barto´k, Thomas Mann, and Paul Valery. 70. The Sixth International Studies Conference was held in London from May 29 to June 2. On that occasion, Viner expressed the United States’ willingness to play an international leading role in promoting economic and monetary cooperation and fostering a general lowering of trade barriers based on the application of the most favored nation clause. At the same time, he defended the U.S. point of view against the Imperial Preference System established by the Ottawa conference in 1932. Viner’s contribution to the conference and a partial account of the discussions are published in International Institute of Intellectual Cooperation (1933). 71. The Committee for Economic Development (CED) was created in 1942 by a group of business leaders. The CED’s first aim was to foster the transition of the American economy to a peace-time production, avoiding the postwar depression, which was foreshadowed in many parts. At the end of World War II, the CED’s support was effective in fostering business for the Bretton Woods Agreements and later for the Marshall plan. For the CED’s origins and activity, see Schriftgiesser (1967). 72. Leo T. Crowley (1889–1972), banker and public officer. After a rapid business career and a financial collapse following the 1929 crisis, Crowley gained reputation

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as NRA administrator in Wisconsin and was selected by Roosevelt as chairman of the Federal Deposits Insurance Corporation in 1934 (see note 81). In 1943, he was appointed Head of the Foreign Economic Administration (1943–1945) designed to administer the Lend and Lease Program. Some correspondence with Viner from 1934 to 1943 is preserved in JVP, box 7, folder 19. 73. Lewis Williams Douglas (1894–1974), businessman and government official. Elected in 1926 as House Representative to Arizona and confirmed in the 1928, 1930, and 1932 elections, Douglas promoted a policy of small government and free market. During the 1932 presidential campaign he became close to Roosevelt, who at the time was promising to balance the budget and reduce government economic dimension. In early 1933, he accepted Roosevelt’s invitation to become his Director of the Budget. Yet the New Deal’s policies turned out to be incoherent with a balanced budget and Douglas resigned in August 1934. 74. Sara Ann Delano Roosevelt (1854–1941), wife of James Roosevelt and mother of Franklin D. Roosevelt. 75. Federal Deposit Insurance Corporation (FDIC), an independent U.S. federal executive agency designed to provide insurance coverage for bank deposits. The corporation, designed to prevent a repetition of the financial panic and chains of bank failures incurred during the Great Depression, was established on June 16, 1933 by the Glass–Steagal Act. 76. On December 30, 1941, a few days after the U.S. war declaration on Japan, Chiang Kai-shek asked President Roosevelt for a 500 million dollar loan to stabilize the Chinese currency and support his people’s war effort. Although Roosevelt, Hull, and Assistant Secretary Berle were inclined to accept the Chinese request, Morgenthau was unwilling to concede the loan, unless some form of control over its usage was accepted by the Chinese Government, whose financial and moral reputation was very low at the time (Blum, 1970, pp. 159–168). 77. Herbert Feis (1893–1972), economist and historian. A Harvard Ph.D. laureate in economics, he was appointed instructor in that university (1920–1921), associate professor at the University of Kansas (1922–1925), and professor at the University of Cincinnati where he also served as department head (1926–1929). In 1931, Secretary of State Henry L. Stimson called Feis to the State Department and appointed him economic adviser. Feis kept that post for more than a decade, devoting most of his work to international economic affairs such as the World Economic Conference, the Tripartite Agreement, the reduction of international debts, tariff negotiations with Brazil, and economic cooperation within the Western Hemisphere. In 1943, Feis moved to the Department of War where he served as special consultant to the Secretary until 1947. In his later years, he returned to academic life, teaching at the prestigious Princeton’s Institute for Advanced Studies. His friendship with Viner is testified by their correspondence between 1916 to 1943 preserved in JVP, box 10, folder 7. 78. Viner is probably referring to Tse-ven Soong (1894–1971), personal emissary of his brother-in law Chiang Kai-shek. In June 1940, Soong was sent to the United States to foster Chinese–American cooperation. Soong graduated from Harvard and upon returning to China engaged in private business. From 1928 to 1931, he served as Governor of the Bank of China and in 1932–1933 he was Minister of Finance. He

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acted as Minister of Foreign Affairs from 1942–1945, taking part in the founding of the United Nations at the San Francisco Conference. 79. Hu Shih (1891–1962), Chinese philosopher and diplomat. A student of John Dewey at Columbia University and expert in Traditional Chinese cultures, he served as Chinese Ambassador to the United States from 1938 to 1941. 80. If Viner’s account is correct, this meeting between Soong and Morgenthau would have occurred before December 30, 1941 when the Chinese request for a 500 million dollar loan was transmitted to Roosevelt by the U.S. Ambassador in China. If Viner’s reference to Friday is also correct, the first meeting with the Chinese emissary must be placed on December 19, or, most likely, December 26. Viner’s third appointment as Morgenthau’s Special Assistant on January 1, 1942, could be dictated by these circumstances. From January 5 to February 7, Viner took part in several staff meetings devoted to the China affair. See for example MD 482, 22; MD 491, 95, 270; MD 494, 67; MD 496, 36. 81. Maxwell McGaughey Hamilton (1896–1957), diplomat. In 1920, Hamilton entered the Foreign Service and spent seven years in China, where he distinguished himself for his skillful activities. Between 1927 and 1943 he served in the State Department’s Division of Far Eastern Affairs, playing an important role in shaping U.S. policy in East Asia. Working under Stanley Hornbeck (see note 63), he became increasingly critical against his policy advices; he especially opposed the imposition of economic sanctions against Japan on the ground that they increased its military aggressiveness. After Pearl Harbor, Hamilton supported the need for financial aid to China and the opportunity of its rising role as a regional power in the Pacific. From 1943 onward his role in American Foreign Policy decidedly diminished. 82. On February 7, Congress passed the joint resolution proposed by the Treasury, with the support of the other departments, stating that ‘‘The Secretary of the Treasury, with the Approval of the President, is hereby authorized on behalf of the United States to loan or extend credit or give other financial aid to China in an amount not to exceed $500,000,000 at such time or times and upon such terms as the Secretary of the Treasury, with the approval of the President shall deem in the interest of the United States’’ (Rees, 1973, p. 157). 83. James Clement Dunn (1890–1979), architect and diplomat. Member of the U.S. delegations to the Conference for Disarmament in Geneva (1932) and to the World Economic Conference in London (1933). In 1946, he was appointed chairman of the Council of Foreign Ministers in Paris. 84. Henry Lewis Stimson (1867–1950), lawyer and statesman. After graduating from Harvard Law School he started a successful business as a Wall Street lawyer. Involved with the Republican party, he was recruited by Theodore Roosevelt and acted as Secretary of War from 1911 to 1914. After taking part in World War I in Europe and having returned to his business in New York, Stimson led a special mission in Nicaragua to end civil war there and in 1930 he was appointed Secretary of State. In 1940, Roosevelt was aiming at building a bipartisan consensus on intervention in War World II and asked Stimson to join his staff as Secretary of War (1940–1945). 85. Jeannette Pickering Rankin (1880–1973), first woman in Congress and peace activist.

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ACKNOWLEDGMENT We would like to thank Pier Francesco Asso, Warren J. Samuels, and Paul Oslington for encouraging publication, and Courtney Smith for much friendly cooperation during our research at Columbia.

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Flanders, M. J. (1989). International monetary economics, 1870–1960: Between the classical and the neoclassical. Cambridge: Cambridge University Press. Grele, R. J. (1996). Directions for oral history in the United States. In: D. K. Dunaway & W. I. Baum (Eds), Oral history: An interdisciplinary anthology. Walnut Creek: AltaMira Press. Groenewegen, P. (1994). Jacob Viner and the history of economic thought. Contribution to Political economy, 3, 69–86. Heaton, H. H. (1952). A scholar in action: Edwin F. Gay. Cambridge, MA: Harvard University Press. Hornbeck, S. K., Viner, J., Day, C., & Palmer, W. B. (1919). Reciprocity and commercial treaties. Washington: Government Printing Office. Hutchison, T. W. (1994). The wisdom of Jacob Viner: ‘Outstanding all-rounder’, and profound and persistent methodological critic. In: The uses and abuses of economics (pp. 260–281). London: Routledge. Ickes, H. (1953). The secret diary of Harold Ickes (Vol. 2, no. I, pp. 223–224). New York: Simon and Schuster. Ikenberry, G. J. (1993). The political origins of Bretton Woods. In: M. Bordo & B. Eichengreen (Eds), A retrospective on the Bretton Woods system: Lessons for international monetary reform (pp. 155–198). Chicago: University of Chicago Press. International Institute of Intellectual Cooperation. (1933). The state and economic life. Paris: International Institute of Intellectual Cooperation. Johnson, H. G. (1939). The Treasury and monetary policy (1933–1938). Cambridge, MA: Harvard University Press. Laidler, D. (1999). Fabricating the Keynesian revolution. Studies of the interwar literature on money, the cycle, and unemployment. Cambridge, MA: Cambridge University Press. Laidler, D., & Sandilands, R. ([2002] 2003). An early Harvard memorandum on anti-depression policies: An introductory note. In: R. Leeson (Ed.), Keynes, Chicago and Friedman (Vol. 2, pp. 251–270). London: Pickering and Chatto. Lyon, L. S., Homan, P., Lorwin, L., Terborgh, G., Dearing, C., & Marshall, L. C. (1935). The National Recovery Administration. Washington, DC: The Brookings Institution. Machlup, F. (1972). What the world thought of Jacob Viner. Journal of Political Economy, 80(1), 5–11. Mata, T., & Lee, F. S. (2007). The role of life histories in writing the history of heterodox economics: Identity and difference in radical economics. In: Weintraub, E. R. & Forget, E. (Eds), Economists’ lives: Biography and autobiography in the history of economics. History of Political Economy, 39(Suppl.), 154–171. Meltzer, A. H. (2003). A history of the Federal Reserve, vol. 1: 1913–1951. Chicago: University of Chicago Press. Namorato, M. V. (1988). Rexford G. Tugwell: A biography. New York: Praeger. Nerozzi, S. (2007). Between Harvard and Chicago: Jacob Viner and New Deal banking reforms. Storia del Pensiero Economico, New series, 2, 29–66. Nerozzi, S. (2009, forthcoming). Building up a multilateral strategy for the United States: Alvin Hansen, Jacob Viner and the Council on Foreign Relations (1939–1945). In: R. Leeson (Ed.), American power and policy. Houndmills, Basingstoke, UK: Macmillan. Ohl, J. K. (1985). Hugh S. Johnson and the New Deal. Dekalb: Northern Illinois University Press.

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Palmer, W. B. (1919). American industries and foreign trade following the war. Annals of the American Academy of Political and Social Science, International Economics, 83(May), 118–132. Phillips, R. J. (1994). An end to private banking: Early New Deal proposals to alter the role of the federal government in credit allocation. Journal of Money, Credit and Banking, 26(3), 552–568. Rees, D. (1973). Harry Dexter White: A study in paradox. New York: Coward, McCann & Geoghegan. Renshaw, P. (1999). Was there a Keynesian economy in the USA between 1933 and 1945. Journal of Contemporary History, 34(3), 337–364. Robbins, L. (1970). Jacob Viner (1892–1970): A tribute. Princeton, NJ: Princeton University Press. Samuelson, P. (1972). Jacob Viner (1892–1970). Journal of Political Economy, 80(1), 5–11. Sandilands, R. J. (1990). The life and political economy of Lauchlin Currie: New Dealer, Presidential adviser, and development economist. Durham, NC: Duke University Press. Sandilands, R. J. (2000). Guilt by association? Lauchlin Currie’s alleged involvement with Washington economists in Soviet espionage. History of Political Economy, 32(3), 473–515. Sandilands, R. J. (Ed.) (2004). New light on Lauchlin Currie’s monetary economics in the New Deal and beyond. Journal of Economic Studies, Special issue, 31(3/4), 170–403. Sandilands, R. J., & Boughton, J. M. (2003). Politics and the attack on FDR’s economists: From grand alliance to cold war. Intelligence and National Security, 18(3), 73–99. Schapsmeier, E. L., Frederick, H., & Wallace, H. A. (1968). The agrarian years, 1910–1940. Ames: Iowa State University Press. Schriftgiesser, K. (1967). Business and public policy: The role of the Committee for Economic Development, 1942–1967. Englewood Cliffs, NJ: Prentice-Hall. Schumpeter, J. A., Cole, A. H., & Mason, E. S. (1941). Frank William Taussig. Quarterly Journal of Economics, 55(3), 337–363. Schwarz, J. A. (1987). Liberal: Adolf A. Berle and the vision of an American era. New York: Free Press. Shoup, L. H. (1975). The Council on Foreign Relations and the United States’ war aims during World War II. The Insurgent Sociologist, 6(2), 9–52. Stein, H. (1969). The fiscal revolution in America. Chicago: University of Chicago Press. Stein, H. (1995). Jacob Viner: Master of the ‘‘no school’’ school of economics. In: On the other hand. Essays on economics, economists, and politics. Washington, DC: AEI Press. Steindl, F. J. (1995). Monetary interpretations of the Great Depression. Ann Arbor: Michigan University Press. Taussig, F. W. (1888). The tariff history of the United States. New York: G. P. Putnam’s Sons. Taussig, F. W. (1911). Principles of economics. New York: Macmillan. Taussig, F. W. (1927). International trade. New York: Macmillan. Thomson, A. (1998). Fifty years on: An international perspective in oral history. Journal of American History, 85(2), 581–595. Viner, J. (1917). Some problems of logical method in political economy. Journal of Political Economy, 25(3), 236–260. Viner, J. (1919). Reciprocity and commercial treatise. Washington, DC: Government Printing Office. Viner, J. (1921). The international aspect of tariff legislation. The Pacific review, 2(September), 276–286.

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Viner, J. (1922). Dumping as a method of competition in international trade. University Journal of Business, 1(1), 34–53 and 1(2), 182–190. Viner, J. (1923). Dumping: A problem in international trade. Chicago: University of Chicago Press. Viner, J. (1924a). Canada’s balance of international indebtedness, 1900–1913: An inductive study in the theory of international trade. Cambridge, MA: Harvard University Press. Viner, J. (1924b). The most-favored-nation clause in American commercial treatise. Journal of Political Economy, 32(1), 101–129. Viner, J. (1925a). Some recent changes in American commercial policy. The Economist, London, June 6, pp. 1124–1125. Viner, J. (1925b). The tariff in relation to agriculture. Journal of Farm Economics, 7, 115–123. Viner, J. (1925c). The utility concept in value theory and its critics. Journal of Political Economy, 33(4), 369–387 and 33(6), 638–659. Viner, J. (1926a). Memorandum on dumping. Publication of the League of Nations, II, Economic and Financial Section, Geneva, II, p. 63. Viner, J. (1926b). American export trade and the tariff. Annals of the American Academy of Political and Social Sciences, 127(September), 128–133. Viner, J. (1927). Adam Smith and laissez-faire. Journal of Political Economy, 35(2), 198–232. Viner, J. (1931). The tariff question and the economist. The Nation and Athenaeum (London), 48(February 7), 592–594 and (February 14), 626–628. Viner, J. (1936). Professor Taussig’s contribution to the theory of international trade. In: E. S. Mason (Ed.), Explorations in economics: Notes and essays contributed in honor of F.W. Taussig (pp. 3–12). New York: McGraw-Hill. Viner, J. (1937). Studies in the theory of international trade. New York: Harper & Brothers. Viner, J. (1942). Objectives of post-war international economic reconstruction. In: W. Mc Kee & L. J. Wiesen (Eds), American economic objectives. New Wilmington, PA: Economic and Business Foundation. Viner, J. (1943a). Trade relations between free market and controlled economies. Geneva: League of Nations. Viner, J. (1943b). Two plans for international monetary stabilization. The Yale Review, 37(1), 77–107. Viner, J. (1949). Bentham and J.S. Mill: The utilitarian background. American Economic Review, 39(2), 360–382. Viner, J. (1950a). The customs union issue. New York: Carnegie Endowment. Viner, J. (1950b). A modest proposal for some stress on scholarship in graduate training. Address before the Graduate Convocation, Brown University, June 3. Papers XXIV, Brown University, Providence, RI. Viner, J. (1951). International economics. Glencoe, IL: The Free Press. Viner, J. (1952). International trade and economic development. Glencoe, IL: The Free Press. Viner, J. (1955). International trade theory and its present-day relevance. In: Brookings Institution (Ed.), Economics and public policy (pp. 100–130). Washington, DC: Brookings Institution. Viner, J. (1960). The intellectual history of laissez-faire. Journal of Law and Economics, 3(1), 45–69. Viner, J. (1965). Guide to John Rae’s life of Adam Smith. New York: Augustus M. Kelley. Viner, J. (1976). The role of providence in the social order. Philadelphia, PA: American Philosophical Society.

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Viner, J. (1978). In: J. Melitz & D. Winch (Eds), Religious thought and economic society. Durham, NC: Duke University Press. Viner, J. (1991). In: D. A. Irwin (Ed.), Essays on the intellectual history of economics. Princeton, NJ: Princeton University Press. Viner, J. ([1944] 1951). The case for the Bretton Woods agreement. In: International economics (pp. 232–246). Glencoe, IL: The Free Press. Weintraub, E. R., & Forget, E. (Eds). (2007). Economists’ lives: Biography and autobiography in the history of economics. Durham, NC: Duke University Press. Weintraub, E. R., Meardon, S. J., Gayer, T., & Banzhaf, S. (1998). Archiving the history of economics. Journal of Economic Literature, 36(3), 1496–1501. Winch, D. (1981). Jacob Viner. The American Scholar, 50(4), 519–525. Winch, D. (1983). Jacob Viner as intellectual historian. Research in the history of economic thought and methodology (Vol. 1). Greenwich, CT: JAI.

ARCHIVAL SOURCES JVP Jacob Viner Papers, John Seeley Mudd Manuscript Library, Princeton University, Princeton, NJ LC Lauchlin Currie Papers, Rare Book, Manuscript and Special Collections, Duke University, Durham, NC MD Morgenthau Diaries, Franklin Delano Roosevelt Presidential Library, Hyde Park, NY MP Morgenthau Papers, Franklin Delano Roosevelt Presidential Library, Hyde Park, NY

DON LAVOIE’S GRADUATE LECTURES ON COMPARATIVE ECONOMIC SYSTEMS: GEORGE MASON UNIVERSITY, FALL 1985 Notes taken and edited by David L. Prychitko PREFACE Peter Boettke and I had taken Don Lavoie’s graduate Comparative Economic Systems course during the Fall of 1985. Lavoie had just published Rivalry and Central Planning (Lavoie, 1985b) and National Economic Planning: What is left? (Lavoie, 1985a), and was at the cusp of establishing himself as a major player in the comparative systems and contemporary critique of socialist planning literature.1 The course met once a week, on Tuesday evenings for three and a half hours. Lavoie would lecture from a handful of 3  5 index cards each evening for two and a half straight hours. The remaining half hour or so was reserved for student comments and discussion. Each evening was nothing short of an inspiring performance. It seemed to us that, had the course met for 5 h each evening, Lavoie could have continued on with his performance (and probably would still only leave the class with a half hour of discussion). He was indefatigable.

A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 137–204 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A009

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As a student I came away from each lecture both awe inspired and exhausted: awe inspired because of his remarkable command of the literature, from Marxian dialectics to Soviet history to the details of the socialist calculation debate, and his refreshingly radical interpretation and openness to viewpoints of which he personally and professionally disagreed; exhausted because of the sheer amount and depth of the material (much of it entirely new to me, such as Marxist philosophy) and the nonstop nature of his lecture style. (Somehow Boettke always seemed reinvigorated after each lecture.) Each lecture would give us another week’s worth of new ideas for further discussion, among ourselves and with Lavoie himself. That semester I set for myself the task of taking as detailed a set of notes that I could possibly muster each evening. These are as follows. I have made minor stylistic changes here and there and I provide headings that are not found in his course syllabus to improve the flow and structure of my notes. I’ve added some transitional sentences in places where my notes seemed to have gaps, to improve their readability, and I’ve moved some of Lavoie’s asides to endnotes. These notes can be treated as quotable material from Lavoie. My own editorial and substantive comments appear in square brackets. I’ve also provided portions of Lavoie’s nine-page syllabus, to give the reader a sense of Lavoie’s goals and expectations in this course. I’ve left out a listing of the 30þ books and articles placed on library reserve, and the details of the course outline. The reader will also find another reason for my extensive in-class note taking: There was a paper on Marxism due rather early (at the midpoint of the semester), and only one exam – a final that ‘‘will cover all the lecture and reading material.’’

FROM THE COURSE SYLLABUS This course studies how radically different kinds of economic systems work, that is, it is primarily the study of theories of and experience with socialism. In effect this is two courses, one on Marxism, the other on everything else that is usually called comparative economics, which includes the Soviet economy. Those who wish to specialize in comparative economic systems (CES) as a field will have to take the advanced course on the Soviet Economy, which will be offered next spring (for which this course is a prerequisite). At some point there will also be an advanced Marxian economics course (which will also have this course as a prerequisite), but this is not needed for the field exam in CES.

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The main theories of socialism have been Marxism and Market Socialism, which are examined in Parts I and II of this course. The most important practical experience with an economic system at least purported to have been inspired by socialist theory is the Soviet Union, which is studied in Part III. Finally, Part IV briefly examines other radically different systems that have been proposed including fascism or corporativism, anarchosyndicalism, worker’s self-management, and anarcho-capitalism. Extra attention is being paid in this course to Marxism not only because the instructor believes it is important (and necessary to understand Part III) but also because Marxism is unlike anything else in the field of economics and requires an unusual effort to understand. Learning Marxism is virtually learning a whole new language whereas Parts II, III, and IV are more a matter of applying our regular economic language to special topics in economic history and theory. The Bottomore (1983) book is supplied in light of the fact that learning a language is facilitated by the use of a dictionary. Like with any dictionary, the explanations in this one are circular and there’s no one best order in which it should be read. I have, however, suggested a particular ‘‘path’’ through the book later, which I recommend as a good gradual way to learn to speak the language. Whenever questions arise from the lectures or readings the dictionary should be used. It will not only help with your Marxist vocabulary, it will show you how later Marxian scholarship developed and sometimes altered these concepts. The Elliot (1981) book is a reasonably good selection of Marx and Engels writings which gives, better than any single work of the authors themselves, a fair picture of the main ideas of Marxian economics. Since I am using my own book [1985b] on the topic of market socialism, I will spend very little lecture time on this topic to avoid repeating myself. The other topics depend primarily on lectures as well as readings on reserve in the library. The grade in this course will be composed of a scholarly paper (40%) and a final exam (60%). The paper (on Marxian economics) will be due October 29, and should be written as if intended for a professional journal. I expect something in the order of 20–30 double-spaced typed pages. The Elliot and Bottomore books will be helpful as guides to a possible topic but the paper should go beyond these to examine at least one original, complete work of either Marx or Engels or their followers or precursors. The final exam will cover all the lecture and reading material distributing about equal attention to each of the four parts of the course.

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PART I: MARXISM MARX AS FOUNDER OF COMPARATIVE ECONOMIC SYSTEMS Karl Marx is perhaps the founder of the field of comparative economic systems, a field which asks the big questions – for example, why money? He can be considered a founder because his theory of socialism is radically different from what we were used to. He made socialism a major issue of the 20th century. The socialists who prevailed before Marx were uniformly uneducated in economics. As Marx said, they were ‘‘utopian’’ socialists (in the bad sense of utopian). They offered nothing at a high level of economic sophistication. Marx, on the other hand, was the first well-trained economist to advocate socialism. Halm (1935) claims instead that the field of comparative systems originated not with Marx, but with the Russian Revolution of 1917, when individuals embarked on changing the system. But to understand people like Lenin, we better understand his predecessors such as Marx (and Ricardo and Smith). Ideas are important and have consequences which are infinitely immense. Therefore, we must first understand the ideas that brought about the socialist systems we see today. So we consider actually two systems: (1) systems of thought (Marxism, Austrianism, etc.) and (2) economic systems (traditional, market, and planned).

Classifying Economic Systems Neuberger (1985) offers four classifications of an economic system, based on (1) decision-making structure; (2) motivation structure; (3) information structure; and (4) coordination structure, and examines the extent to which each structure is centralized or decentralized. But the first three are actually derivative of the fourth, the coordination structure. This structure can be broken into three types of economic systems: (1) Tradition: Peasant type economies, early agricultural economies, and so on. The traditional economy is not advocated by systematic political thinkers; it arose long before the development of political theory.

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(2) Market: The market economy has a logic of its own, a spontaneous order led as if by an invisible hand. (3) Planning: The ‘‘rational’’ coordination of an economic system. Neuberger’s description of planning is not very good, for he equates planning with Stalinism. Marx’s conception of planning is much more radical than this.2

Influences on Marx French Radicalism Socialism was an offshoot of a general radicalism (of which libertarianism was a large part at the time). Saint-Simon was enamored with planning, leading to Saint-Simonism, which influenced Marx. Comte and Dunoyer were in favor of the working class, and so on, but differed from Saint-Simon in that they were quite libertarian and had no idea of a centrally planned society. ‘‘Scientific socialism,’’ ‘‘positivism,’’ and ‘‘central planning’’ all originated in this school of thought. Saint-Simonism, however, became almost a religion of science, which Marx hated. Saint-Simon wanted to replace the church with a scientific church, literally speaking. English Political Economy Let’s first note that Marx was influenced by French Radicalism and German Philosophy before reading English Political Economy. That is, he already had a vision of a communist future (due to Hegel’s work) before reading works in political economy. He then used political economy to support a case that he already believed, attempting to integrate Ricardo’s political economy with his own political philosophy. German Philosophy Marx was extremely interested in the Young Hegelians, who were all enamored with Saint-Simonism, and all leftist followers of Hegel. Hegel, however, held a conservative attitude toward the Prussian State. The Young Hegelians did not agree with Hegel that the present reality (of their time) is the culmination of history, and therefore felt somewhat alienated by Hegel, so they launched a left wing reinterpretation.

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Feuerbach took a turn and viewed mind being driven by the material forces of history (just the opposite of Hegel). Ideas are but a symptom of material changes. The idea of alienation comes entirely out of the philosophical system of Hegel. Following Kolakowski (1981), German Philosophy can be broken down into three distinct categories: (1) Romanticism: Rousseau’s idea of the noble savage – the market system ravaged the original state of man. A conservative, backward-looking philosophy, but it has a direct complaint against capitalism as an economic system. Marx took the antimarket attitudes, and turned it into a forward-looking revolutionary ideal. (2) Prometheanism: Prometheus was the hero who held out for his beliefs. Marx developed a vision of the heroic struggle of the working class. Marx was basically influenced in this respect through culture and the arts – one being Goethe’s work, at least implicitly. But, whereas most Promethean types of literature were individualistic, and voluntaristic, Marx made the human species as a whole the hero. (3) Rationalism: Feuerbach’s turning around of Hegel was a rationalistic act. Marx himself was after a scientific understanding of the laws of capitalism. Taken to its extreme, however, rationalism leads to determinism – everything is but the laws of history, and so the world cannot be changed. A kind of voluntarism all the way to the opposite extreme. Marx wanted to steer his way through both of these unacceptable extremes. The Paris Revolt After the Paris Revolt, Marx was critical of a quick transformation of society – it taught him not to be overconfident of immediate change. The Paris Commune (1871) was important because it lead Marx to be hopeful again. He thought the commune would turn into a large socialist system. Unfortunately, it was defeated by the French State.

Marx’s Influence on the Second International Here he realized that only a dictatorship of the proletariat would get us into communism. And just at this time the ideology of Marxism would take off like wildfire, eventually establishing the Second International (1889–1914).3

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Marx had predicted the disappearance of the working class, but his predictions were not fulfilled, which led the Marxists of the Second International to revise parts of Marx’s thesis. Bernstein, for instance, created a revisionist/reformist theory that explained why Marx’s original ‘‘laws of motion’’ were not working. Luxembourg developed the notion of imperialism as a stage of capitalism, and argued that the working class in the United States were not made worse off (contrary to what Marx had predicted), because capitalist exploitation was shifted to Third World countries. Labriola (a precursor of Gramsci, and of the Frankfort School), condemned the deterministic ideas of Marx (admittedly popular during the Second International), and attempted to redevelop the Promethean and voluntaristic conceptions of social change. Hilferding and the Austro-Marxists were some of the best of the era. Hilferding’s ([1910] 1981) Finance Capital examined banking, imperialism, and war. Bukharin ([1915] 1929) (Lenin’s right hand man) further developed the theory of imperialism as well, which inspired Lenin’s ([1916] 1964) Imperialism: The Highest Stage of Capitalism. Bukharin also debated against the Austrian School economists – especially Bo¨hm-Bawerk. Kautsky was probably the most famous orthodox Marxist of his day, deviating to the least from the basic doctrine of Marx and Engels. On the other hand, Luxembourg was more revolutionary than most of the Marxists at the time. And then there’s Plekhanov, a Russian Marxist philosopher who influenced Lenin, and Sorel, who became enamored with nationalism and fused that with Marxism, and thereby provided a direct influence on Mussolini and other theorists of fascism.

The Demise of the Second International The year 1914 marked the end of the golden age of Marxism with the outbreak of World War I. The Second International collapsed, as the participants were solidly against the war. Most of these people abandoned their international aspirations and became supporters of their own governments. Stalin, Lenin’s immediate successor, made Marxism into an official creed of the Soviet government, and essentially destroyed Marxism as a scientific system of thought. Trotsky still today has a fairly strong following in Western Marxism. He was a radical in Lenin’s regime, and made Lenin a hero in his work on the

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Russian Revolution. He fled Stalin’s regime and went to exile in Mexico, where Stalin later had someone bury an axe in his head.

THE VISION OF MARXISM Schumpeter speaks of ‘‘vision’’ in economic theory. Vision is the broad, worldview of thinkers. What exactly is the vision of Marxism? For this, we must turn to both its economic and philosophical directions. Marx should be seen as the founder of comparative economic systems, because he was one of the first to discuss ‘‘the capitalist system’’ (capitalism was basically an idea coined by Marx as a special historical period with highly discernable coordinating mechanisms).

The Role of Dialectics The Hegelian triad is expressed in terms of the thesis/antithesis/synthesis. In this view, some early form of thought (thesis), in its development, presents a negation of itself (an antithesis), which in turn and in its own development arises a synthesis of the thesis and antithesis. This is a pattern used to describe things.4 Marx used the Hegelian triad to explain historical social development, whereby primitive communism is the thesis, capitalism is the antithesis, and socialism (Marx and Engels used ‘‘communism’’ and ‘‘socialism’’ synonymously) is the synthesis. It’s a slow evolution from the thesis to antithesis; a dramatic and violent change brings about the synthesis to socialism. The primitive communist society, from Marx’s dialectical view, is ‘‘good’’ in a political sense – it’s a close-knit community; it’s nonalienated. But it’s a technologically backward economy. Capitalism, as the antithesis of primitive communism, gets worse politically (it’s alienated) while it also advances technologically. The synthesis – socialism – takes the best elements of the two. Technological advancement proceeds, but now on a communal basis. (Compare this to Neuberger’s notions of tradition, market, and planning.) Everything Marx does is an analysis of the antithesis – capitalism as it existed in his day, at least relatively speaking. Yet he is taking for granted that socialism is in the future, and his view of capitalism therefore presupposes a future socialist state. In his view, capitalism is the most developed economic system in the history of mankind, only to be

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superceded in the future by socialism. Capitalism is incomplete and defective only from the point of view of the future. In this way, Marx uses socialism – a future point of view – as a foil to examine capitalism. That is, capitalism is a backward point of view as seen from the socialist foil. This is why Marx attacks the utopian socialists for only looking ahead and failing to be scientific in the sense that they were not adopting the socialist perspective to examine the capitalist system. Against the utopian socialists, Marx and most Marxian literature offer very little detailed discussion of the future socialist society. Instead, they engaged in much historical work on capitalism. Some posit interventionism as a fourth ‘‘system,’’ one which lies between capitalism and socialism. In a sense that may be misleading because the basic coordinating mechanism in interventionism is still the market (profit and loss accounting, money and monetary prices, etc.) but the central government enjoys discretionary power to intervene in the market system to ‘‘steer’’ the market in one direction or another. (Perhaps it would be misleading not to treat interventionism as a separate system, because it is seen as something more ‘‘scientific,’’ as opposed to being dogmatic. Advocates of interventionism always leave discretion in the hands of government to intervene. They do not dogmatically favor capitalism as a completely market-oriented mechanism or socialism as a totally planned economic system. But interventionism as a worldview is dogmatic in the sense that it always leaves discretionary authority to the state, and is therefore not more ‘‘scientific’’ than the others.)5

Central Planning as the Future Before Marx ever started studying economics, he already believed that central planning was possible, due mainly to his Hegelian proclivities. When he turned to political economy, he saw arguments favoring central planning (such as the reserve army of labor, and so on). Marx sees socialism as an evolutionary product of certain underlying forces. Developmental forces are always a fundamental element of his argument. Economies are seen as evolving by some logic of their own, affected by individual choices and action. He steers between voluntarism and determinism, but he thinks that the evolutionary process will end in communism. Its virtue will be that the course of events will be planned by a central authority. The conscious activities of the central planning committee

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will completely overcome all past evolutionary change: the laws of change are entirely subsumed by the central committee. Marx identified with the working class, viewing them as heroes fighting against the capitalists – this is what led to the formation of the Internationals. Besides growing up in an environment of strikes, massive business cycle problems also took place, and Marx saw this as an inherent, chaotic element of capitalism. He was one of the first systematic economists to view the cycle as an interconnected whole.6 Schumpeter credits Marx as the originator of business cycle theory, and Schumpeter himself developed the idea of creative destruction – a Marxist point of view. Therefore, it seemed only rational that in the future we would have a more orderly, rational economic system. Here technology is not a force that controls us, but rather one that is totally controlled by us. Marx sees an embryo of rational planning in capitalism – for instance, the entrepreneur and his firm – but the entrepreneur casts his rational plan into the ‘‘waves and breakers of the capitalist sea’’ (to quote Schumpeter), and hence a chaotic resultant of the clashing of otherwise rational plans arises. The socialist system is, in comparison, totally rational, where man really gains ultimate control over his society. [By ‘‘man’’ Marx means not an individual, but a category: mankind.] Marx’s audience is invariably other socialists. He viewed traditionalists and capitalists as antihistorical. He was trying to convert the syndicalists and utopian socialists, and never bothered to direct his argument to the enemies of the socialist movement as such, but instead saw himself steering the socialist movement.

The Critique of Hegelian Idealism Basically all of Marx’s writings between 1843 and 1847 were a shaping of his own thought; an attempt to develop his political stance through philosophy. He critiqued the Hegelian notion of idealism, a critique which was virtually borrowed in its entirety from the materialist Feuerbach [see, e.g., Marx, [1844] 1964, pp. 170–193]. Feuerbach argued that ideas are derived from individuals, not from some Geist (in which The Idea is seen as deriving everything else). Marx recognized with Feuerbach that individuals have minds, but criticizes him for failing to acknowledge that individual minds are a product of the material forces of history. Marxian philosophy in general treats idealism as a thesis, materialism as an antithesis, and Marxism (historical materialism) as the synthesis. Socialism becomes dominant in

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society, resulting from the historical social changes that influence the minds of individuals of these epochs. The individual minds are historically situated in society. Idealism – metaphysical, historical, and ethical – denies the explanatory primacy of human agency (deliberate choice). Metaphysical idealism sees reality as consisting of minds or ideas and concludes that all what reality is is mind. Historical idealism sees agency as equal to the historical world. Essentially, then, it denies the unintended consequences of human action – an extreme voluntarism. (But note that nearly all Political Economy points to unintended consequences). Ethical idealism is a kind of utopianism, which projects an empirically ungrounded perspective. That is, it projects an empirically ungrounded future world – it does not extrapolate the future society from present trends. Note that Marx grounds his own perspective in terms of present trends: communism is indicated as the future that the present is heading toward. It is not a utopian ideal. Dialectical Materialism (Diamat) – for Marx the whole philosophy of the social sciences – has three main aspects (1) The idea that quantity changes will accumulate into a qualitative transformation. (2) The idea of the unity of opposites. In concrete reality, opposites are embedded together. Contradictions exist not in ideas, but rather in the real world. In other words, the real world is both A and not A. For example, capitalism contains the seeds of its own destruction. (3) The negation of negations. The idea of seeing everything in terms of the reversal of some previous thing.7 Marxist humanism (Lukacs, Korch, Habermas, and the Frankfort School) had reacted against the Diamat. Althusser has since come back (in the 1970s) to defend Soviet Diamat analysis.

The Critique of Crude Materialism Marx attempted to transcend idealism and materialism. Feuerbach (the materialist) believed there was a fixed human nature. Marx wanted to go beyond this and show there is an evolution of human nature. Marx insists that history is nothing but the activity of humans pursuing their ends. He recognizes the purposiveness of human agency. The crude materialist notion reduces history to the forces of the natural world, tending to stress the forces of history over those of the intentions of

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the agents. (Hegel would go to the other extreme.) Marx wanted to steer between these two conceptions. From Bottomore (Bhaskar, 1983b, pp. 324–325): Marx’s use of materialism (1) tends to connote a denial of the primacy of ideas. (It simply says that something lies behind ideas; they’re not autonomous.) (2) connotes a commitment to a concrete historical approach, which will inform us of the future. (3) sees a centrality of human praxis in the production and reproduction of social life. (Praxis is basically action.) (4) stresses labor as the most important aspect of praxis. (5) stresses the significance of nature, putting bounds on the limits of human agency (e.g., the scarcity of resources). (6) insists that the real world matters. With the issue of materialism comes the issue of determinism. The Diamat version leads directly to determinism. The Bottomore people [i.e., the contributors to Bottomore, 1983] don’t interpret Marx as being a determinist. There are three possible meanings of a determinist interpretation of Marx: (1) things are inevitable, (2) things are predictable, and (3) things are fated. All of these are discarded by the Bottomore philosophers: Are things inevitable? It’s very implausible to say that Marx believed things followed a set of sequences inevitably. For example, the ‘‘superstructure’’ is totally determined by the system’s ‘‘base.’’ Integrative pluralism (more than one thing affects different things – no one-way causation) is more plausible against this materialist monism. Are things predictable? Marx’s predictions are conditional, if-then statements. But there is one that isn’t conditional: the prediction that communism will eventually arise. Are things fated? Should we do anything? There’s no need to if the system automatically tends somewhere. Note that Marx was very focused on starting the revolution – he was not a fatalist. History, for Marx, is the action of people. Humans have a causal role in social evolution. Soviet Diamat, on the other hand, does tend toward a determinist view of the world.8

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Logic and Contradiction To ‘‘negate’’ capitalism is to focus on or pick out the self-defeating aspects of capitalism. Two main thrusts of Marxian works focus on the alienating and exploitative properties of capitalism. Marx speaks of the ‘‘contradictions’’ of capitalism in this light. There are four types of contradictions: (1) Logical inconsistency. (Diamat argues that the real world – reality itself – is contradictory.) (2) Opposing tendencies that cancel each other out. In neoclassical language, equilibrium. This is not a dialectical notion. (3) Historical dialectic contradiction. (4) Structural dialectical contradiction (which is more basic than #3). Something is dialectical if it has two characteristics (1) The interpretation of opposites; inclusive oppositions; opposites combined together. (2) The phenomenon is internally related to a mystifying form. For example, there’s a disguise in capitalism: it is not ‘‘up front’’ in the way it really works. Exploitation is clouded by a mystifying form of capitalism. The two most famous contradictions in Marxian analysis are structural, namely (1) the contradiction between concrete useful labor and abstract social labor. (2) the contradiction between use value and exchange value. Here, each opposing aspect is necessary for the other. Marx works with these contradictions and builds up to historical contradictions, such as (1) the contradiction between the relations (property, contracts, etc.) and modes of production. (2) the contradiction between capital and the working class.

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Marx’s Philosophy vs. Four Other Philosophical Positions9 (1) Historicism as the notion that history is essentially a prewritten script. Popper criticized both Hegel and Marx for this. Our readings argue that Hegel is guilty here, but not Marx. (2) Historicism as the notion in which there is no role for theory at all. There is no systematic way to select interpretations of history. Relativistic. (3) Positivism: Traces back to August Comte and Otto Neurath. Most Marxists attacked positivism’s idea that predictive power is the scientific element of an explanation. Positivism also has a tendency to reduce human history to natural elements (naturalism) and is reductionist. Furthermore, there’s a Darwinist element explaining evolutionary processes as mechanical, which ignores or eliminates human agency. (4) Empiricism: An empiricist method minimizes the role of theory. First gather data on how reality is shaped and then generate a theory. Marxists rebel against this because it takes the immediate appearance of the world as given. Marxists instead argue that the essence of the phenomena differ from the surface of this reality. Neoclassical economists engage in vulgar economics (as described by Marxists). But actually neoclassical economists trace prices down to the utility maximizing plans of agents; Marxists trace prices to the labor theory of value.10

THE MARXIAN THEORY OF DEVELOPMENT: AN OVERVIEW The Plan11 Marx’s plan was to focus on the following eight elements: (1) (2) (3) (4) (5) (6) (7) (8)

Abstract determinants which exist in all societies Capital Wage labor Landed property The State International trade The world market Crises

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Marx was going to name his massive eight-volume work The Critique of Political Economy, being critical of theory, rather than a builder of theory. Marx analyzes the modes of production that undergo economic change. There is a set of abstract determinants in all societies. It had been a fallacy of political economy before him to look at all societies as having the same type of laws as the capitalist system from which most of the economists’ work had been based on. [For example, the claim that demand curves exist in all times and places, and always slope downward.] Elements 2–8 were an extension of the general factors found in element 1 to analyze the specific form of capitalism. Those elements would be further broken down into the following: (1) Capital (a) capital in general (b) competition (c) credit (d) share capital (2) Landed property (3) Wage labor (4) The State (and class) (5) International trade (6) World market (credit and crises) These issues were to be reformulated into six books, the form of which is outlined above. Marx’s work on capital looked at physical capital and its evolution, and also the payment to capital in the form of interest. This is basically all that he got around to studying. As a matter of fact, he only got to 1(a) earlier – capital in general. He failed to get to his overall plan, which was left to the later Marxists to fill in the gaps.

Historical Materialism: Base and Superstructure The base of a society provides the way that economic production takes place (see Fig. 1). It consists of two elements that are often at odds with each other: (1) The relations of production. These are interpersonal relations in the production process (e.g., private ownership of the means of production). (2) The forces of production. These are characteristics of a particular mode of production.

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SUPERSTRUCTURE

BASE

Fig. 1.

Base and Superstructure.

The main causal connection stems from the base to the superstructure. The base has a ‘‘priority’’ – it’s the primal driving force of economic life.12 The superstructure includes everything else, such as ideas, religion, legal relations, and institutions. It is shaped by the underlying economic base. A conflict exists between the relations and forces of production. The main contradiction of capitalism exists here. In this way, Marx’s approach is very systems oriented: each system has its own driving force. The essence of historical materialism is therefore a theory of changing systems. Under capitalism, the base is constantly creating more wealth. Marx attacks this because it wrongly distributes wealth, but at least it’s a progressive feature of capitalism.13

Marx’s Use of Base and Superstructure to Explain History The Primitive Communist System These people faced a hand-to-mouth existence, much like baboon tribes. Man in his most backward form. But, in the relations of production there exists a communality. The aspect of mutual respect is adhered to. The superstructure consists of primitive social taboos. Primitive trade (reciprocal gift giving) emerges as one tribe confronts another. As the intertribal connections continue, and as wealth arises and is stored, class relations emerge. Here, relations of class conflict begin to arise. The Asiatic Mode of Production This is a special case that lies outside the usual course of development, and is Marx’s way of trying to explain the Chinese economy in the mid-19th century. The Asiatic mode of production did not seem to contain the seeds

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of its own destruction. It got stuck with a centralized ruling class dictated by agrarian technology. There was a direct relationship between the bureaucratic class and the landowner class, which dominated the peasantry. Marx’s explanation of the system failing to further develop is a controversial one. The Ancient Economy An example would be the Roman economy, depicted by master–slave relations and an agricultural orientation. The superstructure is the empire, with the slave class being constantly rejuvenated by conquest. But actually a relatively small percentage of the economy was organized this way, most of it being closer to feudalism. Feudalism Here, we have English and Western Continental European forms, a system where lord–serf relations are typical. The lord gains a tax in kind from the serf’s labor, which is bound to the land. Later forms develop taxes as we commonly know them. Although workers are not the ultimate owners of the means of production, they are not separated from those means. Feudalism established a very direct form of exploitation, leaving no way to escape from the means of production (the land) of the lord. Capitalism Capitalism arises as a dual freeing of the serfs: first freed from the restrictive bind of both the land and the lord; the serf is also freed from the means of production. No longer a serf, the worker still retains skills, but is separated from the means of production.14 So he sells his services to the capitalist owner of those means. This leads to the bourgeoisie–proletariat relationship (wage slavery). The capitalist has the worker at his mercy. Meanwhile the forces of production are emerging. Manufacturing arises as opposed to the generally agricultural system. (‘‘Machinofacture’’ arises after the early phase.) More tools of production, with the development of science, are created. The worker becomes the ‘‘appendage of the machine.’’ Capitalism produces great wealth, but takes away the need to use labor. Its driving force is machinery (steam power, electrical power, etc.) as opposed to human physical strength. Machines become more and more automated, and ultimately all work will be accomplished by machinery.15 Pure Capitalism Here, the residues of the earlier feudal mode are abandoned. The state is minimal, which keeps the system from falling into chaos. But subtle

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exploitation exists between the boss and the worker. The bulk of Marx’s work is focused on the pure capitalist world, where the capitalist class owns all the means of production. Technology becomes more powerful, giving rise to machinofacturing. And a world economy emerges. Everyone is somehow integrated into the system. At the superstructure, an evolution of civil society takes places, meaning the evolution (Sassoon, 1983, pp. 72–73) of ‘‘the arena of particular needs, self-interest, and devisiveness.’’ People act as if they’re independent, although the whole system is dependent. Production is anarchically organized. As capitalism matures, the relations of production become a fetter on the forces of production. These relationships hold back the advance of technology. Here, instead of the relations bending, the forces of production begin to bend. A revolution then arises. Competition itself is under criticism by Marx. Monopoly is not the problem. Rather, capitalism is dangerous because of its rivalrous and anarchic nature. Late Capitalism Small capitalists can’t continue to compete with large capitalists. In late capitalism, the system is characterized by much centralization and monopoly, only a few owners of the means of production, and an enormous number of striking workers. The Communist Future The revolution of workers brings about communism. The conflict between the forces and relations of production ends under communal ownership. Everyone’s a boss, everyone’s a worker. The forces of production become completely centralized into one overall plan, dictated by the relations of production. Now human relations completely dominate the forces. This is the end of the prehistory of mankind, and is now the beginning of the history of mankind. [Lavoie’s choice of words is unfortunate here. For Marx, history is the history of class struggle. History comes to an end when the class struggle ends.] The future history will be explicitly, deliberately, and scientifically planned. Human nature is now rational under communism, as man is an architect of his own history. Mind is no longer in opposition to reality. Instead, the mind is emancipated from the fetters of capitalism. Notice, in Marx’s theory of development, that the individual is being developed. Marx takes individuality seriously.

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Marx thinks that the first time man will truly develop his individuality is under communism. Individuality can be liberated by the planned economy.16

MARX’S THEORY OF VALUE The value theory debate took place in the following order: 1850s–1867 1870 Late 1870s

1890 1894 1896 1904 1971 1974

Marx works on value theory The subjectivist revolution Engels publishes Marx’s third volume of Capital. It was here that he completed his value theory, attempting to correct that of the classics. Bo¨hm-Bawerk writes a critique of Marxian value theory So does Werner Sombart Bo¨hm-Bawerk writes Karl Marx and the close of his system Response by Hilferding attempts to answer Bo¨hm-Bawerk Samuelson criticizes Marxian value theory Baumol defends Marx against Samuelson

In the classical theory of value, the landowner earns his just due through rent, and the capitalist earns it through profit and interest. Marx ([1885c] 1909, part VII, chapter 48) calls this the ‘‘Trinitarian formula,’’ and criticizes it in the following way: why should the capitalist receive any extra return in the form of profit or interest? The capitalist enjoys an extra return called interest, suggesting that there is never an equality between costs and revenues (revenues exceed costs). Therefore, interest is not seen as being caused by the productivity of capital. (If capital is more productive, its price would rise; hence, the productivity of capital would be accounted for in the cost of capital.) Interest instead is a surplus to the capitalist.17 Marx explores this in the following way [Nicely summarized by Freedman (1990, chapter 9)]. Let c be the cost of capital equipment, v the wages, s the surplus value, c/(c þ v) the organic composition of capital, s/v the rate of exploitation, and s/(c þ v) the rate of profit. Assume two capitalist industries, A and B, whereby A uses much machinery and little labor, whereas B uses little machinery and much labor. Also assume the rate of exploitation (s/v) is 50% (Marx assumes this is a

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‘‘given’’ through the political struggle). The extraction of the surplus goes on proportionately. Therefore Industry A Total capital invested ¼ 10 8c þ 2v c/(c þ v) ¼ 80% s/v ¼ 50% (s/2) ¼ 50% Therefore, s ¼ 1

Industry B

Total AþB

Total capital invested ¼ 10 2cþ8v c/(c þ v) ¼ 20% s/v ¼ 50% (s/8) ¼ 50% Therefore, s ¼ 4

s¼5

The Transformation Problem18 Capitalists in industry A enjoy a 1 unit surplus value, in industry B 4 units, for a total of 5 units of surplus value. Marx argues that a transformation occurs on an aggregate level, whereby capitalists share equally the total surplus value of society (5 units). Hence, in this example, although each extracts different amounts, it all gets pooled together and therefore each capitalist industry enjoys a profit of 2.5 units. Marx believes this first phase of the transformation is even hidden from the capitalists themselves. The paradox is apparent: profits are the same, although different levels of surplus value is extracted from each industry. Samuelson (1971) argues that surplus is generated ‘‘as if’’ value was related to the total amount of capital invested, and fudging must occur to make Marx’s transformation work. Marx is inconsistent: everywhere else he says that every capitalist is a rival to all other capitalists, in an anarchic sea of competitive production. So why would they then pool their surpluses together and share it equally? Marx uses the transformation issue simply as a fudge to attempt to salvage his theory of value. Use Value and Exchange Value Use value is something qualitative, exchange value is quantitative in objective value theory [see Marx, [1859] 1970, pp. 27–62]. Marx recognizes that, from the point of view of use value, both parties gain from exchange. But from a quantitative point of view, costs and revenues tend toward equality – each party gets his value’s worth from exchange. Equal exchange occurs. Two different goods have in common a third thing, a thing which all qualitatively different goods have in common, namely, labor hours. Value here is seen as a substance within commodities, waiting to be measured.

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Marx employs the transformation issue in the following process: Labor hours ! use value ! exchange value ! prices of production ! market prices whereby a complex transformation (for Samuelson, mere fudging) converts exchange value into the prices of production. This third component (labor hours) is developed by Marx to point out the contradiction between use value and exchange value. Qualitatively viewed, the labor process acknowledges different kinds of labor. But all labor has labor hours in common, which supports a quantitative depiction of the process. All value relations can then be measured by a common labor hour unit. Modern economic theory throws this out of the door. We don’t need a labor theory of value to explain systematic relations among market exchange values. Classical economists considered the utility theory of value, but ran into the diamond–water paradox (water has more utility than diamonds, so why is its price so low?) The marginal revolution demonstrated that the choice isn’t between total units of water or diamonds, but instead between marginal or additional units of each. Utility is common to all commodities also! So, Marx’s theory of value is only a means to explain his concept of surplus value. We cannot explain surplus value, says Marx, under simple commodity circulation [see Marx, [1859] 1970, pp. 86–98]: C  M  C0 where C is the commodity, M the money, and Cu a different commodity. The laws of value, competition, and so on tend to equate the value of the two sides of the exchange. Surplus simply doesn’t exist here. (And, if the two sides of the exchange are not equal, the gainer gains by the amount of the loser’s loss: a zero sum game.) Rather than focus on exchanges as such, Marx posits capitalist commodity circulation in the form M  C  M0 where MuWM, so that the difference is the measured surplus value from the production process. The distinctive feature of capitalism lies in its production process, P, the heart of the circulation of capital: M  C . . . P . . . C0  M 0

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Here lay the source of surplus value. Surplus comes from the transformation of commodity inputs (C) into commodity outputs (Cu). Labor power provides the source of surplus power. The means of production themselves, although they contain embodied labor hours, cannot provide additional surplus value. Surplus is instead ‘‘squeezed’’ from the labor process. Marx distinguishes between the value of labor power and the value produced by labor power. They are not equal, for labor is the one commodity in the world that can create more value than its worth. Typically, the value produced by labor power in a day exceeds the value of the labor power itself. This is not merely an issue of ‘‘unfair’’ exchange – the laborer isn’t being cheated in the process (he earns his market wage rate which is completely enforced), he gets his value in his hourly wage – but the capitalist keeps him there all day, and enjoys extra hours out of him which aren’t paid. The length of the working day is not set competitively on the market, but rather legally, through political struggle. For example, then, if s/v ¼ 50%, half of the day the laborer earns his correct wage, and essentially works for nothing for the remainder of the day. Hence, he doesn’t get the full value of his full day’s work. So why can’t a worker find a better wage from a competing capitalist? Marx would have to argue that the worker really isn’t aware of the exploitation.19 In summary: The capitalist system exploits workers such that the capitalists take the surplus produced by the workers themselves via the extracting surplus value in the production process and redistributing it back into profits. It’s a very devious activity because it leaves a disguised trail. The profit/interest created appears to be earned through capital productivity or abstinence, whereas it is actually a systematic surplus grabbed by capitalists. They have no justified claim to this, because the profit is actually created by the productive powers of labor.

MARX’S THEORY OF ALIENATION Marxism sees itself as a unified system of thought concerned with every system of economic organization. (Austrian theory does the same.) Alienation, in a sense, is the lack of central economic planning. Recall that Marx criticizes capitalism from the point of view of the ideal centrally planned socialist economy.

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Alienation serves as a crutch for Marxist theory; it’s a complement to the exploitation theory. Marx’s labor theory of value rests on his theory of alienation, for alienation shows the existence of subterfuge in the capitalist system. The theory of alienation ridicules the Trinitarian formula, the justification – the ‘‘bourgeois apology’’ – of the returns to landlords and capitalists. The classicals (as opposed to Bo¨hm-Bawerk) did not offer a good explanation of rents, interest, and profit, and thus could not defend themselves against Marx’s ridicule. Also, they had no theory of central economic planning (as Mises did later). At most they attacked the dangers of the concentration of power, and the problems of state intervention in the capitalist economy. Types of Alienation Marx ([1844] 1964, pp. 106–119) discusses five types of alienation: (1) Alienation between producer and product. The finished product is estranged from the workers who create it. (2) Alienation between producer and the activity of production itself. One’s time at work is not seen as one’s own, but rather the capitalist’s. Homo faber only enjoys his own leisure time. (3) Alienation from nature. (4) Alienation from other people. Others are not seen as fellow members of society groping toward the same goals, but rather as rivals, enemies fighting for their own ends. An irrational, unorganized competitive chaos abounds. (And here’s one of the contradictions of the system: the production process is planned rationally and scientifically. But once the good is produced, it enters the competitive, irrational, unplanned market. Previous planning was for naught.) (5) Self-alienation. One doesn’t see himself as becoming an emancipated human being, but rather as a thing. All these forms of alienation do not have to do with a ‘‘feeling’’ that people have about themselves, but rather with the fundamental organization of the whole system.20 Communist Central Planning as the Nonalienated Future From Bottomore (Petrovic, 1983): alienation is not merely a descriptive concept, but instead it is an appeal, a call for de-alienation, and that is not

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only to be criticized, but revolted against. This stems from the Marxist view of the future-oriented, nonalienated communist society.21 Marx claims that there is a tendency in the present system (with its concentration of industry, etc.) that leads to central economic planning. There is a tendency in the present to bring about socialism. Hence, Marx feels more scientifically confident to fight for the nonalienated future society. Economic analysis should answer whether or not such a system is possible. For Marx, rivalry (independent decision making) is seen as the crux of alienation. It’s a clashing of individual purposes. Persons become ‘‘thingified’’: labor relations are not seen as direct labor relations, but as relations to things. (This is the notion of reification.) And social relations arise between things – things become personified. For example, capital itself is treated like a subject (‘‘capital did such and such; it runs the economy,’’ etc.). This leaves the impression that things are running the world. Labor is dead, only appendages to the machines. A crude form of idealism. When material things are treated as conscious things, like minds, false consciousness (false ideologies) abound.

MICRO–MACRO ASPECTS OF CENTRAL PLANNING Marx’s thought contains both micro and macroeconomic aspects. The micro aspect rests on the idea of why we do not hit equilibrium in the system. The macro view explains business cycles as being rooted in the idea that there is no central plan. (Planning is seen as a massive microeconomic policy, whereas the macro view shapes the aggregates.) For Marx, the capitalist system is not very complex. It appears complex, but this is only an illusion. Central planning removes the illusion of complexity: the automatic, spontaneous running of the entire economy will be replaced by a single, rational plan. In this way, complexity is also not a feature of socialism. Marxism, then, can be thought of as an ideal of total human cooperation. No rivalry exists between members of society. They instead act together as a team (as is recognized among members of a factory).22 Elliot (1981) tries to back off of the view that Marxism implies total, central planning. But this seems to only show that Elliot does not like central planning. All of Marx is dripping with central planning.23 Marx saw socialism in a way that seems to reconcile centralization and decentralization. He assumes that everyone would be coordinated with one

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another, as cooperating groups of nonrivals on a societal level, rather than centralized power over local groups.24

Marx’s Theory of the Business Cycle There are basically two types of cycle (or crisis) theory: (1) Possibility theories of cycles: This approach claims that the capitalist system can correct its crisis problem through government guidance (judicious intervention), a view influenced by Keynesian theory (Sweezy’s work, for instance). It adopts an underconsumptionist point of view, whereby insufficient consumer demand for consumption goods (perhaps through large levels of saving, which are seen as a leakage from aggregate demand rather than a means for increased investment expenditures) can be offset through government fiscal policy. The wage-squeeze theory represents another possibility theory of the cycle, in which the downturn is created by higher wages, which squeeze down the level of profits, an approach which is quite Ricardian in nature (focusing on long run analysis). (2) Necessity theories of cycles: This was Marx’s view. Here, a cycle cannot be corrected by government intervention because it is embedded in the core of the capitalist system. Imbalances between the departments of capitalist production are the root cause, as opposed to a simple falling rate of profit (wage-squeeze) explanation. Marx’s main contribution to cycle theory consisted in his connecting of cycles together in a logical way. The downswing, for example, is seen as inherently caused by events that took place during the upswing. Schumpeter argued that Marx was the first to view the cycle as a whole, and thereby acknowledges Marx as the father of business cycle theory. His analysis consists of two different levels. The first level has to do with some necessary conditions for a business cycle. For example, if one views a society as always in equilibrium, business cycles wouldn’t make any sense. For cycles to occur, the economy must be in disequilibrium. Marx recognized and emphasized this over and over again.25 Marx divides industries into those that produce capital goods and those that produce consumption goods. He describes these as departments in his model of simple reproduction [see Marx ([1885b] 1909, chapters 20–21, [1885c] 1909, chapters 49–50). Freedman (1990, chapter 10) and Wolff and

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Resnick (1987, pp. 185–192) offer more succinct accounts.]: Department I ðmeans of productionÞ : a1 ¼ c1 þ v1 þ s1 Department II ðconsumption goodsÞ : a2 ¼ c2 þ v2 þ s2 There must be some kind of balance between the two departments; that is, a1 ¼ c 1 þ c 2 meaning the total output of capital goods (the means of production) this period must equal to that of the next period. And a2 ¼ v1 þ s 1 þ v2 þ s 2 meaning the total value of consumption goods must equal the total wages (v, variable capital) plus the capitalists’ earnings (s, surplus value). Therefore, c1 þ v 1 þ s 1 ¼ c 1 þ c 2 which implies v1 þ s 1 ¼ c 2 and c2 þ v 2 þ s 2 ¼ v 1 þ s 1 þ v 2 þ s 2 so that we conclude c2 ¼ v 1 þ s 1 The basic point is to show that there is a balance between the two departments as long as c2 ¼ v1þs1. The source of business cycle exists in the possible disproportionalities between both departments due to the irrational, chaotic forces of rivalrous competition. Marx is able to describe how cycles take place, but fails to describe just how or why they are caused. An expansion of credit is one possible cause that had been taken up by Spiethoff’s work on 19th century cycles, which led to further work being undertaken in the 20th century by Wicksell, Hayek, and Hawtrey (whose theory complicated the structure of production, but nevertheless was surely an improvement over Marx’s original theory). Elliot (1981) refers to this balance of c2 ¼ v1þs1 as being a ‘‘very delicate intersectoral balance,’’ but he does not seem to suspect any systematic forces leading to the balance. Marx, on the other hand, sees systematic tendencies toward an overall balance. Hilferding ([1910] 1981) tried to further Marx’s theory by focusing on the role of banking in the modern economy, and his work stands as one of the best analyses of its kind.

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PART II: THE SOCIALIST CALCULATION DEBATE MISES’S ARGUMENT Mises offers a double critique of Marx’s theory of alienation (in the micro and macro sense). He argues that we cannot expect a micro, Walrasian equilibrium to exist; he also develops the calculation argument, in which he agrees with Marx’s analysis of how capitalism works, but maintains that capitalism is also the best way man can ‘‘organize’’ society. Furthermore, Mises ([1912] 1980) attacks Marx’s theory of the macro sphere. Inspired by Wicksell, Mises tried to answer Marx’s critique of the cycle, one that sees cycles as being an inherent part of capitalism’s anarchic organization. (For Marx, to eliminate the cycle is to transform the whole economy into a centrally planned economy.) Mises argues instead that competition in the banking system might be a way to minimize distortions caused by the cycle, and therefore he sees the central banking feature as one allowing some members of the system to expand credit and ignite the cycle. Mises’s argument against the possibility of socialist planning can be summarized in the following way: (1) Without private ownership of the means of production there can be no markets. (2) Without markets there can be no (scarcity-indicating) prices. (3) Without prices there can be no rational economic planning.26 Let’s consider this in further detail. (1) Ownership is de facto. Mises is not referring to ‘‘official’’ ownership, but rather control over the means of production. (For example, in Russia the state is the official owner, but the means of production are clearly owned – controlled – privately.) Ownership is understood in the sense of how resources are used, rather than how they are officially titled.27 (2) Prices are scarcity-indicating prices, meaning they reflect actual relative scarcities, as opposed to prices set arbitrarily from a Central Planning Board (CPB). Here, the individual capitalist, in his attempt to determine a price (and engage in profit–loss accounting), is informed by the whole market – the capitalist sea of anarchic pricing and production. (3) Hence, no rational planning can exist without these prices, because any other system of ‘‘prices’’ will not contain the relevant knowledge required for efficient planning.

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Costs have to be ascertained. Now, the market socialists claimed that profit–loss calculation is necessary (they were persuaded by Mises’s ([1920] 1935) argument). Mises says that ‘‘prices act as aids to the mind.’’ People orient themselves to the whole network of prices which arise spontaneously on the market. By taking advantage of price differences, participants make the system more complex, so much so that it reaches a level of complexity that far surpasses that which can be comprehended by a single mind. In this way, individuals both contribute knowledge to the system and receive knowledge from the system.28 Mises’s argument would ignite the socialist calculation debate, which consisted of three schools of thought – Marxist, Neoclassical, and Austrian. The Austrians were insufficiently aware of the similarities between themselves and the Marxists. Instead, they felt akin to the neoclassical economists, who also stressed the subjective (marginal) theory of value and considered Marxists as latent objective value theorists. But recall that Marx saw the market as a rivalrous competitive process, a notion not found in neoclassicism. The Austrians failed to recognize this similarity with Marx, and were simply too friendly to the neoclassical economists who worked with subjective value theory but under a Walrasian model. Mises and Marx saw, basically, the same real world: alienated, rivalrous, and uncontrolled. Mises and Lange did not. The neoclassicals in the debate had no realistic view of the way the world works – they talk as if the problem is one of solving simultaneous equations rather than real world decision-making. To the extent that decision making is modeled, it’s mechanical: optimization under given knowledge. Mises, instead, claims that the market represents a form of supplying knowledge to its participants.

OTHER ARGUMENTS FOR AND AGAINST CENTRAL PLANNING Formal Similarity Before Mises made his classic 1920 statement, Barone (1935) and Wieser ([1914] 1967) argued that the formal choice problem between a capitalist plant manager and a CPB were similar. Some relative degree of efficiency is needed in either case: both the individual capitalist and the CPB face a

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scarcity – of time, labor, capital, and so on. Scarcity exists in any society, no matter how it’s organized. Barone suggested the scarcity problem could be modeled and solved using simultaneous equations; Weiser argued it’s a matter of gathering the relevant information.

Equation Solving Barone stressed that the problem is similar to that modeled in the Walrasian system, where equilibrium prices represent the solution to the system of simultaneous equations. Barone understood that we might know the structure of the equations; the problem is finding the right numbers to actually solve them. Dickinson (1933) claimed to be able to answer that problem.

The Computation Problem Barone understood that the sheer number of equations to be solved dictated an impossible solution in any real-world sense, and that already shows how ridiculous Dickinson’s argument was. Hayek (1935) also reiterated Barone’s point. But though Barone assumes it is possible to formulate the problem (by assuming that only the right numbers are lacking), Wieser was more radical: it’s not simply an algorithmic problem, it’s impossible to even structure the equations. The information required to do so does not exist in any meaningful manner. Nevertheless, everyone (or, at least the Walrasians) focused on Barone’s argument, and ignored Wieser.

Trial and Error Taylor ([1929] 1964) writes about trial and error as giving the appropriate answer to the question of how the equations can be solved. The simultaneous equations are solved, as, he argues, we see in the market, through trial and error. Lange ([1934] 1964) takes this argument and claims the CPB can adjust prices until supply equals demand, but from Wieser’s viewpoint, we don’t even know if our equations are right – we don’t face given demands, technologies, and so on – so how can we be doing the ‘‘right thing’’ through trial and error?29

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Notice, in Lange’s model, the CPB just reacts: it observes inventory levels at various prices. But can factories, for example, also be produced through such a process? Of course not! Lange takes it as an ideal that people only react, treating prices ‘‘parametrically,’’ as given, without need for judgments. (The main function of the entrepreneur, on the other hand, is to push prices up and down. It’s active rather than passive.) There are two interpretations of Lange’s trial and error procedure. (1) It is a purely static argument. If so, any conflicts in plans are prereconciled using a Walrasian approach. (2) Or, if Lange isn’t a consistent Walrasian, production takes place at disequilibrium prices, and final products are sold at equilibrium prices obtained through trial and error. This is more dynamic, with price adjustment occurring as production takes place. To the extent that this interpretation is valid, to what extent is Lange’s concept capitalism, not market socialism? In other words, either the market socialists turn out to be talking about an unreal, static world, or they’re speaking of truly private ownership of the means of production (capitalism), and therefore their argument is conceded. Roberts claims that Lange ‘‘sold out’’ and ended up really being a capitalist. But Roberts fails to see that Lange is also partly a static equilibrium, Walrasian theorist who doesn’t acknowledge the rivalry of the real world.

The Decentralization of Knowledge Hayek (1935, [1940] 1948) insisted that all the knowledge cannot be concentrated within the CPB. The real problem is how decentralized knowledge is used without having to have one mind gather it. Actually, more knowledge is contained in the prices than in any one mind.

THE MODERN CALCULATION DEBATE30 Decomposition Algorithms and the ‘‘Dialogue’’ Hurwicz (1973) posits a model to answer Hayek, one which builds off of Lange, and decomposes the problem into subproblems. Here, there is no single CPB that sets all the prices. Instead, a ‘‘dialogue’’ arises as individual plant managers speak to the CPB through their CRTs [cathode ray tubes;

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i.e., computers] to coordinate their plans and settle upon equilibrium prices. Then the CPB merely postulates prices.

Inarticulate Knowledge The argument that knowledge is inarticulate does not really answer Hayek. Recall his ‘‘Economics and Knowledge’’ piece (Hayek, [1937] 1948): knowledge is not in an explicit form which can be seen in a CRT. It is, instead, embedded in skills, judgments, and so on that are inarticulate. (One can know the laws of physics, for example, but that doesn’t guarantee that one can ride a bike.) The behavior of a plant manager is also skilled behavior; he would not be able to explicitly demonstrate what he does. His intelligence is used in a way to accomplish particular ends. [See Lavoie (1983, 1985a, pp. 51–52). Wainwright (1994, pp. 99–112) attempts a rebuttal, largely from a realist theory of knowledge.] The market can use knowledge, especially tacit knowledge, in a fruitful way. It is able to marshal skillful knowledge in a way, it seems, that a socialist system cannot.

THE QUESTION OF INTERVENTIONISM Comparative economic systems was viewed as being in a rather primitive state around the time when Mises launched his 1920 criticism. On the one side was the original Marxist extreme, which called for the state to plan the entire economy; on the other was the Mises and Hayek extreme, which called for no government planning. Along came the ‘‘middle of the road’’ view which mixed planning and markets. Interventionism is seen as a scientific system in which each case for intervention depended on its merits, rather than be dogmatically in favor (or against) planning. This was the argument of Lerner (1944) and Kornai (1959). But isn’t this subterfuge? If we take Marx and Mises seriously – capitalism is organized anarchically – then we find that interventionism is questionable. If knowledge arises spontaneously through rivalrous competition, who will be given the pretentious position of being a planner? The actions of government are the actions of one among millions of other competing ‘‘planners’’ in society. Why will the government have more knowledge than any other individual mind?31

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It’s an unscientific prejudice to dismiss those who take a consistent point of view as dogmatic and unscientific and to call an ‘‘open minded’’ view scientific. It is not any more scientific; it’s another point of view.

PART III: THE SOVIET EXPERIENCE: JUDGING SUCCESS State Capitalism War Communism New Economic Policy (NEP) First Five Year Plan Stalinist Style Planning Liberal Reforms

October 25, 1917–May 29, 1918 1918–1921 1921–1928 1928–1933

The Soviet system has evolved out of a series of failures to achieve ideals. Michael Polanyi (1957) was the first to point out that the Soviet system is not a centrally planned system. His student, Paul Craig Roberts (1971), has furthered this theme. Was the Soviet experiment in ‘‘planning’’ a success? Well, what do we mean by ‘‘planning,’’ and certainly what do we mean by ‘‘success’’? Success has something to do with serving the individuals in the economy. As workers, individuals would like to have access to a choice of jobs, and, as consumers, individuals should be able to purchase the consumer goods they wish to obtain. Economic development serves humans not only in the present, but more importantly, in the future. To what extent does the Soviet economy develop in this sense?

GNP FIGURES GNP statistics do not measure in any way the well being of individuals within an economy. Austrians are very dubious of aggregate statistics in any economy, but the Soviet statistics are not even double checked by independent, scientific sectors in the Soviet system.32 Most of what we really know about the Soviet economy comes from deserters who used to work in the system, who supplied anecdotal evidence, which may be more accurate than the official Soviet information.

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Much of the wealth that is measured by GNP, even per capita GNP, does not reflect the well being of citizens.33 How much better off, for instance, are they with massive defense expenditures, or huge factories producing worthless items?34 Roberts says success should be judged by the goals they had in mind. Back in 1917, their goals included the end of alienation, war, and so on. The Soviet economy, from this perspective, is unquestionably a failure. But what about their newer goals, which came into place in terms of macro-statistics such as high GNP numbers? [See Nutter (1962) for a critical analysis.] During the 1930s, there were particular stories that make the economy seem inefficient, but they were justified as being ‘‘microeconomic, static inefficiencies.’’ These negative aspects were said to be balanced by macro-dynamic efficiencies, such as bringing about rapid economic development. Planning’s great success will be in the future, it was said, when the fruits of the dramatic growth are born (The future is working). Westerners were impressed by the large, clean factories, etc., which they were allowed to tour and then go home and tell their friends. But nowadays the Soviets are not trying to come out of a peasant society. They are engaging in the production of modern technology. Today the view is that the success of the system was in its past, as it desperately needs to improve the standard of living of its people.

POLITICAL POWER VS. ECONOMIC CONTROL These two views raise a serious question. If the Soviets haven’t gotten any fruits from the past, what was all the previous sacrifice for? Planning did not have any success, then or now. All the macro growth figures were an illusion, subterfuge to cover up the fact that they could not achieve a better standard of living for its citizens. The Bolshevik party was enormously successful at establishing a power elite, but this is not a criterion for those who parade the success of the Soviet economy. The harder they try to implement centralized planning, the more the interrelationships in the market are sabotaged, the more the citizens have to go back to the land as peasants. In this way, the central planning apparatus gets increased power, but less control. (Control means that the day to day decisions of the citizens are implemented according to plan.) Power does not imply one has knowledge; it implies one has clout.35 There are varying bouts of attempts to get control . . . leading to more centralized power and less control. The more power increases, the less

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control over the day to day decisions of the lower level people. Economic development becomes blocked. Then power becomes blocked, for the ideology of society may turn against its planning apparatus [see Lavoie (1986–1987)]. Every time the planners fail, they blame those areas that are not under their jurisdiction; they have a tendency to spread out the plan, to further ‘‘rationalize’’ the system. But as long as they do so, their plans fail even more. The ‘‘logic’’ of the situation impels them to take on even greater centralized planning.

SOVIET HISTORY State Capitalism (1917–1918) Lenin came to power in a primitive, peasant-oriented society. He called his regime ‘‘state capitalism,’’ as he took over banks and a few factories. But he also started issuing decrees stating that the workers now owned the means of production. The property-rights system began to be undermined from above. The Civil War arose out of these actions. The economic failures were blamed, to a large extent, on war itself.

War Communism (1918–1921) By late May of 1918, Lenin realized that he had to try to run the entire economy, and created a bureaucracy to do so. No alternative state capitalist path would work. Chaotic market forms of distribution would have to be purged. From this point on it was Lenin’s goal to nationalize everything, from large industry to the small shopkeeper. War Communism was characterized as a planned economy, eliminating market distribution, money, profit, and interest. It was treated as a set of temporary measures to cope with the civil war – as war emergency measures. But Roberts (1971) says this argument just doesn’t hold. Marxism told them to destroy markets and money. Why would they do this only as a means to deal with the contingencies of the civil war? The Bolshevik leaders were trying to create a communist state; they tried to achieve the real goals of the Marxist movement.36

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By December 1920, over 30,000 business were nationalized, including 5,000 one-man enterprises! There was also a tremendous inflation during this period, leading to a collapse in the value of the ruble: Value of 1,000,000 rubles 1914 1,000,000 1918 48,170 1919 6,089 1920 413 1921 59.5 1922 3.5 1923 0.05 1924 0.00018 A militarization of the economy also took place. The economy was treated like a military project: rationing by queuing, deliberate destruction of money, conscription of jobs, and the persecution of profit seekers. The economy was destroyed. Soldiers refused to follow the leadership, which led to the Kronstadt Rebellion. Lenin was losing support from both the troops and the masses, and so he began to talk about the need for a retreat – to learn from the errors, and then launch a new attack.

NEP: The New Economic Policy (1921–1928) Lenin said that NEP was necessary because of the earlier difficulties of War Communism (which he blamed on outside capitalists). NEP is clearly a makeshift ‘‘policy,’’ which reverted back to freer markets. NEP started out as an introduction of a tax. Why did this tax bring the economy way from planning toward free markets? Because the tax was an improvement over war communism. War Communism stole the agricultural products from the peasantry. The tax, on the other hand, brought about a more predictable method of theft. It was an improvement in the eyes of the peasant class. Property rights were reestablished. But, in a way, the more successful the NEP, the more threatened the position of the Bolsheviks. NEP was quite successful, as is any system based on profit and loss. The Bolsheviks even tried to balance the budget.

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Bukharin, who established the War Communism policies [see Bukharin and Preobrazhensky ([1919] 1966)], also established NEP. Of course, he learned the values of the unhampered market when he studied under Bo¨hmBawerk. He became, during NEP, the most provocative supporter of free market policies [see Bukharin ([1925] 1982)]. Bureaus established under War Communism were deteriorating, plants were becoming decentralized. This was a complete reversal of War Communism’s policies.

The Industrialization Debate In 1924, significant political developments took place. Lenin, who led and inspired the Bolsheviks, dies. The intellectual power of Lenin was lost. Now the question was who was going to follow this hailed man. The Left extreme of the Bolshevik party – the followers of Trotsky – began complaining that NEP was inconsistent with communism. From the Right, as portrayed by Bukharin (who appeared to be the ideal heir of Lenin), NEP is the only approach they could take, otherwise the power of the Bolshevik party and all it stood for would be lost. Stalin came into this debate as an outright Right-winger, supporting NEP, attacking Trotsky and the Left for undermining the Bolshevik Revolution. But he had very little clout at that time. Bukharin allowed the Bolshevik party to purge the Left. Stalin himself joined forces with Bukharin for this purge. But after the purge took place, Stalin switched sides, as he was not an ideologist, but an opportunist. He now tries to purge the Right, and fights against NEP. Preobrazhensky and Stalin made a case for a new type of policy, calling for rapid industrialization through planning (such as the development of giant factories and high-tech electrification of the economy). But what they really meant by this was the extraction of wealth from the agricultural sector, to be used to build up industry [see Spulber (1964)]. Preobrazhensky speaks of the ‘‘colonization’’ of the peasants, treating them like a group to be conquered. He called for a return to requisitioning to industrialize the economy, and claimed even the peasants themselves would be better off as a result. Bukharin, in contrast, argued that this would cause the same problems as War Communism – the loss of the peasants’ favor for the Bolshevik Revolution. But Stalin won with the purge of the Right wing. With Stalin’s leadership, the first Five Year Plan was set into motion.

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The First Five Year Plan (1928–1933) Although the War Communist policies tried to achieve communism by destroying money and markets, the first Five Year Plan was not nearly as extreme. Stalin did not try to destroy the market relationships in the cities; he instead tried to bring industrialization to the fore. But with respect to the peasants, Stalin was much more extreme. (Yet, we can’t assume Stalin’s subjugation of the peasants was a successful political act.) Forced collectivization of all of agriculture ensued. The peasants were put on collective farms, the farms being the property of the state. Because the fruits of their labor were stolen, the peasants had no incentive to work on the land, which had a catastrophic effect: 10 million peasants died (compared to 2 million under the War Communism period). Under Stalin’s regime, the peasantry killed their own livestock and horses; they burned their crops to avoid having their output confiscated by the state. Stalin responded by becoming even more brutal in his quest for collectivization. In the mid to late 1930s, Stalin had purged the intellectuals who were accused of sabotaging the Party. Executions, torture, and other measures were used to destroy the old Bolshevik leadership. Stalin’s supporters filled nearly the entire operation of the GOSPLAN bureaucracy. [GOSPLAN was the Soviet acronym for the central planning board. It also stands for the central economic plan itself.] The ideological driving force was gone. This was a force toward political power.

ASSESSMENTS OF THE SOVIET CENTRAL PLANNING EXPERIENCE The standard view judges inefficiencies and waste in the Soviet economy as a result of not enough rational central planning. Michael Polanyi (1957) and Paul Craig Roberts (1971) argue, in contrast, that interventionism, rather than central planning, is taking place, and thus the ‘‘waste’’ is largely a result of interventionism. Polanyi and Roberts argue that the bulk of the decision making is actually made at the ‘‘bottom,’’ among plant managers and others at the lower levels of the planning structure. Their decisions, however, have to be approved up through the hierarchy, in the form of directives. The initiative does not come from the top. Sure, there are directives that are issued from the higher

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levels and they are followed down through the lower levels, but this is true because the impetus behind the directives stems from lower level decision making. Rosefielde (1980) discusses the first Five Year Plan just after NEP, asking just what the ‘‘great success’’ of industrialization was. He does not believe such a success ever happened – and that goes against the whole thrust of Soviet Studies statistics. (Alec Nove (1969) believed the figures to be true, or at least undistorted.) Rosefielde reports on Solzhenitsyn’s Gulag Archipelago, which describes how a third of the population was treated as slave labor in the labor camps. Rosefielde considers Solzhenitsyn’s statistics to be less biased than the official data. Why, however, would the Soviet officials cripple themselves by falsifying the figures, figures which they must depend on anyway to carry out their plans? Rosefielde really doesn’t answer this question. This is his main weakness. He must answer why the Soviets would destroy their own data. The Roberts–Polanyi view of what happens in the Soviet economy helps strengthen Rosefielde’s and Solzhenitsyn’s case. The information the planners get is not really serving any useful purpose. No central planning actually takes place. It’s the plant managers who make the real decisions. Hence, the Soviets are creating an ideological prop for PR exports. Planning is a myth [see Rutland (1985) for a comprehensive statement]. The same way we all believe in democracy, so, too, the Russian citizens believe in central planning. Both are myths. Votes don’t count, and central planning doesn’t exist.

The Method of Material Balances Planning Let’s look at the official (standard) view of how the Soviet economy works. It is called the method of material balances planning: GOSPLAN - Ministry of Electricity: How much electricity? - for individual households? - for manufacturing? - for textiles? - for electronics industry? - for computers? - for video games?

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There are different levels of planning, from GOSPLAN (the CPB) to the Ministry of Electricity (which is responsible for all electricity planning) to lower level subdepartments (which answers the disaggregated questions earlier). The method of material balances says that the decisions are made at the top, and become progressively disaggregated as we move down the hierarchical structure, until we get down to a single plant’s own requirements. (Intelligent economists like Bornstein believe this because there is so much superficial evidence that confirms it.) For all this to work, the sources and the uses of the good in question (in this example, electricity) must be balanced out. The input–output method is supposed to solve this problem. The plant managers are receiving specific target orders. These are the commands that they in fact receive. There’s a sincere attempt to obey the command, for they are rewarded if they succeed, and punished if they fail. Officials from the Communist Party attempt to enforce these directives. Now, to get resources from the production process, those, too, must be obtained through the directives. Success indicators are based on the performance in achieving the target order. But this creates quality vs. quantity problems and other incentive problems.37 There’s now a tendency to call for a ‘‘profit–loss’’ indicator as main target.

The Roberts–Polanyi Criticism Roberts (1971) offers four arguments against the Soviet planning experience. First, he argues that, despite 60 years of planning literature, there is no discussion of how the plan is originally formulated. Instead, there’s only an account of how the plan is implemented through time. The official view claims all planning is formulated at the top, in GOSPLAN. Why, then, is there no discussion of how real plans are formulated? There is only a theory of plan formation, and thus two completely different bodies of discussion with no connection between them: a theory of plan formation and a description of plan implementation. Also, the argument in favor of the official view says look, there are indeed directives – a proliferation of directives in the Soviet economy. But Roberts argues, second, that the agents really become free in the sense that they can’t really obey the plan. Too many directives, and many of them with contradictions. Things are produced only because directives are not being obeyed. Of course, this gives the party an excuse for punishing the plant managers.

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Third, Roberts shows that there is indeed tremendous waste in the Soviet economy. The whole idea of planning, says Marx, was to get rid of the inefficiencies under capitalism. Do the Soviets ‘‘plan’’ this waste? Certainly not. But how do they justify the large waste in the military which they find so serious? This certainly does not seem to serve the ends of the ruling class. Fourth, nobody seems to know how central planning (as it were) works. Nobody. Not even the people at the top. People do know about the local connections, but not about the big picture. Roberts says there is no evidence that there is a broad picture – no one created one. Roberts (and Polanyi) say that decisions are not made in an aggregate form. It is not logically possible to answer a higher level question (‘‘How much electricity?’’) until it is determined how much should be produced for each of the lower level plans. The GOSPLAN is a meaningless aggregate of plans; it is itself not a plan. Just like a move in chess makes sense only in the context of one’s own circumstances at any particular time and place,38 so does plan formation in the Soviet economy. The Soviets are pretending to plan the whole team, if you will, before any move takes place. If this were true, then only one mind would, in the end, be making all the decisions. And that seems a bit too suspicious to be true. It’s an illusion of control which isn’t really justified. The concentration of power does not mean a concentration of control. In a sense, the Soviet economy is a ‘‘slow motion’’ market economy. The planning bureau has to be informed of every action to be undertaken. Every firm has to maintain profit–loss statements. Firms that continue losses will be changed. In this way the Soviets have fully conceded to Mises’s argument on the importance of profit–loss accounting, but they are still not guided by pure market signals. The queues, shortages, and so on reflect the slow process of adjusting plans up and down the bureaucracy that must take place as circumstances change. We have been always describing these goings – on as the breaking down of an aggregate plan – GOSPLAN. But, as we’ve been arguing here, it really isn’t the case. ‘‘Plan’’ changes to conform to its own unintended consequences. Why is all this nonsense going on? Tremendous paperwork problem, ‘‘glue in the works,’’ a slowing down of the economy. GOSPLAN is in between purchase and sale. The economy can look like a planned one. Roberts calls it a polycentric system. The reason for the whole apparatus is an ideological one. They had to resort early on to NEP – all the ‘‘ugly’’ activity they wanted to erase with communism – a blatant violation of the Bolshevik ideology. Hence, the implementation of the first Five Year

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Plan became a disguise to justify Communist Party rule. It doesn’t want to destroy all market, polycentric forms and profit–loss accounting. Instead, it wants to create a fac- ade of central planning to support their own power. But there is a sense in which everyone has the same illusion. There is not necessarily a conscious, deliberate deception taking place.

Property Rights in the Soviet Economy Even though there is a legally defined system of property rights as property owned by the state in the Soviet system, we must ask, in practice, who actually controls the resources? The plant managers do. There is some degree, despite legal ownership, that property rights are owned (controlled) by the plant managers. They get bonuses if they succeed in generating accounting profits, and fail to get bonuses when profit statements look poor. A sharing of ownership takes place – much like in our system of taxation. But even beyond this, just what is the nature of these de facto rights of the plant managers? Steve Pejovich and others have focused on this question systematically [see, for example, Furubotn and Pejovich (1974)]. We can isolate three aspects of rights to own property: (1) The right to rent your means of production to another. (2) The right to sell your means of production to another. (3) The right to qualitatively change the means of production without official permission. The Soviet economy maintains a usus rights system: the right to use something is maintained, but not the legal right to rent, sell, or change the property without approval by the plan. It becomes a politicized decisionmaking system in directing the allocation of resources. The bureaucracy is in the way, and it’s the plant manager’s goal to get it out of the way. A system of bribes greases the works, given the system’s constraints. Rent seeking abounds among bureaucrats. Any complaint to eliminate bribes in the Soviet economy leads to a breakdown in the economy.

The Liberman Reforms (1950s) Liberman called for the introduction of usus fructus rights: the legal right to resources belongs to the state, but the citizen has a right to use or rent

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property (or sell the right to someone else), but not to qualitatively alter the property [see Sharpe (1966)]. This was shot down by the Soviet bureaucrats, but picked up by the Yugoslavs. It represents a widening of the plant manager’s ownership rights, and brings about an improvement in the use of resources and a lessening of the ‘‘capital hunger’’ problem. Nevertheless, this is still a distortion (compared to full private ownership rights) as the legal owner (the state) must still keep track of who’s renting to whom, and so on.

PART IV: THE ISSUE OF CONVERGENCE Convergence refers to some alleged tendency for socialist systems to move toward capitalism, and for capitalist systems to move toward socialism. Perhaps this is somewhat useful because it deals with dynamic issues. And there is an interesting similarity between the two dynamics of the East and West: both take on the label ‘‘liberalism.’’ In the West, liberal reforms are those in which the state takes on more and more responsibility over the economy, whereas in the East liberal reforms refer to the state pulling out of the economy. The main intellectual classes of these two different societies have different goals. But since the intellectual leaders have a bias for solving problems, whenever problems arise their ideology tells them to push in a certain direction – the ‘‘solution’’ to the problem is already presumed before the problem actually arises. The people who are going to be asked for advice will fall back on answers they feel are ideologically potent. The intellectual class in the East, for instance, believes they are in a planned economy. A problem is then blamed on planning failure. In the West, believing everything is unplanned, the intellectuals speak of market failure. On the one hand, it is absolutely important to recognize that ideas lie behind the policy conclusions of the East and West, selecting for them the acceptable solutions. On the other hand, we don’t want to conclude that all these ‘‘solutions’’ are deliberately and rationally designed.

THE LIBERAL REFORM MOVEMENT In Eastern economies, liberal reform is coupled, usually, with Liberman. Virtually all of the non-Soviet Eastern socialist economies had followed the Soviet model of the Five Year Plan. The liberal reform movement can be seen as an inherent product of the tensions in the five-year planning system.

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The ideology here blames the state for the failures of the economy. Ironically, however, decision making, recall, is carried out at the ‘‘bottom’’ level, sent up the planning hierarchy for approval, and then sent back down the hierarchy in the form of directives. If this were revealed explicitly, the whole justification for Communist Party rule would be rendered dubious. Hence the tension. To permit more free price movements, more discretion by plant managers, etc., would weaken the claim that GOSPLAN guides the entire economy. Thus, they cannot allow any liberal reform to go beyond a certain point. Liberman, for instance, found it necessary to disprove any suspicions of his being a bourgeois capitalist economist. Such would conflict with communist ideology. Yet he pushes for liberal reform! He must weasel his way out of this tension. He speaks of PROFIT in capitalism and ‘‘profit’’ in the Soviet economy. There’s supposed to be a difference here to relieve the tension between ideal and implementation. He must defend what’s different about the Soviet economy, and why that difference is for the better.

The Eastern Block In Czechoslovakia, Hungary, (the Eastern Block), liberal reform has gone quite far in the Liberman direction. Hungary has gone the furthest, adopting NEM – the New Economic Mechanism (Czechoslovakia has the NES – the New Economic System). These are thought to steer between the two unacceptable extremes of capitalism and socialism. And that makes sense if we start from the story that there is indeed no central planning, and these liberal reforms lessen state intervention. But it makes less sense from their own point of view – of central planning with decisions trickling down through the hierarchy. For, if so, then liberal reform would break up part of the centralized decision-making structure.

Post-Mao China China is a classic case of adopting the Five Year Plan system, but it is now moving in the direction of liberal reform. They had gone through amazing bouts of Maoist extremism (destructionism) and Soviet-type planning (they seemed to do whatever worked last year). The Great Leap Forward and the Cultural Revolution represent the greatest bouts of political change. The latest period of retreat from Maoism took place after the great Gang of

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Four Trial. Reforms have been accelerating toward less state intervention, and more free markets. Yugoslavia Under Tito Yugoslavia utilized five year plans in the late 1940s, striving for rapid industrialization, ‘‘central’’ plans, and so forth. But by 1950, the ideology of worker control surfaces. Horvat (1971) discusses this issue. Control by workers is seen as overcoming alienation. Marx, Horvat notes, was an anti-Statist. Combining these two aspects of Marxism selectively, and ignoring other features, Horvat argues that the workers are subject to a ruling class under communism. Therefore, they’re still exploited by the state. (Look how powerful the state is in the Soviet economy.) Horvat (along with Djilas (1957) and others) conclude that, to make the state wither away, they must adopt a system of freer trade and worker control. This is not capitalism pure and simple, nor is it communism pure and simple, but it is an abandonment of central planning. The ideal is that of associated producers – worker control.39 This approach tries to slip markets back in by referring to Marx’s attack against the state. They can’t have state central planning, yet they also want workers to control production to overcome alienation. This is how Horvat justifies a worker controlled market system. Firms keep profit–loss statements, organized by their position in the marketplace. But unemployment is a main problem in these economies. They rely on the health of the West Germany economy to absorb labor.

UNEMPLOYMENT PROBLEMS AND THE LABOR-MANAGED ECONOMY Vanek (1971) describes particular rules in this system to explain why unemployment persists. We’ll now discuss this and his analysis of ownership. (Note that there exists even de facto ownership in the Soviet system. Watch out for slips in the definition of ownership in Vanek’s analysis.) Ownership vs. Management Vanek is not concerned with just who owns the means of production. What he is concerned with is the question of who manages the means of production. In Yugoslavia, it is said that the state owns everything, and the individual

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workers’ councils manage everything.40 These councils are voted upon by the workers at the particular plants. Workers are not subject to the whims of the boss, but instead they control their own plant. Vanek says completely private parties in the market can also ‘‘own’’ the means of production, while workers manage them. Thus, he doesn’t care about the nature of (legal) ownership, but only about the nature of management (control). Vanek lists five defining characteristics of the labor-managed economy: (1) Democratic, one-man vote determines decision making in the plant. Owners cannot have any vote over these bodies. Everyone is answerable to the workers’ council. (Note a possible dichotomy between workers’ interests and consumers’ interests.) (2) Income sharing: (Note: he uses the word ‘‘income’’ instead of ‘‘profit.’’) This is subterfuge: Vanek defines ‘‘income’’ as ‘‘revenues minus costs,’’ which will be shared equally among all members of the plant. (3) Limited form of rights: Usus fructus. Vanek’s system requires a law forbidding full ownership. In our system, there is no law against a usufruct system, which Vanek espouses. But then why don’t we see this ‘‘extremely productive’’ system coming about? He doesn’t address this problem! Instead, he espouses a law forbidding any other system. (4) At most the government should enforce the usufruct rights, but it shouldn’t intervene. There’s no central plan, and therefore there’s a limited role for government. (This insistence on decentralized planning and markets suggests planning is a dead end.) (5) Freedom of employment: Workers can quit at will. Managers can fire workers upon approval of the workers’ council. Largely a free market in labor. (By addressing employment this way, it’s as if Vanek is addressing the real problem of Yugoslavian unemployment.) Incentive Problems Well, then, how is this endemic problem of the inability to absorb labor logically connected with these five characteristics? Recall that the profit is shared among all the members of the council. Instead of just deciding which production processes are more efficient, workers will also take into consideration the number of workers involved, since profit itself has to be shared. (In capitalism, the entrepreneur does not share profit with labor.) Excessive capital intensity thereby arises. Workers tend not to get absorbed because this would water down the profits – the ‘‘incomes’’ – of the incumbent workers.

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Well, then, why not have new plants pop up to absorb labor? There’s no investment capital. Worker-council ideology brings about a perversity, a bias toward not really wanting to create new firms. The incentives of all participants tend toward hiring fewer workers. This is a property organization that, as a result of a law that allows only for a particular kind of contract – usufruct rights – leads to a bias, which brings about endemic employment. Vanek speaks of shared income instead of profit, and thus avoids raising the question of losses. The state, owning all resources, receives an interest payment, and the rest is shared among the workers. Now, if the plant is a failure, the state bears the losses. Profits are shared by workers, losses are borne by owners, and thus there’s a problem here: owners would want to shift resources to their highest valued uses, but this is bound by the management structure. This situation leads to an irresponsible utilization of resources, as managers may enjoy profits but not suffer losses, and can’t bear any responsibility if the plant fails. They are not risk bearers. Only the owners are. Indeed, in this case the owners bear all the losses, but must also share the profits if they arise. (Workers, we must note, earn a wage in either event.)41 The labor-managed economy sees itself as a market organization but wants to reorganize the internal organization of the firm, believing in the ideals of Marxism as the alleviation of alienation and exploitation.

FASCISM Socialism is the source, it seems, of fascism. In the beginning of this century there was a very active labor movement guided by a Marxist intelligentsia. Workers were to some extent attracted to this ideology since they felt they would be made better off with the promises of Marxism. But to a large extent this labor movement, although it was active, did not go very far. Class warfare arises, without victory for either side in the class struggle. This brought about a tension between the workers and the Marxian intellectuals. For example, in Italy, the working class was powerful and, although Catholic, were led by atheist Marxists! Italy (along with France, England, and Germany) held strong nationalist leanings, whereas the Marxists pushed for an international revolution. The masses where riled up, but a danger existed in which these emotions and prejudices could be funneled somewhere else. Fascism did just this. For example, in Germany these prejudices were funneled into anti-Semitism.

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As the ‘‘Third Way’’ The fascists, in the 1920s, saw the working class win in the Soviet Union, but their representatives became the new exploiting class. Although capitalism ends up with a totalitarianism of a kind in which capitalists run everything, socialism, too, has its evils. Hence, the call for the Third Way – fascism – the reconciliation of the best of both systems. Fascism sees itself as a system of cooperation – an end to class struggle, economic chaos, and so on. It provides a new institution – the ‘‘corporative institution’’ – which is supposed to be made up of the representatives of both classes, workers and capitalists, and provides a forum of direct debate, leading to a rational and peaceful solution. Here, a representative of the state sits in to resolve a tie, reflecting the interests of the public in general, rather than the interests of either class. Fascism is a form of general economic planning over every form of production, so it is said. It’s basically a system of ‘‘planning on the Right.’’

Origins The corporatism of fascism has roots that trace back to early guild associations and deliberate designing of factory systems. Christianity was used by the fascists (along with nationalism) to win over the citizens. Fascists adopted much more of a preservationist strategy, with an interest in preserving the great institutions of the nation, as opposed to the revolutionist approach of Marxism. Class conflict is there to start with, so they called on the need to create a new institution to reconcile these conflicts peacefully and promote cooperation. In this way, fascists bought Marx’s theory of class, but adopted different means to resolving class conflict. The fascist movement is significant today. Villari (in Counts, Villari, Rorty, & Baker, 1932), for example, spoke of the glorious possibilities of such a system, much like today’s politicians. The original goals of fascism were not all that bad – even admirable, such as the call for world peace – but the unintended consequences were horrifying. We’re looking at the consequences of the system itself, and not the consequences of the ideals. That’s what a systems point of view directs its analysis toward. Fascism is basically a worship of the state as an institution. It’s very nationalistic, and reactionary in the sense that it tends to promote conservative, traditional values over anything else. (Anarchism, on the other hand, focuses on the state as a source of social ills, rather than the

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source of all social good. The acknowledgement of the evil of fascism tends to help us appreciate the idea of anarchy.) The origins of fascism emerged in the institutions during the period of World War I. The war economies of Germany, Austria, England, and the Soviet Union adopted a certain kind of institutional pattern which were remarkably similar, and set up as a series of makeshift, ad hoc measures to ‘‘control’’ the established market-organized economic system for the war effort (food rationing, price controls, etc.). War planning is perhaps a good way to describe this [see Weinstein (1968, chapter 8)]. The institutions set in place, for example, the famous Reconstruction Finance Corporation (RFC), originated by Herbert Hoover and staffed by former members of the War Industries Board, followed the model of the institutions that World War I had spawned. None of the people designing these institutions were political actors trying to achieve their own ends pragmatically. They were not ideologists. Of course, there was a war effort ideology wrapped around all of this, but one would be a bit naive to accept this as the defining characteristic of these institutions. How they actually operated was interesting – they helped protect industries from the problems of converting them for the production of war goods. These conversions were very costly, thus the call for the power of government to rigidify the market by protecting existing prices and leave out competitors. (For example, incumbent auto producers had to produce jeeps and other military vehicles, and had to be assured that no one began car production for the domestic market.) The tax power of the government provided special protective favors to business. In fact billions of dollars were given away to help protect certain businesses. Felix Rohatyn (1982) referred to the RFC as saving so many important businesses . . . and actually making money on its loans in the end! But this was nonsense. Congress wrote off $10 billion of its loans!42

As Interventionism The institutions in Germany have the same form, the same logical setup, as the World War I war planning institutions of the United States. The leading industrialists were the heads of the particular departments, planning their own particular industries. It’s better to blame the institutional forms which bring power into the hands of a committee attempting to rigidify the market and protect those members sitting around the committee table than it is to blame the attitudes

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and dispositions of the citizens of the fascist country. Fascism has everything to do with a concentration of power, of having someone explicitly and politically decide on what industrial order should prevail, and little or nothing to do with the psychological dispositions of citizens.43 Reimann (1939) discusses what it’s like to try to do business under fascist constraints. Although fascism is a kind of socialism of the businessman, in many ways businessmen are exploited. In Reimann’s case, they’re exploited by the Nazi regime. Private property is no longer respected, for property rights are arbitrarily violated. Again, it’s a case of little control, yet tremendous power. There’s no recourse here: no lawyers or independent legal body or set of legal documents that can be referred to to resist the power of the state. It’s a rule of men rather than a rule of law. The whole nature of the planning apparatus of the Soviet economy could be used to describe Nazi Germany. Hitler was a communist. He adopted four-year plans. Should fascism be seen, then, as a polar opposite of communism? Certainly not! What we are really dealing with is a similar idea of planning a national economy, which, indeed, can’t be carried out in fact. Subterfuge again – the planners, Right or Left, are interfering with the ordering mechanism of the market. Planning really does not replace spontaneous order, but instead stands in its way. We have, in our own economy, no right to feel that we are inherently different in kind from the fascist systems. We believe it’s the state’s responsibility to bring order to the economy. We have bureaucratic waste, dangers of inflation, increasing government indebtedness, military buildup, and so on. We have the potential for fascism and the beginning of the deterioration of social structures.

ANARCHISM Well, then, are all the radicals nuts? After all, look what they’ve done! Yet, all the reasons people became radicals are, damn it, good reasons. The means were f***ed.44 Given the history of the economies of the world, isn’t it natural, to a great extent, to pose as a radical alternative? And the State The state is thought of as creating and enforcing the law. Yet, it’s very hard to defend taxation or conscription, to say everyone should obey the law

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except for the state. Supporters of the state predict that its dismantling would lead to chaos. (Don’t forget that Southerners claimed that the elimination of slavery would lead to helplessness among the ‘‘savage’’ race. The whole institution was defended on pragmatic grounds, acknowledging its ethical problem.) Taxation itself is a redistribution of slavery. It takes not the whole of one’s life, but only a part. Anarchism claims the whole nature of the state is coercive and unethical – a breaker of laws rather than an embodiment of law. Anarcho-Syndicalism Most advocates of anarchy have leaned toward anarcho-syndicalism, but it seems like this view does not appreciate the importance of law, for they’re against all organizations, even democratically formed organizations. There are some similarities with worker controls models, to be sure, but anarchosyndicalism jettisons any idea of organized institutions of justice, such as court systems. Anarcho-syndicalists never address questions of how coordination takes place. They want to get rid of the state by getting rid of capitalism. Marx said this also, but at least he was willing to offer an alternative form of coordination – the central planning apparatus. Marx attacked the anarchosyndicalists of his time because they only prescribed chaos – total irrationality. They claimed each syndicate would control its own factories, but offered no discussion of how their plans would be coordinated with one another. They don’t offer any alternative economic system [see Marx, Engels, and Lenin (1972)].45 Anarcho-Capitalism A more plausible, radical variant is anarcho-capitalism. Rothbard is the most famous here [see Rothbard (1978a, 1978b)]. His work still admits law and markets, but without a monopoly government standing as an enforcer of these institutions. Courts and laws are necessary for market institutions, so the question here is whether the market can provide these services, or does this reduce to a war of all against all? We already, believe it or not, live under anarchism! There is, in the world economy, no supergovernment that handles disputes between governments. Why is it the case that these government forms of legal institutions sometimes resort to war, and sometimes not?

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Well, it is clearly not universally successful since we do see war. On the other hand, however, there exist incentives that keep governments from fighting against one another continuously. And think of all the state, county, and local governments. They never go to war against one another – they’re perfectly meshed and cooperative. Even though different states may have different laws, we’ve seen ways to resolve disputes between them. (But note that each level of government keeps other competitors out, due to its coercive nature, so perhaps this makes these governments work better.) Rothbard says the protection services could be bought through an insurance-type agency. In a competitive legal environment, there are market motivations that would tend away from Mafia-like systems toward more open, ‘‘friendly’’ systems. These agencies would search for voluntary subscriptions, and thereby be less likely that rich people could buy justice in a competitive system because, if word got out, a private court would fall to the ground. It would lose its subscribers. (Today there is no other court to appeal to, making it easier for the rich – witness Kennedy – to buy off a judge when a monopoly exists in justice.)

Drawing the Line There’s a similarity between Marxism and anarcho-capitalism: both see the solution as a principled way of drawing domains between acceptable and unacceptable behavior. Consider the following scheme of relationships: common=competitive=coercive Common relationships are based on close cooperation. As we move to the right, relationships become more antagonistic. Both Marxism and anarcho-capitalism believe in the rule of law, rather than a rule of men. Both provide systematic critiques of the present world, seeing the state as making decisions of what people should do, and thereby being a rule of men. Marxism draws the line between common and competitive relationships, whereas anarcho-capitalism allows antagonistic behavior, but rejects coercion. Both exclude behavior that initiates force, but Marxism thinks it could exclude competitive behavior without relying on coercion, and this is impossible. The whole critique of Marxism tells us that we cannot draw the line between commonality and competition. The experience of this century certainly shows this, which makes the claim for anarcho-capitalism more plausible.

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PART V: CONCLUSION How did Marx make a difference in the study of comparative economic systems? We could not understand Hayek’s and Mises’s critiques if we didn’t understand their precursor – Marx. Lange would not have made sense without Marx. The Soviet system was shaped by Marx’s thought. The fascist response is influenced by Marx, as well as modern forms of anarchism that seek to get rid of the state. The existence of Marxism as the starting point of comparative economic systems cannot be denied. What are systems – what is a system? The economy is seen as an integrated whole, with systematic features. When we study East European economies, say, we start seeing the same kinds of problems, policies, excuses why policies didn’t work, and so on. We look for the types of things that are common across different countries. We also see something systematically different in East European countries. Fundamental differences do exist, compared to the West. We studied socialist systems primarily because socialism is the main radical view today. Socialism is a system with an integrated whole, with typical problems and solutions, and even typical ideologies. Systems are mainly coordination mechanisms that bring about order, based on either tradition, market, or planning. These are mutually exclusive. And we found that the market system can be further broken down into the pure market and interventionism (the latter of the United States and the Soviet variety). Marxism is a development of the planning idea – the most consistent elaboration of what planning is. Interventionism, on the other hand, is a confusion between two types of ordering mechanisms – the market and ‘‘planning.’’ The market and plan are incompatible mechanisms, and every attempt to plan by the state results in a clashing between two radically different ordering mechanisms – planning interferes with the market order. Although interventionism thinks of itself as ‘‘nondogmatic,’’ as a compromise between the market and planning systems, interventionism itself is not a system, a systematic ordering mechanism. Instead, ‘‘every case is judged on its own.’’ Interventionism relies on the market to throw up the right answers, and the intervener does not know the full consequence of his actions. From a systems point of view, much of our own policy making is an attempt to combine these mutually exclusive systems. Really, there are only

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markets and planning as the two organizing mechanisms (well, there’s tradition, but that’s in the past). Interventionism destroys either one; it’s not the ‘‘happy medium,’’ a third system that adopts the best from the other two. Although interventionism is deliberate, the market works nondeliberately. Planning is totally deliberate activity, so interventionism, from this side, relies on the spontaneous orderings of the market to decide whether or not its policies are working. Marx’s greatest accomplishment was to clearly show what planning is, and to understand these issues, we must understand not only Marx’s economics, but his philosophy.

POSTSCRIPT Lavoie’s appeal to a rethinking of radical political economy was perhaps best expressed in chapter seven of his National Economic Planning (1985a), appropriately titled ‘‘What is Left? Toward an alternative radicalism.’’ From which I quote: When the story of the Left is seen in this light, the idea of economic planning begins to appear not only accidentally but inherently reactionary. The theory of planning was, from its inception, modeled after feudal and militaristic organizations. Elements of the Left tried to transform it into a radical program, to fit into a progressive revolutionary vision. But it doesn’t fit. Attempts to implement this theory invariably reveal its true nature. The practice of planning is nothing but the militarization of the economy. It is unnecessary to repeat the account of the immense degradation and annihilation of human life to which the Left’s romance with central planning has led us. Today, after Solzhenitsyn, it is enough to say the word gulag. But there is another tragic consequence of this whole episode of which most of us are still insufficiently aware: it has helped to drive a wedge between our deepest desires for action that is both ‘‘practical,’’ that is to say, rational or scientific, and ‘‘moral,’’ that is to say, consistently principled. The most consistent advocate of planning, the one who is most moral according to the principles of his own ideology, is also the least practical. In other words, there is a premium on immorality, on unprincipled action. By aiming at an unworkable utopia, a comprehensively planned, egalitarian society, the Left has soured us on the commitment to any ideal society, and left us with the kinds of connotations of the words ‘‘ideologue,’’ ‘‘utopia,’’ and even ‘‘radical’’ which make it difficult to stand for – or even discuss – principles of fundamental change. We must not, however, let the decay of planning as an ideal for the Left destroy our hopes for radical change. What is wrong with the form of radicalism which aspires to the planned economy as its utopia is not the simple fact that it was a radical movement, that it sought to inspire popular support by its appeal to an imagined alternative kind of social organization. What is wrong with it is that its specific utopia happens to be

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completely unworkable if carried to its logical conclusion, and essentially reactionary if not. From this point of view, it becomes evident why the contemporary Left is completely paralyzed by modern conservatism as epitomized by Ronald Reagan. By its largely rhetorical devotion to the free market and its actual policies of constructing a permanent war economy, conservatism helps to perpetuate the myth that it is the policies of free markets rather than those of planning that have been obstructing peace, and that it is an existing market economy rather than an established system of noncomprehensive planning which is responsible for our current economic distress. In fact, Reagan’s rapid militarization of the American economy, in spite of the rosy pictures of free-market economies that fill his speeches, is the very essence of national economic planning. Over the history of this country, the increase in the government’s role in the economy, of noncomprehensive planning, has been steady. We have seen state-enforced cartelization of industry after industry, from the public utilities in communication and energy to the regulated cartels of insurance, medical, and transportation industries. We have seen the size of government and its involvement in our lives grow virtually unchecked. We have seen our monetary and banking systems erode, our economies stagnate. Yet the only alternatives to this decay we have seen in our current political climate are the Right’s militarization of the economy and the Left’s industrial policy of national economic planning. I submit that these alternatives are fundamentally equivalent both to one another and to the worst of the decaying regimes of the present world. To varying degrees every economic system of the modern world is, in the final analysis, of one kind. Whether called capitalist or socialist or fascist or communist, it is a system of noncomprehensive planning. Whether its aim is military or not, its method of organization most certainly is. And whether this militarization of the economy is left naked (Hitler) or is dressed up as progressive reform (Baruch), Marxist communism (Stalin) or free-market ideals (Reagan), its true nature remains the same: it is national economic planning (Lavoie, 1985a, pp. 230–232). Radicals have let their past belief in comprehensive planning push them, by virtue of its utter failure and their unquestioned aversion to free-market institutions, into irreconcilable conflict with their own goals. Their opposition to unregulated competition for fear that it will evolve into monopoly has led them to endorse a policy of government-enforced and protected monopolization. Their restoration to a standpoint of true opposition requires that they finally abandon planning in all its guises and reformulate a radical vision of the free market and free society (Lavoie, 1985a, p. 241). So long as we do not dare to start constructing a positive, workable utopia, we are doomed never to pose a serious challenge to those who now rule our lives (Lavoie, 1985a, p. 234).

Just weeks before Don Lavoie’s death on November 6, 2000, while he still struggled with cancer, I took the opportunity to fly back to Northern Virginia and visit him for several hours in his home, with Pete Boettke. The

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three of us soon fell into deep conversation about the past, present, and future. What most struck Pete and me was Don’s dignity, his love for his family, and his continued optimism that the world can, in fact, be changed for the better.

NOTES 1. Lavoie’s impact on the profession is discussed by Boettke and Prychitko (2006). 2. [Nevertheless, Neuberger’s division of the coordination structure into tradition, market, and planning had quite an influence on Lavoie, which is worthy of further reading. See Lavoie (1985a, pp. 30–44) for a full discussion of these systems, which has had a lasting impact on my own (Prychitko, 1994) work.] 3. The First International (1864–1876) was a working class movement, but held no dominant ideology. During that time, ideological battles occurred, whose rivals included Bakunin, LaSalle, and Marx. When the Second International emerged – a period which Kolakowski (1981, vol. 2) calls the ‘‘Golden Age of Marxism’’ – everyone seemed to be critical of Marxism, and interpreted and adjusted his work to the changed times that they faced. 4. Engels tried to stretch this to apply to everything – witness his Anti-Duhring (Engels, [1878] 1978) and his Dialectic of Nature (Engels, [1927] 1935). Diamat, shorthand for dialectical materialism (the official Soviet philosophy), refers to Engels’s version of philosophy, and spread into the natural sciences. 5. [Lavoie ended this discussion with a statement about Marx and the sociology of knowledge]: The sociology of knowledge attempts to indict the source of an idea by explaining its development. To some extent there is a valid point to be made here – all social science is based on presuppositions. There is no Archimedean point by which to make unprejudiced, unbiased judgments of the real world. Marx was one of the first social scientists to realize this. He claimed he was representing his class’s point of view – the proletarian class – which he believed would also be the point of view of the future, and in this sense he justified the scientific nature of his inquiry. Therefore, to fight Marx here, one must defend the idea that his point of view does not have a special scientific status by refuting the claim that society will evolve into a proletarian-based socialism. 6. [See Lavoie (1983), where he compares Marxist and Austrian explanations of the cycle.] 7. [The antithesis is the negation of the thesis; the synthesis is the negation of the antithesis. So, the synthesis negates the negation. It is not a return to the earlier thesis, but something fundamentally different from both the thesis and the antithesis. As Marx (1973, p. 111) states in reference to the movement from Greek art to modern times: A man cannot become a child again, or he becomes childish. But does he not find joy in the child’s naı¨ vete´, and must he himself not strive to reproduce its truth at a higher stage? Does not the true character of each epoch come alive in the nature of its children? Why

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should not the historic childhood of humanity, its most beautiful unfolding, as a stage never to return, exercise an eternal charm? There are unruly children and precocious children. Many of the old peoples belong in this category. The Greeks were normal children. The charm of their art for us is not in contradiction to the undeveloped stage of society on which it grew. [It] is its result, rather, and is inextricably bound up, rather, with the fact that the unripe social conditions under which it arose, and could alone arise, can never return.

So, as we shall see, Marx’s view of capitalism as the negation of primitive society, and communism as the negation of capitalism, in no way implies, for Marx, any kind of fundamental return to primitive society.] 8. Bukharin argued instead that we can reconcile an account of explaining social phenomena through the purposes of human beings with a nonvoluntarist conception of social change: society as a whole changes in the direction which does not necessarily parallel all the desires of its agents. This takes account of spontaneous order and the unintended consequences of human action. For example, Bukharin (Lavoie, 1985b, pp. 42–43) talks of price resulting as an unintended consequence of human action [See Bukharin ([1921] 1969)]. 9. [I recall that Lavoie mentioned he admired Roy Bhaskar’s (1983a, 1983b, 1983c) entries in Bottomore (1983), particularly the one on realism, but he didn’t juxtapose Marx with realism here.] 10. [Lavoie ended the evening lecture with a short discussion of ideology]: Marx inverts Hegel and wants to see history as creating man. Marx thinks man makes god, rather than the other way around. The source of this inversion is in reality itself, not in the minds of man. Reality forces people to believe in god. No argument will overcome this belief. Instead, the whole nature of reality must be changed to change people’s beliefs in god. Change the material world so that different ideas bubble up. But Marx leaps from a philosophical analysis to a concrete analysis of how the world can work. Is communism possible? 11. [Lavoie mentioned here how he was excited when he discovered that Uno, the Japanese Marxist, discussed in detail ‘‘The plan’’ of Marx. Lavoie mentioned that he had thought this meant details that Marx himself provided regarding central economic planning. Instead, Lavoie soon found, ‘‘The plan’’ refers to Marx’s plan to establish a theory of development. For more on Marx’s plan, see the preface to Marx (1963).] 12. [Marx (1973, pp. 100–101) chided classical political economy for confusing the abstract and the concrete; for not having clearly distinguished the base (and its elements) from the superstructure When we consider a given country politico-economically, we begin with its population, its distribution among classes, town, country, the coast, the different branches of production, export and import, annual production and consumption, commodity prices, etc. It seems to be correct to begin with the real and the concrete, with the real precondition, thus to begin, in economics, with e.g. the population, which is the foundation and the subject of the entire social act of production. However, on closer examination, this

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proves false. The population is an abstraction if I leave out, for example, the classes of which it is composed. These classes in turn are an empty phrase if I am not familiar with the elements on which they rest. E.g. wage labour, capital, etc. These latter in turn presuppose exchange, division of labour, prices, etc. For example, capital is nothing without wage labour, without value, money, price, etc. Thus, if I were to begin with the population, this would be a chaotic conception . . . of the whole, and I would then, by means of further determination, move analytically towards ever more simple concepts . . . from the imagined concrete towards ever thinner abstractions until I arrived at the simplest determinations. From there the journey would have to be retraced until I had finally arrived at the population again, but this time not as the chaotic conception of a whole, but as a rich totality of many determinations and relations. The former is the path historically followed by economics at the time of its origins. The economists of the seventeenth century, e.g., always begin with the living whole, with population, nation, state, several states, etc.; but they always conclude by discovering through analysis a small number of determinant, abstract, general relations such as division of labour, money, value, etc. As soon as these individual moments had been more or less firmly established and abstracted, there began the economic systems, which ascended from the simple relations, such as labour, division of labour, need, exchange value, to the level of the state, exchange between nations and the world market. The latter is obviously the scientific method.

13. One of the reasons that Marxism is very popular around the world is the fact that when markets are introduced into premarket societies, the changes that take place are consistent with Marxian theory. This is perhaps why so many underdeveloped countries have many Marxists. Marxists are able to take advantage of the traditional attitudes that hate the disruption that occurs with the introduction of markets. These changes evoke a reaction against them. The whole sociological nexus undergoes a strain; past traditions are dissolved. Marxism takes advantage of this antagonism, and yet it is also pro-market in the sense that such changes are necessary for the progressive nature of society. We also see this in Lenin’s ([1897] 1960) critique of Narodnikism. They were a peasant-oriented community in Russia who complained about the changes that the market was bringing about. Lenin insisted that the laws of change were going to inherently transform Russia. There’s a tendency to depict this as caused by chance or by social policy. But Lenin says this is an inherent change, rejecting both chance and social policy as its main cause. Lenin argued the Narodniks engaged in superficial reasoning; it isn’t a matter of chance or choice (which would be a voluntarist fallacy). One form of social organization succeeds another. The feudal system creates a feudal morality, the capitalist system creates its own morality, and so on. To be in a bourgeois system and criticize it from a feudal morality is irrelevant. 14. [Hayek (1954, pp. 15–17) makes a nice rebuttal to this point: The actual history of the connection between capitalism and the rise of the proletariat is almost opposite of that which these theories of the expropriation of the masses suggest. The truth is that, for the greater part of history, for most men the possession of tools for

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their work was an essential condition for survival or at least for being able to rear a family. The number of those who could maintain themselves by working for others, although they did not themselves possess the necessary equipment, was limited to a small proportion of the population. The amount of arable land and of tools handed down from one generation to the next limited the total number who could survive. To be left without them meant in most instances death by starvation or at least the impossibility of procreation. There was little incentive and little possibility for one generation to accumulate the additional tools which would have made possible the survival of a larger number of the next, so long as the advantage of employing additional hands was limited mainly to the instances where the division of the tasks increased the efficiency of the work of the owner of the tools. It was only when the larger gains from the employment of machinery provided both the means and the opportunity for their investment that what in the past had been a recurring surplus of population doomed to early death was in an increasing measure given the possibility of survival. Numbers which had been practically stationary for many centuries began to increase rapidly. The proletariate which capitalism can be said to have ‘‘created’’ was thus not a proportion of the population which would have existed without it and which it had degraded to a lower level; it was an additional population which was enabled to grow up by the new opportunities for employment which capitalism provided. In so far as it is true that the growth of capital made the appearance of the proletariat possible, it was in the sense that it raised the productivity of labor so that much larger numbers of those who had not been equipped by their parents with the necessary tools were enabled to maintain themselves by their labor alone; but the capital had to be supplied first before those were enabled to survive who afterward claimed as a right a share of its ownership. Although it was certainly not from charitable motives, it still was the first time in history that one group of people found it in their interest to use their earnings on a large scale to provide new instruments of production to be operated by those who without them could not have produced their own sustenance.]

15. One of the important features of feudalism that capitalism retains is the belief in political power. The nation-state connects the previous feudal locales. Mercantilism arises as an early phase of capitalism, with the state playing the role of issuing debt (etc.) and providing much state–private interconnections. But the state as a powerful coercive agency actually decreases according to Marx (as opposed to his followers) as capitalism matures. Oppression takes more and more the form of the boss over the worker. The capitalists will fight among themselves if it weren’t for the state, as property rights must be enforced. The state acts as arbitrator, a minimal agency to resolve disputes among capitalists, not seen as having its own interests. 16. [Lavoie then turned to explaining some later empirical anomalies in Marxist theory – imperialism and really existing socialism]: Between capitalism and communism is imperialism. Later Marxists see the trends of the increasing role of government in the 20th century, especially after World War I. The big capitalists team up with the big State, which seems to be a reversal back to the earlier, Mercantile capitalist period. There were two ways to explain this phenomenon: history turned back to an earlier phase, or a new stage had developed. Most Marxists adopted the latter.

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They therefore see the state now in a positive role, which will further the progress toward communism. Here, government and socialism become tied together, which occurred in the Soviet system. Marxists have not been critical of this development until the rise of the Uno School. They believe the power of government must be reduced to accomplish the socialist transition. The state is viewed again as a fetter. Marx hated the state with a passion, and the main thing wrong with capitalism is that it requires the state. The Uno School shares this more traditional Marxian view. Marxists are also at odds with each other in attempting to explain ‘‘really existing’’ socialism, such as the Soviet economy. A great deal of the literature views really existing socialism as another stage after capitalism. The New Class emerges (the Communist Party is a new exploiting class). Power becomes concentrated in the hands of the bureaucratic class. Konrad and Szelenyi (1970) have suggested that Soviet Marxist ideology becomes a new ideology of the working class, one which subtly exploits them. Konrad and Szelenyi view Marxism as a priestly ideology, whose intelligentsia gained power by promoting this ideology. 17. A subjectivist would argue that interest arises due to time preference (and that it is therefore an illusion to believe interest is a ‘‘return’’ on a factor of production – illusive because we calculate in dollar terms, not dated dollar terms) and profit arises due to entrepreneurial decision-making. 18. [The problem they are said to share with respect to the size of capital. For more on the transformation of commodity values into prices, see Marx ([1885c] 1909, chapter 9, 1973, pp. 435–436).] 19. [Some clarification is helpful here. The worker gets paid the correct wage, which reflects the market value of his labor power. That market wage, in the long run, will be one that just allows workers to reproduce their labor power for the next day. That is, it provides workers a daily income that will produce just enough sustenance for the worker to be able to return to work tomorrow. Suppose, for example, that the capitalist pays his workers five dollars for a 12-hour workday, and that five dollars provides just enough for workers to be fit for work tomorrow. But if one labor hour produces, say, one dollar of commodity value, then each worker is being paid five dollars per day and producing something worth 12 dollars on the market. The surplus is created by the fact (according to Marx) that the capitalist makes the worker work more hours than are necessary to renew the workers labor power itself. See Marx’s discussion on ‘‘The Working Day’’ ([1885a] 1906, chapter 10) as well as Marx (1973, pp. 323–335), and Wolff and Resnick (1987, pp. 167–171) for a straightforward summary.] 20. [In addition to Marx’s classic statement, also see Freedman (1990, chapter 3) for a good overview. The work that focuses on Marx’s notion of praxis, such as Markovic (1974) and the essays in Markovic and Petrovic (1979), and its implications regarding the planned socialist economy, provide an important alternative interpretation to the Roberts’ (1971) view that influenced Lavoie.] 21. The notion of alienation comes out of Hegel’s work and that of the later leftHegelians. Hegel had foreclosed the possibility of a nonalienated society from a philosophical standpoint. That is, he assumed there was no such thing as a centrally planned economy. Marx himself seems to take the opposite view to Hegel, namely, that it is impossible not to have a nonalienated society and a planned economy in the future.

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22. Mises defends the ideal of drawing a line between some forms of rivalry and others. Coercive, aggressive rivalry, for example, creates an unacceptable clash of human purposes and a decline in human welfare. Rivalry of a voluntary nature, however, is acceptable. Sure, the less efficient are weeded out of the game and therefore suffer a loss, but someone has to lose for the systematic procedures of competition lead to a general gain in well being (as the whole system becomes recoordinated with the spread of information). 23. [We engaged in many hours of discussion and debate as I would later question Lavoie’s claim, in my dissertation, of which he chaired. Lavoie followed the position developed by Roberts and Stephenson (1973) that Marx’s notion of alienation implies an appeal to central economic planning. I argue instead (Prychitko, 1991, pp. 20–27, 2002, pp. 18–21, 56–62, 63–66) that Marx sees the socialist future as being comprehensively planned. Central planning is one approach to comprehensive planning, but that leaves people working under what would amount to a universal, monopoly capitalist – the central planning board – and thereby fails to put an end to human alienation. Instead, Marx’s theory of alienation points to another form of comprehensive planning – one that must be decentralized and based on workers’ self-management of the means of production. Lavoie eventually came to agree with my position.] 24. There have been different opinions on the possibility of de-alienation among Marxists. Sartre and Heidegger, for example, argue that alienation is a permanent part of being human (as does Mises). Therefore, in a sense, they’re arguing over the impossibility of socialism! Alienation is not just an illusion. We do have to grapple with it; we are not like one big family. Marx is onto something here. Small hunter–gatherer groups may not feel alienated, but there is an entirely different set of constraints in modern society that forces us to leave our innate cultural instincts. Today we can’t get rid of alienation, nor is socialism possible. [But Lavoie’s use of the word ‘‘alienation’’ here must change the meaning that Marx had in mind. When Marx speaks of alienation he advances claims about human separation from real-world possibilities, about our actual human condition compared against some achievable future condition. We are alienated from our full creative activity that will and can only exist under comprehensive economic planning. As I’ve written elsewhere (Prychitko, 2002, p. 62), ‘‘if the Austrians are correct in arguing that the market process cannot be abolished in favor of rational economic planning – that the market system is here to stay – we are not ‘stuck’ with alienation. If comprehensive economic planning is humanly impossible, then Marx’s claim that we are beings of praxis, whose essence is freely and creatively to design the society we live in, is patently false. If the achievable, as Marx saw it, is epistemologically unachievable, the gap disappears and Marxian alienation simply ceases to be.’’] 25. Recall his M–C–Mu definition of capitalism. Here, an excess demand for money leads to an excess supply of all other commodities. (This is a monetary disequilibrium problem, exemplified by the Great Depression.) In Marx’s view, the world is rivalrous, and therefore there isn’t a complete coordination of plans; they aren’t all consistent with one another. Central planning would match all plans before anything is produced – much the same as the Walrasian auctioneer. For Marx, capitalism is nothing like the Walrasian world, but socialism parallels such a world. [See Marx ([1859] 1970, pp. 95–98).]

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26. [We used to call this the ‘‘pootmop’’ argument, as Lavoie often reduced the phrase ‘‘private ownership of the means of production’’ to the shorthand ‘‘pootmop’’ on the chalkboard.] 27. [We have here the distinction between de jure and de facto ownership. De jure ownership refers to the legal property right – to whom belongs the means of production. De facto ownership refers to who actually enjoys economic control over the means of production. Mises ([1922] 1981, p. 45) offers such a distinction (using the terms legal and economic ownership). Lavoie’s point is that although the former Soviet state legally enjoyed ownership over capital goods and resources, neither the State nor its CPB enjoyed economic control over those resources. Control existed among the lower levels of the planning structure, and plan coordination occurred within underground markets. The system was officially socialist and centrally planned; in actual practice, however, it was anything but centrally planned.] 28. [Here, Lavoie moved from Mises’s ([1920] 1935) calculation argument to Hayek’s ([1945] 1948) knowledge-transmission argument. Recently, there has been some debate among Austrians themselves as to the differences between Mises’s calculation problem and Hayek’s knowledge problem. Lavoie saw them as complementary. For more on this recent debate, see Boettke (1998a).] 29. [Recall from the syllabus that Lavoie doesn’t go into much of the details of the socialist calculation debate – including the specifics of Lange’s model. This material was instead covered on the required reading list, which included Lavoie’s masterful (1985b) work.] 30. [Note that this lecture was given just as Lavoie’s two 1985 books had been published, which would soon launch a new stage in the debate. The literature is rather large, and both the classic and more contemporary literature is collected in the multivolume collection of Boettke (2000). See Bottomore (1986–1987, 1990), Bideleux (1986), and Le Grand and Estrin (1989) for the early-renewed stage. A year or two after these lectures Lavoie engaged in debate with Robin Hahnel on the George Mason University campus. Albert and Hahnel (1991), however, showed no acknowledgment of Lavoie’s argument (or that of the Austrian School, in general). Hodgson (1999, pp. 266–267), on the other hand, at least admits the futility of Lange’s market socialist ‘‘answer,’’ whereas Bardhan and Roemer (1993) still seem to miss the point. Cottrell and Cockshot (1993) attempt an answer, rebutted by Horwitz (1996). Lavoie’s own post-1985 contributions to the renewed debate are in (Lavoie, 1986, 1986–1987, 1990, 1992). Ted Burczak (1996–1997) has come the furthest in accepting the main thesis of the Mises–Hayek–Lavoie case against comprehensively planned socialism, which prompted replies by Cullenberg (1992), Boettke (1998b), and myself (Prychitko, 1998), along with Burczak’s (1998) rejoinder in a special symposium on ‘‘Socialism, capitalism, and the labor theory of property: A Marxian– Austrian debate,’’ edited by Rob Garnett for the journal Rethinking Marxism.] 31. [Perhaps I wrote poor notes here: this sounds like ‘‘the government’’ is one actor with one mind!] 32. [The CIA in the United States would offer its own estimates. There’s also the Two Sets of Books theory, which claimed that the Soviets held the true data in secret, and doctored it up in a second version for public consumption. There is no credible evidence for this theory, as nothing has been found since the collapse of the Soviet Union over a decade ago.]

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33. [Boettke jokes that the Soviets did a fine job of increasing per capita GNP, largely through a sustained series of maneuvers intended to decrease the size of the capita!] 34. [I’m still astonished that the GNP measures haven’t been more radically questioned (Boettke, 2001, p. 285, note 3 comes close). GNP is supposed to measure the total market value of final goods and services. To get market values national income accountants use market prices. But the Soviet system could not use market prices to the extent that it was officially a centrally planned economy. Any prices established by the planners would therefore be arbitrary (i.e., certainly not scarcityindicating in Mises’s sense), so it would seem that the entire methodology is flawed. That is, either (1) GNP meant the same thing in the Soviet Union as it did in the United States, and if it did then market value computations in the Soviet Union were arbitrary, even if we used world prices in place of planners’ prices, because those world prices do not necessarily reflect the scarcities of goods across all regions. For some things like oil, perhaps. But what about a steel factory?; or (2) the GNP concept meant different things in the United States and the Soviet Union. In the United States, it measures market values, in the Soviet Union it measured some other form of value. What algorithm could clearly ‘‘convert’’ nonmarket values to marketprice values?] 35. [Lavoie’s productive distinction between power and control, further discussed by Lavoie (1986–1987, pp. 11–15), might represent another influence of Neuberger’s (1985) work.] 36. Boettke (1990a) has gone the furthest in developing the Roberts’ argument. This work was based on the dissertation he wrote under Lavoie. Also see Boettke (1988, 1990b). 37. [Lavoie mentioned the fable of the 3 ton nail: If the target is specified as ‘‘plant x must produce 3 tons of nails this week,’’ why not simply produce a 3 ton nail, ship it out, and note that you’ve met the target directive? Although this is a fable (a cartoon of which I have posted on my office door), Soviet plant managers were actually notoriously creative in meeting target directives, such as producing window glass that’s too thick to serve any useful purpose (but, from their perspective, had a lower likelihood of breaking).] 38. [Polanyi’s (1951, pp. 134–135) metaphor: But in reality such an alleged plan is but a meaningless summary of an aggregate of plans, dressed up as a single plan. It is as if the manager of a team of chess-players were to find out from each individual player what his next move was going to be and would then sum them up by saying: ‘‘The plan of my team is to advance 45 pawns by one place, move 20 bishops by an average of three places, 15 castles by an average of four places, etc.’’ He could pretend to have a plan for his team, but actually he would be only announcing a nonsensical summary of plans. In order to press home this illustration, let us see wherein lies exactly the impossibility of conducting a hundred games of chance by central direction. Why would it be absurd to make one person responsible for the moves of all castles, another for all bishops, etc? The answer is that the moving of any particular castle or bishop constitutes ‘‘a move in chess’’ only in the context of the moves (and possible moves) of the other pieces in the

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same game. It ceases to be ‘‘a move in chess’’ and is consequently meaningless in the context of the moves of all castles, or of all bishops, in a hundred different games. Such a context is a senseless collocation, falsely described as a purpose; whence the absurdity of entrusting a person with carrying out this fictitious purpose.]

39. [Actually, Horvat and the Yugoslavs called for workers’ self-managed socialism, as opposed to mere worker control over the means of production.] 40. [Actually, the 1976 Yugoslav Constitution states that society (rather than the State) legally owns the means of production. In fact, it goes on to say that because society – ‘‘everybody’’ – legally owns the means of production, nobody legally owns the means of production.] 41. [I should note that, in Vanek’s model, the income of the labor-managed firm – the residual – can, in fact, be positive, negative, or zero. Efficient uses of scarce resources will tend to generate a positive residual, and therefore income for the team of workers, whereas inefficient uses will tend to generate a negative residual, and therefore no income (or a loss of income) for the team of workers. Lavoie didn’t see this because, I believe, he didn’t carefully separate Vanek’s model from Yugoslav practice. Vanek’s model wasn’t intended to describe the Yugoslav approach to selfmanaged socialism. (See Prychitko and Vanek (1996) for a comprehensive collection of articles, pros and cons, theoretical and empirical, in the self-management literature.) In light of Lavoie’s take on Vanek, one might well imagine his mixed feelings when I had been selected as a junior visiting fellow in Vanek’s Program on Participation and Labor-Managed Systems at Cornell, to complete the writing of my dissertation. I had learned a great deal from Vanek, and I left his program finding (non-socialist!) self-management an intriguing possibility from an Austrian perspective, a possibility that I developed in my dissertation and have continued to explore. Lavoie’s approval of my dissertation work upon my return spoke volumes about his intellectual character.] 42. These people made a crucial assumption regarding knowledge. Rohatyn (1982) and Reich (1983) want to set up a new RFC, or a MITI, to bail out those industries that have to be saved to improve the competitiveness of the United States. It’s a micro-oriented policy, geared to help out those industries upon whose survival the U.S. economy as a whole depends. But how does such a ministry know just which industries are important? Taxpayers are burdened no matter what happens. Is it clear, a priori, that anyone can be saved? Which old industries should we salvage? Which should we allow to fail? How can we pick winners? Should they be high tech? Futuristic industries? Can we ‘‘anticipate the market’s own direction’’ to develop more rapidly our industrial-competitive structure? That is, can we hurry the market along in the direction that it seems to be going? Furthermore, how successful was the RFC, or MITI in Japan? Was MITI the factor that made Japan so prosperous? Many of MITI’s own advice was ignored. For example, it told SONY not to buy the rights to the transistor. Fortunately SONY ignored that advice, and looks where it’s now. MITI sent memos with both good and bad advice, but it had little clout. Does a planner know what he is doing? Is industrial policy more informed of what it is doing than the spontaneous ordering forces of the market?

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[Lavoie (1985a, pp. 125–210) discusses these contemporary experiences in greater detail.] 43. [Here, Lavoie briefly juxtaposed perfect competition and collusion.] The model of perfect competition looks askance at collusion. As soon as any rivals show friendly behavior, antitrust should be used to separate them. Ironically, MITI allows collusion, or interfirm cooperation. To some extent this is a free competition view. Voluntary institutions could emerge as a clearinghouse for interfirm cooperation, so there is no need for MITI or any other planning apparatus. Strictly speaking, the perfectly competitive view should be against firms themselves, for the individuals working within a firm are ‘‘colluding’’ or ‘‘cooperating.’’ There’s a logical inconsistency here, for no economist would call for the busting of all firms! But they have attacked certain forms that firms have taken on. 44. [I hesitate using the expletive here, for I am not certain Lavoie used that word. That is, however, what I wrote in my own notes.] 45. [This is still true today. See the work of the Left’s leading contemporary anarchist, Murray Bookchin (1989), and my criticism of his approach (Prychitko, 2002, pp. 132–134).]

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Hayek, F. A. (Ed.) (1935). Collectivist economic planning: Critical studies on the possibilities of socialism. London: Routledge. Hayek, F. A. ([1937] 1948). Economics and knowledge. In: Individualism and economic order (pp. 33–56). Chicago: University of Chicago Press. Hayek, F. A. ([1940] 1948). The competitive solution. In: Individualism and economic order (pp. 181–208). Chicago: University of Chicago Press. Hayek, F. A. ([1945] 1948). The use of knowledge in society. In: Individualism and economic order (pp. 77–91). Chicago: University of Chicago Press. Hayek, F. A. (Ed.) (1954). Capitalism and the historians. Chicago: University of Chicago Press. Hilferding, R. ([1910] 1981). Finance capital: A study in the latest phase of capitalist development. London: Routledge & Kegan Paul. Hodgson, G. M. (1999). Economics and utopia: Why the learning economy is not the end of history. New York: Routledge. Horvat, B. (1971). Yugoslav economic policy in the post-war period: Problems, ideas, institutional developments. American Economic Review, 61(3, Suppl.), 60–169. Horwitz, S. (1996). Money, money prices, and the socialist calculation debate. Advances in Austrian Economics, 3, 59–77. Hurwicz, L. (1973). The design mechanisms for resource allocation. American Economic Review, 63(2, Suppl.), 1–30. Kolakowski, L. (1981). Main currents of Marxism (2 vols.). New York: Oxford University Press. Konrad, G., & Szelenyi, I. (1970). Intellectuals on the road to class power. New York: Harcourt, Brace, Jovanovich. Kornai, J. (1959). Overcentralization in economic administration: A critical analysis based on experience in Hungarian light industry. Oxford: Oxford University Press. Lange, O. ([1934] 1964). On the economic theory of socialism. In: B. E. Lippincott (Ed.), On the economic theory of socialism (pp. 57–143). New York: McGraw Hill. Lavoie, D. (1983). Some strengths in Marx’s disequilibrium theory of money. Cambridge Journal of Economics, 7(1), 55–68. Lavoie, D. (1985a). National economic planning: What is left? Cambridge, MA: Ballinger. Lavoie, D. (1985b). Rivalry and central planning: The socialist calculation debate reconsidered. New York: Cambridge University Press. Lavoie, D. (1986). The market as a procedure for discovery and conveyance of inarticulate knowledge. Comparative Economic Studies, 28(1), 1–19. Lavoie, D. (1986–1987). Political and economic illusions of socialism. Critical Review, 1(1), 1–35. Lavoie, D. (1990). Computation, incentives, and discovery: The cognitive function of markets in market socialism. Annals of the American Academy of Political and Social Science, 507, 72–79. Lavoie, D. (1992). Glasnost and the knowledge problem: Rethinking economic democracy. Cato Journal, 11(3), 435–455. Le Grand, J., & Estrin, S. (Eds). (1989). Market socialism. New York: Oxford University Press. Lenin, V. I. ([1897] 1960). A characterization of economic romanticism. In: V. I. Collected Works (Vol. 2). Moscow: Progress Publishers. Lenin, V. I. ([1916] 1964). Imperialism: The highest stage of capitalism. In: V. I. Lenin, Collected Works (Vol. 22). Moscow: Progress Publishers. Lerner, A. (1944). The economics of control: Principles of welfare economics. New York: Macmillan.

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REVIEW ESSAYS

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McCraw’s PROPHET OF INNOVATION SCHUMPETER’S BEST MOVE$ Arthur M. Diamond, Jr. A review essay of Thomas K. McCraw. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007. xiiþ719. The Economist (2001) once suggested that only the exceptionally rare economist lived a life of sufficient interest to warrant a movie portrayal. The article suggested only two exceptions, John Maynard Keynes and Joseph Schumpeter. Warming to the idea, The Economist opined that Tom Cruise would be the right actor to play Schumpeter. The figure who emerges from Thomas McCraw’s account does indeed share the energy, confidence, ambition, and adventure of the action hero of some of Cruise’s early movies. But in many ways, the figure who emerges is different than the typical Cruise character – in intelligence, seriousness, and perseverance in the face of $

A few sentences in this chapter first appeared in entries on my blog (http://artdiamondblog. com). Thomas McCraw graciously read the final draft of the review and alerted me to four errors that would otherwise have appeared in print. (As per usual, any remaining errors are totally my fault.) McCraw was generally sympathetic to much of my discussion, while remaining unconvinced on some issues, such as my negative evaluation of FDR’s New Deal.

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disappointments. Near the end of his comprehensive, substantial, and very useful new biography of Schumpeter, McCraw tells us that Schumpeter’s story is ‘‘ . . . one of restless adventure, almost unbelievably hard work, and ultimate triumph in the face of persistently bad luck’’ (p. 493). The story told by McCraw has a different leitmotif from that told by the young Paul Samuelson who, in his earlier career, would sometimes gently ridicule his professor Schumpeter, making fun of his long wave theories and the quaint periodicity of his lecture attire. From the longer perspective of his own old age, however, Samuelson sees Schumpeter in a way that is more complementary to McCraw’s story. Near the end of his banquet lecture at the 2002 meetings of the International Schumpeter Society, Samuelson (2003, p. 467) said, ‘‘In chess you are only as good as your worst move. In creative science you are as good as your best moves.’’ And though he did not precisely say so, in his closing sentences, Samuelson implied that Joseph Schumpeter’s best moves were very good moves indeed! Thomas McCraw’s new, long-awaited biography of Schumpeter is primarily about Schumpeter’s best move. For McCraw, Schumpeter’s best move is what he had to say about innovation and creative destruction. I agree with McCraw on this, and the agreement makes me a highly sympathetic reviewer of McCraw’s book. In addition to the movie industry, many different audiences will find value in McCraw’s book. The historian of economic thought, the economic methodologist, the student of entrepreneurship, and the seeker of sound economic policy will all find much to interest them.

COMPARING MCCRAW WITH PREVIOUS BIOGRAPHERS The previous major biographies of Schumpeter are found in the works by Allen (1991), Ma¨rz (1991), Stolper (1994), and Swedberg (1991). Ma¨rz’s biography is a collection of independently written essays, some mainly biographical, and some mainly commenting on aspects of Schumpeter’s economic thought. Stolper’s signal contribution is to present evidence that explains and defends Schumpeter’s activities in government and banking in Austria. Allen focuses extensively on the details of Schumpeter’s personal life (see Moss, 1993), while Swedberg focuses more on the events and ideas of Schumpeter’s academic life. McCraw also puts primary emphasis

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on Schumpeter’s academic life, although he includes more information about Schumpeter’s personal life than did Ma¨rz, Stolper, and Swedberg (often citing Allen’s research as his source). Other differences between the biographies may be worth noting. Allen, Ma¨rz, and Stolper each had varying degrees of personal contact with Schumpeter, while Swedberg and McCraw did not. Allen conducted many interviews with those who knew Schumpeter, while Ma¨rz, Stolper and Swedberg relied much less on interviews. The nominal academic disciplines of the authors also differ: Allen, Ma¨rz, and Stolper were economists; Swedberg is a sociologist; and McCraw is a business historian. McCraw’s (2007) biography lays claim to being the most comprehensive of the group; not only most thoroughly covering all aspects and time periods of Schumpeter’s life, but also most thoroughly mining the most sources of evidence. McCraw’s biography is also a credible candidate for being the best written and most insightful of the group, at least for readers interested in innovation, the history of economic thought, and economic methodology.

WHAT WE CAN LEARN FROM MCCRAW McCraw’s book has been widely and well reviewed, serving as a jumping off point for many kinds of observations – like Schumpeter’s own corpus, McCraw’s book may well prove fecund at leading to further research. Personally, I enjoyed reading the book and found it useful in various ways. For instance, in the course of the book, McCraw presents many pithy and sometimes amusing quotes by and about Schumpeter.1 McCraw also brings to light significant episodes in Schumpeter’s life that may have broader significance, for instance, in showing that the peer-review process was strongly against Schumpeter receiving the professorship at Graz (pp. 76–77). An individual or two intervened and perhaps made a major difference in the course of intellectual history. This episode could be relevant to improving institutions of higher education or to a discussion of path dependence or to a philosophical discussion of how the actions of individuals can matter. In this review, I mainly will emphasize issues in McCraw’s book that will be of interest to those studying the history of economic thought and economic methodology. But to a broader audience, the major contribution of McCraw’s book is in illuminating Schumpeter’s insights, evidence, and arguments on the role of innovation, entrepreneurship, and creative destruction as the essential facts about dynamic capitalism.

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SOME BROAD RESERVATIONS Some of what McCraw seems to be doing is the sort of biographical deterministic ‘‘explanation’’ that Stigler (1982) criticizes in his ‘‘Uses of Biography’’ paper. This method adduces events or circumstances from the subject’s life to ‘‘explain’’ what the person believed or did. But such a method produces mutually inconsistent theories that are illustrated with cherry-picked examples, but not systematically tested by a broader collection of data. For example, on the one hand, you can ‘‘explain’’ John Stuart Mill’s excelling in economics as due to his father’s having pushed him toward it. And, on the other hand, you can ‘‘explain’’ Alfred Marshall’s excelling in economics as due to his rebelling against his father’s having pushed him away from it (Coase, 1995). The problem is that we can always either embrace or reject the events and circumstances of our lives, and therefore, they can never fully explain what we say or do.2 McCraw ‘‘explains’’ (p. 92) Schumpeter’s limited success in the politics of Austria, by noting that Schumpeter’s experience with the ‘‘cloistered’’ politics of the academy was no preparation for the intrigue of real politics. Such a hypothesis has surface plausibility. But before much weight is put on it, we would want to also consider the lives of academics such as Woodrow Wilson and Paul Douglas, who are usually viewed as having made the transition from academics to politics with greater success. In one example of the biographical deterministic mode of explanation, McCraw tries (pp. 465–466) to explain the different visions of Keynes and Schumpeter by their different lives – Keynes, a life of stability, and Schumpeter, a life of creative destruction. This view again has some surface plausibility, but can be doubted not only on the Stiglerian grounds just discussed but also on the basis of the soundness of the generalizations about Great Britain and Europe. The Great Britain of Keynes’ life was not always so stable, and the Europe of Schumpeter’s life was one of destructive destruction more often than it was one of creative destruction. On the Great Britain of Keynes’ life, for example, a couple of recent books (Lukacs, 2008; Olson, 2007) have highlighted just how precarious Great Britain’s position was in World War 2. If we get beyond the certainty of hindsight, it is altogether conceivable that Great Britain might have lost the war to Hitler. And on the Europe of Schumpeter’s life, McCraw elsewhere suggests (pp. 83–103) that one of the dominant historical events was World War 1. But from the viewpoint of both McCraw and Schumpeter, World War 1 was an unnecessary, unmitigated disaster. Therefore, it is hard to find something creative in World War 1 – it was destructive destruction.

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A second example of the biographical deterministic mode of explanation would be McCraw’s account of Schumpeter’s important presidential address before the American Economic Association in 1948 on ideology and vision. McCraw suggests that what Schumpeter had to say was controversial and that Schumpeter was taking a risk in expressing his views on the roles of vision and ideology in economics. McCraw goes on to suggest (p. 483) that with Schumpeter’s health problems, ‘‘why not take the risk?’’ Apparently, McCraw’s explanatory hypothesis is that we take more risks when our health is bad, and we are likely nearer death. But this is by no means clear. On the one hand, in theory, if one takes risks early in life, when health is better, one has more periods in which to enjoy the benefits of successful risk-taking and more periods in which to recover from failed risk-taking. And on the other hand, in practice, McCraw documents how Schumpeter in many ways also took substantial risks early in his life, when his health was much better. But if McCraw is guilty of too-easy biographical generalizations, then so is Schumpeter himself. One of Schumpeter’s own generalizations in the History of Economic Analysis (e.g., on p. 470) is that economists do their best work in the key third decade of their life. Schumpeter probably thought that his own life provided further evidence of the hypothesis. The primary work of his own third decade was the highly and rightly acclaimed The Theory of Economic Development (Schumpeter, 1961). In contrast, in his sixth and seventh decades, he labored mightily on the Business Cycles (Schumpeter, 1939), which was a critical failure; on Capitalism, Socialism and Democracy (Schumpeter, 1950), which he said was a mere ‘‘potboiler’’3 (implying that it was not a serious work); and on the History of Economic Analysis, which he was not able to complete before his death. In the dark musings of his diary in his final decades, he was often very self-critical, sometimes even going so far as to consider himself a ‘‘failure’’ (p. 403). McCraw presents evidence both against the claim that Schumpeter’s third decade was his best and against the claim that overall Schumpeter was a failure. McCraw achieves the former, not by denigrating the third decade but by elevating the sixth and seventh. He notes that upon publication, scholars widely acknowledged the unparalleled value of the History of Economic Analysis. For Capitalism, Socialism and Democracy, the acknowledgment was not quite as quick, but in the fullness of time, it would be esteemed as one of the most important books of the twentieth century, a book that even today has growing influence in business, government, and the academy.4 And if we are to believe McCraw, when time is even fuller yet, we may also come to believe that the Business Cycles is a major, if flawed, achievement, both for its laying the foundation for Capitalism, Socialism and Democracy and for its

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own contributions to our understanding of innovation and entrepreneurship. On the basis of these three books, and several important articles as well, it is credible to conclude that Schumpeter’s best years were not those of his third decade, but those of his sixth and seventh. On the claim of ‘‘failure,’’ perhaps Schumpeter was a failure if the standard is that of leadership of his contemporary peers or if the standard is that of the development of a mathematical ‘‘exact economics’’ of the dynamics of capitalism. But McCraw argues that these are not the right standards. The right standard is to avoid the Ricardian Vice and present theories that are consistent with the actual history and current practice of capitalism.5 And by that standard, Schumpeter’s success is secure.

CAN CAPITALISM SURVIVE? One of the claims most associated with Schumpeter is his prediction that capitalism would not survive. The claim is made in Capitalism, Socialism and Democracy, and McCraw argues (p. 348) that Capitalism, Socialism and Democracy is a book replete with irony, rivaling the satire of Jonathan Swift. Most notably, he suggests that Schumpeter’s claim in Part 3 of Capitalism, Socialism and Democracy that socialism can work is not to be taken at face value. Along the same lines, we might guess that the prediction of the demise of capitalism is likewise ironic. But here, it turns out, Schumpeter was more straightforwardly serious. In the later chapters of the biography, McCraw documents Schumpeter’s deep pessimism about the future of capitalism during the Great Depression, World War 2, and during the immediate postwar years preceding Schumpeter’s death in 1950. Schumpeter was very critical of the New Deal and feared that Franklin Roosevelt had ambitions to become a dictator (p. 201). In the post-war years, Schumpeter’s pessimism moderated only slightly, as revealed in his speculations that a mixed economy might avoid spiraling toward socialism for a considerable time. The various ‘‘brilliant metaphors’’ (p. 441) he gave the mixed economy often hint at his disapproval: ‘‘amphibial state’’ (pp. 424–425, 433, 437, 441, and 471), ‘‘guided capitalism’’ (pp. 424 and 426), ‘‘state capitalism’’ (p. 424), ‘‘capitalism in the oxygen tent’’ (pp. 424–425, 437, and 471), ‘‘laborism’’ (pp. 434–435), ‘‘corporatism’’ (pp. 427–431), and ‘‘bureausadism’’ (p. 435). Schumpeter believed that the mixed economy would lack the ‘‘motive power’’ (p. 424) of Schumpeter’s entrepreneurial capitalism, and its only saving grace would be its superiority to socialism (p. 430).

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In McCraw’s account (p. 359), Schumpeter says that capitalism used to be safe in the United States because all the ‘‘brains’’ were drawn to business rather than to government. A corollary might be that the current fragility of capitalism is due to the ‘‘brains’’ being drawn into government because they have been taught that the government is where the bright, ambitious, and idealistic will have their talents put to the best use. If so, then there might be a scenario under which a robust Schumpeterian capitalism might revive and survive. That scenario would involve convincing the ‘‘brains’’ that their talents would be put to better use as entrepreneurs than as politicians.6

DEFENDING SCHUMPETER AGAINST UNJUSTIFIED CRITICISMS Although McCraw acknowledges Schumpeter’s imperfection, the book is primarily a defense of his main intellectual contributions and secondarily a defense of much of his character. Intellectually, McCraw’s title ‘‘Prophet of Innovation’’ indicates his view of Schumpeter’s primary intellectual contribution. The summary and elaboration of Schumpeter’s contribution to our understanding of economic innovation is the recurring and dominant theme of the book. In terms of character, McCraw can be seen thoroughly defending Schumpeter against various charges: that he failed as Finance Minister of Austria, that he failed as bank founder in Austria, that he displayed antisemitism, that he supported the Axis Powers during World War 2, and that his strong advocacy for the use of historical evidence in economics was an aberration of old age. (In this section, I review McCraw’s defense against each of these charges, except the last, which is reserved for the section on methodology.) For about nine months in 1919, Schumpeter served as Finance Minister of Austria under a socialist government. The Austrian economy was in shambles after World War 1, and Schumpeter proposed a plan that McCraw paints as credible. Schumpeter’s optimism that pro-capitalist policies could result in recovery was at odds with the pessimism of the rest of the government (p. 101). If Schumpeter failed during this episode, it was not a failure of his policies, but a failure of his political skills, and his judgment in joining a government with which he was so much at odds. In 1920–1921, Austria’s parliament awarded Schumpeter a license to operate a bank (p. 107). Schumpeter became the non-managing nominal

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head of the Biederman Bank, which, before acquiring Schumpeter’s license, had been a private bank. One of Schumpeter’s primary benefits from his involvement with the bank was his line of credit that took the form of overdraft privileges. After the Vienna stock market lost three-fourths of its value in 1924, Schumpeter (and many others) was substantially in debt. As a result, Schumpeter was asked to resign from the bank, which he did. Although it took years, he eventually paid his debts. Schumpeter did not foresee the 1924 Vienna stock market crash (just as Irving Fisher did not foresee the 1929 U.S. stock market crash). But though some might blame Schumpeter for lack of foresight, he deserves credit for working hard for years to pay off the debts he incurred as a result of the crash. Referring to this episode, a friend of Schumpeter wrote about Schumpeter’s ‘‘almost feudal sense of honor’’ (p. 107). It took more than 10 years for Schumpeter to pay off his debt from guaranteeing the loans of a former classmate who failed in his efforts to finish a new glass factory during this period (McCraw, 2007, pp. 107–109). McCraw (2007, p. 109) says ‘‘In the end, the experience of making and then losing a large sum of money taught him more than books ever could about issues vital to his research.’’7 It is perhaps interesting that both Schumpeter and Clayton Christensen (e.g., Christensen & Raynor, 2003), one of the most distinguished neo-Schumpeterian business analysts, have in common that their most important academic work was partly inspired by failed business experiences. Participation in the business world is not a sine qua non for doing relevant work, but it can be useful.8 McCraw gives (in the long footnote 12 on pp. 511–512) a detailed and plausible summary of the issues on whether Schumpeter was anti-Semitic. His basic argument is that, again and again, throughout Schumpeter’s life, he personally assisted and supported Jews, often in very dire circumstances. One example is Schumpeter vehemently urging Harvard to hire Leontief (p. 202). Another, that I have seen evidence of in Harvard’s Schumpeter archive, is Schumpeter’s continued help for Paul Samuelson, both as a student and young scholar. Examples are also given of Schumpeter aiding socialists. This is consistent with McCraw’s comment that in Schumpeter’s own research, he was ‘‘open-minded’’ (p. 217) and that ‘‘He is a zealot only in his opposition to zealotry’’ (p. 218). (Except that I wonder if Schumpeter might be considered to have rightly been a zealot in arguing for the importance of innovation?) On the charge of support for the Axis Powers in World War 2, McCraw shows that in the years leading to World War 2, Schumpeter was more

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concerned about the danger to Europe and democracy from Stalin than he was the danger from Hitler (pp. 313–314). But this was not an absurd view, based on the evidence at the time. And it was a view that many reasonable people shared. Rumors of Schumpeter’s sympathies, and the misinterpretation of Elizabeth Schumpeter’s research on Japan, led in 1941 to a bizarre period in which Schumpeter and his wife were investigated by the Federal Bureau of Investigation (FBI). McCraw summarizes (pp. 337–343) the FBI file on Schumpeter and his wife. This small part of the book makes J. Edgar Hoover’s FBI look like a stupidly and dangerously uncomical version of the Keystone Cops. Elizabeth Schumpeter had had a scholarly interest in Japan, and this was exaggerated into imagined support for Japan in the war. Schumpeter had originally viewed Hitler as a lesser evil than Stalin, which was exaggerated by the FBI into imagined support for Germany in the war. (The main investigation of Joseph Schumpeter seems to have ended in 1944, although there is an entry on him in the file as late as 1948, and the FBI again questioned Elizabeth Schumpeter in 1950 and 1951.) Near the end of his account of this sorry episode, McCraw wryly notes ‘‘Nowhere in the thick FBI dossier is there any mention of Schumpeter’s landmark book of 1942, Capitalism, Socialism and Democracy, which evidently escaped the bureau’s attention’’ (p. 343).

SOME MINOR COMPLAINTS In an ambitious book of over 700 pages, it is hard not to find some bones to pick, and I have found a few. Some of McCraw’s minor claims can be reasonably disputed, such as the claims that Oprah Winfrey deserves a place on a short list of history’s ‘‘great innovators’’ (p. 179), that Sputnik was a great achievement for the Soviet Union (p. 398), and that corporatism has ‘‘worked fairly well’’ in Germany and Japan (p. 429). Several flawed passages arise from McCraw’s uncritical acceptance of standard, but unsound beliefs about the Great Depression and its aftermath. For example, McCraw claims (p. 75) that there was a lack of ‘‘entrepreneurial energy’’ during the Great Depression. But as Amity Shlaes (2007) has shown in The Forgotten Man, it was not the lack of entrepreneurial energy that was the problem; it was confiscatory taxation policies and intrusive and random regulations. Again, McCraw claims (p. 275; see also pp. 317 and 369) that Keynes ‘‘was close enough to being

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right’’ (p. 275) about how to end the Great Depression,9 while Schumpeter had nothing to say. But, again, as we learn from Amity Shlaes, if the importance of the entrepreneur had been understood, the Depression would have been shorter. (Keynes has little to say about the entrepreneurial function, but as McCraw himself points out, Schumpeter is ‘‘the world’s leading scholar of entrepreneurship’’ (p. 471).) McCraw says (p. 389) of Galbraith’s Office of Price Administration (OPA) that ‘‘by all accounts the group did a superb job.’’ But the most recent account that he references is Bartel’s (1983) article – he provides no mention of Jacobs’ (1997) paper that offered a much less enthusiastic evaluation of the OPA. Given the sweep of McCraw’s study, he cannot have read everything relevant to every point he makes. But then he should be a tad more modest about what he claims is true ‘‘by all accounts’’ (underlining added). McCraw (p. 355) seems to accept the common view that big business is essential, in Schumpeter’s opinion, to the success of capitalism. An alternative would be something closer to the account of Rosenberg and Birdzell (1986, p. 277), in which big business is important at some stages and in some circumstances, but what is key is the formation of new enterprises. McCraw also claims (p. 433) that ‘‘all other competent economists’’ believe that it is ‘‘obvious’’ that long-term economic growth requires ‘‘some degree of deferred gratification.’’ But again, Rosenberg and Birdzell (1986, p. 166) convincingly argue to the contrary. I only noticed one minor internal inconsistency in McCraw’s book. He writes (p. 404) of Schumpeter characteristically letting ‘‘himself go’’ with ‘‘stream-of-consciousness monologues’’ during his course lectures. But earlier (p. 211), McCraw had written that Schumpeter ‘‘gave the impression of complete spontaneity, even though he prepared every class with meticulous care.’’10 One flaw in the editing of the book is worth noting. McCraw includes nearly 200 pages of detailed, useful, and often insightful endnotes. But the accessibility of this material is extremely limited by the editors’ unexplained decision not to include any of the endnotes material in the index.

MCCRAW ON SCHUMPETER ON THE HISTORY OF ECONOMIC THOUGHT For the historian of economic thought, McCraw makes three sorts of contributions. The first is to help us understand more about Schumpeter’s

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life. McCraw has mined earlier biographies, especially Allen’s, which incorporated interviews with several of those, no longer living, who knew Schumpeter well. And in some cases, McCraw has uncovered, or made accessible, sources that were not earlier much exploited. One chapter, for instance, provides in print for the first time (pp. 285–300) many translated excerpts from letters to and from Mia Sto¨ckel, a sometime German companion of Schumpeter’s. The second, even more useful, contribution is to summarize less accessible Schumpeter works. McCraw spends a chapter (pp. 251–278), for instance in a summary and partial rehabilitation of Schumpeter’s massive Business Cycles book, arguing that there is much of value on entrepreneurship, creative destruction, and the history of capitalism, in this under-appreciated work. He also summarizes several other important works, placing their content in the context of the development of Schumpeter’s thought. These include Schumpeter’s untranslated dissertation attempting to reconcile the German Historical School with Austrian theorists (pp. 62–65), an early paper on tax policy (pp. 94–96), the well-received 1948 American Economic Association presidential address on economists’ ‘‘visions’’ (pp. 476–483),11 the comments on a plan for the historical study of entrepreneurship (pp. 471–475), and the notes for the Walgreen Lectures (pp. 475–476). (In addition, McCraw also includes useful chapters summarizing and giving context for the major accessible books: The Theory of Economic Development (pp. 67–83); Capitalism, Socialism and Democracy (pp. 347–374); and History of Economic Analysis (pp. 442–468).) A third contribution is the discussion of the portions of Schumpeter’s History of Economic Analysis that related to his concerns about capitalism and creative destruction. The most important theme of the discussion is Schumpeter’s treatment of the Ricardian Vice, which will be discussed in the next section. But an additional thought-provoking suggestion of McCraw’s (pp. 445–446) is that Schumpeter’s History applied the idea of creative destruction to the evolution of economic ideas and theories.

MCCRAW ON SCHUMPETER ON THE METHOD OF ECONOMICS On the method of economics, McCraw portrays Schumpeter as spending most of his career being of two minds. On the one hand, Schumpeter strove to produce a treatise that would be a major achievement in

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‘‘exact economics’’ to rival or surpass the mathematically precise models of Walras or Keynes. On the other hand, Schumpeter wanted to be true to the evolving historical detail of capitalism as it is actually experienced by entrepreneurs and policy analysts. One form in which this conflict expressed itself was in Schumpeter’s inconsistency on the extent and manner in which economists should be involved in policy debates. At different points in the biography, McCraw presents quotations and actions of Schumpeter supporting both sides of the dilemma. On the one hand, the Schumpeter who aspired to ‘‘exact economics’’ sometimes seemed to believe that economists should stay away from policy out of a desire for scientific objectivity (pp. 169 and 447–450). (This would be the Schumpeter that McCraw describes as at times withdrawing into his studies as if they were a ‘‘psychic monastery’’ (p. 187).) On the other hand, Schumpeter more often, and more intensely, wanted to make a difference in the world. McCraw admits it is not difficult to identify a Schumpeterian program – at whatever level of analysis one chooses: the individual entrepreneur, the business firm, the industry, or even the country. At all levels, Schumpeter’s litmus test is whether the players are pursuing innovation and bringing about creative destruction. If they are, then the program is Schumpeterian. (p. 169)

Schumpeter describes ‘‘that most irritating of all situations’’ as being ‘‘to have to look on events without being able to help’’ (p. 344). This is hardly the attitude of one indifferent to policy. Perhaps most tellingly, McCraw compares (p. 372) Schumpeter to the prophet Jeremiah, whose warnings went unheeded. Prophets passionately warn us of problems and call upon us to reform. And recall that the subtitle of McCraw’s book is ‘‘Prophet of Innovation.’’ Although Schumpeter aspired to advance exact economics, McCraw sees even the early Schumpeter as appreciating the difficulty of fitting actual capitalism into an exact formal structure. McCraw quotes (p. 156) Schumpeter as saying that his ‘‘model’’ of entrepreneurship is ‘‘difficult to handle mathematically’’ and mentions (p. 163) a 1928 article where Schumpeter argues that innovation makes the idea of capitalist equilibrium misleading. Later in his career, Schumpeter made many other observations that are equally inconsistent with the ideal of an exact economics. One of these would be Schumpeter’s view (p. 457) that the accuracy of an economic vision in an economist does not equal the analytic ability of an economist. A clear-cut

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example would be Keynes (1936), whose analytical ability Schumpeter admired, even while rejecting his vision as ‘‘modern stagnationism’’ (p. 479).12 According to McCraw, in the last several years of Schumpeter’s life, he increasingly came to terms with the impossibility of an exact economics. In a couple of papers, and in his National Bureau of Economic Research presentation, Schumpeter strongly argued for the importance for economists to study history. And conversely, in the posthumously published History of Economic Analysis, he criticized exact theoretical economists who ignored the history and current practices of capitalism, as producing work that misses the essential facts about capitalism by committing what he called ‘‘the Ricardian Vice.’’ The original display of the Ricardian Vice occurred from 1817 to 1871, when the economics profession remained wedded to Ricardo’s Corn Model, and its implication of steady-state stagnation, even as actual economic conditions were dynamically improving. Of the Corn Model, Schumpeter sarcastically wrote It is an excellent theory that can never be refuted and lacks nothing save sense. The habit of applying results of this character to the solution of practical problems we shall call the Ricardian Vice. (Schumpeter, 1954, p. 473)

In his comments preceding this broad conclusion, Schumpeter pointed out that the Ricardian model makes several unrealistic simplifying assumptions and considers only a few aggregative variables. The conclusions follow logically from the assumptions, but because the assumptions are unrealistic, and because the model is too aggregated to represent the richness of the world, it is not a source of sound policy implications. Unfortunately, the model gets applied to policy anyway. In a footnote to the passage quoted above, Schumpeter points out that Lord Keynes counts as a ‘‘striking’’ practitioner of the Ricardian Vice (Schumpeter, 1954, p. 473; see also McCraw, 2007, p. 460).13 McCraw describes (p. 221) Schumpeter’s original goal of working out an ‘‘exact economics’’ as ‘‘setting a real intellectual trap for himself.’’ One of the major, and possibly controversial, conclusions of the book is that Schumpeter’s position on the nature of economics evolved over time, toward a more unambiguous appreciation of the role of history. McCraw says (p. 271) that in Business Cycles, Schumpeter tried, and failed, to fit the world into theories that would satisfy ‘‘exact economics.’’ In response to that failure, Schumpeter might have given up the world and stuck with ‘‘exact economics,’’ as many economists do when they practice the Ricardian Vice. Instead, he gave up exact economics and stuck with the world.

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Just before Schumpeter died, in notes he prepared for the Walgreen Lectures he was to deliver the following week, he took the final step in the evolution of his views, by suggesting that there was a fundamental indeterminateness introduced into the economy by ‘‘random occurrences’’ and ‘‘exceptional individuals’’ (pp. 475–476). McCraw interprets this as an explicit acknowledgment that the goal of exact economics was a chimera (p. 476).

CONCLUDING COMMENTS McCraw’s book has been widely reviewed and almost uniformly praised. This is partly due to the research effort that McCraw put into the book, as well as McCraw’s erudition, thoughtfulness, organization, and congenial writing style. But I suspect that it is also partly due to the book’s focus on Schumpeter, and especially on Schumpeter’s ideas on entrepreneurship, innovation, and the process of creative destruction. These are ideas that capture the imagination and resonate with applicability in the worlds of business and policy. That academic citations to Schumpeter’s work continue to grow (Diamond, 2009), nearly 60 years after his death, implies good news and bad news. The bad news is that so little has been done on innovation, that much of what Schumpeter had to say is still on the frontier of research. The good news is that the frontier is alive and growing.

NOTES 1. For example, on higher education, Schumpeter is quoted as asking the rhetorical question (p. 453): ‘‘demand for teaching produces teaching and not necessarily scientific achievement?’’ 2. Perhaps a single biography of this sort is a fertile ground for suggesting hypotheses, but not by itself, for testing them. (But several biographies, examined together, might begin to become a database? Perhaps, as Stigler (1982, p. 92) once suggested, something like prosopography would be useful.) 3. See Allen (1991, vol. 2, p. 133). See also McCraw (2007, pp. 345–346; also see p. 399) who writes that Schumpeter seems to have little idea he was writing a classic. But I think a case can be made that Schumpeter had some idea he had written something important. I have photocopies of letters from the Harvard archives, in which Schumpeter urges the Harper and Brothers publishing house to do a better job of advertising the book. Also, in a letter dated October 12, 1942, Schumpeter

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suggests that the book might be published in England as part of a series from the London School of Economics entitled ‘‘The Library of Economics.’’ In the same letter, he suggests that review copies be sent to the Economic Journal and to Economica. In this letter and other letters to Harper, he gives names and addresses of distinguished economists to whom he requests that Capitalism, Socialism and Democracy be sent. These include Edward Chamberlin, Gottfried Haberler, Alvin Hanson, Roy Harrod, F.A. Hayek, Wassily Leontief, Edward S. Mason, and Paul Sweezy. I speculate that the ‘‘potboiler’’ comment is gracious false-modesty. 4. Refer Diamond (2007, 2009). 5. McCraw (2007, p. 160) summarizing Schumpeter’s achievement: ‘‘He was not ‘‘revolutionizing’’ either economics or sociology. Instead, he was integrating the two disciplines into a fresh and invaluable social economics that elucidated the fundamental nature of capitalism.’’ 6. The Acton Institute may be implementing this scenario when they portray the entrepreneur as pursuing a morally noble ‘‘calling.’’ 7. McCraw (2007, p. 112) quotes from Schumpeter’s diary: ‘‘Really, I don’t quite regret any of my efforts and failures – every one of them taught me something about myself and life that uniform success would have hidden.’’ 8. Zvi Griliches recommended (Krueger & Taylor, 2000, p. 186) another pathway by advocating that early in their careers, economists should spend a couple of years in policy making or policy analysis. 9. McCraw claims (p. 423) that per capita consumer spending in the United States actually increased by 22% during World War 2. But if consumer spending actually went up, at a time when so many resources were devoted to the war, what an indictment that is of the collapse of production during the Great Depression. And if production collapsed so far, for so long, in the Great Depression, then how can McCraw have anything positive to say about the economics of the New Deal? 10. Allen (1991, vol. 2, p. 40) describes Schumpeter’s teaching as meticulous (perhaps too meticulous): ‘‘Never did he indicate that he had slaved over notes, preparing for that presentation, or that his comments distilled hours and hours of late-night reading and study. Although he never used notes in his class or for any of his other talks, he did prepare them. Nor did he ever use the same class notes twice. At the end of the term, all the notes for a course were bundled into a small package and laid away, never to be touched again. The next year, he might give the same course, but he made a new set of notes for a different lecture series, worked out laboriously before class, studied, and then laid aside.’’ In footnote 10 on p. 48, Allen states that ‘‘several boxes’’ at the Harvard archives contain Schumpeter’s courserelated material, including lecture notes. 11. The published version of the address is reprinted in Schumpeter (1989). 12. Refer also McCraw’s (2007, p. 459) summary of Schumpeter on Keynes’ vision of England’s aging capitalism. 13. Since Marx built his own views on Ricardo’s analytical framework, it is not surprising that Schumpeter also considered Marx to be guilty of the Ricardian Vice. McCraw claims (p. 161) in particular that Schumpeter gives the Marxian view that the rich get richer, as another example of sticking with a theory in the face of opposing facts (what he elsewhere sometimes called the ‘‘Ricardian Vice’’).

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REFERENCES Allen, R. L. (1991). Opening doors: The life and work of Joseph Schumpeter, volume one-Europe; Volume two-America. New Brunswick, New Jersey: Transaction Publishing. Bartels, A. H. (1983). The Office of Price Administration and the legacy of the New Deal, 1939–1946. The Public Historian, 5(3), 5–29. Christensen, C. M., & Raynor, M. E. (2003). Innovator’s solution: Creating and sustaining successful growth. Boston, MA: Harvard Business School Press. Coase, R. H. (1995). Alfred Marshall’s mother and father. In: Essays on Economics and Economists (pp. 119–129). Chicago: University of Chicago Press. Diamond, A. M., Jr. (2007). Thriving at Amazon: How Schumpeter lives in books today. Econ Journal Watch, 4(3), 338–444. Diamond, A. M., Jr. (2009). Schumpeter vs. Keynes: ‘‘In the long run not all of us are dead’’. Journal of the History of Economic Thought, forthcoming. Jacobs, M. (1997). How about some meat? The Office of Price Administration, consumption politics, and state building from the bottom up, 1941–1946. The Journal of American History, 84(3), 910–941. Keynes, J. M. (1936). The general theory of employment, interest and money. London: Macmillan. Krueger, A. B., & Taylor, T. (2000). An interview with Zvi Griliches. Journal of Economic Perspectives, 14(2), 171–189. Lukacs, J. R. (2008). Blood, toil, tears and sweat: The dire warning: Churchill’s first speech as prime minister. New York: Basic Books. Ma¨rz, E. (1991). Joseph Schumpeter: Scholar, teacher and politician (revised edition). New Haven, CT: Yale University Press. McCraw, T. K. (2007). Prophet of innovation: Joseph Schumpeter and creative destruction. Cambridge, Mass: Belknap Press. Moss, L. S. (1993). Review: Robert Loring Allen’s biography of Joseph A. Schumpeter. American Journal of Economics and Sociology, 52(1), 107–118. Olson, L. (2007). Troublesome young men: The rebels who brought Churchill to power and helped save England (1st ed.). New York: Farrar, Straus and Giroux. Rosenberg, N., & Birdzell, L. E., Jr. (1986). How the west grew rich: The economic transformation of the industrial world. New York: Basic Books. Samuelson, P. A. (2003). Reflections on the Schumpeter I knew well. Journal of Evolutionary Economics, 13(5), 463–467. Schumpeter, J. A. (1939). Business cycles: A theoretical, historical, and statistical analysis of the capitalist process (Vol. 1). New York: McGraw-Hill Book Company, Inc. Schumpeter, J. A. (1950). Capitalism, socialism and democracy (3rd ed.). New York: HarperCollins. Schumpeter, J. A. (1954). History of economic analysis. New York: Oxford University Press. Schumpeter, J. A. (1961). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. Translated by Redvers Opie. (translation of 2nd German edition that appeared in 1926; translation first published by Harvard in 1934). London: Oxford University Press. Schumpeter, J. A. (1989). Science and ideology. In: R. V. Clemence (Ed.), Essays on entrepreneurs, innovations, business cycles, and the evolution of capitalism (pp. 272–286). New Brunswick, NJ: Transaction Publishers.

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Shlaes, A. (2007). The forgotten man: A new history of the Great Depression. New York: HarperCollins. Stigler, G. J. (1982). The scientific uses of scientific biography, with special reference to J.S. Mill. In: The economist as preacher and other essays (pp. 86–97). Chicago: University of Chicago Press. Stolper, W. F. (1994). Joseph Alois Schumpeter: The public life of a private man. Princeton, NJ: Princeton University Press. Swedberg, R. (1991). Schumpeter: A biography. Princeton, New Jersey: Princeton University Press. The Economist. (2001). Economists on film: Keynes the movie? December 20. Available at http://www.economist.com/finance/displayStory.cfm?Story_ID ¼ 917413

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McCloskey’s THE BOURGEOIS VIRTUES TWO CHEERS FOR MCCLOSKEY Stewart Davenport A review essay on Deirdre N. McCloskey’s The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago: University of Chicago Press, 2006. 634 p. ISBN 9780226556635. Simply put, this is an important book – for many reasons. Daring to stand in the middle of multiple communities who usually hate one another, Deirdre McCloskey seeks to reconcile them, pointing out to each their actual compatibilities, and in the process, demolishing their fiercely defended disciplinary boundaries, as well as exposing some of their more unpleasant hypocrisies. On the face of it, what – or rather whom – McCloskey is arguing against is rather clear. The principle audience she seeks to persuade is what she refers to as the ‘‘ ‘clerisy,’ . . . readers of the New York Times or Le Monde, listeners to Charlie Rose, book readers, or at any rate book-review readers. My people. Like me’’ (p. 5). Her issue with her people is rather simple – they are snobs, both intellectually and socio-economically. These ‘‘laughing sophisticate(s)’’ (p. 5), as she also calls them, unabashedly look down on the American middle class who work hard for their living (most often in lessthan-intellectually stimulating jobs), watch television, vote Republican, and shop at Wal-Mart. But McCloskey has another intended audience whom she seeks to convince: her ‘‘fellow Chicago School economists who don’t really claim to know much about philosophy or the Middle Ages’’ (p. 7). A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 225–233 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A011

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Intellectually speaking, these are the two communities between which McCloskey stands: on the one hand, the cultured despisers of bourgeois life who rail against the immorality of capitalism and, on the other, the calculating, efficiency-minded economists who often hide behind capitalism’s presumed amorality. Socioeconomically speaking, McCloskey stands between the ‘‘clerisy’’ and her beloved middle class, seeking, as she puts it, ‘‘to explain the red states to the blue . . . the Flyover States to the Coasties. The conservatives to the progressives’’ (preface, p. xiv). What McCloskey is arguing for is also refreshingly clear. Her radical project – cutting against almost two centuries of bourgeois-bashing invectives – is to demonstrate that middle-class life under capitalism is not only materially superior to all alternatives (the argument of her ‘‘fellow Chicago School economists’’) but also morally superior. Or, as she puts it, her book is ‘‘a treatise on the virtues of capitalism directed at people who believe it has very few’’ (p. 7) – either none at all as the ‘‘clerisy’’ would argue, or ‘‘Prudence Only’’ as most economists would contend. At this point, although pedantic, it is important to pay attention to the verbs that McCloskey uses. She is not saying that bourgeois life under capitalism ‘‘is’’ itself virtuous, but rather that it ‘‘can be’’ virtuous. Another important, oft-repeated, and more active verb for McCloskey is ‘‘nourish’’ – as in ‘‘Capitalism, I claim, nourishes lives of virtue’’ (p. 4). In other words, capitalism does not create a heaven on earth, but neither does it create hell. Instead, what it does better than any other economic system is create a context in which the seven classical virtues (three of them Christian and four pagan) ‘‘can be’’ developed in the lives of individual economic actors. That is her argument. What is new and quite significant in McCloskey’s ethical appraisal of capitalism is her focus on the ancient tradition of virtue ethics and its compatibility with modern bourgeois life. For sympathetic (i.e., procapitalist) readers, some arguments will sound familiar. ‘‘Modern Capitalism Makes Us Richer’’ one chapter is entitled; ‘‘And Lets Us Live Longer,’’ another contends. These are the somewhat traditional and materialist arguments for capitalism’s goodness. McCloskey’s unique contribution comes in the next chapter: ‘‘And Improves Our Ethics.’’ Here is the significant departure from almost all previous discussions of the topic, and what can perhaps be said to constitute the creation of a new sub-field in economic ethics, in between previously hostile camps, and thoroughly blending the languages and rationales of whole academic disciplines. For attempting such a bold move, McCloskey has unsurprisingly received mixed reviews. Also unsurprisingly, the Wall Street Journal reviewed the

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book favorably, while the New York Times, a preeminent voice of the ‘‘clerisy,’’ did not. Almost all reviewers, however, hostile or friendly, criticize the book’s length. With over 500 pages of text and an additional 100 pages of notes, bibliography, and index, this is not light reading. The scope of the project and the novelty of the approach warrant such a substantive treatment, but I would agree that the book is still too long. Rather than grouse about McCloskey’s volubility, however, for the rest of this review, I would like to take the book a section at a time. There are five sections, as I am calling them, at approximately 100 pages each. In some sections, McCloskey’s long-windedness is necessary first to lay the foundation and then build her case. In other sections, however, the wordiness and repetitions are distracting and might even work against her project. Unfortunately, the first section of the book (consisting of the ‘‘Apology’’ and ‘‘Appeal’’) is one of those sections. Here, McCloskey, as explained earlier, identifies her various audiences, defines her terms, and stakes her claim. My concern though is that given the section’s length, skeptical readers will too quickly, although understandably, lose patience with the often chatty style of the book before they can be convinced of its substance. This is unfortunate, because in the next two sections, McCloskey is at her best. The second 100-page section of the book details the three Christian virtues of love, faith, and hope. Beginning with what she considers to be the highest of all the virtues, Christian or pagan, McCloskey here seeks to invert the ethical thinking of both the ‘‘clerisy’’ and the Chicago school. Contra her fellow economists who tout the virtue of ‘‘Prudence Only,’’ as she calls it, McCloskey makes love the greatest good and relegates prudence to last place – seventh out of the seven virtues, when she finally does get to it. But contra the ‘‘clerisy,’’ she argues that love – especially transcendent love – is actually an integral feature of what they presumed to be the immoral, zerosum game of bourgeois economic existence. And to bring some synthesis to her two-pronged attack, she in many ways blames her fellow economists who speak of Prudence Only for giving the clerisy a reason to hate both bourgeois life and economics as a discipline. As she puts it: actual human business would collapse into dissembling and advantage-taking a la Dilbert if the businesses did not practice friendship and other forms of non-Prudence Only virtue. Look round at your own workplace. How does your office actually operate? . . . With monsters of prudence running around taking care of Numero Uno? No, not really. Admittedly in some departments of economics you will meet one or two such people, who declare candidly that ‘our model in economics proves’ they should act like jerks. But outside economics everyone knows that a well-functioning corporate office runs in part on love. (p. 136)

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Many readers, no doubt, will find such an assertion almost embarrassingly quixotic, but this is one of McCloskey’s first articulations of this claim. She needs the next 200 pages to spell it out, and she uses them well. Section three on the pagan virtues is without a doubt the best part of the book and the real turning point of McCloskey’s story. As usual, her argument here is complicated, cumulative, and aimed at at least two if not three audiences, but it does hold together and is ultimately both convincing and actually rather beautiful. In this section, McCloskey identifies what she believes to be the real culprit behind the failings of both the clerisy and her fellow economists. Standing squarely within the ancient tradition of virtue ethics that promotes the difficult internal balancing of the seven separate virtues, McCloskey condemns in no uncertain terms the modern longing ‘‘to reduce the virtues to a virtue . . . with no stories or traditions behind it, no culture, merely universal Reason’’ (p. 263). Thus, McCloskey picks up a third burr in her saddle. In addition to the snobbishness of the clerisy and the callousness of economists, she adds ‘‘the Monomania of Immanuel Kant’’ (p. 263), as Chapter 22 is titled, to her hit list. Kant, however, is merely the personification of the widely shared modern penchant for universalizing and reducing human ethical complexity to a short list of rules, principles, or catchphrases such as ‘‘the greatest good for the greatest number.’’ All of these projects, McCloskey adds, have failed and failed miserably, whether they sprang from the mind of Kant, Bentham, Mill, or Locke. ‘‘They have not given us guides to action and they have not matched how we live’’ (p. 269). This is how McCloskey ends Chapter 22 and sets up Chapter 23 on ‘‘The Storied Character of Virtue,’’ and if one is looking for the real pivot point in this massive book, this would be it. This is where she turns decisively from the reductive and failed ethical monism of modernity and argues most forcefully for a post-modern re-appropriation of the ancient tradition of virtue ethics. McCloskey’s point in Chapter 23, however, is so subtle as to almost be missed. Stylistically, it is not only subtle but almost a little too clever – cloaking a deeply subversive philosophical argument in the language of pop culture and the acting of Bill Murray. The main point of the chapter is actually quite simple: one does not become a better person by following the categorical imperative or seeking the greatest good for the greatest number, as seemingly elegant and streamlined as those ethical formulas may be. Rather, McCloskey argues ‘‘Guides to ethical life . . . are achieved mainly through story and example’’ (p. 272). Some of these examples can be historical or biographical. Others, however, are purely fictional. And, in fact, the best two examples in the book both come from stories – one being

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Willy Loman in Death of a salesman and the other Bill Murray’s character in the movie Groundhog day. Phil, the Bill Murray character, McCloskey argues convincingly, becomes after much trial and error the embodiment of the balanced virtues: love, faith, hope, courage, temperance, justice, and prudence. At first, he had personified Prudence Only, using the special circumstances in which he found himself (he keeps living February 2, Groundhog Day, over and over and over again), to maximize his sensate utility. He eats everything he wants, does anything he wants including committing crimes, and sleeps with almost everyone he wants. Maximum utility, however, proves to be entirely unsatisfying, and it is only when Phil begins to cultivate and balance the virtues that he experiences some measure of real happiness, gets the real girl of his dreams (one who had previously resisted his manipulative sexual advances), and is released from his time-warp prison. While seemingly silly and although the setting is obviously fictional, McCloskey’s point hits home. In the real world as well as the magical one, developing a fully orbed character who is able to balance the virtues takes a lifetime of effort. On the contrary, one has Willy Loman, the well-known antihero from Death of a salesman. On first glance, it would seem that McCloskey is employing an example that would work against her argument. After all, is not Willy the embodiment of bourgeois life, whose moral poverty and ultimate failure only point out the cultural depravity of life in capitalism’s iron cage? No, says McCloskey. Willy is a failure because of his ethical confusion and inability to balance the virtues. ‘‘Willy can recommend the virtues only piecemeal,’’ she writes, ‘‘courage to steal boldly, but then separately, independently, in contradiction to that precept, justice to refrain from stealing, hope to venture on studying for the regents’ exam, but then separately and unconnectedly the temperance to stick to it’’ (p. 330). And again, McCloskey’s argument, although delivered through a story and not air-tight logic, hits home. This does explain Willy’s pathetic (in the classical sense) failure. Yes, Willy’s character lives in a bourgeois setting, but it is not the setting that determines Willy’s fate. It is instead the inability to ‘‘live the virtues as a system, out of a character good as a whole’’ (p. 330). Not everyone in the story, after all, is a failure. All the characters share the same bourgeois setting, but others – notably ‘‘Willy’s friend Charley, and Charley’s studious son Bernard’’ (p. 330) – are more ethically whole, balancing the virtues within more fully orbed lives. Again, capitalism ‘‘can be’’ virtuous, but it does not necessarily lead to virtuous lives for all of its economic actors. But again, McCloskey’s attention to stories and fictional characters masks a serious philosophical point. In the fourth 100-page section (Part 5 on

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‘‘Systematizing the Seven Virtues’’), McCloskey carefully, although repetitively, constructs an argument for rightly understanding the tradition of virtue ethics over and against the modern ethical monisms of utilitarianism or the categorical imperative. ‘‘Contrary to the Cartesianism of eighteenth-century and some later thought,’’ she writes straightforwardly, ‘‘the alleged universalism of modern ethical thought is bad, not good. We do not need literally universal theories of ethics, any more than we need universal theories of cuisine’’ (p. 337). McCloskey wants to focus our attention instead on ethics for ‘‘human life as actually lived’’ (p. 272) and not on some convenient and purportedly all-encompassing ethical mantra. ‘‘A quick little formula, the pocket-sized card, does not acknowledge ethical dilemmas, which is to say two virtues tugging within one culture’’ (p. 353), or tugging within a single individual. This is the morally ambiguous world in which the bourgeois lives. ‘‘He has the anxious ethical task of learning how to be a counselor yet self-prudent, a salesman yet other-loving, a boss yet just, a bureaucrat yet courageous, a scientist yet faithful’’ (p. 85). And thus the great discrepancy. Modern ethical theorists strive for ethical singularity and universal application in a modern bourgeois world in which the ethical choices of economic actors are not clear. What is clear, however, is that those ethical choices accumulate and ultimately lead to the creation of either good characters (Bill Murray’s Phil) or bad ones (Willy Loman). And McCloskey’s answer to this dilemma again is first of all to recognize the ontological reality and authority of the ancient tradition of virtue ethics and then to actively embrace it for our postmodern ‘‘age of commerce.’’ Such an ethical tradition was not so much tried and found wanting, McCloskey adds. Instead, it ‘‘was merely set aside with a distracted casualness, perhaps as old-fashioned, or as unrealistic in an age with a new idea of the Real’’ (p. 369). The tradition of virtue ethics, in other words, has never really disappeared, but its focus on moral ambiguity and the multiplicity (as opposed to singularity) of goods did not fare well in modernity. It is this tradition that McCloskey seeks to revive. As a final point before concluding, it bears mentioning that McCloskey detests all ethical monisms and not just those of Immanuel Kant or Jeremy Bentham. In fact, it is a fundamental axiom of the virtue ethics tradition – and thus a crucial part of her argument – that the virtues themselves cannot exist alone. That is what she means when she states that the good life as defined by virtue ethics demands a balance of the seven virtues, and not an exaggerated emphasis on any one, no matter how good it may seem. ‘‘The point is,’’ she writes, ‘‘that to last like bronze the virtues must be alloyed with each other. A personality governed wholly by temperance is bad, as is

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one governed wholly by courage, or wholly by justice. It’s the ‘wholly’ that’s the problem’’ (p. 250). An imbalanced courage, for instance (and note that McCloskey again relies on examples from stories, whether fictional or historical) leads to people like Achilles – battle-crazed, brash, and vengeful. In a word, intemperate. Similarly, even justice can be an imbalanced virtue, as it was in the life of Gandhi, who ‘‘exhibited an inability to love friends and family in particular, exclusively, as against the for-all-we-knowperfectly-sincere universal love he exhibited to an unusual degree’’ (p. 258). What is needed instead are all the virtues, held in tension, but also in balance with each other. That is what creates the strength of character that allows the bourgeoisie to navigate the moral ambiguities and ‘‘the ethical tensions of capitalism’’ (p. 85). The fifth and final 100-page section (Part 6, ‘‘The Bourgeois Uses of the Virtues’’) is really more of an addendum than the culmination of her argument. That culmination, as I have mentioned, comes instead in Parts 3 and 4 on the pagan virtues and to a lesser degree in Part 5 on ‘‘Systematizing the Virtues.’’ Readers will then be justifiably frustrated with the repetitions and distractions of this concluding part. If the book had ended with Part 5, it would have been a much tighter all-around argument. Also, since this part is more of a listing of loose ends, than a real dealing with them, it obviously raises more questions than it answers. But rather than end this review with a barrage of criticisms, I would like to cast this more as an opportunity for McCloskey to deal with these questions in her projected future volumes on this topic. The main problem in this final section comes because McCloskey stops talking about and ethically defending bourgeois life, and starts – at this late part of the book – defending capitalism itself. It is one thing to isolate the middle class and rescue them from the slings and arrows of the clerisy’s calumny. It is another, however, to try to defend an entire economic system on all of its ethically vulnerable fronts. For instance, McCloskey – defending her beloved bourgeoisie – argues eloquently and persuasively that individuals are not Prudence Only profit maximizers. ‘‘Corporations, with supposedly infinite lives,’’ however, ‘‘are indeed machines of accumulation’’ (p. 413). Since most of the bourgeoisie works in a corporation, this is a problem for McCloskey’s argument – and one that she does not really address. Similarly, when she moves away from the bourgeoisie and discusses the two extremes of the socio-economic spectrum – the very poor and the very rich – she broadens the scope of the book out to a defense of capitalism itself, and unfortunately treats both morally problematic topics with only a limited effectiveness. She is neither callous toward the poor nor lenient

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toward the rich, but these chapters are simply too short and too late in the book to deal with these subjects adequately. It would have been best if they had been left out entirely. A more interesting question (and I’ll refer to this as a question rather than a problem) is McCloskey’s placement of Adam Smith in the virtue ethics tradition. This is much contested territory, but I mention it less as a criticism of this book (it is not one of her central claims), and more as a kind of plea for her next volume, which will begin with ‘‘Adam Smith’s Project.’’ I truly hope that as she builds her case for how Smith made ‘‘an ethic for commercial society’’ (p. 509), she focuses just as much on Wealth of nations as she does on Theory of moral sentiments. The latter is the text to which most defenders of capitalism usually refer when they want to argue for capitalism’s morality, and they are not foolish to do so. Theory of moral sentiments, after all, is a text of moral philosophy. Wealth of nations, however, is the real beginning of the discipline of political economy and is not so clearly situated within the tradition of virtue ethics. Instead, it has served as the most important prooftext for the very ‘‘Prudence Only’’ perspective of her fellow Chicago school economists that she claims to detest. For the future volume(s), I very much hope that McCloskey will attempt to demonstrate the continuity that existed between Smith’s first book and his second, if in fact there is such a continuity. Otherwise, we are back to das Adam Smith Problem, the discontinuity that existed within this one man’s thought and the ethical discontinuity that also might exist within the economic system that Smith championed. In the third projected volume, it seems that McCloskey will make Bentham her scapegoat and drive out all of capitalism’s sins on his back, but some careful attention must be paid to Smith’s role as well. Like capitalism itself, I am not so sure that Smith ‘‘is’’ virtuous, and we need to be honest in our assessment of him. I mention this because I believe that McCloskey’s project is an important one, and I hope that what she has begun so well in the first volume (wordiness aside) will only gain momentum and coherence with each successive volume. Volume four, incidentally, on ‘‘Defending the Defensible: The Case for Ethical Capitalism’’ (p. 512) looks fascinating but one of her concluding admonitions that ‘‘The way forward is to go back to the blessed Adam Smith’’ (p. 514) is a bit hagiographic for my taste. But again, these pleas of mine are about the future volumes. As for this volume, I would like to conclude by commending McCloskey for embodying the seven virtues herself. She is obviously faithful; writes with hope and love; is prudent, just, and temperate in her treatment of this complex subject (my plea, again, is that she remain equally temperate in the

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future volumes); and above all has the intellectual courage to have picked it up in the first place. She also, as I began this review, has the courage to stand in between hostile communities and the love to try to make them talk to one another, rather than past one another. Those within these various communities have much to learn from the other side, and both owe McCloskey a debt of gratitude for reminding us of the importance of the seven virtues, for helping us to see them whole, and for helping us to see how they ‘‘can be’’ lived out fully in our ‘‘age of commerce.’’

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Dostaler’s KEYNES AND HIS BATTLES FIGHTING FOR THE POSSIBILITY OF CIVILIZATION Scott Newton A review essay on Gilles Dostaler’s Keynes and his Battles. Cheltenham, UK: Edward Elgar, 2007. 374pp. ISBN 9781858982663. There is no shortage of literature concerning the life and times of J. M. Keynes. Distinguished examples over the past couple of decades are Peter Clarke’s (1988) account of Keynes’s battles with the Treasury in the 1920s and 1930s, a study by Moggridge (1992), and Skidelsky’s (1983, 1992, 2000) monumental three-volume biography, reissued in a single, abridged version (2003). Dostaler’s new work adds to this collection. Keynes and his battles focuses on the constant interaction between Keynes’s ideas and policies and his engagement with the world of affairs. Dostaler grounds Keynes’s life and work in his experiences and contributions as a philosopher, civil servant, and member of the Bloomsbury Group. There is an interesting and perceptive discussion of the Treatise on probability, which conveys its essential ideas in a highly accessible way. Dostaler rightly makes the point that the outlook Keynes developed as a student and young man before World War One, based on the ideas of G. E. Moore, formed the foundations of his approach to the world during his hectic career in economics and politics, right up to his death. A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 235–243 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A012

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Moore was interested in the nature of goodness, which could not in fact be either defined or analyzed, any more than the color yellow. Yet, it was possible to argue that ‘‘goodness’’ could be experienced, whether in the form of beauty, personal affection, or aesthetic pleasure. This represented a sharp break with the dominant discourse of Victorian Britain: utilitarianism developed by Bentham and refined by Mill and Sidgwick, and which identified goodness with happiness. Moorites regarded this as hedonism, since it involved the cultivation of personal pleasure and the satisfaction of self-interest, often in the form of private wealth. For Moore and his followers, these both confused ends (goodness) with means (happiness) and were contradictory: what was good for each individual could not be the sole, transcendent ‘‘good.’’ Keynes, starting with his Treatise on probability, was concerned with how a society consciously tending to higher levels of goodness, one which he had glimpsed in pre-1914 Cambridge and Bloomsbury, could be achieved. Dostaler writes well of this period in Keynes’s life, though he could have made more of the work of Athol Fitzgibbons (1988, pp. 27–29). It was Fitzgibbons who pointed to Keynes’s neo-Platonist concept, developed in the Treatise, ‘‘there was a truth beyond experience,’’ and that only a probable account of knowledge could be given, ‘‘since knowledge presupposes classification,’’ and therefore has to rest on similarity and metaphor. Even science was based on analogy; it could never provide a complete system of knowledge. This was an intellectual outlook that enabled Keynes to reject the claims of the utilitarians and the classical economists, on two grounds. First, they were wrong in principle, since they mistakenly believed they had evolved a scientific system by which it would become possible to understand how the economy and society worked. Secondly, the evidence of the world as it was, or simple observation, was to prove them flawed. It became obvious after 1918 that they were incapable of providing any explanations of economic instability, long-term unemployment, and, finally, of the persistence of the depression, which were useful – or which provided any simultaneously practical and humane guide to remedial action. It followed that civilization could aspire (though never with certainty) to connect ‘‘what is’’ with ‘‘what ought to be’’ (or what probably ought to be), on the basis of common sense and intuition. For Moore, there had not been a connection between this earthly striving and the greater good: but Keynes went beyond such a view and maintained that political action and economic philosophy were legitimate and necessary means to the creation of a Moorite world. It was a conviction that drove him to write The economic consequences of the peace, after the catastrophe of

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World War One, and The general theory of money, interest and employment, following the collapse of liberal-capitalist society in the Slump. This was also why he developed his proposals for an International Clearing Union in the midst of World War Two; his intention was always to build a prosperous, fully employed, and peaceful global economy, which gave its inhabitants freedom from insecurity and the feelings of malaise that undermined the necessary conditions of goodness. Dostaler appreciates that although Keynes did become involved in politics before 1914 (as a supporter of the Campbell-Bannerman and Asquith Liberal Governments, espousing government intervention and progressive taxation to combat poverty), it was not until after 1918 that he was propelled into active politics. The 1920s saw him as an unofficial adviser to a series of Prime Ministers and Chancellors. He was convinced that economists had a duty to act as what he later called ‘‘the guardians of the possibility of civilization.’’ As Dostaler shows, from the early 1920s onward, Keynes was constant in his view that this duty involved commitment to a politico-economic vision based on a synthesis between State intervention and liberal capitalism. Orthodox, laissez-faire capitalism, manifested, for example, in the return to the gold standard at the pre-war parity of $1 ¼ $4.86 (1925), he identified with instability and injustice. He predicted unemployment and increasing class antagonism would follow from adopting an exchange rate that was too high, failing as it did to reflect the rise in wage costs in Britain since the war. The General Strike and mounting unemployment, even before the onset of the Great Slump, made his point. Yet, his efforts to modify conventional economic wisdom so that these evils could be avoided met with little success over the decade from 1921 to 1931. The Conservative Churchill and the Labour Snowden and MacDonald all listened to his advice – and then rejected it in favor of prescriptions dispensed by the Treasury and the Bank of England. His chosen vehicle, the Liberal Party, started the decade split between Asquith and Lloyd George and lost ground to Labour during the elections of 1923, 1924, and 1929. It was unable to make a serious impact on the conduct of public policy, even though, under the influence of Keynes and Hubert Henderson, it developed an innovative and powerful program, based on State-led investment in the nation’s infrastructure, to reduce joblessness and modernize the economy. All this is handled capably enough by Dostaler, although he does not quite take on board Skidelsky’s (1983, p. 402) point that both the War and the Versailles Treaty were pivotal to Keynes’s career and his writing because they awoke in him a Victorian fear of a godless society characterized by anarchy, ignorance, and violence. The prospect of

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civilization opened up by Moore’s Principia Ethica and by the world in which it had been produced ‘‘had receded over the horizon. The rest of Keynes’s life was spent in trying to bring it back into sight.’’ As a result, despite an interesting and informed discussion of Keynes’s transformation from maverick civil servant to media-savvy international economic guru (following the appearance of The economic consequences of the peace), the idea that he was fired ever after Versailles by a determination to use his very considerable powers to save the world from catastrophe is not seriously addressed. What does emerge from the book, however, is the extraordinarily wideranging and tenacious way Keynes fought to promote his vision of the good society. Besides the chapters on politics and economics, there are sections treating Keynes’s enthusiasm for encouragement of the arts, with his greatest enthusiasm being reserved for ballet. He believed passionately that the good society was one in which all the branches of cultural activity could flourish, and to that end it was necessary to offer them the support of the State. This was the opposite of an urge to dictatorship: Keynes argued that if the future of British cultural life was left to the vagaries of the market, the result would be narrow and impoverished. The idea behind State support was to allow producers and performers a chance to develop their distinctive, individual talents and styles. Keynes took the view that the Arts Council, the organization established at the end of World War Two to support and promote national culture (and its predecessor, the Council for the Encouragement of Music and the Arts, or CEMA), should, for example, refurbish and if necessary build theatres and concert halls. But this was pump-priming, not an open-ended checkbook: having with government aid constructed ‘‘the material frame,’’ wrote Keynes, ‘‘the public and the artists will do the rest between them. The muses will emerge from their dusty haunts and supply and demand shall be their servants.’’ Dostaler records that among his many cultural interventions, Keynes ‘‘prevented the destruction of one of the oldest theatres in England, that of Bristol, founded in 1766’’ (actually it was the Bristol Old Vic, and Keynes would be dismayed to see it today, once again fighting closure). This side of Keynes’s career culminated in his appointment as first Chair of the Arts Council. Even when, in the autumn of 1945, he was fighting a desperate battle in Washington DC to secure a massive loan to support post-war British reconstruction, he never neglected his duties to this new organization. It may seem surprising that he devoted as much time as Dostaler suggests to cultural affairs while his country was facing what he himself called, in an August 1945 paper to the new, Labour Cabinet, a ‘‘financial Dunkirk.’’ Yet,

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although his task was to build the foundations of the British welfare state, Keynes believed that once scarcity was replaced by abundance (and he was confident this would happen, as long as governments listened to him), the arts would be more important in the life of the good society than economics. It is, however, economics that forms the core of this book. There are discussions of the Treatise on money, the General theory, and Keynes’s work on post-war reconstruction. The section on the Treatise is the weakest of these, largely because it is a rather perfunctory affair. Yet, the work on the Treatise occupied Keynes for the best part of seven years. It deserves a fuller treatment, since its approach was instrumental to the attempted reconstruction of British Liberalism in the late 1920s, to the increasing influence of social democratic ideas in the Labour Party during the 1930s (Durbin, 1985), and to the evolution of Keynes’s own thought. The arguments of the Treatise informed Keynes’s assault on the ‘‘Treasury view’’ when he gave his evidence to the Macmillan Committee and called for cheap money and public investment. It was his inability to explain in detail how, and to what extent, the increased government expenditure he wanted would reduce unemployment, which led to his frustrating exchanges with the Treasury’s Sir Richard Hopkins. Hopkins, articulating the ‘‘Treasury view,’’ suspected that Keynes’s ideas would be inflationary (if taxes were not raised to pay for the additional spending) and that the economist overestimated the level of employment liable to result. Keynes was not able to break down this barrier until after Kahn had developed the concept of the multiplier (1931) and after he himself had developed the equilibrium model of the economy upon which the General theory was built. In the Treatise, Keynes wrote about an economy where there was disequilibrium between savings and investment, provoked by over-saving. Under the gold standard system operating in the late 1920s, this could be caused by the banking system’s obligations to prevent a net movement of gold out of the country: a tight monetary policy was followed in response to external problems, even though the internal economy needed investment and the funds existed to supply this. Wealth holders therefore earned more by leaving their money in bank accounts than they did by investing it. The resulting economic stagnation in 1920s Britain caused Keynes to break free from the quantity theory of money, in which money is seen as a medium of exchange, and move back toward mercantilist ideas that it was an asset. This understanding led him to see that it could be remunerative for wealth holders to hoard cash. The analysis pointed in the direction of an economic strategy that prioritized development of the

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domestic market, through low interest rates and public investment to generate higher demand, coupled with progressive taxation to redistribute purchasing power to those with a propensity to spend. It implied that if the price of membership of a liberal international economic order involved deflationary adjustments to external deficits, then participation within it should be replaced by a policy of economic nationalism based on the expansion and protection of the home market. Indeed, in 1933, Keynes went so far as to praise the cultivation of ‘‘National Self-Sufficiency.’’ A good part of this strategy was pursued after 1931: Britain left the gold standard, embraced protectionism, let the exchange rate float down, and introduced cheap money – but recovery was painfully slow. It was this sluggishness, combined with the insights derived from the multiplier thesis, that enabled Keynes to develop the analytical framework of the General theory. Here, there was no imbalance between savings and investment: following Kahn’s breakthrough, it was now clear that savings were a proportion of income, so that, far from idle balances of cash accumulating while income and spending declined, they also diminished (of course, the reverse also applied: savings would rise as income and spending increased). There was no disequilibrium between savings and investment, merely a set of points on the scale of economic activity where they balanced. The point where they balanced at a level consistent with high or full levels of employment was just one among many others where they did not and would only be achieved if the level of demand in the economy was sufficient to generate spending large enough to keep the factors of production operating at or near full capacity. What would kick-start spending? The classical and neo-classical economists had argued that interest rates would fall so low in the trough of a depression that spending on investment would start automatically. But Keynes now argued that few would be willing to part with cash and lend it to entrepreneurs if rates of return were so low that the only expectation of their future course was upward. This meant that liquidity preference, the willingness to hold money as an asset, a property of money that Keynes had identified in the Treatise, would undermine the operation of cheap money. Governments would have to intervene through public spending on socially desirable programs and progressive taxation. This was the answer to Hopkins and the ‘‘Treasury view’’: there would be no need for higher taxes, nor would inflation start to rise. The spending would be financed by borrowing, which would in its turn be repaid out of the savings generated by the extra employment and income resulting from the reflationary measures.

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There is nothing wrong with Dostaler’s understanding of Keynes’s economics, and his account of the General theory is sound enough, but what his analysis does not grasp is the constant, dynamic interaction between Keynes’s economic philosophy and the political environment. This was what ultimately led to the General theory, an attempt to explain how capitalism worked and what could be done to manage it so that its workings were both efficient and humane. The failing is on the surface surprising, given Dostaler’s attempt to dovetail the changing political environment of Britain between 1900 and 1945 into his discussion of Keynes’s progress. The problem is that his approach tends to the piecemeal and fragmentary, rather than holistic, and no synthesis of politics and economics is achieved. Keynes fought political and intellectual battles all the way to the appearance of the General theory, but the title and objectives of this book notwithstanding, the interrelationship between these struggles is better conveyed by other accounts, notably those of Clarke (1988) and Skidelsky. Skidelsky also portrays much more clearly the battles Keynes fought in defense of his vision of a post-war international economic order. By contrast, Dostaler’s account is a perfunctory narrative that adds nothing of substance to what we already know. Moreover, he misses the point that there is a clear continuity between Keynes’s 1930s economic nationalism and his wartime planning. It has to be said, in all fairness, that this is not an unusual oversight. It goes back to Harrod (1951), who argued that the loan and the whole thrust of Keynes’s wartime work marked a return to the economic internationalism, stemming from the work of Adam Smith, which Keynes had espoused as a young man. But even in the 1930s, Keynes had never meant to rule out the possibility of reforms to the international economy by which it was transformed into a system supportive of national full employment policies. The necessary steps were, first, the establishment of an international bank with overdraft facilities, on which countries could draw, and, secondly, permission for national controls on trade and capital: together, these would free domestic economies from the need to adjust to external deficits through deflation. Keynes had gone as far as praising self-sufficiency in 1933 because it had a better chance of sustaining higher levels of employment and a more equitable distribution of wealth at home than the current, open international economic system. But autarky for him was a means to the construction of a protosocial-democratic national political economy, a goal he had chased since the mid-1920s, and not an end: after all, it was also in 1933 that he had written The means to prosperity. In this work, he had addressed the need for an expansionary world order, supervised by generous international credit

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facilities, to support domestic growth. The experience of wartime collaboration with the New Dealers in Washington convinced him that AngloAmerican peacetime co-operation could bring about this desirable state of affairs. Yet, Keynes never lost sight of the need to retain the ‘‘selfsufficiency’’ option in case the project failed. Adjustment to Britain’s postwar external deficit by turning to deflationary measures was unacceptable, and if in the spring of 1946 the United States had failed to approve the $3.75 billion loan he had so painfully negotiated the previous autumn, he would have backed the creation of an autarkic sterling bloc (Newton, 2000). At the end of the day, then, this is a very well-intentioned and decentminded book, which ultimately disappoints. There is not very much here which is new. Some of the chapters are clear and interesting, but some are little more than narrative, notably the accounts of Keynes’s activities at Versailles and in World War Two. The overall result delivers less than it promises. An attempt to pull all the threads together is made in a concluding chapter, but this is brief and superficial. The discussion of ‘‘Keynes and Keynesianism’’ surprisingly fails to mention the work of Lynn Turgeon (1996) on ‘‘bastard Keynesianism,’’ especially given the similarities between his outlook and Dostaler’s. Finally, there are some errors of fact and clumsy translations from the French Canadian. In the first of these categories, Joseph Chamberlain’s political life is said to have been ended by a heart attack in 1907 (p. 105: in fact, he suffered a stroke in 1906). The fall of Lloyd George was occasioned by the Chanak crisis, not by the creation of the Irish Free State (p. 112), unpopular though the latter was with the Unionists in the Coalition government. Hugh Dalton was rather more equivocal about Keynesianism than is suggested on page 120. The Treaty of London was signed in 1839, not in 1914 (p. 128). The Financial Secretary to the Treasury in 1917 was Hardman Lever, not Hardann Lever (p. 138). Most bizarrely, we are asked on page 177 to believe that Thomas Aquinas ‘‘established Church doctrine, still in effect today, which condemned slavery and described labor as the natural right of free men,’’ in the eighteenth century! In the second category, for example, we are told (p. 42) that Leonard Woolf ‘‘disappeared’’ in 1969 (he died at the age of 88), and that the British party system favored bipartisanism (p. 117), when what is meant is the two-party system. On page 124, we learn that Ramsay MacDonald won a ‘‘partial election’’ in 1937, whereas the English term is ‘‘by election,’’ and on p. 128, the text refers to ‘‘Austral Africa,’’ when Southern Africa would be more comprehensible. These slips were not necessary, given good editing. They become somewhat frustrating for the reader and do not do any justice to the author.

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REFERENCES Clarke, P. (1988). The Keynesian revolution in the making, 1924–1936. Oxford: Clarendon. Durbin, E. (1985). New Jerusalems: The labour party and the economics of democratic socialism. London: Routledge. Fitzgibbons, A. (1988). Keynes’s vision: A new political economy. Oxford: Clarendon. Harrod, R. (1951). The life of John Maynard Keynes. London: Macmillan. Moggridge, D. (1992). Maynard Keynes: An economist’s biography. London: Routledge. Newton, S. (2000). ‘‘A visionary hope frustrated’’: J. Keynes and the origins of the post-war international monetary order. Diplomacy and Statecraft, 11(1), 189–210. Skidelsky, R. (1983). John Maynard Keynes, Volume1: Hopes betrayed, 1883–1920. London: Macmillan. Skidelsky, R. (1992) John Maynard Keynes, Volume 2: The economist as savior, 1920–1937. London: Macmillan. Skidelsky, R. (2000) John Maynard Keynes, Volume 3: Fighting for Britain, 1937–1946. London: Macmillan. Turgeon, L. (1996). Bastard Keynesianism: The evolution of economic thinking and policy-making since World War Two. Westport, CT: Greenwood.

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Baumol, Litan & Schramm’s GOOD CAPITALISM, BAD CAPITALISM CAPITALISM AND ECONOMIC GROWTH Andrea Maneschi A review essay on William J. Baumol, Robert E. Litan and Carl J. Schramm’s, Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity. New Haven and London: Yale University Press, 2007. xþ321 pp. ISBN 9780300109412. The authors of this book (hereafter BLS) reject the notion that the term ‘‘capitalism’’ denotes a unique type of economic system and distinguish instead among four forms it can take: state-guided capitalism, oligarchic capitalism, big-firm capitalism, and entrepreneurial capitalism. As suggested by the terms ‘‘good capitalism, bad capitalism’’ in the title, they examine both the positive and the normative implications of each type of capitalism and how consistent each type has been, in the various economies that adopted it, with the overall objective of promoting growth and prosperity. This book is thus about economic systems, the principles on which they are built, and economic growth. There are occasional references to authors of the classical, neoclassical, and Keynesian eras such as Richard Cantillon, John M. Keynes, T. Robert Malthus, David Ricardo, Jean-Baptiste Say, Joseph Schumpeter, Adam Smith, and Max Weber. Some of these are A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 245–254 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A013

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accompanied by brief quotations, but (as is to be expected from the very different interests of the authors of this book) no textual analysis of them or speculations about their influence on the history of economic thought. Given the authors’ emphasis on the effects of capitalism on economic growth, they also briefly discuss early theorists of economic growth such as Roy Harrod, Evsey Domar, Nicholas Kaldor, Robert Solow, and Trevor Swan and – in much greater detail – the theoretical, empirical, and historical work on growth theory that followed them, up to and including the ‘‘new growth theory’’ of Arrow, Romer, Lucas, and others. Chapters 2 and 3, titled ‘‘Why economic growth matters’’ and ‘‘What drives economic growth?,’’ introduce the general reader to the importance of economic growth to both developed and developing economies and the essentials of modern growth theory. While these are valuable supplements to the book for readers not familiar with them, these chapters are not discussed here since their main features are found in textbooks on economic development, macroeconomics, and growth theory. Even though this book makes only passing allusions to the history of economic thought, in this review I would like to speculate on how the economists of the classical school might have reacted to (or been totally mystified by) the four types of capitalism that BLS describe, given their alleged potential for stimulating or depressing the rate of economic growth. The first type, state-guided capitalism, ‘‘exists where governments, not private investors, decide which industries and even which individual firms should grow. Government economic policy is then geared to carry out those decisions, using various policy instruments to help out the chosen ‘winners’ ’’ (pp. 62–63). Was this the form taken by public policy under mercantilism or ‘‘system of commerce,’’ the main ‘‘system of political economy’’ that Adam Smith identified and wrote at length about in the Wealth of nations? Some measure of state guidance is of course implicit in the role of the state under mercantilism, as this term is usually understood. It is also true that the government then actively supported particular firms and industries with various policy instruments such as tariffs, subsidies, and the tolerance and even the encouragement of monopolies in both domestic and foreign trade. However, in Smith’s time, state guidance did not aim to maximize the economy’s growth rate, this goal being very far from, and, according to Smith, even antithetical to, the main preoccupations of a mercantilist state. BLS distinguish state-guided capitalism from both big-firm capitalism, considered later, and central planning of the type practiced in the former Soviet bloc countries. While they recognize the advantages that state-guided capitalism achieved in some Asian economies after World War Two by

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allowing them to master and practice export-led growth, and thereby catch up with more advanced economies, they list several pitfalls it is subject to, such as believing that state guidance will work forever, the likely corruption of government officials, excessive investment in certain favored sectors, picking the wrong winners and losers, and inadequate flexibility in redirecting government resources when this is called for. The very idea of state-guided capitalism would have been anathema to Adam Smith and the classical school that followed him, as perpetuating the mercantilist policies they were eager to overthrow. The second type of capitalism that BLS describe is oligarchic capitalism, according to which, ‘‘even though the economic system is nominally capitalist and property rights protect those who own substantial property, government policies are designed predominantly or exclusively to promote the interests of a very narrow (usually very wealthy) portion of the population or, what may be worse, the interests of the ruling autocrat.’’ BLS consider this to be the most prevalent type of capitalism, especially in Latin America, the former Soviet Union countries, the Middle East, and much of Africa. Growth is not the main objective of the government and is in fact repressed by it, so that ‘‘revolution may be the most effective (and perhaps the only) way to undo oligarchic capitalism and move toward a system where economywide growth becomes a primary goal of government’’ (p. 71). The authors illustrate with Gini coefficients the extremely unequal distribution of income and wealth that marks oligarchic capitalist economies, especially in Latin America, and relate unequal income distribution to their growth rates. Surprisingly, they find that when most Latin American countries liberalized their economies around 1980, following the import substitution policies they had practiced over the period 1960–1980, they grew at a slower rate than before, and some even at a negative growth rate! BLS attribute this to the distortions caused by the power and wealth of the oligarchs, including the rules and institutions they put in place, and thus find no tradeoff between equity and economic development. Moreover, they note that oligarchic capitalist economies are marked by a high share of ‘‘informal activity’’ and corruption. In some primary producing economies, the abundance of natural resources such as oil has fomented their oligarchic structure, making it all the harder to dislodge. While it would be difficult to find similar data for much earlier periods of time, I believe that the type of oligarchic capitalism described by BLS comes closer than their three other types of capitalism to characterizing the mercantilist economies of the 18th and the 19th centuries. This can be illustrated by the use of terms synonymous with ‘‘oligarchs’’ in the Wealth of

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nations, including ‘‘dealers’’ at the end of Book One and ‘‘master manufacturers’’ and ‘‘monopolists’’ in chapter 2 of Book Four, and by noting the economic implications of their activities as described by Smith: The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. (Smith, [1776] 1976, p. 267)

These dealers are described as ‘‘an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it’’ (Smith, [1776] 1976, p. 267). Smith uses equally harsh terms in Book Four to describe the efforts of master manufacturers to retain their privileges at all costs should they come under attack: Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; were the former to animate their soldiers, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. (Smith, [1776] 1976, p. 471)

If any member of Parliament dares to oppose them, ‘‘and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists’’ (Smith, [1776] 1976, p. 471). The third type of capitalism that BLS describe is big-firm capitalism, which they characterize as ‘‘often, but not always, oligopolistic’’ in nature because of the need to exploit economies of scale (p. 80). The authors invoke the names of Joseph Schumpeter and John Kenneth Galbraith as economists who, in very different ways, ascribed great significance to large corporations. Although Schumpeter was pessimistic about the future of capitalism as it was being transformed by increasingly powerful and

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bureaucratic firms, he recognized that the profits they expected to earn as a result of their innovations were an indispensable incentive for them to carry them out. Galbraith, on the contrary, viewed large firms in a negative light because of their ‘‘corporate excesses, in wasteful advertising, in lavish perks, and in profits’’ (p. 79) and invoked ‘‘countervailing powers’’ against them. BLS point out that the ownership of large companies ‘‘is widely dispersed among many shareholders, often including some large institutional investors . . . Professional managers are the ‘agents’ of these ‘principals,’ giving rise to the well-known ‘principal-agent’ problem, that of ensuring that the managers continually act in the best interests of the owners of the firms they manage’’ (p. 80). The authors add in an endnote that ‘‘this problem was recognized in the 1930s by Adolphe Berle and Gardiner Means as inherent when ownership is separate from control’’ (p. 290). As Edwin West (1990, chapter 5) points out, Berle and Means acknowledge that Adam Smith had anticipated them in recognizing and analyzing the principal-agent problem as it relates to large corporations. They also claim that ‘‘very emphatically he repudiated the stock corporation as a business mechanism, holding that dispersed ownership made efficient operation impossible’’ (Berle & Means, 1932, pp. 345–346). Their claim has been successfully challenged among others by Gary Anderson and Robert Tollison (1982). In summarizing their views, West notes: It is wrong, nevertheless, to assume that Smith was opposed to joint-stock organizations on principle. His examination of them was discriminating and perceptive and he referred to examples of successful operations such as the Hudson Bay Company. What interested him was a search for explanations of the differences in recorded performance and survival. (West, 1990, p. 55)

Smith also advocated joint-stock companies for ‘‘public works’’ in banking, canals, water supply, roads, and bridges, particularly ‘‘if the costs of agency can be reduced sufficiently by appropriate incentives’’ (West, 1990, p. 57). I conclude from this that Smith would not have opposed big-firm capitalism on principle but would have searched for incentives that allow a joint-stock firm to operate efficiently. Both BLS and Smith are aware of advantages that can be realized only by corporations that have reached a certain size. For BLS, it is their ability to mass-produce commodities that small entrepreneurs have invented but are unable to produce on a large scale. For Smith, it is the ability of a joint-stock enterprise to gather its investment funds from a number of individuals and thus reach the minimal size needed. However, Smith made a clear exception for the East India Company, a joint-stock enterprise whose rent-seeking operations had proved pernicious

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to Britain since the government allowed it to enrich its owners at the expense of the country’s economic welfare, including the gains it could achieve from its colonial trade. The fourth and final type of capitalism that BLS describe is entrepreneurial capitalism, ‘‘the capitalist system in which large numbers of the actors within the economy not only have an unceasing drive and incentive to innovate but also undertake and commercialize radical or breakthrough innovations. These innovations are bolder than the incremental innovations that characterize big-firm capitalism’’ (p. 86). The individuals that become entrepreneurs and establish new firms play an important role in introducing technologies that transform an economy over time. BLS invoke the name of Adam Smith, ‘‘who first explained how supposedly self-interested businessmen, actually entrepreneurs in his day, were forced by market pressures to serve the broader interest by focusing on what they did best’’ (p. 193). They illustrate this by the well-known passage from Book Four of the Wealth of nations where the investor-entrepreneur is ‘‘led by an invisible hand to promote an end which was no part of his intention.’’ However, the entrepreneur does not appear to me to be an important protagonist in the Wealth of nations, in contrast to the capitalist as a supplier of investable funds, the worker, the merchant, the manufacturer, the landlord, and other economic agents with well-defined functions. Salim Rashid claims in fact that [w]hen we turn to Adam Smith’s portrayal of human beings involved in the process of economic growth . . . [t]he active, restless, creative entrepreneur not only gets no praise, Smith classifies such individuals with the derogatory class of ‘‘projectors.’’ The projectors are the subject of considerable sarcasm. They are those who have devised ‘‘expensive and uncertain projects . . . which bring bankruptcy upon the greater part of the people who engage in them.’’ (Rashid, 1998, p. 62)

Charles Kindleberger (1976) had earlier made a related observation regarding Smith’s attitude toward the industrial revolution, a period of technological innovation and entrepreneurial activity such that Britain had never witnessed before, by arguing that Smith was not fully aware that an industrial revolution was going on around him at the time he was writing the Wealth of nations. The role of the entrepreneur was instead recognized early in the history of economic thought by Richard Cantillon ([1755] 1931). BLS carefully distinguish two types of entrepreneurs, ‘‘replicative’’ and ‘‘innovative,’’ where the former produce and sell a commodity that is already available through other sources, while the latter introduce new commodities or methods of

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production. Although they classify the type of entrepreneur described by Cantillon as replicative, I believe this is too narrow a characterization. Cantillon ([1755] 1931, p. 54) emphasized that entrepreneurs ‘‘may be considered as living subject to uncertainty’’ since they ‘‘work for uncertain wages’’ while having to hire wage earners for certain wages. They are constantly aware of rivals who try to deprive them of their customers and can be expected to be innovative in seeking ways to hold on to them. On the contrary, I fully agree with BLS that Jean-Baptiste Say presented a much more complete picture of the entrepreneur as someone who ‘‘upsets and disorganizes’’ (p. 3). Schumpeter’s concept of ‘‘creative destruction’’ also features innovative entrepreneurs who continually devise new products to replace existing ones. Since these innovations radically transform the structure of the economy, it cannot be formalized by means of the static general equilibrium models that became the stock in trade of neoclassical economics in the 19th and the early 20th centuries. BLS speculate on the relative advantages of small and large firms in creating innovations and capitalizing on them. Whereas small firms are more adept at breakthrough innovations, large firms can effect cumulative incremental improvements of greater complexity, and occasionally even realize the breakthrough innovations normally associated with small firms (pp. 86–89). Of the four types of capitalism discussed in this book, entrepreneurial capitalism seems to me to come closest to that which most members of the classical school would have advocated to promote economic growth and prosperity. The same four types of capitalism are elaborated on further in different contexts in several other chapters. To this reviewer, the most interesting of these, and rife with policy implications, is chapter 6 with the title ‘‘Unleashing entrepreneurship in less developed economies.’’ BLS speculate on the advice they would offer the leaders of a less developed country (LDC) that wishes to enhance its rate of economic growth in the light of the successes achieved by more developed nations and conclude that ‘‘one indispensable ingredient of success was entrepreneurship and an environment that encouraged its activities, offered it security and incentives, and minimized the obstacles to its exercise’’ (p. 133). After analyzing carefully the characteristics of LDCs, BLS examine successively if and how economies that have been subject to the first three types of capitalism described earlier can move away from it and embrace a more entrepreneurial form of capitalism. For example, moving away from state guidance requires lowering barriers to business formation, formalizing a legal system, and improving access to capital and education (pp. 152–163). India’s ‘‘deep’’ or ‘‘elite’’ educational approach is contrasted with the universal education available in

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Eastern European and some Asian countries, while the Chinese approach to education stands in between them. BLS wisely reject the shock therapy practiced in some Eastern European and former Soviet Union countries after the fall of the Berlin wall and suggest instead incremental change or entrepreneurial capitalism at the margin, while retaining the parts of the economy dependent on state guidance. They consider the transition away from oligarchy much harder to accomplish, since the oligarchs ‘‘normally are happy with the way things are, so they have little interest in stimulating growth, which can threaten to upset their comfortable positions’’ (p. 169). However, the Eastern European and former Soviet Union countries provide examples of possible transition from their former oligarchic regimes. BLS concede that this transition may require an intermediate step in the form of state guidance, before an entrepreneurial economy can take root. Despite the success achieved by micro-credit institutions such as the Grameen Bank founded by the winner of the 2006 Nobel Peace Prize, Muhammad Yunus, BLS are skeptical about the role that micro-credit can play in LDCs. While granting that micro-lending can be a valuable first step on the ladder of economic success, they claim that the firms financed through it cannot achieve the economies of scale that are essential for ultimate productivity gains and that micro-credit has encouraged replicative rather than innovative capitalism (pp. 160–163). In response to their observation, I would like to highlight the many cases where the Grameen Bank has actually encouraged and successfully promoted entrepreneurship and innovation. BLS themselves cite the success of GrameenPhone in Bangladesh, a joint venture with the Grameen Bank. Other recent initiatives of the Grameen Bank described by Yunus (1999, chapter 12), in areas such as electric power, the Internet, fisheries, textiles, and health care, are helping to transform the Bangladeshi economy.1 With regard to the four types of capitalism described in their book, BLS do not identify any one of them as superior to the others, or as the only form of ‘‘good capitalism,’’ in light of the diversity of experiences of countries that adopted any one of them, and the need for one type of capitalism to be complemented by policies associated with another type. For countries that are attempting a transition from a form of ‘‘bad capitalism,’’ the authors clearly favor a blend of entrepreneurial capitalism and big-firm capitalism. Even when some form of state-guided capitalism first spurred economic development, once economies approach the technological frontier–that is, once their living standards are among the highest in the world–they can remain at or become the frontier only by shedding

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state guidance and adopting some blend of entrepreneurial and big-firm capitalism. The nature of this blend, as well as the characteristics of entrepreneurial capitalism in particular, will differ from country to country, depending on historical circumstances and differences in culture. Simply put, all economies need some degree of entrepreneurship to generate radical innovation, yet they also need effective big firms to refine it and commercialize it on a mass scale. (p. 94; emphasis in original)

The authors follow up on this statement by setting out in chapter 5 four conditions that they regard indispensable for ‘‘maximizing growth at the cutting edge.’’ They devote chapter 7 to ‘‘big-firm wealthy economies’’ such as those of Japan and Western Europe and argue that to boost their anemic economic growth rates they need to promote innovative entrepreneurship to offset and complement their current form of big-firm capitalism. They suggest policies and institutions that can help them to overcome ‘‘Eurosclerosis and Japanese stagnation.’’ Although ‘‘[f]or roughly a century . . . the United States has been the quintessential exemplar of a mixture of entrepreneurial and big-firm capitalism’’ (p. 228), BLS conclude their book with chapter 8 on ‘‘the care and maintenance of entrepreneurial capitalism,’’ which focuses on the U.S. economy. The authors’ main concern is that the latter is in danger of becoming much less entrepreneurial and more reliant on big firms than in the past. To avert this danger, they recommend numerous incentives to restore productive entrepreneurship, such as removing impediments to the launch of productive enterprise, reforming tax policy, providing adequate but not excessive legal protection to intellectual property, improving patent law, discouraging unproductive entrepreneurship of the rent-seeking variety, liberalizing the economy by promoting open borders and facilitating the transfer of foreign technology, encouraging the commercialization of university-based research, and improving education and immigration policies to guarantee a well-trained workforce. While it is hard to quarrel with any of these recommendations, they remind this reviewer of the laundry list of Washington Consensus policies that were originally articulated by John Williamson (1990), and advocated by U.S. government and international agencies, to promote market-friendly reforms in Latin American and former socialist countries. With the benefit of hindsight, we now know that economies such as the East Asian ones in fact achieved high rates of economic growth by rejecting some of the Washington Consensus policies in favor of various forms of state guidance (Rodrik, 2005). The problem with the excellent advice in the form of policy recommendations, given by BLS in this and other instances throughout their book, is that not all the reforms they propose can be implemented

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simultaneously so that priorities among them need to be established. Some may need to be traded off against others, and their implementation requires the arduous design of specific policies. Much work thus remains to be done. Readers of this book, however, should wholeheartedly agree with the authors’ concluding thoughts: ‘‘First, incentives really matter. Countries where activities that promote growth are rewarded will grow faster than countries where this is not the case. Second, the contribution of the entrepreneur to the growth process is substantial’’ (p. 275).

NOTE 1. In the interest of full disclosure, my high opinion of Yunus’s work is enhanced further by the fact that he obtained his doctoral degree at Vanderbilt University.

REFERENCES Anderson, G. M., & Tollison, R. D. (1982). Adam Smith’s analysis of joint-stock companies. Journal of Political Economy, 90(6), 1237–1256. Berle, A. A., & Means, G. C. (1932). The modern corporation and private property. New York: Macmillan. Cantillon, R. ([1755] 1931). In: H. Higgs (Ed.), Essai sur la nature du commerce en ge´ne´ral. London: Macmillan. Kindleberger, C. P. (1976). The historical background: Adam Smith and the industrial revolution. In: T. Wilson & A. S. Skinner (Eds), The market and the state: Essays in honor of Adam Smith (pp. 1–25). Oxford: Clarendon Press. Rashid, S. (1998). The myth of Adam Smith. Cheltenham: Edward Elgar. Rodrik, D. (2005). Growth strategies. In: P. Aghion & S. N. Durlauf (Eds), Handbook of economic growth (Vol. 1A, pp. 967–1014). Amsterdam: North-Holland. Smith, A. ([1776] 1976). An inquiry into the nature and causes of the wealth of nations. Oxford: Clarendon Press. West, E. G. (1990). Adam Smith and modern economics: From market behavior to public choice. Aldershot: Edward Elgar. Williamson, J. (1990). What Washington means by policy reforms. In: J. Williamson (Ed.), Latin American adjustment: How much has happened? (pp. 7–20). Washington, D.C.: Institute for International Economics. Yunus, M. (1999). Banker to the poor: Micro-lending and the battle against world poverty. New York: Public Affairs.

Teixeira’s JACOB MINCER and Grossbard’s JACOB MINCER JACOB MINCER’S CONTRIBUTIONS TO MODERN LABOR ECONOMICS Bruce E. Kaufman A review essay on Pedro Teixeira’s Jacob Mincer: A founding father of modern labor economics. Oxford: Oxford University Press, 2007. 208 p. ISBN 978-0199211319; and Shoshana Grossbard’s (Ed.) Jacob Mincer: A Pioneer of Modern Labor Economics. New York: Springer, 2006. 197 p. ISBN 978-0387291741. One of the key figures in the development of modern labor economics is Jacob Mincer (1922–2006). His contributions have recently been highlighted and assessed in two books. The most in-depth and substantive of these volumes is by Portuguese economist Pedro Teixeira (2007). Also valuable and well done is an edited volume by Shoshana Grossbard (2006), composed of a number of short remembrances by Mincer’s colleagues and students, an oral history interview with Mincer by Teixeira, several larger review chapters on important parts of Mincer’s research program, and several speeches and short articles by Mincer. In this review essay, I provide a brief summary and evaluation of Mincer’s research contributions and place in the history of thought in labor economics, drawing largely on these two books but with some of my own observations and perspectives interspersed.

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MINCER: A BIOGRAPHICAL SKETCH Teixeira devotes the first chapter of his book to a modest-sized personal portrait of Mincer and overview of his professional career. Some of this material is largely of personal interest, although only the most stoic would fail to be moved. Mincer was born into a Jewish family in Poland in 1922. He excelled as a high school student and was in his first year of university studies in Czechoslovakia (chosen largely because other universities rejected him due to his religious background) when Hitler and the Nazis took over the country. Mincer spent three years in German concentration camps and miraculously survived, although his family in Poland was much less fortunate. Mincer was able to get a fellowship to study in the United States and after two years of bureaucratic delay finally arrived in late 1946. Teixeira relates that Mincer came by ship to New York City and one can imagine his feelings as it sailed past the Statue of Liberty and into the harbor of his new home country. Mincer’s original coursework was in engineering, but his interests shifted to the social sciences and he chose to focus on economics where he could utilize his math skills. After a brief stint as a student at Emory University, Mincer was accepted into the graduate program at Chicago where he did one year of work; he then transferred to Columbia University in New York City (to accommodate his wife’s new job) and finished his Ph.D. degree in 1957 (at age 35). Mincer’s dissertation was ‘‘A Study of Personal Income Distribution.’’ When Mincer arrived at Columbia, it was still heavily under the influence of the institutional approach to economics, reflecting the legacy of luminaries such as Wesley Mitchell and John M. Clark. Mincer, however, was not attracted to institutionalism; instead, he gravitated toward the neoclassical price theory style of economics done at Chicago and taught at Columbia by Stigler. Mincer did not start out as a labor economist and felt his dissertation was in the area of microeconomic theory. When he went back to Chicago on a post-doctoral fellowship, however, Mincer took the labor course from Greg Lewis and found the analytical treatment more to his liking. Back at Columbia, Mincer was joined on the faculty by Gary Becker. The two started a Labor Economics Workshop, began an active labor research program through the National Bureau of Economic Research (NBER), and began to attract a coterie of talented graduate students. These aspects of Mincer’s career are ably covered in the Grossbard volume in separate chapters by Becker, Heckman, Chiswick, Polachek, and Grossbard.

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Particularly evident is the substantial synergy developed between Mincer and Becker not only in their joint research but also in training of doctoral students. Both Teixeira and Grossbard observe that the field of labor economics underwent a major shift in orientation in the 1960s from an institutional to a neoclassical approach. Teixeira points to the human capital concept as the foundation stone for the neoclassical revival, attributes its initial development to the trio of Mincer, Becker and Theodore Schultz (also from Chicago), and argues that Mincer was the person most responsible for integrating the human capital concept into labor economics research, particularly through his studies of labor supply, on-the-job training (OJT), and income distribution. The exemplar is Mincer’s (1974) book Schooling, experience, and earnings. Mincer retired from Columbia in 1991 but continued to publish for much of the rest of his life. He received a number of awards and recognitions; the Society of Labor Economists, for example, created a Jacob Mincer prize for lifetime achievements in labor economics, and in 2002, Mincer received the first IZA Prize in Labor Economics. By all accounts, Mincer had high and exacting scholarly standards, was a strong but not dogmatic or ideologically driven proponent of neoclassical price theory, and was a person who students and colleagues liked and respected.

MINCER’S RESEARCH PROGRAM HISTORICALLY VIEWED: THE BEGINNING Teixeira and Grossbard make a number of claims for Mincer, all of which I think are broadly correct. In one or two cases, however, Teixeira’s obvious affection and respect for Mincer may have led him to go a bit over the top. Foremost, Mincer is described by Teixeira as ‘‘a founder of modern labor economics,’’ ‘‘one of the pioneers of human capital research,’’ and someone who made ‘‘a significant contribution to the contemporary dominance of neoclassical economics in labor research’’ (pp. 13, 82). In a similar spirit, Grossbard states that Mincer is ‘‘one of the principal architects of Modern Labor Economics’’ and Mincer and Becker are ‘‘founding fathers of the NHE [New Home Economics]’’ (pp. vii, 39). I see no basis for argument here. Teixeira also asserts, accurately, that Mincer’s dissertation was the first analytical contribution to the development of human capital theory,

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his research ‘‘opened the way for very important work to be carried out on patterns of lifetime earnings, labor force participation, and investments in human capital,’’ and his development and econometric estimation of the human capital earnings function became ‘‘a centerpiece of modern labor research’’ (pp. 14, 154). With regard to the last point, but more generally, Mincer was truly a pioneer, alongside Greg Lewis, in testing theoretical hypotheses derived from price theory through careful application of econometric methods to analysis of large-size data sets. In this regard, Teixeira notes, ‘‘This led many to admire his [Mincer’s] work due to the balanced blend of theory and empirical (testable) research’’ (p. 9). Where Teixeira might get slightly over-enthusiastic is with statements such as ‘‘The person who most contributed to put human capital at the center of contemporary labor research was Jacob Mincer’’ (p. 153). It is a tough judgment call, but I suspect the majority of labor economists would identify Becker’s (1964) book Human capital as the fountainhead for the human capital research program, although without quarrel Mincer’s work would be in everybody’s estimation a close number two. As indicated earlier, Mincer’s main contributions to labor economics fall in the areas of labor supply, human capital, and income distribution, although as Teixeira claims it is human capital that provides much of the connecting links to the other two. The significance of these contributions, and how they fit into the broader evolution of labor economics proper, can better be appreciated by putting them into historical perspective. All three topics have venerable traditions in economics and were certainly not new to economics, circa, the 1950s. The concept of labor supply and its influence on income distribution was a staple of classical economics and, in particular, the Malthusian population principle and Ricardo’s iron law of wages. Likewise, the general idea of human capital goes back to Adam Smith ([1776] 1937) who famously compared the investment in education and skill in workers to the investment in machines and observed that both must pay a competitive rate of return to be economically worthwhile. A century later, Alfred Marshall (1912) discusses education as an economic investment and states, ‘‘The most valuable of all capital is that invested in human beings’’ (p. 272), while institutional economist John Commons (1919) observed that workers change from an unskilled commodity to a valuable ‘‘human resource’’ as a consequence of education and training. As Teixeira recounts, these suggestive ideas remained largely undeveloped in economics until the late 1950s. Why so? According to Teixeira, the innovation of Mincer and colleagues was to pour the ideas of human capital and labor supply into the mold of neoclassical competitive price theory.

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This allowed them to develop the ideas within the standard corpus of economic theory and, further, to give these concepts an analytical treatment. This research program could have been done earlier but was not because the institutional economists who dominated labor economics into the 1950s were, he claims, not well trained in price theory and largely hostile to it. For example, he states that the institutionalists had ‘‘an apparent disdain for economics,’’ ‘‘hardly used neoclassical theory, let alone price theory,’’ exhibited in the eyes of their critics ‘‘poor mastery of the basic price/ economic theory,’’ and held the view that ‘‘the labor market was a peculiar type’’ (pp. 10, 83, pp. 86–87). This assessment is widely accepted today among labor economists (e.g., Boyer & Smith, 2001) and is repeated by Heckman in his essay in the Grossbard volume. In light of the conventional wisdom, and judged relative to the highly critical comments of Stigler and others toward the institutionalists, Teixeira’s account appears relatively balanced and evenhanded. A closer examination reveals, however, it contains not only significant elements of truth but also a degree of mischaracterization due to both sins of omission and commission in the standard Whiggish historiography of the field (i.e., history written by the ‘‘winners’’). I do not believe it is fair to say, for example, that the labor institutionalists of the 1930s and neo-institutionalists of the 1950s were disdainful of economics or uninterested in theorizing. Furthermore, I think a perusal of the publications of the neo-institutional labor economists, such as John Dunlop, Clark Kerr, Richard Lester, Charles Myers, and Lloyd Reynolds, reveals they were relatively well schooled in the price theory of their day and used it as a standard of reference for their research program. It was Dunlop (1939), after all, who took on Keynes in the pages of the Economic Journal regarding the cyclical movement of real wages (and won!); Lester (1941) who published a labor textbook that opened with the claim the presentation is ‘‘analytical’’ with ‘‘emphasis . . . upon economic principles rather than . . . ephemeral facts’’ (p. vii) and then (as far as I am aware) for the first time in a labor text used a labor demand/supply diagram; Reynolds (1946) who published an article in the Quarterly Journal of Economics on the supply curve of labor to the firm; and Dunlop (1957) who published an edited volume entitled Theory of wage determination. I note, in particular, that in this volume, Dunlop states, ‘‘All wage theory is in a sense demand and supply analysis’’ (p. 14), and then on the next page, he notes that while the marginal productivity theory had long provided an analytical model for the labor demand side, there was a theoretical hole on the supply side, leading him to observe ‘‘the pivotal task of wage theory is to formulate an acceptable theory on the supply side.’’

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For comparison’s sake, one may also look at the labor textbook published in 1957 by Chicago graduate (and, later, faculty member) Melvin Reder and notice that it is quite similar in tone and substance to the texts written by neo-institutionalists (e.g., Reynolds, 1953). In particular, Reder (1957) discusses labor supply mostly in terms of inter-plant mobility of workers, spends four pages on college education and suggests it is a significant source of stratification and economic rents in the labor market, and states ‘‘the idea of a labor market is about as difficult an application of the market concept as one can find’’ (p. 320). Thus, I think it is fair to conclude that the institutionalists who occupied labor economics at the time Mincer began his career in the 1950s were neither anti-theory nor ignorant of theory. Going further, it is clear that the institutionalists were receptive to and cognizant of the need for stronger theory on the supply side of the labor market. What gets closer to the center of the issue, therefore, is that what they were against is a particular kind of theory and particular approach to theorizing. The approach they were hostile to is the uni-disciplinary ‘‘economic imperialism’’ style of theorizing, as exemplified by Friedman and Stigler; the kind of theory they rejected was the short-run application of the competitive model of demand and supply to labor markets. In this spirit, Pierson (1957) concludes, ‘‘The competitive hypothesis is useful in explaining general, long-term trends in wage relationships’’, but, on the other, asserts with respect to short-run wage determination ‘‘competitive theory seems totally out of touch with reality’’ (pp. 18, 19). Teixeira recognizes this disjunction, per his observation that the institutionalists thought the labor market is ‘‘different from the standard model,’’ while Mincer and colleagues thought ‘‘the process of wage determination was not very different from the one defined by competitive theory’’ (p. 88). I give extra stress to this point, however, partly because Teixeira gets unnecessarily diverted on to false trails (e.g., the institutionalists’ alleged disdain of theory) and partly because it goes a long way toward explaining why the neoclassical theory of labor supply and human capital concept remained undeveloped as of the late 1950s. In particular, the institutionalists were convinced from case studies and first-hand evidence (from arbitration, government service, etc.) that labor markets are substantially imperfect, frequently employer dominated, have many frictions and rigidities that impede competition and mobility, are prone to disequilibrium, and have wages that are in significant part a form of administered price (Kaufman, 1988). As this bore on wage determination, they thought at the micro level that wages and employment are largely

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determined by the height of firm-level demand curves (significantly influenced by product market factors such as industry, size, and profitability), while firm-level supply curves are more like large bands with considerable room for indeterminacy, closed in part by social and institutional factors and management decisions within internal labor markets. At the macro level, they thought the aggregate supply curve is near-to-vertical. Coupled with the fact that the bulk of manufacturing employment was covered by collective bargaining, the institutionalists were accordingly skeptical of the idea that a competitive price theory version of labor supply would explain much at either the micro level or the macro level. In this, their reaction may well have been overly negative, but a fair appraisal also has to note that they were reacting against the unwillingness of neoclassical price theorists to meet them half-way and consider non-competitive and institutional/social elements. The concept of human capital lay fallow for many of the same reasons. Much of the workforce was employed in blue-collar jobs where general education, particularly at the college level, seemed less relevant to job attainment and individual productivity. At a theory level, the institutionalists objected to the idea that the rate of return is determined by demand and supply in largely competitive conditions. A significant part of OJT, for example, takes place in internal labor markets and is rationed by employers rather than determined through some form of equilibrium price adjustment process (Dunlop, 1988). They also thought that access to higher education was significantly constrained by family income and background, social class, and gender and race, in effect making access to college education not just a matter of competitive weighing of benefits and costs but also a rationing process where some groups are favored over others. (Becker (1967) later developed an insightful human capital demand/supply model that illuminated the role of these matters, although it did not resolve the relative importance of competition versus stratification.) Finally, a core concept in institutional economics is property rights (Commons, 1934). Central to a competitive outcome is that all property rights are well-defined and covered in a complete contract; the institutional labor economists questioned how the market for human capital could approximate competitive outcomes when property rights in labor are hugely incomplete, the asset is largely illiquid, and workers are most often on the long side of the market. I cite these matters not to diminish Mincer’s contributions but to put into perspective the situation in labor economics as it existed when he started his career. Teixeira reasonably well captures the big picture; I am simply adjusting and redrawing some of the lines.

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MINCER’S RESEARCH PROGRAM: DEVELOPMENT OVER A HALF-CENTURY Mincer’s professional career spanned nearly a half-century, starting with his dissertation in 1957 (Mincer, 1957) and extending close to the time of his death in 2006. Over this period, he contributed dozens of published papers, chapters, and books, frequently co-authored with one of his dissertation students. A number of economists achieve significant recognition in their fields of study for important studies, only to later have their work fade away. Has this also been true of Mincer? Teixeira and the authors in the Grossbard volume conclude that Mincer’s research program continues to exert strong influence on the field of labor economics and I agree with this assessment. Naturally, graduate reading lists get updated with the most recent studies, and works by the big names of the 1960s and 1970s gradually fall off. This is true for Mincer. Nonetheless, Mincer’s name and his seminal works remain frequently cited in the modern literature. Teixeira, for example, documents this with a citation count to Mincer’s work and finds in the 1990s more than 200 citations per year. His reputation also lives on in labor textbooks that uniformly cite his works as seminal in the areas of labor supply and human capital theory. What were Mincer’s most important contributions? As earlier noted, his work largely pertains to labor supply and human capital, with a particular application to income distribution. The importance of these two areas is revealed by the two-volume collection of his published works (Mincer, 1993). In the area of labor supply, Mincer is particularly remembered for his 1962 paper on the labor supply of married women (Mincer, 1962). In this paper, he resolved a seeming paradox of that period: that is, how to reconcile the fact that in a cross-section women’s labor force participation was negatively related to the husband’s and household’s income and yet over time women’s labor force participation was rising with economic growth and higher per capita income. The resolution proffered by Mincer was to focus on the role of the rising market wage for women, with the argument that the positive substitution effect from a rise in the wage of women earners more than offset the negative income effect from higher husband’s earnings. Also noteworthy is that Mincer developed this argument in a family context, which may be viewed as one of the root sources of the now large ‘‘economics of the family’’ literature (highlighted in Grossbard’s chapter in her volume). Also characteristic of Mincer, the innovative application of price theory in this paper was then followed up by a very careful and equally innovative empirical

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analysis in which the model’s hypotheses were tested using the then-new tool of multiple regression applied to decennial census data. Mincer made a number of contributions in the area of human capital theory, but perhaps most noteworthy is his theoretical explanation for the shape of age-earnings profiles (highlighted in the Lemieux chapter in the Grossbard volume). These profiles exhibit four interesting patterns. The first is that the typical profile starts at a low earnings level in people’s early work years, exhibits a rise in earnings that gradually peaks in the mid-late work years, and then shows earnings modestly declining until the end of work life. The second pattern is that the profiles shift-up with higher educational attainment (i.e., show a higher earnings level at any given age); the third is that the upward rising portion of the profile has a steeper slope for people with higher educational attainment; and the fourth is that the rising slope of the profile is steeper for men than women. In his book Schooling, experience and earnings, as well as in subsequent research (e.g., Mincer & Ofek, 1982), Mincer used the human capital model to offer an integrated explanation of these four patterns. For example, higher education creates a larger stock of human capital and, for a given rate of return, yields higher annual income for people with more schooling, thus accounting for the shift-up feature of the profiles. Crucial to explaining the other three features is the incorporation of OJT. Mincer argued that general education determines the starting position of the profiles; their slope, peak, and decline then reflect relative differences among workers in the amount, duration, and depreciation of human capital gained through OJT. Finally, the steeper rise in earnings with age for men relative to women reflects systematic gender differences in investment in OJT, partly due to women’s greater extent of job interruptions and smaller cumulated years of job experience. These and a number of other contributions by Mincer are carefully reviewed by Teixeira, as well as in a number of chapters in the Grossbard volume, so I shall go no further. Teixeira also notes that Mincer’s work – and the area of human capital in general – has attracted criticism and generated alternative theoretical models. These matters, while appropriately mentioned and briefly discussed, are not examined or assessed in sufficient depth and detail to allow the reader to judge how well the human capital story has held its own over time. Given space constraints, I am also precluded from going very far down this road. Nonetheless, let me simply point out three of the major bodies of research that provide an alternative to and critique of human capital theory. These theories are separate but mutually overlapping.

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The first alternative, arising from theories of asymmetric information, is the screening model. The main argument here is that the positive correlation between schooling and earnings does not reflect a positive effect of education on worker productivity (the human capital hypothesis) but rather reflects the role of education as a signaling and screening device that determines who is first in line for good jobs (Stiglitz, 2001). The second alternative, arising from institutional (and radical) labor economics, focuses on the role of segmented and dual labor markets. This literature suggest that the flatter slope of women’s age-earning profile reflects not efficiency and comparative advantage considerations between men and women but the forces of discrimination, gendered social norms, and unequal rights and resources (Dickens & Lang, 1988). The third comes from radical and neo-Marxist economics and focuses on the role that education plays in fostering and preserving socio-class divisions and inequalities and in providing capitalist employers with a disciplined and trained factor input (Bowles & Gintis, 2002). My judgment is that the human capital paradigm remains most used and accepted in labor economics – particularly the mainstream portion – but that these three alternative theories have made successful encroachments. The continued dominance of human capital theory (exemplified by publication of a new journal, Journal of Human Capital, in 2008) helps explain, in turn, why Mincer continues to enjoy considerable influence and prestige in today’s labor economics.

CONCLUSION Over the twentieth century, two universities had paradigmatic dominance in the field of labor economics in the United States. During the first half of the century, it was Wisconsin and the institutional and industrial relations approach; during the second half, it was Chicago and the neoclassical price theory approach. The latter now rules the roost in labor economics, and Jacob Mincer played a leading and pioneering role. People wanting to know more about Mincer will find the Teixeira and Grossbard books very informative. Mincer is fortunate to have had such dedicated and able biographers.

REFERENCES Becker, G. S. (1964). Human capital: A theoretical and empirical analysis, with special reference to education. New York: Columbia University Press.

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Becker, G. S. (1967). Human capital and the personal distribution of Income: An analytic approach. Woytinsky Lecture 1. Ann Arbor: University of Michigan, Institute of Public Administration. Bowles, S., & Gintis, H. (2002). Schooling in capitalist America revisited. Sociology of Education, 75(1), 1–18. Boyer, G., & Smith, R. (2001). The neoclassical tradition in labor economics. Industrial and Labor Relations Review, 54(2), 199–223. Commons, J. (1919). Industrial goodwill. New York: McGraw-Hill. Commons, J. (1934). Institutional economics: Its place in political economy. New York: Macmillan. Dickens, W., & Lang, K. (1988). The reemergence of segmented labor market theory. American Economic Review, 78, 129–134. Dunlop, J. (1939). The movement of real and money wage rates. Economic Journal, 48, 413–434. Dunlop, J. (Ed.) (1957). The theory of wage determination. London: Macmillan. Dunlop, J. (1988). Labor markets and wage determination: Then and now. In: B. Kaufman (Ed.), How labor markets work: Reflections on theory and practice by John Dunlop, Clark Kerr, Richard Lester, and Lloyd Reynolds (pp. 47–88). Lexington: Lexington Books. Kaufman, B. (1988). How labor markets work: Reflections on theory and practice by John Dunlop, Clark Kerr, Richard Lester, and Lloyd Reynolds. Lexington: Lexington Press. Lester, R. (1941). The economics of labor. New York: Macmillan. Marshall, A. (1912). Elements of economics of industry. London: Macmillan. Mincer, J. (1957). A study of personal income distribution. Ph.D. dissertation, Columbia University. Mincer, J. (1962). Labor force participation of married women. In: H. G. Lewis (Ed.), Aspects of labor economics. Cambridge: National Bureau of Economic Research. Mincer, J. (1974). Schooling, experience, and earnings. New York: Columbia University Press. Mincer, J. (1993). Studies in human capital: Collected essays in honor of Jacob Mincer (2 Vols). Cambridge: Edward Elgar. Mincer, J., & Ofek, H. (1982). Interrupted work careers: Depreciation and restoration of human capital. Journal of Human Resources, 17(1), 3–24. Pierson, F. (1957). An evaluation of wage theory. In: G. Taylor & F. Pierson (Eds), New concepts in wage determination (pp. 3–31). New York: McGraw-Hill. Reder, M. (1957). Labor in a growing economy. New York: Wiley. Reynolds, L. (1946). The supply of labor to the firm. Quarterly Journal of Economics, 60, 390–411. Reynolds, L. (1953). Labor economics and labor relations (2nd ed.). Englewood Cliffs: PrenticeHall. Smith, A. ([1776] 1937). An inquiry into the nature and causes of the wealth of nations. New York: Modern Library. Stiglitz, J. (2001). The theory of ‘‘screening,’’ education, and the distribution of income. In: Economic theory and the welfare state (Vol. 3, pp. 354–371). Northampton: Edward Elgar.

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Hatton, O’Rourke, and Taylor’s NEW COMPARATIVE ECONOMIC HISTORY CLIOMETRICS GOES COMPARATIVE David Mitch A Review Essay on Timothy J.Hatton, Kevin H. O’Rourke, and Alan M.Taylor’s (Eds.) The New Comparative Economic History. Essays in Honor of Jeffrey G. Williamson. Cambridge, MA: MIT Press, 2007. xi þ 417 p. ISBN 9780262083614. Since the early days of Cliometrics (the application of economic theory and quantitative methods to the study of economic history) in the 1960s, Jeffrey Williamson has been one of its most active contributors and his output shows no immediate signs of letting up. Furthermore, he has continued throughout to employ the basic cliometric tools of applied economic theory and quantitative analysis. In contrast, Douglass North and Robert Fogel, recognized with the 1993 Nobel Prize in Economics for their contributions in founding the field of cliometrics, have gone subsequently in more interdisciplinary directions. North has increasingly emphasized the importance of institutions and cultural norms while also incorporating perspectives from cognitive science. Fogel has increasingly incorporated biological approaches in his work and indeed by his own admission has left the field of economic history for an interest in health economics and a field he terms A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 267–275 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A015

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bio-demography. Throughout his career, Williamson has had numerous students and collaborators of considerable distinction in their own right. And this festschrift in his honor incorporates the work of several generations of cliometricians and can thus be regarded as providing an overview of developments in cliometrics over the past 40 years as well as the current state of play in the field. The essays in this volume document two features of recent trends in cliometrics. First, there has been growing attention to regions of the world outside of Western Europe and North America along with increasing emphasis on the global dimensions of economic processes. Second, there has been increasing interest in the interaction between political and economic processes, reflecting among other factors, Douglass North’s intellectual influence. Fogel’s emphasis on the role of biological processes, though not as prominent, is also in evidence in the volume. For readers whose interests lie in the history of economic thought, it should be noted at the outset of this review that based on the evidence of this volume the perceived intellectual gains by cliometricians from studying the history of economic thought would appear to be slight. Robert Allen’s essay on India does begin by considering issues posed by Malthus and Marx but his is the exception in this regard and one finds throughout the volume few references to noted economists of the past. A number of the essays do take up issues related to trade and market integration and in this respect resonate with issues in doctrinal history. But it is the scope of the volume both in geographical coverage and in methodological approach that should prove of most extended interest to readers who are historians and methodologists of economics. The editors of this volume state in their introduction that Williamson’s scholarly efforts have borne fruit in recent decades with the emergence of what they label the New Comparative Economic History. They state that this approach is premised on ‘‘a belief that economic processes can best be understood by systematically comparing experiences across time, regions, and above all countries’’ (p. 1). They note that in contrast, cliometrics as practiced in its early decades focused on particular national economies and on issues posed by historians rather than economists while also featuring counterfactuals rather than comparison of actual economies. Williamson’s own work has been notably comparative in a number of dimensions. His work has considered both issues in the individual economic histories of a remarkably wide range of countries and those that invite cross-country comparison and the analysis of international samples. It has also reached as far back in time chronologically as the fifteenth century.

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Throughout his career, he has had a serious interest in economic development as well as in economic history and has served on the editorial board of Economic Development and Cultural Change. The essays in this volume illustrate various ways in which a comparative approach to economic history can be undertaken, ranging from econometric analysis utilizing international samples to paired case studies. Chronologically, the opening essays span several centuries, while the concluding chapter focuses on Europe after 1960. And geographical coverage ranges from essays focusing on North America and Europe to those taking up India and Latin America. The diversity of substantive topics reflects Williamson’s own intellectual breadth including trends in inequality and living standards, migration, the integration of various types of markets, goods, labor, and financial markets, and the interaction between politics and economics. Four of the 15 essays in this volume take up questions of trends in living standards and equality. Comparative perspectives are particularly helpful in providing benchmarks for this issue. It is also an attractive topic for economic historians because it poses questions of measurement and data assembly that typically engage the skills of economic historians but also provides an entre´e into big picture issues of trends and causal influences. One can see issues of long-term trends in living standards and equality as resonating with the larger questions of optimism or pessimism regarding of long-run trends in human living standards raised by great economists of the past such as Smith, Malthus, Ricardo, and Marx. And indeed, Robert Allen in his quite long-run overview of trends in wages in India compared with Europe begins by invoking Malthus and Marx as advocates of the classical view that differences between Europe and Asia have long-standing pre-industrial roots in culture and political institutions. By way of contrast, he notes the recent emergence of a revisionist view, arguing that Asian and European working class living standards were quite close to each other until the onset of the industrial revolution. In the core of the essay, Allen offers a concise yet masterful explanation of the long-run real wage series he has constructed comparing India and England along with a few other European centers spanning the period from 1595 to 1913. Allen finds evidence of divergence between Europe and India in his wage series early enough in the eighteenth century to challenge both classical and revisionist views. Leandro Prados de la Escosura takes up long-run trends in inequality and poverty in Latin America. He uses calibrated simulations to cope with data limitations; one of the contributions of the essay lies in posing the parameters likely to have influenced long-run trends. He tentatively suggests

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that increasing Latin American openness to trade in the mid-twentieth century led to a widening of inequality. George Boyer considers whether trends in living standards look different when allowance is made for non-income indicators of living standards, including life expectancy, measures of educational attainment, hours of leisure, and social spending. He finds that between 1870 and 1910, living standards as measured by each of these indicators converged across some 15 Atlantic economy countries, but that the non-income measures converged more rapidly than the income measures. For the period, 1910–1930, encompassing the First World War and the initial onset of depression, he finds that wages diverged across countries while non-income measures of living standards continued to converge. Cormac O Grada’s essay is constructed around two nicely chosen comparisons. The first is that of Holland and Britain between the sixteenth and the nineteenth centuries. The second is that of Ireland and Italy in the last half of the twentieth century. He has chosen these cases because while, for each pair, they start and end up with roughly equal levels of output and consumption per head, they take drastically different paths in between. The Netherlands in the early modern period and Italy in the 1950s both forged ahead of their partner countries, while subsequently, Britain and Ireland caught up with their respective partners. Looking at cumulative consumption per capita implied by the alternative economic paths, O Grada concludes that both the Netherlands and Italy reaped a quite sizable gain by their initially early growth spurts. Leah Platt Boustan, representing the younger generation of cliometricians, returns to the classic push versus pull debate about transatlantic migration. Some scholars have attributed the high rates of emigration of Russian Jews to religious persecution. Boustan finds in comparing Russian Jewish immigrant flows with that of other immigrant groups that while pogroms had some impact on Jewish migration she also finds that economic conditions and network effects mattered at least as much. William Collins’ essay is the only one in the volume that does not undertake international comparisons. Instead, it entails regional comparisons within the United States. He focuses in particular on the role of education and migration in bringing about wage convergence between the South and the rest of the United States over the past century and a half. He documents the convergence of educational attainment in southern states to the United States as a whole. In a quite insightful and lucid analysis, he finds that while most of the convergence can be attributed to rising attainment by those born in the South, the relatively high levels of human capital of those

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migrating into the South also had a substantial influence. He finds that rising educational attainment both of natives and immigrants was a major contributor to the south’s wage convergence with the rest of the country. As Giovanni Frederico and Gunnar Persson note in their contribution, much of Williamson’s work has focused on both causes and consequences of market integration; they also note that more attention has been paid by other scholars to the causes rather than the consequences. Their chapter along with that of Suleyman Ozmucur and Sevket Pamuk focus primarily on causes as well. Ozmucur and Pamuk report the results of compiling price data for a range of commodities for various regions in Europe over the period 1500–1800. After employing a variety of sophisticated econometric tests, they conclude that their data shows little evidence of tendencies toward market integration over the period they consider despite the changes in institutions and in transport technology and organization that might have been expected to have facilitated this. Frederico and Persson consider the market for wheat over the past two centuries. While emphasis is often placed on the role of transport and communication improvements during the last half of the nineteenth century in leading to world market integration, they argue that both the timing and the emphasis on transport improvements have been misplaced. By taking a longer view and focusing on one reasonably homogeneous commodity for which abundant evidence is available, they argue that market integration was a quite gradual process with important developments in both domestic and international markets reflecting not only transatlantic freight costs but also domestic transport costs and national trade policies. Alan Olmsted and Paul Rhode take up Williamson’s interest in globalization as well as Robert Fogel’s interest in biological and economic interactions by pointing to a neglected dimension of globalization in their contribution, that of biological adaptation of agricultural products involved in global trade. They focus on the substantial changes that occurred in the geographical distribution and corresponding changes in climactic conditions of where wheat production occurred throughout the world during the late nineteenth and early twentieth centuries. They then document the breeding activity that occurred to develop suitable strains of wheat as localities changed in their importance and the role of both government sponsorship and key individuals in this process. Five contributions in the volume take up issues related to institutions and politics, reflecting the pervasive influence of Douglass North as well as the reach of Williamson and his colleagues.

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Two of these essays deal with banking and international monetary arrangements. Richard Grossman considers trends in the ratio of capital to assets that banks maintained in a dozen industrialized countries between the 1830s and the 1930s. He finds that neither capital requirement variables nor bank safety net variables seemed to have noticeable influences on the secular decline or variation over time in capital asset ratios. Grossman tentatively suggests that his findings support a view that market factors rather than government policies have been the dominant influences on bank capital practices. His work suggests possible simultaneity between regulatory policies and bank practices. Holger Wolf and Tarik Yousef take up the dramatic interwar rise and then fall of countries on the gold standard. After the First World War, the number of countries by their count on the gold standard soared from five in 1919 to over 40 by 1928; yet by 1935, no country remained on the gold standard. Their econometric work indicates that a mix both of domestic economic and political conditions and of international network effects was involved and suggests the complexity of forces influencing exchange rate regime choice. Three essays take up the interaction between economics and politics. Kevin O’Rourke and Alan Taylor turn to the question ‘‘Does democracy promote free trade?’’ Informed by Heckscher-Ohlin implications that workers in labor abundant countries will benefit from free trade while in labor-scarce economies trade will make workers worse off, they find that democracy had opposite effects on tariff levels in rich European than in poor New World countries. They suggest more generally that the relationship between democracy and trade policy has varied considerably across countries according to domestic factor scarcities and potential for coalitions between various factor special interests. Timothy Hatton and Jeffrey Williamson note a basic paradox in laborscarce economies regarding trade and immigration policies. In the nineteenth century, labor-scarce economies such as the United States were characterized by open immigration and restrictive trade policies, while by the late twentieth century, this situation had reversed. They then turn to sorting through the complex mix of factors that can explain these trends. These include the declining role of tariffs as a source of government revenue, a growing pool of potential immigrants as threat to the economic well-being of domestic workers, and the growing revenue demands of welfare provision for immigrants. In the concluding chapter, Gayle Allard and Peter Lindert consider whether European product and labor market regulations have contributed

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to high European unemployment and low productivity growth. They employ a pooled time-series approach to find that while employment protection laws may have had adverse effects on European performance, other policies such as coordinated wage bargaining may actually have had quite positive effects. Gregory Clark’s essay on the British industrial revolution deviates from the other contributions in a number of respects. It is the only essay that directly takes up the standard question in economic history of the determinants of economic growth. Clark’s argument proceeds by comparison of two counterfactual situations rather than of actual countries. One counterfactual concerns what the English economy would have looked like in 1850 with 1730 technology, that is with no industrial revolution. The other counterfactual is what the English economy would have looked like in 1850 with population level of 1730. With the provocative irony that has come to characterize Clark’s work, he concludes, contrary to Malthus, that population growth had much more substantial and positive effects on economic change than did technological advance. The high quality of these essays certainly constitutes a scholarly tribute to Williamson and points to the active state of economic history as a research field. However, some of the usual characteristics of a festschrift volume have limited its ability to explore the potentials of comparative approaches to economic history. Neither research questions nor geographical areas have been chosen as comprehensively or as systematically as one might expect in a truly organized comparative framework. Indeed, it is notable that no coverage is given to Japan, although Williamson gave attention to this country in his early scholarly career (Kelley & Williamson, 1974), nor is consideration given to China or Africa. This suggests that the luck of the scholarly draw in who was recruited for the volume has dominated an interest in systematic coverage. The terseness of exposition in the chapters presumably reflects constraints of length imposed by the publisher. More fundamentally, this volume does not make it evident whether the new comparative economic history as a research program will make progress in addressing the fundamental questions of economic history. As noted at the outset of this review, in contrast with Nobel Laureates North and Fogel, practitioners of the new comparative economic history appear to largely confine themselves to the traditional economic and econometric tool kit of cliometrics. One does comparative history and indeed economic history more generally, in contrast with empirical work using international data sets because the comparisons and historical perspective allow one to address complex issues not easily tractable with conventional economic

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models. Confining the tool kit to those of conventional economics may preclude realizing the full power of historical analysis or as J.W. Druckker has put it in one recent survey that cliometrics risks becoming the revolution that has bit its own tail (Drukker, 2006). The New Comparative Economic History faces the risk of simply cumulating studies of further countries and time periods on a diverse range of topics rather than fostering a sustained inquiry into fundamental economic processes and how these interact with politics and society. As noted earlier, only one of the essays in this volume directly addresses the determinants of economic growth. This issue is generally considered fundamental in economic history. Nor do these essays provide much perspective on the likelihood of success or effectiveness of some recent projects posing big-picture comparative questions such as that of Kenneth Pomeranz (2000) and others on the great divergence between western countries and Asia; while Robert Allen does address the great divergence question and indeed highlights it in his title, his own findings are rather inconclusive leaving it open how much a comparative approach can resolve this issue. Other such comparative projects include that of Stanley Engerman and the late Kenneth Sokoloff (Sokoloff & Engerman, 2000) on the long-term consequences of differences in equality or inequality in landholding in the Americas; the work of Daron Acemoglu, Simon Johnson, and James Robinson (2002) on reversals of fortune and on institutional evolution; and that of Edward Glaeser, Andrei Shleifer, and others on the economic and institutional consequences of legal systems based on common law compared with those based on Roman law (Glaeser & Shleifer, 2002). Could the synthetic vision and the comparative perspectives of Smith, Malthus, Marx, and Schumpeter along with that of Kuznets conceivably provide fruitful insight for extending the current comparative work of economic historians? It may be too much to expect a single festschrift volume to provide definitive answers to such questions. However, prospective readers of this volume can look forward to an excellent sampling of the current state of cliometric research.

REFERENCES Acemoglu, D. S., Johnson, S., & Robinson, J. A. (2002). Reversal of fortune: Geography and institutions in the making of the modern world income distribution. Quarterly Journal of Economics, 117(4), 1231–1294. Drukker, J. W. (2006). The revolution that bit its own tail: How economic history changed our ideas on economic growth. Amsterdam: Aksant.

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Glaeser, E., & Shleifer, A. (2002). Legal origins. Quarterly Journal of Economics, 117(4), 1193–1229. Kelley, A. C., & Williamson, J. G. (1974). Lessons from Japanese development: An analytical economic history. Chicago: University of Chicago Press. Pomeranz, K. (2000). The great divergence: China, Europe, and the making of the modern world. Princeton: Princeton University Press. Sokoloff, K., & Engerman, S. L. (2000). Institutions, factor endowments, and paths of development in the New World. Journal of Economic Perspectives, 14(3), 217–232.

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Schonhardt-Bailey’s FROM THE CORN LAWS TO FREE TRADE ONE CASE TO RULE THEM ALL: THEORETICAL SYNTHESIS AND THE REPEAL OF THE CORN LAWS Robert Pahre A review essay on Cheryl Schonhardt-Bailey’s From the Corn Laws to Free Trade: Interests, Ideas, and Institutions in Historical Perspective. Cambridge: MIT Press, 2006. 440 p. ISBN 9780262195430. The repeal of the Corn Laws in 1846 provides one of the classic stories of political economy, found in several mythical tellings. In one, the rising middle class, strengthened by the political reforms of 1832, finally vanquished the aristocracy and ushered in modern Britain. In another, Repeal was the triumph of the classical political economists, the moment at which British politicians were convinced of the virtues of free trade. In yet another, Prime Minister Robert Peel bravely sacrificed his political career and his political party in the interests of . . . either free trade or Ireland. Or, perhaps, repeal of the Corn Laws simply reflected British hegemony, whose global interests would best be served by importing raw materials and exporting manufactures. Political scientists and economists have taken these historical narratives for various purposes of their own. In some cases, they use modern economics and sophisticated methods to produce explanations that do not A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 277–290 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A016

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differ all that much from one of the earlier stories. In others, they engage in polemics against one explanation in support of another. Still others attempt a synthesis of the various explanations. Some treat Repeal as a unique event, while other political economists see it as one case among many. In From the Corn Laws to free trade, Cheryl Schonhardt-Bailey gives us a synthetic theoretical account of a unique historical event. She draws from each of the narratives earlier except the tale of British hegemony. She weighs the relative explanatory power of each story and draws them together into an account in which each is given a role, contingent on the others. Impressive data sets on voting behavior, aristocratic asset portfolios, the content of parliamentary debates, and the coverage of provincial newspapers provide strong support for the account. Analytically, this synthesis makes use of the language of supply and demand in political markets, focusing on those social interests that demanded free trade and the politicians that supplied it. She structures these factors in terms of social interests, the institutions in which these interests interact, and the ideas that affect their interaction. In this, she joins a growing consensus among political economists that interests, ideas, and institutions provide central variables in any theory of political economy (compare, e.g., the title of Helen Milner’s (1997) Interests, institutions, and information; see also Blyth, 2003). Throughout, Schonhardt-Bailey treats Repeal as a historically unique event. Thus, while she draws from many theories, the particular synthesis of theories that she develops is unique to this case. This strategy constrains her to explain her case, even if it is anomalous, while allowing her substantial freedom in choosing which theories to include. This research strategy raises significant questions about the project from a social-scientific standpoint: is a case-specific synthesis of generalizable theories an improvement on case-specific historiographies? Without a strong a priori theory, the observer has too many degrees of freedom. As a result, this kind of ad hoc synthesis risks being little different from ex post linefitting in a statistical regression, in which the analyst adds and subtracts variables without reference to underlying theoretical principles. To be more than redescription, Schonhardt-Bailey’s content analyses and statistical regressions need a strong theory on which to rest. Unfortunately, a historically unique synthesis probably cannot provide a sufficiently strong theoretical foundation. Instead, such a synthesis constitutes a de novo theory that, by its very novelty, does not quite generalize and in fact loses some of the theoretical power of the generalizable theories from which it

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draws. As a result, it cannot appeal to the power of covering-law explanations to strengthen its causal plausibility. Moreover, a multidisciplinary synthesis such as From the Corn Laws to free trade faces the formidable challenge of addressing three different disciplinary audiences: economics, history, and political science. To make a credible claim of scientific advance, it needs to persuade all three audiences that it represents an advance over existing explanations of Repeal. Without unanimity, a multidisciplinary synthesis can be judged only in terms of a popularity contest. Down the path of such popularity contests lies a form of ontological relativism that Schonhardt-Bailey and all three of her audiences would surely reject. Whatever one’s position on these epistemological issues, SchonhardtBailey’s From the Corn Laws to free trade represents, on its own terms, a definitive political account of the Repeal. In many ways, it provides a strong exemplar for the field of historical political economy and a model for graduate students on how to conduct rigorous research into historical topics. These achievements make the book all the more important as an example of the limitations of the kind of empiricism underlying the project. If, as I maintain, this successful and important book raises serious methodological and epistemological questions, these call into question the majority of modern work in the field of political economy. These methodological and epistemological issues also highlight serious problems with any project based on a strategy of theoretical synthesis, even one as exemplary as this book.

OVERVIEW OF THE PROJECT Schonhardt-Bailey’s goal is to explain the repeal of the Corn Laws. This case is of obvious substantive importance. Schonhardt-Bailey also identifies a good historical puzzle in the details of trying to explain legislative voting behavior on Repeal. First, politicians seemed to act against their personal economic and political interests when voting for it. Second, they also acted in a puzzling way when justifying their own behavior. Specifically, Schonhardt-Bailey shows that the politicians voted as delegates of their constituents. Intriguingly, these same politicians justified their votes in terms of a trustee theory of representation in which they acted on behalf of the nation in accordance with their personal best judgment. These votes, though not the justifications, would seem to violate the mandates on which many had been elected, since most had personal mandates and were not sent to the Commons as delegates.

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In both Schonhardt-Bailey’s book and the wider literature, economic interests provide the basic force behind repeal. Manufacturers, particularly those in cotton textiles, had a clear interest in free trade. The aristocracy’s objections to Repeal weakened as many began to diversify their portfolios to include stock holdings in railroads and other companies associated with trade. With the pro-Repeal groups growing in strength as opposing interests declined, Repeal was nearly inevitable. The timing of Britain’s move to free trade depended on political factors, however. Schonhardt-Bailey, like many others, emphasizes the role of political organization in making latent economic interests into politically effective forces. On the familiar account, free trade groups such as manufacturers, the middle classes, and the labor aristocracy may have been gaining in economic strength, but their political power remained limited by older institutions. The Reform Act of 1832 began to unleash this potential political power and led to demands for further democratic reform. The strategies of the particular groups thus released also helped shape the outcome. In the 1830s and 1840s, with the growing national interests in free trade, the Anti-Corn Law League mobilized by ‘‘nationalizing the interest.’’ In other words, the League fought for its own interest by casting it in terms that would appeal to a wider national interest – in this case, appealing to the general public for Repeal as part of a general move to democratic political reform. The League also appealed to economic liberalism and to some principles of Christian morality. The combination of economic and political demands in Britain could have snowballed into revolution, as similar demands did in France in 1848. Explaining the British outcome rests most importantly on the political response of the anti-Repeal groups, especially the faction of the Conservative Party that ultimately voted with Robert Peel on the final division over Repeal. On this reading, Repeal of the Corn Laws is a decision to make economic concessions to hold off more damaging political reforms – at least until the reform acts of 1867, 1884, and 1885 and the Parliament Act of 1911. The decision of the aristocracy to make economic sacrifices for the sake of holding on to political power hinges, in part, on ideas. Schonhardt-Bailey emphasizes two classes of beliefs. The first set consists of political economists’ ideas about free trade and its effect on wages, rents, and other economic variables. The second set encompasses political beliefs about whether members of parliament should act as delegates of their constituencies or trustees of the nation. In the end, Peelites voted their constituents’ economic interests but justified this in terms of the political interests of the nation.

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As this brief summary should make clear, Schonhardt-Bailey has a nuanced overall account of Repeal. Like many others, she claims to bridge two approaches common in political science, rational-choice, and historicalinstitutionalism. As this book and others show, these approaches go quite well together (see Greif, 2006; Bates, Greif, Levi, Rosenthal, & Weingast, 1998; Shepsle, 1989); when synthesized, they also share much in common with sophisticated versions of Marxist historical materialism (see North, 1984). Also like both Marxism and Northism, the ideological superstructure plays an important role in politics, sitting atop both material interests and the political institutions in which the struggles among classes and groups work themselves out. Thanks to these elements, shared with various other scholars, this book will likely appeal to a diverse interdisciplinary community, though each community will see something different in it.

CONTRIBUTIONS TO THE HISTORIOGRAPHY Recognizing these commonalities with existing approaches to historical political economy leads us to the obvious question: ‘‘What has this book told us that we did not already know?’’ (George Jones, a colleague at the LSE, cited in Schonhardt-Bailey, 2006, p. 283). Schonhardt-Bailey’s answer to this question, developed throughout the conclusion, is disappointing. Essentially, she reviews each of the several extant explanations of Repeal and then argues that each one leaves out some variable included in the others. Thus, theories of economic interest address the question of who demanded free trade but leave out the supply-side question of which politicians supplied Repeal and why. Historians rightly address the role of ideas but, according to Schonhardt-Bailey, often neglect the interest-based motives behind them. In other words, Schonhardt-Bailey can reasonably claim to make a contribution to each of a series of literatures. However, those contributions generally come from other literatures. As a result, there are really three claimed contributions, one for each literature, each filling a particular gap. She fails to make a convincing argument that her account contributes to the union of the sets of all literatures. Because three disciplines have dominant theories of the same events that differ from one another, we cannot say with confidence that adding missing variables to each discipline actually moves any of them closer to being ‘‘more true.’’ Indeed, figuring out what claims are ‘‘more true’’ in a multidisciplinary setting raises thorny questions in the philosophy of science that I will explore more fully in a later

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section. In some cases, a particular claim to scientific advance is contingent on the sequence of discovery in a given field, and therefore may not represent an advance in other disciplines with a different sequence of discovery. Focusing narrowly on the historiography, Schonhardt-Bailey’s more interesting contribution is not a theoretical synthesis, but instead a heuristic and a critique. Historians tend to develop particular themes, based of course on their readings of particular sources in the archives. Though historians are trained to be critical of the sources and the motives that politicians express, they find it difficult to analyze critically the motives that their sources do not express. As it turns out, Schonhardt-Bailey’s empirical strategy is well-suited to address both aspects of the historiography – to think critically about the motives that historians identify and to evaluate the unsourced motives that historians tend to overlook. Taking the expressed motives first, consider how Schonhardt-Bailey evaluates an important work such as Norman Gash’s (1965) Reaction and reconstruction in English politics, 1832–1852. Gash’s story of Repeal emphasizes the role of key leaders such as Peel in the Commons and Lord John Russell and the Duke of Wellington in the Lords. For Gash, these leaders’ ability to persuade key groups ultimately led the Lords to accept Repeal. Schonhardt-Bailey’s approach to such claims is to test them with data. In this case, she chooses a content analysis of parliamentary debate using a software program called ALCESTE. This program examines texts to see which terms are associated with one another. For example, when people say ‘‘Wellington’’ in a parliamentary debate, what else are they talking about? The surprising answer is that the Lords tended not to refer to Russell or Wellington much at all. From this, Schonhardt-Bailey infers that Russell’s and Wellington’s arguments were not influential. This inference might well be wrong, for individual Lords might have had decisive private conversations with Russell or Wellington without citing these leaders’ arguments in public. Still, given the importance that Wellington gave to support of Her Majesty’s Government, it is striking that ALCESTE does not commonly find associations such as ‘‘Like, Wellington, I am compelled to support the Queen and her government.’’ Schonhardt-Bailey also finds that Peel is not ignored in the way that Russell and Wellington were. The Lords apparently took his arguments quite seriously, linking Repeal to preservation of the territorial constitution. The Lords also looked closely at Peel’s claims about the economic consequences of repeal for agricultural labor, wages, prices, rents, trade,

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and Empire. Schonhardt-Bailey’s finding that the debate in the Lords largely ignored Russell’s and Wellington’s arguments in favor of assessing Peel’s claims is, to my knowledge, novel. This claim therefore represents a clear contribution to the historiography. The structure of this contribution also suggests an interesting heuristic strategy for historians by using software to find patterns that they otherwise might miss. Historians approach texts in a context-rich way, reading them in sequence while giving great respect to the back-and-forth of a debate. Schonhardt-Bailey’s content analysis shakes up the puzzle pieces in the box and looks for patterns that ignore the sequential aspects of context. Indeed, this redescription of the data treats sequence as a form of noise and tries to ignore it. When, as here, it obtains a result that seems both novel and plausible, such content analysis proves its worth. An historian might use such a pattern of associations to take a fresh look at the evidence. On this reading, content-analysis software such as ALCESTE is not useful as evidence but becomes very useful as heuristic, a guide to looking at familiar evidence in a novel way. A final observation on this contribution will become important as we consider epistemological questions later on. This particular historiographical contribution depends on the sequence of discovery. Schonhardt-Bailey’s reinterpretation of the roles of Peel, Russell, and Wellington gains in importance against the historiographical background, notably Norman Gash’s interpretation of how Repeal carried in the Lords. Because Nash emphasized all three leaders, it is a contribution to find that the arguments of only one seem important. Yet, if Nash had never existed, SchonhardtBailey’s finding would be less significant, a case-specific finding that a given prime minister was rhetorically important. One might even infer that the alleged importance of Peel’s arguments was a statistical artifact and just as unimportant as the other two. The fact that the sequence of discovery affects the nature of the scientific contribution reminds us that scientific literatures are social constructs that have histories. This observation need not lead us to reject the scientific project, nor should it cause us to become ontological relativists. However, our epistemological evaluation of a synthetic narrative such as From the Corn Laws to free trade needs to take the socially contingent nature of scientific truth claims into account. This need becomes especially important in the case of a multidisciplinary project that draws from the sequences of discovery in three distinct fields. Her findings about Russell and Wellington, for example, probably would not be recognized as a contribution in the political science or economic literature on Repeal, since they approach this

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discourse question de novo, in much the way as my counterfactual historiography discussed in the previous paragraph.

THEORETICAL CHOICES IN AN EMPIRICAL PROJECT The contingent nature of scientific advance implies that we need to consider carefully Schonhardt-Bailey’s theoretical choices. From the Corn Laws to free trade employs a largely empirical research strategy that draws from multiple theoretical sources. She avoids the trap that snares some scholars in the field of historical political economy, who propose a group of loosely connected hypotheses about tariffs, voting behavior, or some other topic of interest. These other studies derive these hypotheses in a seatof-the-pants manner that is uninformed by either historiography or nonquantified analytical traditions. By using both the theoretical literature and the historiography, Schonhardt-Bailey comes up with much more useful hypotheses, grounded in well-defined theoretical literatures, that are well worth testing. Before discussing her theoretical synthesis, I will note one sin of omission and one sin of commission. In her study of the domestic politics of Repeal, Schonhardt-Bailey neglects all international dimensions of Britain’s move to free trade. This includes most notably the argument, found both among Marxists and Realists, concerning the effects of British hegemony in the international system (see Pahre, 1999). This omission means that she does not address possible lines by which international variables might affect British domestic politics, including most intriguingly the anticipated effects on the United States (see James & Lake, 1989). Such interactions between the domestic politics of two states are ubiquitous in the field of political economy (Pahre, 2005) and should have been rejected explicitly if that is Schonhardt-Bailey’s position. Better still would have been to bring international factors into the domestic story, as I suggest later. Schonhardt-Bailey’s sins of commission concern her use of Mancur Olson’s (1971) theory of collective action despite subsequent theoretical work undercutting its foundations. Following Olson, Schonhardt-Bailey begins with the presumption that increasing concentration of an interest group will lead to more effective lobbying, as larger firms in a group contribute more. As it turns out, the claim that larger members contribute more is true, but the conclusion is false: smaller members decrease their

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contributions by exactly the same amount that larger members increase theirs (see Warr, 1983 for proof, which is robust against many changes in its assumptions). Fortunately, Schonhardt-Bailey moves beyond this economic concentration model to look at the geographic concentration of the textile industry in Lancashire and the geographic deconcentration of export interests across England. She maintains that geographic concentration of the textile industry in Lancashire concentrated resources for the free trade campaign. This concentration allegedly motivated this core of industrialists to bear a disproportionate burden in supplying the public good. Unfortunately, this part of Schonhardt-Bailey’s claim cannot be sustained theoretically in light of the post-Olson literature. Her second geographic claim is more plausible. She shows empirically that increasing the number of exporting industries, and the resulting geographic deconcentration of export-oriented interests, enhanced the political leverage of the League by broadening its support base. Because geography rests on ‘‘imperfections’’ in the political market – district boundaries – this claim is not contradicted by the post-Olson literature on collective action. Schonhardt-Bailey’s empirical findings – that this geographic deconcentration is associated with growing influence of the free trade interest – would make the underlying theoretic logic worth exploring in greater detail. Unfortunately she does not do this, so it is hard to know what the theoretical import of this finding should be. Is the Anti-Corn Law League unusual in resting on an increasingly dispersed geographic base? Or is this pattern typical of successful political movements? Without a theoretical analysis that distinguishes geographic concentration from economic concentration, it is impossible to know. Her core method, using a theoretical synthesis to explain a unique event, cannot help us identify which parts of her story are generalizable. Putting these theoretical issues together, my own judgment is that Schonhardt-Bailey has shown us that geographic deconcentration makes a political coalition easier, at least in a first-past-the-post system (compare, e.g., McGillivray, 2004; Pincus, 1975). Her claim that industrial concentration aided creation of the League is, in contrast, not consistent with theory and thus ought to be counted as anomalous. Having an anomaly of this sort is not a problem for a theoretical account, though it is a problem for a theoretical synthesis of the sort that Schonhardt-Bailey offers us. To explore this challenge further, the following section examines the epistemological status of a theoretical synthesis built to explain a single ‘‘case.’’

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GENERALIZATIONS AND SYNTHESIS From the Corn Laws to free trade does not engage in classical hypothesis testing. A classical test does not care whether any single observation is inconsistent with a given hypothesis. Instead, a classical test would look solely at whether the set of observations allows us to reject the null hypothesis (and thus, indirectly, to support the hypothesis being tested). Schonhardt-Bailey does not have the luxury of ignoring certain observations. To take one salient example, the behavior of the Anti-Corn Law League needs to be consistent with her ultimate theory of interest group behavior. If this particular pressure group were to exhibit anomalous behavior, then her overall project were to fail, no matter how many other pressure groups the theory might explain. Though she cannot ignore certain facts, she can ignore theories at will. Because the project is driven by the case of Repeal, Schonhardt-Bailey has no flexibility in choosing observations but can choose from an indefinitely large set of possible hypotheses and theories. As a result, From the Corn Laws to free trade offers more of a research heuristic than a theory of political economy. Without presenting a general theory, the book cannot claim to provide an explanation, at least in the classical sense of a covering law explanation of an event. There is no general law ‘‘covering’’ these events, that is, there is no generalization for which the Repeal of the Corn Laws is but an observation. Schonhardt-Bailey’s theoretical synthesis does not try to generate claims that one could apply to other instances of trade policy such as Germany’s 1879 marriage of iron and rye. By implication, each event would require its own synthesis. Though Schonhardt-Bailey does not describe it that way, this approach to explaining history represents a kind of methodological project. Interests, institutions, and ideas provide a guide to research. As a heuristic, the book succeeds very well. Having identified the relevant interests, institutions, and ideas, she investigates exactly out how, when, and why they came to play a part in Repeal. The heuristic points naturally toward a synthetic account. As generalizable theory, however, this synthesis is more problematic, in part because of its novelty. Like many others, Schonhardt-Bailey’s approach runs up against the Duhem-Quine thesis that theories are underdetermined by the evidence. Specifically, any particular observation or set of data would be consistent with an indefinitely large set of different theories. Evidence, taken by itself, cannot help us distinguish among these rival theories since any evidence is consistent with all of them.

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Constructivists see the Duhem-Quine thesis as leading us necessarily to relativism – these theoretical constructs must be ‘‘equally true’’ and are chosen only because of non-scientific criteria such as social status or political power (see Knorr-Cetina & Mulkay, 1983). Such ontological relativism is undesirable, since it undermines the entire scientific project by denying the possibility of ‘‘true’’ statements. From a more pragmatic perspective, clearly some theories are true enough to be useful. Pasteur’s germ theory of disease proved critically important for both pasteurization and inoculation, two major public health benefits that would not have followed from most of the other imaginable theories that were equally consistent with the evidence from Pasteur’s laboratory work. How might one evaluate contending theories pragmatically? One might, as Schonhardt-Bailey does, produce a theoretical synthesis consistent with the evidence. Unfortunately, the Duheim-Quine thesis counsels considerable caution against this strategy. After all, an indefinitely large set of theoretical syntheses would be consistent with the evidence that she provides. In the face of such theoretical multiplicity, we cannot really have any confidence that this particular synthesis is better than any other theoretical synthesis. Indeed, the absence of other theoretical syntheses of comparable scope and empirical content means that we cannot even compare Schonhardt-Bailey’s theory to a rival theory. No matter how nuanced the analytical synthesis, no matter how careful the empiricism – and Schonhardt-Bailey’s synthesis is both of these – it remains merely a single synthesis in a set of many other equally plausible alternatives. What, then, should we do? Setting aside the constructivists and relativists, practicing social scientists with a concern for epistemology have tended to rely heavily on Imre Lakatos’ (1970) methodology of scientific research programs. For our purposes, the key elements of this methodology are Lakatos’ insistence on testing research programs against one another, evaluating each research program against its own history, comparing the histories of rival programs against one another, and looking at the ability of a research program to predict ‘‘new facts,’’ whatever that is. I will have more to say about this comparative and historical elements of these standards soon enough. Before tackling that, however, I wish to note that Lakatos’ program does not contain within itself an explanation of its own success. Why had philosophers not proposed such an epistemology before Lakatos? How can we explain its success – or, for that matter, its success among social scientists, invisibility among physical scientists, and controversial status among philosophers themselves?

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Provisionally, I suggest taking an evolutionary approach to epistemology to answer these questions. Developing this approach fully would take us even more astray, but a quick sketch should make clear the kinds of standards to which we should hold a book such as From the Corn Laws to free trade. Evolutionary epistemologies provide a form of naturalist philosophy of science that seek a plausible explanation of how scientific beliefs might more closely approximate the reality that they seek to understand (see Giere, 1985). Such epistemologies can in principle account not only for scientific progress but also the evolution of epistemologies themselves. According to evolutionary epistemology, processes of natural selection and evolutionary adaptation should help ‘‘better’’ scientific claims win out against weaker scientific claims in a marketplace of competition (for review, see Campbell & Paller, 1989). Multiple challenges present themselves in thinking about SchonhardtBailey’s project in this way. Each of the theories from which she draws has succeeded in a different habitat – some are found in historiography, some in economics, and others in political science. Each theory is presumably well adapted to that environment. For example, endogenous tariff theory (ETT) provides a successful research agenda in economics, well-suited to compete with other data-intensive models of trade policy (for review, see Pahre, 2007, chapter 2). These attributes make ETT only moderately successful in political science, where ideational accounts that neglect both formal theory and large-n evidence can also compete. These same ideational accounts, when well supported by primary source documents, thrive in historiography, habitats that would be deadly to almost all examples of ETT. Schonhardt-Bailey offers us a hybrid species, the product of a kind of intellectual genetic engineering, with DNA from theories in each of these three disciplines. Her ideational claim, that politicians voted as delegates while claiming to be trustees, probably cannot thrive in the disciplinary environment found in economics. There, by assumption, politicians vote their constituents’ interests, and any justifications they offer are mere obfuscations. The delegate–trustee puzzle is no puzzle here, so a solution to this puzzle does not contribute to economics. Analogous problems of ‘‘fit’’ can be found between Schonhardt-Bailey’s theoretical synthesis and each of her target disciplines. Given the specific adaptations of any theory for its disciplinary environment, it is far from obvious that a synthetic theory can succeed across all three habitats. Unfortunately, we can only be sure that this hybrid improves on the original genetic stock, that is, we can only say that it advances scientific knowledge, if it succeeds in all three fields. If it were to

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survive in two disciplines but not the third, then we can only claim that it marks an advance by reference to a kind of scientific popularity contest, a sort of appeal that philosophers of science find very unattractive (see, e.g., critiques of Kuhn, 1969). For a multidisciplinary synthesis, any theoretical errors and omissions become decisive. If the theoretical synthesis draws on a theory of concentrated interests that economists rejected two decades ago, and if it excludes international variables and the domestic representation of those variables that other scholars have identified as important, then we cannot say that Schonhardt-Bailey’s synthesis represents an unambiguous advance on the fields from which it draws. It certainly cannot claim to be a synthesis of those variables that it excludes. Contrast the situation we would see if Schonhardt-Bailey had chosen to work within a given research program. In this counterfactual world, we could certainly see a theory’s advance on its predecessors within that program, without needing to appeal to popularity contests. Moreover, the battle between any two paradigms would, at least in principle, be amenable to resolution: her advance could be compared to the successes or failures of a rival program. For these reasons, for all its admitted strengths, From the Corn Laws to free trade also illustrates some of the epistemological pitfalls of a multidisciplinary theoretical synthesis. On the contrary, the book’s methods should travel well across disciplines. As discussed earlier, the ALCESTE computer program has demonstrated advantages as a heuristic for historians. Schonhardt-Bailey’s analysis of political rhetoric also opens up a good line of research that economic historians could explore more fully – this rhetoric, no less than material interests or political interests, helps explain the endogenous choice of economic policy. From the Corn Laws to free trade provides a methodological heuristic along with a rich and nuanced narrative that any scholar interested in nineteenth-century Britain, regardless of discipline, will need to consider.

REFERENCES Bates, R. H., Greif, A., Levi, M., Rosenthal, J.-L., & Weingast, B. (1998). Analytic narratives. Princeton: Princeton University Press. Blyth, M. (2003). Structures do not come with an instruction sheet: Interests, ideas, and progress in political science. Perspectives on Politics, 1(4), 695–706. Campbell, D. T., & Paller, B. T. (1989). Extending evolutionary epistemology to ‘‘justifying’’ scientific beliefs. (A sociological rapprochement with a fallibilist perceptual

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foundationalism?) In: K. Hahlweg & C. A. Hooker (Eds), Issues in evolutionary epistemology (pp. 231–257). Albany: State University of New York Press. Gash, N. (1965). Reaction and reconstruction in English politics, 1832–1852. Oxford: Clarendon Press. Giere, R. N. (1985). The philosophy of science naturalized. Philosophy of Science, 52(3), 331–356. Greif, A. (2006). Institutions and the path to the modern economy: Lessons from medieval trade. Cambridge: Cambridge University Press. James, S. C., & Lake, D. A. (1989). The second face of hegemony: Britain’s repeal of the Corn Laws and the American Walker Tariff of 1846. International Organization, 43(1), 1–30. Knorr-Cetina, K., & Mulkay, M. (1983). Introduction: Emerging principles in social studies of science. In: Science observed: Perspectives on the social study of science (pp. 1–18). London: Sage Publications. Kuhn, T. S. (1969). The structure of scientific revolutions (rev. ed.). Chicago: University of Chicago Press. Lakatos, I. (1970). The methodology of scientific research programmes. In: I. Lakatos & A. Musgrave (Eds), Criticism and the growth of knowledge (pp. 91–196). Cambridge: Cambridge University Press. McGillivray, F. (2004). Privileging industry: The comparative politics of trade and industrial policy. Princeton: Princeton University Press. Milner, H. V. (1997). Interests, institutions, and information: Domestic politics and international relations. Princeton: Princeton University Press. North, D. C. (1984). Structure and change in economic history. New York: Norton. Olson, M., Jr. (1971). The logic of collective action (rev ed.). Cambridge: Harvard University Press. Pahre, R. (1999). Leading questions: How hegemony affects the international political economy. Ann Arbor: University of Michigan Press. Pahre, R. (2005). Hegemony and the international economy. Comparative Sociology, 4(3–4), 451–477. Pahre, R. (2007). Politics and trade cooperation in the nineteenth century: The ‘‘Agreeable Customs’’ of 1815–1914. Cambridge: Cambridge University Press. Pincus, J. J. (1975). Pressure groups and the pattern of tariffs. Journal of Political Economy, 83(4), 757–778. Schonhardt-Bailey, C. (2006). From the Corn Laws to free trade: Interests, ideas, and institutions in historical perspective. Cambridge: MIT Press. Shepsle, K. A. (1989). Studying institutions: Some lessons from the rational choice approach. Journal of Theoretical Politics, 1, 131–147. Warr, P. G. (1983). The private provision of a public good is independent of the distribution of income. Economics letters, 13(2–3), 207–211.

Gordon’s POSTMODERNISM AND THE ENLIGHTENMENT META-NARRATIVES, ENLIGHTENMENT AND PARADOX Willie Henderson A review essay on Daniel Gordon’s (Ed.) Postmodernism and the Enlightenment: New Perspectives in Eighteenth Century French Intellectual History. London: Routledge, 2001. 227 pp. ISBN 041592796X. It was with a certain amount of surprise mixed in roughly equal proportions with curiosity that I recently accepted the task of writing a review of a work, published in 2001, on the encounter between the Enlightenment (meaning the French Enlightenment) and postmodernism. Reading in the Scottish Enlightenment suggests a need to know something about the wider European context though the exclusivity of France as the Enlightenment or as the home of Enlightenment is no longer a sustainable proposition. The Scots, in their energetic Universities, were as much involved with applying Newton and developing Locke or extending Shaftesbury or countermanding Mandeville as they were with the continental philosophies. The proposition put to me, to persuade me to the task, was the work was likely to contain ideas that intellectual historians of economics might profit from. A reflection on the significance of two potentially conflicting sets of ideas ought to have significance for the study of 18th-century economics developed within the cultural context of wider Enlightenment thought.

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It is of course hard to imagine the Enlightenment without some Ancien Regime (in France it was absolutism as a response to feudal fragmentation, in Scotland, poverty and the remnants of feudalism, but in England much had been swept away by the Glorious Revolution and its antecedents). In conceptualizing the need for this volume, the editor and the contributors see the Enlightenment itself as an Ancien Regime (the founders of modernism) against which the postmodernists struggle. The role of the collection is to confront and evaluate the tensions between Enlightenment thought and its postmodernist critics whilst maintaining the significance of the critical ideas and dilemmas that Enlightenment thinkers faced. Put this way, there may well be something worthwhile available for readers of this journal, at least to the degree that the essays in this volume challenge both conventional and unconventional assessments of ‘‘the Enlightenment’’ and throw over the label in favor of detailed and varied historical analysis. There is little in the volume that, at first sight, bears a direct relationship with the concerns of historians of economic thought. If the reader is looking for direct and new insights into the Physiocratic School, then this is not the work for you. There is however much that is indirectly relevant simply because economics can be construed at the modernist discourse par excellence. There is reason to be interested. Gordon, the editor, provides an under-developed introduction to the volume as a whole but makes up for this by an end-of-volume reflection – ‘‘On the supposed obsolescence of the French Enlightenment’’ – on his construction of the key ideas. There he sets out to define postmodernism, to determine its construction of the Enlightenment and from whence to undertake a redefinition of ‘‘the dialectic of the enlightenment’’ and so renewing the critical discussion of the legacy. Gordon starts with the idea that critical reflection on meta-narratives is a subject or rather the subject for postmodern discourse, the basis for its critical self-understanding. This critical uniqueness he disputes straight away using Voltaire’s satire, Candide, a work that undermines by its immediacy the notion of stable and realizable meta-narratives (‘‘all is for the best in the best of all possible worlds’’). Gordon shows Lyotard’s skepticism as something that Enlightenment thinkers also held. Think of Voltaire again, but also, say, of Smith’s notion of the unfulfilled promises of wealth developed with trenchant irony in the Moral sentiments. Gordon challenges the ‘‘historical perspective’’ that keeps company with some postmodern thought. Habermas, according to Gordon, shares some of the same problems about ‘‘historical time.’’ Marx’s history moves through a series of economic transformations in a dialectic that terminates with the abundance of communist society. According to Habermas, the same process

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in Marx that produced capitalism produces communism. Time, in the Marxist perspective, works a magic that transforms bad into good. Marxist mechanisms, constructed as a product of the Enlightenment dialectic, need to give way to a new critical apparatus that does not accept that history (the passage of time) will solve the problems that it creates. How we think about time is of some economic significance. Think, perhaps, of Keynes’ notion – he preferred short-run analysis to long-run analysis – that in the long run we are all dead and Joan Robinson’s repost, ‘‘but not all at the same time.’’ Gordon sees postmodern theorists as selectively examining Enlightenment thought and ignoring the tensions and conflicts within the available narratives. He gives the example of Montesquieu’s concerns about ‘‘generosity,’’ and its lack on commercial society, suggestive of Montesquieu’s discontent with the prospect of modern, commercial society. We know that Hume, Rousseau, and Smith were likewise concerned about the compatibility of ‘‘virtue’’ with commercial society. Their answers differed in detail as well as in emphasis. Gordon’s criticism of postmodern thinking is that it is based on historical over-generalization. In this, he may well have a point though it may be as well to keep in mind that meta-narratives cannot also be about historical detail. They operate at a different level and serve an ideological purpose or purposes. Postmodernism seeks to disrupt comfortable assumptions such as, for the economist in this case, the assumptions that in the long run – a favorite location for neo-classical economic analysis – all will be well. Problems about distribution and power in society will not be so easily resolved. Think here also of the somewhat consoling ‘‘unintended consequences’’ arguments of Smith. Based on the productivity of land alienation and inequality, justified by Locke and lurking in Smith, Smith’s greedy landlord is unintentionally doing good. It does seem paradoxical that such a landlord, overstepping Locke’s strictures on the extensive ownership of property, but acting in conformity with Locke’s argument from ‘‘productivity,’’ in cheapening the price of grain is helping the poor. There must be better ways. If deconstruction along postmodern lines helps all of us to see this, then the text (i.e., any text) becomes so much less restricting. Of course for Hume and for Smith, both ‘‘law’’ and ‘‘customs and manners’’ prohibit certain activities and make other activities, the most significant of which is the accumulation of property, possible. Ghachem, in his essay on ‘‘Montesquieu in the Caribbean,’’ refers to de Tocqueville’s insight that colonies display the originating state in magnified form. Postmodernism, according to Ghachem, directs attention away from law and institutions in favor of thinking, quoting Foucault, of ‘‘sex without the law and power without the king.’’ Law in this sense is ‘‘prohibition.’’

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The restoration of ‘‘agency’’ to the underdog is one trend, but Ghachem, if I understand him correctly, attempts to hold to Foucault’s view that ‘‘resistance is never in a position of exteriority in relation to power.’’ The state is still relevant, as Foucault himself admitted. Foucault’s other significant view was that the Enlightenment was engaged in development of a universal idea of human agency and motivation to be imposed on the rest of the world. Ghachen refers to the notion of an abstract ‘‘fiction’’ of ‘‘universalism’’ and ‘‘rationality,’’ contrasting with the local and concrete and indeed diverse. Ghachen is concerned to contrast these notions with the ways in which Montesquieu dealt with both formal and customary law and to place Montesquieu within a context of what he did know and recognize. Before developing Ghachen’s argument, recall that Hume, interested in the science of human nature, argues for the primacy of the ‘‘passions’’ with ‘‘reason’’ in a subordinate role. In a sense, Hume is close to Rousseau. Hume also argues for universal principles and local circumstances and constraints. Even from this Scottish perspective, it is clear that postmodern insights can be over-simplified. Ghachen develops his analysis based on similarities between arguments for colonial legal autonomy, made in Saint-Domingue, with similar arguments in France in favor of provincial diversity. Montesquieu was against slavery and distrusted the jurists of the colonies who had a vested interest in given commercial practices and relations. Ghachen shows however that Montesquieu found a readership in the colonies that he did not quite achieve in France itself. Montesquieu’s ‘‘moeurs’’ suggests a relationship to customary law (local, established, and slow to change) rather than simply to ‘‘mores.’’ This in itself challenges, for me at any rate, how I read Smith. If the idea were to change customs, then people had to be engaged in changing them themselves. Jurists in Saint-Domingue could use ideas from Montesquieu whilst, at the same time, wriggle out of the question of slavery since Montesquieu has pointed to tropical environmental conditions (local conditions) as suggesting the need for coercion with respect to physical labor. He also, however, pointed out the dangers. Ghachen sees in this a form of equivocation, concerning ‘‘black bondage,’’ an equivocation that survived, strangely enough, the Revolution itself, as it did in the United States, and that surfaces, if only briefly, in J.-B. Say. Selective reading of Montesquieu by a colonial enlightenment did not lead to the kind of liberalism and ‘‘critical humanism’’ normally associated with Montesquieu but to the institutionalization of a ‘‘creole culture’’ based on slavery. As Ghachem’s interesting chapter on Montesquieu shows, postmodern insight helps disrupt ‘‘warm and fuzzy’’ interpretations of colonial

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connections and administrative legal problems. Montesquieu is both a prophet of individual autonomy and an instrument ‘‘of legitimation for a creole culture that was willing to maintain its racist privileges.’’ At the same time, he challenges postmodernist thinking by pointing to intellectual reactions at the periphery that are far from positive. Ghachem’s chapter puts an interesting new spin on Montesquieu and on metropolitan and local reactions to the discussion of slavery. The chapter ought to be of interest in its own right but also to have at least some interest for those historians of economic thought working on Hume and on Smith’s notion of ‘‘law,’’ ‘‘customs and manners’’ as well as for the treatment of slavery in enlightenment texts more widely. The notion of Montesquieu as a modernist who disliked some of the forces of modernity is developed in the contribution by Elena Russo on ‘‘Virtuous economies.’’ The title alone suggests a chapter of interest to historians of economic thought since the compatibility or otherwise of ‘‘virtue’’ and commercial society is a theme fairly central to Mandeville, Hutcheson, Hume, Smith, Rousseau, J.-B. Say, and others, including the 19th-century socio-economic critic, John Ruskin, who owes more to the 18th century than he cares to admit. In common with other essays in this volume, the themes explored are complex and I have chosen, as I had done elsewhere this review, to concentrate on those aspects that may be of interest to readers of this journal. Russo’s chapter looks at Montesquieu but also at more recent writers on the question of virtue in commercial society including Mauss, Bataille, and Caillois (also a Montesquieu scholar). What unites these theorists, according to Russo, is the ‘‘the construction of a myth of a lost state of wholeness and social organicity.’’ I will focus on what Russo has to say about Montesquieu. Such reductionism is an inevitable consequence of lack of space and, indeed, of my own intellectual limitations and interests. What is the ‘‘lost state’’ in Russo’s construction of Montesquieu? There is perhaps no simple answer to this. The lost world is partly a world of classical civic virtue and ‘‘moral economy’’ and partly of aristocratic notions of ‘‘virtue’’ (of classical and Christian origins) that are opposed by the absolutist and centralist monarchy and the power of commerce and money. The central concept that is threatened by both and in need of defending is that of ‘‘virtue.’’ From this, we can see, for example, that J.-B. Say’s search for an economics based on republican, rather than monarchical, manners has deep roots in French thinking. Virtue for Montesquieu encompasses, according to Russo, notions such as ‘‘generosity,’’ ‘‘frugality,’’ and ‘‘communal sentiment’’ as well as the moderating forces such as ‘‘patience slowness, perseverance, tranquility, and discipline.’’ There would seem to be

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parallels here with aspects of ‘‘virtue’’ as portrayed by Smith in the Moral sentiments. The model of commercial society is that of contemporary Holland where Montesquieu observes that everything is up for sale and where despite its awareness of the other (as the other party in a commercial bargain, lacking Aristotle’s sense of sharing essential to the good life) commerce produces social isolation and coldness. Russo suggests that Montesquieu sees Dutch society as ‘‘ugly and unlovable.’’ John Ruskin in the 19th century and D. H. Lawrence in the 20th century felt that capitalism produces ugly people and ugly landscapes. Aesthetic judgments of commercial society also endure. Russo makes a similar point when she argues that such social thinking re-emerges in the philosophies of ‘‘Constant, Hegel, Nietzsche, Durkheim, and Mauss.’’ ‘‘Virtue’’ for Montesquieu is not about the rewards of ‘‘honor and glory’’ but about the ‘‘conquest of sovereign autonomy.’’ It finds its reward in itself. Think, for example, of Smith’s distinction, in the Moral sentiments, between the desire for ‘‘praise’’ and the desire to be ‘‘praiseworthy.’’ The analysis, like that of Ghachem, challenges simpler ways of evaluating Montesquieu’s ideas. Her conclusion is that the ‘‘discourse of virtue,’’ the outcome of the Enlightenment’s critique of commercial society, ‘‘gives rise to an archaic utopianism that is the negation of the Enlightenment.’’ Russo, in common with the writers in the rest of the volume, is concerned with the French Enlightenment. Such a generalization would not be wholly appropriate for either Hume or Smith for example. The three essays reviewed here give an idea of the content of the volume as a whole. I have chosen them because they are closest to my own interests and hence are part of what I can legitimately review. Other contributions that are likely to appeal to readers of this journal, particularly those interested in Smith, will be Rosenberg’s paper on ‘‘The Encyclopedia of Denis Diderot’’ and Goldhammer’s ‘‘Language, the Enlightenment, and the postmodern.’’ Some may also be tempted by Kent Wright’s contribution on ‘‘the postmodernism of Carl Becker.’’ This is a thoughtful volume. It did not always manage to avoid using either ‘‘the Enlightenment’’ or ‘‘postmodernism’’ as a label, nor overgeneralizations about both. It would have benefited from being less parochially concerned with the Enlightenment in France. This would have made it more interesting for my purposes. It does stimulate thought and challenges categories and perceptions. It achieves its aims and questions both established notions of the Enlightenment and aspects of the postmodernist critique. It is a richly worked, though sometimes slightly defensive, evaluation of the encounter between (the French) Enlightenment and postmodern thinking. The contributions examined in this review justify its inclusion here.

Van Overtveldt’s THE CHICAGO SCHOOL HOW SHOULD THE RISE OF THE CHICAGO SCHOOL BE EXPLAINED? Robert Van Horn A review essay on Johan Van Overtveldt’s The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business. Chicago: Agate, 2007. xxþ432 p. ISBN 9781932841145. Johan Van Overtveldt’s Chicago School is the first book-length history of the Chicago School. His work has received attention in the popular media: both The Economist and The Chicago Tribune have reviewed his book. Van Overtveldt (2007, p. 1) has ‘‘long ties to the University of Chicago’’ and deems it as ‘‘the Mecca and Rome for economic science.’’ Tellingly, the title and subtitle of Van Overtveldt’s book imply two promises (P1 and P2) and contain three assumptions (A1, A2, and A3). P1: Van Overtveldt will provide a historical explanation to describe how the Chicago School caused a revolution and use sound historical methodology in his explanation. P2: In his historical explanation, Van Overtveldt will be factually accurate. I will explore P1 in section one and P2 in the penultimate section; I suggest that Van Overtveldt may have broken both promises. Van Overtveldt’s assumptions are also problematic. A1: It was the University of Chicago that assembled the thinkers; external agents did not play a significant role. A2: The thinkers, not the thinkers coupled with external agents, caused this revolution. In section two below, I will undermine both A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 297–308 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A018

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of Van Overtveldt’s assumptions by briefly examining the role of the Volker Fund and other external agents. A3: An entity called the Chicago School existed and may still exist. In section three, I will explore what Van Overtveldt means by the ‘‘Chicago School’’ and suggest what he overlooks in his description. By looking at A1, A2, and A3, I intend to explore the question: How should the rise of the Chicago School be explained? Underlying Van Overtveldt’s history of the Chicago School is a questionable premise: The rise of the Chicago School transpired solely because of powerful ideas from peerless thinkers. As a whole, this essay will challenge this premise.

P1: SOUND HISTORICAL ANALYSIS What historical background Van Overtveldt offers, he primarily draws from interviews he personally conducted and memoirs of various Chicago economists, especially Milton Friedman. In the introduction, Van Overtveldt (2007, p. 15) sheds light on his methodology; he states that he based his historical analysis on three layers of sources: ‘‘The first layer includes the books, essays, monographs, and articles published in academic journals by Chicago and non-Chicago economists . . . The second layer consists of material that is available in the archives of the University of Chicago . . . and in the files of the Communications Department of the University of Chicago. The third layer [draws from] . . . the more than 100 interviews that were conducted from 1994 to 2003.’’ Regarding the third, Van Overtveldt has provided a valuable historical contribution by compiling such an extensive oral history. Of the three layers Van Overtveldt mentions, the second is relatively thin. In the endnotes, Van Overtveldt only cites, excluding newspaper citations, seven archival sources from either the Special Collections at the University of Chicago or the files in Chicago’s Communications Department. Tellingly, in the endnotes, the ratio of interview citations to archival citations is roughly 120:7D17:1.1 While adducing interviews per se is not problematic, information in an interview (or a memoir) needs to be checked against archival sources. Historian of economic thought, Bruce Caldwell (2007, pp. 348–349), cautions ‘‘[One should] take reminiscences with a grain of salt, and whenever possible to consult multiple archival sources.’’2 If a reflection cannot be checked against archival sources, it should be used with guarded skepticism. Van Overtveldt, however, unquestioningly relies on interviews; in fact,

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a retrospective point made by Friedman sometimes trumps assertions, explicit and implicit, critical of Chicago economics and its history. Van Overtveldt (2007, p. 27) plays the Friedman trump card, for example, in the following context: [Crauford] Goodwin noted that by the end of the 1940s, prominent members of the business community backed economists who preached the advantages of free competition and capitalism and ‘were all associated with the University of Chicago.’ Friedman strongly denies the relevance of this Cold War argument and the implied patronage of economics – especially at the University of Chicago – by business interests in favor of capitalism and the free-market economy.

After unquestioningly citing Friedman’s recollection, Van Overtveldt no longer considers the relevance of the critical historical point raised by Goodwin.

A1 AND A2: NO ASSISTANCE FROM EXTERNAL AGENTS The rise of Chicago Economics must take into account the role of external agents, especially the patrons. One of Van Overtveldt’s presuppositions (A1) is that it was the University of Chicago that played the only significant role assembling Chicago Economists. Certainly, the University of Chicago played an important role, and he provides a number of illustrations. For example, Van Overtveldt (2007, p. 211) describes the role that Allen Wallis, when Dean of the Business School, played in bringing George Stigler back to Chicago. However, some of the most prominent economists associated with the University of Chicago, such as Aaron Director and Friedrich Hayek, came to the University of Chicago as a result of the significant role of an external agent, the Volker Fund. Regarding Hayek, Robert Hutchins, when President of the University of Chicago, and Harold Luhnow, when head of the Volker Fund, met in Kansas City and worked together to make arrangements for Hayek to come to Chicago (Van Horn & Mirowski, 2009a, forthcoming). Regarding Director, Hayek, when representing the Volker Fund’s interests in 1946, negotiated with the Chicago Law School and the administration of the University of Chicago to bring Director to Chicago to write an American road to serfdom – a tract the Volker Fund originally wanted Hayek to write, but agreed to allow Hayek to subcontract the task out (Van Horn & Mirowski, 2009a, forthcoming). When Hayek and Director came to Chicago, the Volker Fund paid their salaries.

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Furthermore, external agents, such as the Volker Fund, play an important role in the rise of the Chicago School that extends beyond aiding in assembling the thinkers. By presupposing that only the thinkers and their ideas play a role in revolutionizing economics and business, Van Overtveldt necessarily implies that external agents did not play a notable role in allowing the Chicago School to strategically position itself to bring about this revolution. However, external agents allowed Chicago to achieve what Friedman (1982, p. ix) saw as a central objective: ‘‘to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.’’3 The Volker Fund bankrolled the University of Chicago–based Free Market Study (FMS) project (1946–1952) and the Antitrust Project (1953–1957), both of which Director headed. The Volker Fund provided the equivalent of $1,000,000 today. These projects allowed the Chicago School to reinvent its positions concerning monopoly, corporations, and antitrust law and allowed it to produce a prodigious number of publications.4 Indeed, this research provided Robert Bork with a number of major premises that he used in The antitrust paradox, which had a significant influence on Supreme Court decisions (Bork, 1978; Kovacic, 1990). Around the time the Antitrust Project ended, the Volker Fund’s further patronage ensured that the ideas developed during the course of the FMS project and the Antitrust Project did not languish; the Volker Fund financed the Law and Economics Program, which helped to further refine and develop the claims of these two projects.5 Eventually, numerous nonprofit agencies, such as the Olin Foundation, and for-profit corporations, such as General Electric, started to donate staggering sums to the postwar law and economics movement, which had its roots in the Chicago School. For example, employing a portion of the $68 billion the Olin Foundation donated to law and economics programs across the country; Stanford University reported that ‘‘its faculty have produced 296 working papers, most of which have been published in premier journals of law and economics’’ (Dethlefson, 2004).6 In the provoking words of the historian David Chappell, ‘‘[Money] provided conservative strategists the luxury to explore every angle of attack, breed a variety of attackers, and develop conservative institutions’’ (quoted in Phillips-Fein, 2009a, forthcoming). Though the evidence in this paragraph mainly applies to one facet of the Chicago School, Law and Economics, research (see Van Horn, 2007) indicates that other facets also immensely benefited from patronage.7

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A3: THE CHICAGO SCHOOL Even though the Chicago School has multiple facets, Van Overtveldt maintains that all facets are linked to the ‘‘Chicago Tradition.’’ Throughout his book, Van Overtveldt maintains a prudent distinction between what he terms ‘‘The Chicago Tradition’’ and ‘‘The Chicago School.’’ He describes the characteristics of the former as follows: ‘‘a strong work ethic, an unshakeable belief in economics as a true science, academic excellence as the sole criterion for advancement, an intense debating culture focused on shaping the critical mind, and the University of Chicago’s two-dimensional isolation’’ (Van Overtveldt, 2007, p. 11).8 Though Van Overtveldt provides some useful observations regarding the first four characteristics, his fifth characteristic (‘‘two-dimensional isolation’’), at least after World War II, is the most questionable. By ‘‘two-dimensional isolation,’’ Van Overtveldt (2007, pp. 42–43) means that the city, Chicago, was ‘‘something of an outcast’’ among US cities and the University was ‘‘an enclave,’’ which fosters not only community but also intense, internal intellectual debate. This, however, overlooks a number of contrary facts, because of space constraints, just two examples follow. First, Van Overtveldt does not take into consideration the Chicago School’s important connection to outside intellectual communities such as the Mont Pelerin Society (refer Van Horn & Mirowski, 2009a, forthcoming). Second, he does not consider the fact that members of the Chicago School often brought vital experience to the University of Chicago that they gained outside the University. Philip Mirowski (2002, pp. 201–207) emphasizes the importance of the Statistical Research Group (SRG) – a WWII agency that ‘‘[worked] on the statistical problems of ordnance and warfare at Columbia’’ – in shaping the postwar scholarship of Friedman and others. Regarding the ‘‘Chicago School,’’ Van Overtveldt (2007, p. 11) states, ‘‘the basic characteristic of the Chicago School is the belief that free markets and the price mechanism are the most effective and desirable ways for a society to organize production and economic life in general.’’ Thus, price theory, according to Van Overtveldt, is the primary lens through which a Chicago economist understands the world. To give the reader a glimpse through this lens and to help him or her understand the Chicago School, Van Overtveldt chooses to look at the price theory triumvirate of Friedman, Jacob Viner, and Gary Becker. Although Van Overtveldt provides a useful overview of the scholarship of these three gurus of price theory, by assuming the Chicago School can be adequately understood solely through three of its

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protagonists, he overlooks an essential driving force for the development of the postwar Chicago School. Philip Mirowski and I, through archival investigation, discovered that Milton Friedman and Aaron Director, among others, sought to remake the classical liberal doctrine. This unwavering commitment had far-reaching implications; it caused the reconstitution of fundamental classical liberal positions and thus shaped the postwar policy conclusions of the Chicago School.9 Because Van Overtveldt misses this key element, he misunderstands and overlooks part of the history of the Chicago School. For example, when Van Overtveldt (2007, pp. 198–201) attempts to reconcile Henry Simons’ antimonopoly and anti-corporation position with the relatively pro-monopoly and pro-corporation position of the postwar Chicago School, he brands Simons as left wing by the standards of today and labels him reactionary by the standards of the 1930s. Because Van Overtveldt overlooks a central, formative characteristic of the postwar Chicago School, that is, the effort to reformulate classical liberalism, he overlooks the fact that both Director and Friedman, among others, essentially espoused Simons’ conclusions regarding monopoly and corporations up through the late 1940s (Van Horn, 2009a, forthcoming). For instance, significantly, after Simons’ suicide, Director played a principal role in compiling Simons’ articles for publication. In the Prefatory Note of Economic policy for a free society, Director stated, ‘‘[Simons] was a first-rate economic theorist . . . He had no illusions about the great obstacles to the re-creation of a free-market society . . . We have to believe that the additional work which Henry Simons would have accomplished would will ultimately be done by others’’ (quoted in Simons, 1948, p. vii). By not taking into consideration examples such as these, Van Overtveldt fails to appreciate the foundational shift in the Chicago School’s attitude toward monopoly and corporations that transpired as a result of reconstituting liberalism. A thorough treatment of the rise of the Chicago School and a comprehensive understanding of it must take the reinvention of liberalism into account.

P2: A FACTUALLY ACCURATE HISTORY At the outset of his book, Van Overtveldt (2007, p. 11) visits the pantheon of Chicago economists; he claims the pantheon contains six founding fathers – among them, Aaron Director. In an attempt to gage Van Overtveldt’s historical accuracy, I examined all his assertions concerning Aaron Director.

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While Van Overtveldt makes some astute observations, such as awarding Director founding-father honors, he makes a number of historical errors concerning Director, which may be indicative of Van Overtveldt’s historical inaccuracy concerning other Chicago economists.10 Van Overtveldt (2007, p. 69): ‘‘From 1937 to 1938, Director visited the London School of Economics (LSE). Knight, who was by that time suspicious of anyone who was close to Douglas, asked LSE’s Lionel Robbins to give his opinion on Director . . . Director went from London to Washington . . . ’’ Response: According to Paul Douglas, ‘‘Beginning in 1932, Director increasingly fell under [Knight’s] influence’’ (quoted in Van Horn, 2009b, forthcoming). Moreover, Director would not have had a close relationship with Douglas at this time because by 1934 Douglas strongly and effectively opposed renewing Director’s contract at the University of Chicago (VPML, Douglas to Knight, 5 January 1935, box: 79, folder: ‘‘Chicago Dept. of Econ., Douglas & Knight’’). In 1934–1935 academic year, Knight steadfastly defended Director (and Simons) and acerbically criticized Douglas for his position (VPML, Knight to Douglas, 5 January 1935, box: 79, folder: ‘‘Chicago Dept. of Econ., Douglas & Knight’’). By 1937, Knight knew that Director was not close to Douglas. Van Overtveldt (2007, p. 70): ‘‘Director went from London to Washington, where he served in different government positions until he was recalled to Chicago in 1946 to take over Henry Simons’ position as the economist in the Chicago Law School after Simons’ death.’’ Response: Neither the Law School nor the economics department specifically asked Director to come to Chicago because the Law School needed an economist to replace Simons. Rather, Hayek and the Volker Fund played a principal role arranging Director’s return to the University of Chicago before Simons’ death (Van Horn & Mirowski, 2009a, forthcoming). Van Overtveldt (2007, p. 73): ‘‘Director helped change the thinking about monopoly – first at the University of Chicago and later in broad circles. The course in antitrust law that Director taught with Edward Levi at the Chicago law school was the place where this change took shape.’’

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Response: More accurately, it ‘‘took shape’’ during the Free Market Study, a Volker-funded project that lasted from 1946 to 1952 (Van Horn, 2009a). Van Overtveldt (2007, p. 293): ‘‘By the end of World War II, Simons was desperate about the state of the world, and in 1945 he wrote a memorandum that urged Chicago to create a center ‘to which economic liberals everywhere may look for intellectual leadership or support . . . ’ Simons sent a copy of his memorandum to Friedrich Hayek, who was at the LSE at the time . . . At this point, Harold Luhnow of the Volker Fund stepped into the picture.’’ Response: Luhnow actually stepped into the picture first. After seeing one of Hayek’s lectures on The road to serfdom in Detroit, Luhnow asked Hayek to write American road to serfdom. Hayek promptly spoke to Simons about a group at Chicago undertaking this task. Excited about the prospect, Simons presently wrote the memorandum. Without the Volker Fund’s offer to Hayek, it is highly unlikely Simons would have drafted his memorandum (Van Horn & Mirowski, 2009a, forthcoming). Van Overtveldt (2007, p. 293): ‘‘Hayek and Simons worked out the details of what came to be known as the ‘Hayek Research Project.’ ’’ Response: Though Hayek and Simons primarily worked out the details, Director and Friedman also played a role. Though it was informally called the ‘‘Hayek Research Project,’’ the project was commonly referred to as the Free Market Study project (Van Horn & Mirowski, 2009a, forthcoming). Van Overtveldt (2007, p. 293): ‘‘[The FMS] came to be located in the Chicago’s law school, something Dean Wilber Katz only agreed to on the condition that Director would also do some teaching at the law school.’’ Response: In June 1946, Katz, then Dean of the Law School, told Director that it was improbable that the Law School should need his help in the teaching program (HPHI, Katz to Director, 28 June 1946, box 58, William Volker Fund 1939–1948).11

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Van Overtveldt (2007, p. 338): ‘‘In 1934, Douglas and Director (who was Douglas’s research assistant at the time) published The problem of unemployment.’’ Response: It was published in 1931 (Douglas & Director, 1931). By 1934, Douglas no longer worked with Director. Van Overtveldt (2007, p. 159): ‘‘Simons, a prote´ge´ of Knight, was the object of a bitter fight between Knight and Douglas. Douglas did not think much of Simons as an intellectual or as a teacher, and he was opposed to the renewal of Simons’ appointment in 1932.’’ Response: Douglas actually opposed the appointment of both Simons and Director. The bitter fight that ensued between Knight and Douglas concerned Simons and Director (VPML, box: 79, folder: ‘‘Chicago Dept. of Econ., Douglas & Knight’’). The fight took place in the 1934–1935 academic year; see criticism above. Van Overtveldt (2007, pp. 342–343): ‘‘From March to May 1945, when The road to serfdom was a best seller in the United States, Hayek was on a lecture tour in the country. During this tour, he used the University of Chicago as his headquarters, as he was close to Henry Simons and Aaron Director.’’ Response: Aaron Director lived in D.C. in 1945. He did not move to Chicago until the fall of 1946, which was after Simons’ suicide (Van Horn, 2007). Van Overtveldt (2007, p. 159): ‘‘The cross-fertilization between law and economics really got under way under Aaron Director, who succeeded Simons as the economist at the law school in 1947.’’ Response: It was 1946. Clearly, when it comes to Director, Van Overtveldt makes a number of factual missteps, misleading or erroneous statements and omitting vital information. Though it would be a fallacy to say that Van Overtveldt makes

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the same degree of error when covering other individuals, this exercise does suggest, however, that Van Overtveldt may have broken his promise to the reader.

CONCLUDING REMARKS Even though Van Overtveldt provides a valuable contribution by compiling a prodigious collection of oral interviews, he does not consult archival sources to confirm statements made in interviews or memoirs. Thus, he sometimes makes factual errors and misleading assertions. Moreover, though he examines the thinkers and their thoughts, an undeniably important task in attempting to explain the rise of the Chicago School, he ignores the important role of patrons and the effort to reconstitute liberalism. A thorough history of the rise of the Chicago School needs to take these elements among other elements into account. For example, it also needs to thoroughly cover the struggle that ensued between the Chicago School and its foes, such as Keynesianism, examining both sides of the debate. After all, the postwar Chicago was reactionary: ‘‘Reactionary, in that it [fed] off, and [drew] energy and form from, its ideological foes and forebears. Reactionary, in that it [gained] traction in moments of crisis and dislocation . . . ’’ (Peck, 2008, p. 4). Keynes asserted, ‘‘The ideas of economists and political philosophers . . . are more powerful than is commonly understood. [The] world is ruled by little else’’ (quoted in Heilbroner, 1999, p. 14). If indeed the ideas of the Chicago School are powerful, if they have truly and substantially influenced the course of history, a thorough treatment of the rise of the Chicago School must take into account factors beyond ideas themselves. Certainly, ideas have power and can have immense power, but how ideas gain power often depends on more than the intrinsic nature of the ideas.

NOTES 1. The 120 excludes the numerous citations of memoirs. 2. In keeping with rudimentary psychology, Salvador Dali once said, ‘‘The difference between false memories and true ones is the same as for jewels: it is always the false ones that look the most real, the most brilliant.’’ 3. In the following paragraph, the reader will note that I am not squarely addressing the issue of whether the Chicago School ‘‘revolutionized economics or business’’ or, put differently, whether the Chicago School ‘‘succeeded.’’ Please refer

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to Ross Emmett’s (2008) review of Van Overtveldt for a detailed consideration of how to think about the success of the Chicago School. 4. For an extensive list of scholarship part of or linked to the Antitrust Project, see Priest (2005, pp. 353–354). 5. Consistent with the archival record, Coase (1993, pp. 247–248) wrote ‘‘Director created the Law and Economics program . . . There were law and economic fellowships with the whole program financed by the Volker Fund.’’ Kenneth Dam, Edmund Kitch, and Richard Posner were part of the program. 6. For the total amount the Olin Foundation donated to law and economics programs, see Miller (2005, p. 62). 7. See Phillips-Fein (2009b, forthcoming) for more on the role of the ‘‘invisible hands’’ of business in the rise of conservative intellectual movements. 8. In the epilogue, Van Overtveldt lists six, not five (as in the Introduction), characteristics of the Chicago Tradition. He appears to have made an error at either the beginning or the end of his book. I will presume in my analysis that Van Overtveldt intends that the Chicago Tradition have five characteristics. 9. See Van Horn and Mirowski (2009a, forthcoming), Van Horn and Mirowski (2009b, forthcoming), and Van Horn (2009a, forthcoming). 10. See Leeson (2008) for a list of other historical problems in Van Overtveldt’s text. 11. According to Coase (1998, p. 603), when it was apparently decided that the Law School could benefit from Director’s teaching, ‘‘[Katz] asked the Volker Fund to allow Director to do some teaching.’’

ACKNOWLEDGMENT The author thanks Ross Emmett, Philip Mirowski, Monica Van Horn, and Dave DeLong for helpful comments.

REFERENCES Bork, R. (1978). The antitrust paradox. New York: The Free Press. Caldwell, B. (2007). Life writings: On the job training with F. A. Hayek. In: E. R. Weintraub & E. L. Forget (Eds), Economists’ lives: Biography and autobiography in the history of economics. History of Political Economy (Vol. 39, Suppl., pp. 342–354). Coase, R. (1993). Law and economics at Chicago. Journal of Law and Economics, 36, 239–254. Coase, R. (1998). Aaron Director. In: P. Newman (Ed.), The new Palgrave dictionary of economics and the law (pp. 601–604). New York: Macmillan. Dethlefson, A. (2004). Stanford Law School receives $3 million from John M. Olin Foundation. Stanford News Service. Available at www.stanford.edu/dept/news/pr/2004/pr-sls-0112. html, December 14. Accessed on March 1, 2007. Douglas, P. H., & Director, A. (1931). The problem of unemployment. New York: The Macmillan Company.

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Emmett, R. (2008). How should we think of the success of the Chicago school of economics?: Review of The Chicago school, by J. Van Overtveldt. Research in the History of Economic Thought and Methodology (Vol. 26-A, pp. 47–57). Bingley, UK: Emerald/JAI. Friedman, M. (1982). Capitalism and freedom. Chicago, IL: University of Chicago Press. Heilbroner, R. (1999). The worldly philosophers. New York: Simon and Schuster. Kovacic, W. E. (1990). The antitrust paradox revisited. Wayne Law Review, 36, 1413–1471. Leeson, R. (2008). Early and often or too late and not enough?: Review of The Chicago school, by J. Van Overtveldt. Research in the History of Economic Thought and Methodology (Vol. 26-A, pp. 59–61). Bingley, UK: Emerald/JAI. Miller, J. J. (2005). A gift of freedom: How the John M. Olin Foundation changed America. New York: Encounter Books. Mirowski, P. (2002). Machine dreams. New York: Cambridge University Press. Peck, J. (2008). Remaking laissez faire. Progress in Human Geography, 32(1), 3–43. Phillips-Fein, K. (2009a, forthcoming). Down from the mountain top. In: P. Mirowski & D. Plehwe (Eds), The road from Mont Pelerin: The making of the neoliberal thought collective. Cambridge, MA: Harvard University Press. Phillips-Fein, K. (2009b, forthcoming). Invisible hands: The making of the conservative movement from the New Deal to Reagan. New York: W. W. Norton Press. Priest, G. L. (2005). The rise of law and economics. In: F. Parisi & C. K. Rowley (Eds), The origins of law and economics (pp. 350–382). Northampton, MA: Locke Institute. Simons, H. C. (1948). Economic policy for a free society. Chicago: University of Chicago Press. Van Horn, R. (2007). The origins and rise of Chicago law and economics. Ph.D. dissertation, Department of Economics, Notre Dame University, South Bend, IN. Van Horn, R. (2009a, forthcoming). Reinventing monopoly and the role of corporations. In: P. Mirowski & D. Plehwe (Eds), The road from Mont Pelerin: The making of the neoliberal thought collective. Cambridge, MA: Harvard University Press. Van Horn, R. (2009b, forthcoming). Aaron Director. In: R. Emmett (Ed.), The Elgar companion to the Chicago school. Northampton, MA: Edward Elgar. Van Horn, R., & Mirowski, P. (2009a, forthcoming). The rise of the Chicago school of economics and the birth of neoliberalism. In: P. Mirowski & D. Plehwe (Eds), The road from Mont Pelerin: The making of the neoliberal thought collective. Cambridge, MA: Harvard University Press. Van Horn, R., & Mirowski, P. (2009b, forthcoming). Chicago and neoliberalism. In: R. Emmett (Ed.), The Elgar companion to the Chicago school. Northampton, MA: Edward Elgar. Van Overtveldt, J. (2007). The Chicago school: How the University of Chicago assembled the thinkers who revolutionized economics and business. Chicago: Agate.

ARCHIVAL SOURCES HPHI Friedrich Hayek Papers, Hoover Institution, Stanford University VPML Jacob Viner Papers, Mudd Library, Princeton University

Caldwell’s Edition of Hayek’s ROAD TO SERFDOM THE SERVANTS OF OUR OWN MACHINERY? F. A. HAYEK’S THE ROAD TO SERFDOM REVISITED Andrew Farrant A review essay of F. A. Hayek’s The Road to Serfdom: Texts and Documents – The Definitive Edition, Bruce J. Caldwell (Ed.). Chicago: University of Chicago Press, 2007. xi þ268 pp. ISBN 0-226-32055-3.

[Hayek argued that] totalitarian systems are an extreme form of, not a different type from, the democratic ‘‘welfare’’ states to whom the book [The road to serfdom] was addressed. Hayek was telling gentlemen drinkers, and especially some Englishmen – who were becoming heavy drinkers, not to become alcoholics. (Stigler, [1964] 1981, p. 543)

The Collected Works edition of Hayek’s classic 1944 text includes The road to serfdom itself together with a truly fascinating appendix of material relating to the history and publication of Hayek’s manuscript. Among other things, the appendix to the volume includes Hayek’s previously unpublished 1933 manuscript – ‘‘Nazi socialism’’ – and the previously unpublished reports on Hayek’s manuscript that were written by Frank H. Knight and Jacob Marschak for the University of Chicago Press. The volume also includes an introductory essay by Bruce Caldwell (General Editor of Hayek’s Collected Works), Hayek’s prefaces to the 1944 and 1976 editions, A Research Annual Research in the History of Economic Thought and Methodology, Volume 27-A, 309–327 Copyright r 2009 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0743-4154/doi:10.1108/S0743-4154(2009)00027A019

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and Hayek’s relatively lengthy foreword to the 1956 American paperback edition. The 1956 foreword and the 1976 preface are especially interesting and provide much insight into what Hayek considered the ‘‘true argument of the book’’ (Hayek, [1956] 2007, p. 44). Interestingly, Caldwell notes that Hayek’s 1956 foreword incorporated material that had initially been written for a (never published) postscript to The road to serfdom, written in 1948 (2007, p. 22). Keynes once wryly quipped that Hayek’s Prices and production provided ‘‘an extraordinary example of how . . . a remorseless logician can end up in Bedlam’’ (Keynes, 1931, p. 394). One might well say much the same of The road to serfdom. Consequently, the present essay has two purposes. Firstly, I argue that the line of reasoning Hayek pursued in The road to serfdom is predicated on some rather contentious (if not downright implausible) assumptions: This is particularly the case in chapters 5 (Planning and Democracy) and 10 (Why the Worst Get on Top) of The road to serfdom. Secondly, I assess Bruce Caldwell’s reading of Hayek’s thesis in his introduction to the new volume. In particular, I argue that Caldwell has too narrow a reading of the applicability of Hayek’s thesis. Apparently considering Hayek’s argument to only apply to full-blown command planning, Caldwell takes pains to deny that the history of the postwar Western social democracies undermines Hayek’s thesis. Caldwell’s reading of Hayek is puzzling, however, since Hayek often made clear that he considered the argument in The road to serfdom to have applicability to both the welfare state and the full-blown command planning alike (see, e.g., Hayek, [1956] 2007, p. 44, [1976] 2007, pp. 54–55).

THE ROAD TO SERFDOM: ORIGINS AND PURPOSE? As Bruce Caldwell (2007, p. 1) notes, Hayek’s classic text had a ‘‘decidedly inauspicious’’ beginning. In spring 1933, Hayek wrote a memorandum (Nazi socialism) to Sir William Beveridge – then Director of the London School of Economics – arguing that National Socialism represented the ‘‘culmination’’ (Hayek, [1933] 2007, p. 245) of earlier pro-socialist trends. As Hayek puts it, National Socialism was [The] ultimate and necessary outcome of a process of development in which the other nations have been for a long time steadily following Germany . . . The gradual extension of the field of state activity, the increase in restrictions on international movements of both men and goods, sympathy with central economic planning and the widespread playing with dictatorship ideas, all tend in this direction. (Hayek, [1933] 2007, p. 248, italics added)

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In the early chapters of The road to serfdom, Hayek argued that the Western democracies (supposedly infatuated with socialist ideas) were in danger of heading the way of Hitler’s Germany: ‘‘It is necessary now to state the unpalatable truth that it is Germany whose fate we are in some danger of repeating . . . It is not to the Germany of Hitler, the Germany of the present war, that England and the United States bear yet any resemblance. But students of the currents of ideas can hardly fail to see that there is more than a superficial similarity between the trend of thought in Germany during and after the last war and the present current of ideas in the democracies’’ (p. 58). Indeed, as in ‘‘Nazi socialism,’’ Hayek argued that ‘‘naziism was not a reaction against . . . socialist trends . . . but a necessary outcome of those tendencies’’ (p. 59, italics added). According to Hayek, the parallels between intellectual trends in Britain and Germany suggested ‘‘if not the necessity, at least the probability, that developments . . . [would] take a similar course’’ (Hayek, [1944] 2007, p. 58). ‘‘These developments,’’ however, Hayek contended, were not ‘‘inevitable . . . [and could] be prevented if people realize in time where their efforts may lead’’ (p. 59). Accordingly, and as Hayek noted in 1956, he wrote The road to serfdom as a warning to his contemporaries: The ‘‘book gradually took shape as a warning to the socialist intelligentsia of England’’ ([1956] 2007, p. 40).1 As Hayek aptly put it in 1944, ‘‘Only if we recognize the danger in time can we hope to avert it’’ (2007, p. 58). Readers of this annual are presumably well familiar with Hayek’s argument that economic planning and totalitarianism necessarily go hand in hand. What may prove rather less familiar, however, is the line of reasoning by which Hayek arrives at this conclusion.

THE LOGIC OF PLANNING? In his introductory essay, Bruce Caldwell argues that those who ‘‘have not read Hayek . . . should be prepared for some surprises’’ (2007, p. 2). These remarks readily apply to the decidedly surprising sequence of steps by which Hayek arrives at his conclusion that planning and totalitarianism are happy bedfellows. Noting much confusion over ‘‘the concept of socialism itself’’ – ‘‘[a] confusion largely responsible for the way in which we are drifting into things which nobody wants’’ – Hayek ([1944] 2007, p. 83) distinguishes between two meanings of socialism. Firstly, socialism is ‘‘often used to describe’’ the ‘‘ultimate aims of socialism’’ – ‘‘the ideals of social justice, greater equality,

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and security’’ (p. 83). Socialism, however, also means the ‘‘particular method by which most socialists hope to attain these [ultimate] ends’’ (p. 83, italics added). According to Hayek, socialism – understood in this second sense – meant the wholesale ‘‘abolition of private enterprise, of private ownership of the means of production, and the creation of a system of ‘planned economy’ in which the entrepreneur . . . is replaced by a central planning body’’ (p. 83). Importantly, and notwithstanding his ceding that economic planning owed ‘‘its appeal . . . [to the] vagueness of its meaning,’’ Hayek (pp. 83–85 passim, italics added) argues that many socialists consider ‘‘the characteristic methods of modern socialism . . . as essential as the [ultimate] ends themselves.’’ Accordingly, they (along with other would-be planners) necessarily favor the ‘‘central direction of all economic activity according to a single plan, laying down how the resources of society should be ‘consciously directed’ to serve particular ends in a definite way’’ (p. 85). Chapter 5 of The road to serfdom provides what is arguably the crucial step in Hayek’s line of reasoning. Arguing that successful planning required pervasive agreement, Hayek suggests that it ‘‘is not difficult to see what must be the consequences when democracy embarks upon a course of planning which in its execution requires more agreement than in fact exists’’ (p. 103, italics added). Though supposing pervasive agreement on the necessity for economic planning – ‘‘[a]greement will in fact exist only on the mechanism [planning] to be used’’ – Hayek argues that ‘‘agreement on the desirability of planning is not supported by agreement on the ends the plan is to serve’’ (p. 104). Indeed, the transparency of Hayek’s logic is aptly illustrated by his supposition that while ‘‘[i]t may be the unanimously expressed will of the people that its parliament should prepare a comprehensive economic plan . . . neither the people nor its representatives need therefore be able to agree on any particular plan . . . Parliaments come to be regarded as ‘ineffective talking shops’’’ (p. 104, italics added). This, however, consequently leads to the pervasive ‘‘conviction . . . that if efficient planning is to be done, the direction must be ‘taken out of politics’ and placed in the hands of experts’’ (p. 104). Though ceding that ‘‘[e]very member of the legislative assembly might prefer some particular plan . . . to no plan . . . no one plan may appear preferable to a majority to no plan at all’’ (pp. 105–106), Hayek –remarkably ignoring the majority favoring the ‘‘no planning’’ status quo over any particular plan – sidesteps the apparent legislative impasse by supposing that widespread agreement that planning ‘‘is necessary, together with the inability of democratic assemblies to produce a plan, will evoke stronger and

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stronger demands that the government or some single individual should be given powers to act on their own responsibility’’ (p. 108, italics added). As noted earlier, Hayek had already assumed that socialists and other would-be planners valued planning per se (p. 83), and his line of reasoning consequently leads to the conclusion that planners (of whatever stripe) single-mindedly favor any economic plan whatsoever (irrespective of content) over the ‘‘no planning’’ status quo. And indeed, the very same logic underlies Hayek’s analysis in what is arguably the most famous chapter in The road to serfdom (chapter 10: ‘‘Why the Worst get on Top’’). In a particularly crucial passage, Hayek (drawing heavily on the logic of chapter 5) argues that before the suppression of democratic institutions and the creation of a totalitarian regime . . . it is the general demand for quick and determined government action [to break the apparent noplanning impasse] that is the dominating element in the situation . . . It is then the man or the party who seems strong and resolute enough ‘to get things done’ who exercises the greatest appeal . . . It is here that the new type of party, organized on military lines, comes in. (Hayek, [1944] 2007, p. 159, italics added)

As Evan Durbin perceptively noted in his 1945 review of The road to serfdom, ‘‘the essence of Professor Hayek’s argument’’ (p. 359) could be found in chapter 5 (e.g., Hayek, [1944] 2007, pp. 104, 108). And according to Durbin, ‘‘From it, and assuming it to be true,’’ (p. 359) Hayek’s conclusions consequently flowed: ‘‘any attempt at economic planning, must lead us remorselessly to serfdom . . . down to the horrible road that the Germans have travelled’’ (p. 360). Ironically, a rather unlikely source has repeated Durbin’s basic point. According to Peter Boettke, Hayek’s logic is primarily predicated upon the supposition that ‘‘the frustration of policy forces adjustment faster than [pro-planning] ideological presumptions can change’’ (2005, p. 1050). Consequently, Hayek’s argument is ‘‘one of tendency and direction . . . [with the planners] responding to the failure with more government direct action not less. This is the slippery slope argument’’ (2005, p. 1048, italics added). Moreover, and as Boettke candidly notes, ‘‘once we make . . . [the] subsidiary assumption’’ that would-be planner’s try ever ‘‘harder to realize . . . [their] cherished ideological program . . . the transformation [Hayek outlined in The road to serfdom] is straightforward’’ (2005, p. 1050, italics added). As Boettke puts it: Planning leads to frustration, but rather than abandon planning, we plan in a more aggressive manner . . . Those who have a comparative advantage in exercising . . . discretionary power . . . will rise to positions of leadership. And thus we have just

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described the logic of why the worst get on top. (Boettke, 2005, pp. 1050–1051, italics added)

Could Durbin himself have put Hayek’s case any the better?

HAYEK AND HIS CRITICS? Unsurprisingly, Hayek’s argument came immediately under fire. Caldwell catalogs the most prevalent criticisms of Hayek’s thesis, arguing that not ‘‘all of these . . . are warranted’’ (2007, p. 2). Many critics (e.g., Alvin Hansen) honed in on the accuracy of Hayek’s account of German intellectual history. For example, Frank Knight objected to the historical accuracy of Hayek’s claim that socialist ideas explained the rise of Hitler. Indeed, Knight took Hayek to task for over-simplifying the ‘‘course of events leading to the Nazi dictatorship in Germany’’ (Knight, [1943] 2007, p. 250). As Knight puts it, Hayek erred in attributing ‘‘everything to the Socialist movement and state paternalism toward labor and industry.’’ In particular, Knight took umbrage that Hayek relegated ‘‘the militaristic tradition to a minor role.’’ Knight thought that a ‘‘balanced treatment’’ would consider ‘‘many factors in German history . . . [including] the late survival of feudalism, retarding of national unification and industrialization, and the special circumstances surrounding these changes and the establishment of responsible government after the first World War’’ (Knight, [1943] 2007, p. 250). These latter circumstances, Knight suggested, ‘‘surely had much to do with the breakdown of parliamentarism, an undoubted fact and a vital factor in the establishment of the Hitler regime.’’ Similarly, he wondered why Hayek had paid scant attention to ‘‘anti-Semitism, which has a long history in Germany.’’2 Ultimately, and though in ready agreement with Hayek’s basic thesis – and thinking Hayek’s ‘‘book an able piece of work’’ – Knight characteristically considered Hayek’s treatment ‘‘somewhat one-sided’’ and unlikely to ‘‘change the position of many readers’’ ([1943] 2007, pp. 249–250). Having candidly admitted that Hayek’s position was in accord with his own before reading the work, Knight urged that ‘‘[h]ighly intelligent opinion can be found against . . . [his and Hayek’s] view and it might be well to get a report from someone who holds this contrary position.’’ Knight noted that such opinion could be readily found among the University of Chicago faculty and ‘‘in the Economics Department’’ ([1943] 2007, p. 249). Accordingly, the University of Chicago Press commissioned a second

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reader’s report from Knight’s colleague Jacob Marschak. Marschak’s report makes for especially fascinating reading. Though considering Hayek to write with ‘‘the burning clarity of a great doctrinaire’’ ([1943] 2007, p. 251), Marschak suggested that those who disagreed with ‘‘Hayek’s thesis . . . [would] probably learn from his argument even more than those who’’ already agreed. Indeed, Marschak concluded, Hayek’s ‘‘book cannot be by-passed’’ ([1943] 2007, p. 251–252). In his introductory essay, Bruce Caldwell is particularly concerned with quashing the infamous ‘‘inevitability thesis’’ or ‘‘slippery slope’’ reading of The road to serfdom. As Hayek put it in 1976, the ‘‘slippery slope’’ reading of his thesis has him contending that ‘‘any movement in the direction of socialism is bound to lead to totalitarianism’’ (Hayek, [1976] 2007, p. 55, italics added).3 Caldwell rightly argues that a rather ‘‘more plausible way to read [Hayek] . . . is to see him as warning that, unless we change our ways, we are headed down the road to serfdom’’ (Caldwell, 2007, p. 29, italics added). And indeed, that is how Hayek himself understood his argument, oft-remarking that he ‘‘was trying [in The Road to Serfdom] to argue . . . what . . . is expressed by saying ‘if you don’t mend your principles you will go to the devil ’ ’’ (Hayek, 1978, p. 105, italics added).4 Caldwell takes a number of Hayek’s critics – for example, Stigler, Durbin, Samuelson, and Wootton – to task for supposedly having a relatively crude ‘‘slippery slope’’ reading of Hayek (pp. 28–29). All, however, appear to have rather read Hayek in the ‘‘plausible way’’ Caldwell favors (p. 29), and which Hayek himself had apparently intended: as providing a warning about the unpleasant consequences of persisting with a particular set of policies. Hayek’s critics, however, were by and large less than persuaded that he had adequately demonstrated that the mixed economy and welfare state had their own inherent dynamic or logic that would – assuming we did not ‘‘mend our ways’’ – ultimately lead to full-blown command planning and political dictatorship.5 Indeed, Hayek himself considered his argument to have ready applicability to the welfare state, arguing in 1976 that study of ‘‘contemporary trends of thought and institutions . . . [had] increased my alarm and concern’’ with ‘‘both the influence of socialist ideas and . . . trust in the good intentions of the holders of totalitarian power . . . [having] markedly increased since’’ his having written The road to serfdom (Hayek, [1976] 2007, p. 55). As noted earlier, Caldwell takes Paul A. Samuelson to task for supposedly having a simple-minded ‘‘slippery slope’’ reading of Hayek’s thesis. Though mentioning Hayek and Samuelson’s fascinating early 1980s exchange of letters over the inevitability thesis, Caldwell (2007, pp. 28–29) puzzlingly makes no reference to Samuelson’s final letter to Hayek.6 Intriguingly,

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Samuelson – taking heed of Hayek’s oft-reiterated remark that ‘‘if you don’t mend your principles you will go to the devil’’ – there notes Hayek’s ‘‘belief – as I understand it – that persisting in pursuing welfare state practices . . . will in fact lower the probabilities that freedom can be preserved’’ (Samuelson, quoted in Farrant & McPhail, 2009, italics added). In his reply to Samuelson (the final letter in their exchange), however, Hayek tellingly says nothing in response to Samuelson’s point. Samuelson is not alone, however, in having drawn Caldwell’s ire for providing an allegedly simple-minded ‘‘inevitability’’ reading of Hayek’s thesis. Caldwell charges George Stigler with having similarly misread Hayek and with having understood him to think that any ‘‘expansion of state control over the economy would necessarily lead to a totalitarian outcome’’ (2007, p. 28). As with Samuelson, however, Caldwell’s allegations are wide of the mark. Stigler accurately read Hayek as thinking that ‘‘separate governmental interventions in various industries are inherently inconsistent and unstable and must lead to comprehensive, centralized control of the economy by the government’’ and as denying ‘‘that piecemeal regulations of a hundred different industries and callings could survive. The conflicts and inconsistencies would force the adoption of a single, centralized all-comprehensive plan’’ (Stigler, 1988, p. 141, 147). Indeed, Stigler’s reading fits squarely with Hayek’s remarks about the intrinsic logic of partial planning: ‘‘[T]he close interdependence of all economic phenomena makes it difficult to stop planning just where we wish . . . once the free working of the market is impeded beyond a certain degree, the planner will be forced to extend his controls until they become all comprehensive’’ (Hayek, [1944] 2007, p. 137, italics added). Similarly, in the unpublished postscript, Hayek argues that There is such a thing as the inherent logic of events which forces us forward on a path on which we have started whether we logically think it out beforehand or not. The trouble with . . . partial planning is precisely that every step forces us to further steps if the remaining free forces are not to upset our plans, and that it constantly reduces our freedom of action and makes us more and more the servants of the machinery we have created. (Hayek, quoted in Farrant & McPhail, 2009, italics added)

Accordingly, I wonder why (and in what particular way) Caldwell considers Stigler’s reading of The road to serfdom to have seriously erred.7 Though immensely helpful in explaining the origins and development of Hayek’s thesis, Caldwell’s introductory essay contains much that is troubling. For example, the immense pains that Caldwell takes to deny that Hayek’s thesis has any relevance to the welfare state and mixed economy is puzzling. Indeed, Caldwell apparently favors a reading of The road to

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serfdom that would apparently have Hayek’s thesis apply exclusively to fullblown command planning. This is problematic because many of Hayek’s critics have noted their agreement with Hayek’s point that economic efficiency and political liberty are incompatible with full-blown command planning. For example, Paul Samuelson (1983, p. 7) fully accepts what he considers the ‘‘non-novel part of Hayek’s warning.’’8 Similarly, E.F.M. Durbin (1945, p. 360) noted his full agreement with Hayek that any regime of full-blown command planning ‘‘could only be fettered upon us by dictatorship and terror.’’ Moreover, and far more importantly, Hayek himself argued against any reading of The road to serfdom that would have his argument ‘‘applicable solely against’’ command planning (Hayek, [1956] 2007, p. 44, italics added; refer also Hayek ([1976] 2007, p. 54). Indeed, Hayek repeatedly argued that the situational logic he had outlined in The road to serfdom had a rather wider applicability than that supposed by Caldwell. For example, making clear the immense importance that he considered education, the law, the organization of science, and morals to have for the applicability of The road to serfdom’s general thesis, Hayek argued that In all of them the general tendency towards a paternalistic welfare state, which is the result of a misunderstood rationalism . . . is constantly producing results which are only too similar to those produced by economic planning and which also had shown themselves clearly in Germany long before they became visible elsewhere. They contribute almost as much as the economic factors to that profound transformation of society which follows from increasing governmental regulation and leads towards another direction not in the least intended by those who advocated these regulations. (Hayek, quoted in Farrant & McPhail, 2009, italics added)

Similarly, Hayek argued that the ‘‘hodgepodge of ill-assembled and often inconsistent ideals which under the name of the Welfare State has largely replaced socialism [command planning] as the goal of the reformers needs very careful sorting out if its results are not to be very similar to full-fledged socialism’’ (Hayek, [1956] 2007, p. 44).

THE INEVITABILITY THESIS AND THE LOGIC OF PLANNING? As noted earlier, Caldwell takes exception to any reading of Hayek’s thesis that would have it apply to the welfare state and mixed economy as well as full-blown command planning. Though rightly noting that Hayek was primarily concerned with the future of ‘‘the Western European democracies

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and the United States,’’ Caldwell apparently favors a reading of Hayek that has him ‘‘offering a logical rather than a historical argument’’ (Caldwell, 2007, p. 30). As Caldwell makes clear, Hayek’s logical argument against planning rightly maintained that democracy and full-blown command planning are wholly incompatible with one another (2007, p. 30).9 And as Stigler, Samuelson, and Durbin readily attested, Hayek’s logical point clearly hit the mark. To suppose, however, (as Caldwell apparently does) that Hayek’s logical point is really all there is to his thesis, would reduce The road to serfdom to, as Samuelson (1983, p. 7) aptly put it, a rather ‘‘nonnovel’’ truism. Moreover, and more importantly, how might we square Caldwell’s favored ‘‘logical’’ reading of Hayek with his insistence (2007, p. 29) that Hayek was providing a warning about the unpleasant consequences of failing to ‘‘change our ways’’? Surely there is far more to Hayek’s thesis than simply his logical argument against command planning. As Hayek’s 1948 postscript reveals, The road to serfdom ‘‘was meant as . . . a warning that . . . [if] we go on with the present muddle and confusion, we shall all end in disaster’’ (Hayek, quoted in Farrant & McPhail, 2009). Accordingly, Hayek was warning that ‘‘middle way’’ policies (partial planning and the mixed economy) had their own cumulative logic and dynamic that – assuming that policymakers did not change their ways – would ultimately result in full-blown command planning and a totalitarian polity (refer, e.g., Hayek, [1956] 2007, pp. 46–52).10 And indeed, Hayek’ postscript suggested that this very logic had been unfolding in Britain for at least 25 years before Labour’s victory in the 1945 general election. Similarly, Hayek stated that he was ‘‘convinced that for some time the U.S.A. will continue to move towards state planning . . . The basic ideas have already got too much hold’’ (Hayek, quoted in Farrant & McPhail, 2009, italics added). Though insisting that the ‘‘subsequent paths of the Western European democracies are not really tests of Hayek’s thesis’’ (Caldwell, 2007, p. 30, italics added), and that the ‘‘existence of such states [welfare states], and whatever successes they may or may not have had, does not undermine Hayek’s logical argument . . . a welfare state is not socialism’’ (2007, pp. 30–31, italics added), Caldwell’s view appears wide of the mark alongside Hayek’s remark (appearing in the preface to the 1976 edition) that ‘‘socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In the latter kind of socialism the effects I discuss in this book are brought about more slowly, indirectly, and imperfectly . . . the ultimate outcome [totalitarianism] tends to be very much the same’’ (Hayek, [1976] 2007, pp. 54–55, italics added).11

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TESTING HAYEK’S THESIS? Ultimately, Caldwell suggests a relatively straightforward test of Hayek’s thesis: How many actually existing, real world political systems have fully nationalized their means of production and preserved both . . . efficiency and freedom of choice . . . ? Then compare the number with those that nationalized their means of production and turned to extensive planning and control . . . [and] the curtailment of individual liberties. If one agrees that this is the right test, Hayek’s position is fully vindicated: full socialism can only be put into practice by using methods of which most socialists would disapprove. (Caldwell, 2007, p. 31)

The relevance of Caldwell’s test, however, can be challenged on the following grounds. For one thing, and as Peter Boettke has repeatedly stressed, Hayek considered dictatorship the ‘‘unintended consequence of planning, not the planned outcome’’ (Boettke, 2005, p. 1051, italics added). As Assar Lindbeck (1971, p. 64) has appositely noted, however, ‘‘the order in which nationalization and dictatorship have [historically] occurred seems rather to have been the reverse of that suggested by Hayek.’’ A. C. Pigou made a rather similar point in 1944, suggesting that Hitler and Mussolini would ‘‘have had, perforce, to invent’’ command planning, the better to tighten their grip over economy and society, ‘‘[e]ven though such a thing [planning] had never been heard of.’’ Accordingly, Pigou wondered whether it would be ‘‘fair to treat the means [planning] as a cause of the end towards which it was in these cases [Hitler and Mussolini] directed?’’ (Pigou, 1944, p. 219). Intriguingly, Caldwell’s acknowledgment that ‘‘none of the real-world cases’’ of command planning began as a ‘‘‘liberal socialist’ experiment’’ (2007, p. 30) raises further qualms regarding the appropriateness of his favored test. After all, Hayek wrote The road to serfdom to warn against the consequences of engaging in just such ‘‘liberal socialist’’ experiments. Moreover, and as both Pigou and Lindbeck have suggested, Hayek’s ‘‘worst’’ were initially on ‘‘top’’ in the real-world cases of command planning to which Caldwell is presumably alluding, and consequently, as Pigou had suggested in 1944, consequently implemented command planning to further tighten their grip over the economy.12

EVERYONE A PLANNER? Arguing that planning ‘‘was the word on everyone’s lips’’ during the 1930s and 1940s, Caldwell rightly notes that ‘‘very few were clear about exactly

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what . . . [planning] was to entail’’ (2007, pp. 8–9). As Lionel Robbins rather aptly put it in 1937, ‘‘‘[p]lanning’ is the grand panacea of our age. But unfortunately its meaning is highly ambiguous. In popular discussion it stands for almost any policy which it is wished to present as desirable’’ (Robbins, quoted in Caldwell, 2007, p. 9, italics added). Yet, Hayek (and apparently Caldwell too) repeatedly supposes that planning has to necessarily imply full-blown command planning, whether as an explicit policy goal per se (Hayek, [1944] 2007, p. 83, 85), or – and as Hayek himself frequently implied – as the unintended consequence of the cumulative logic supposedly intrinsic to partial planning and intervention (refer Hayek’s unpublished postscript).13 Indeed, noting the prevalence of pro-planning opinion in the late 1930s and early 1940s – ‘‘there were many . . . voices calling for the transformation . . . of society. A few held a corporativist view . . . that bordered on fascism; others sought a middle way; still others were avowedly socialist’’ (Caldwell, 2007, p. 8) – Caldwell argues that ‘‘one thing all agreed on, that scientific planning was necessary if Britain was to survive’’ (p. 8).14 Caldwell’s supposition that scientific planning (whatever that may be) necessarily implies command planning, however, is rather problematic. For one thing, planning (scientific or otherwise) can (and did) mean pretty much whatever partial intervention or planning scheme (ill-thought out or otherwise) any would-be planner happened to favor. Similarly, why must advocacy of the ‘‘middle way’’ ultimately imply support for full-blown command planning?15 Noting the pro-planning resolutions approved at the Labour Party conference in May 1942, Caldwell (2007, p. 13) rightly observes that while ‘‘[p]arty boilerplate is one thing, concrete plans as to how to carry it out are quite another.’’ This raises the question, however, as to whether the British Labour Party – ‘‘party boilerplate’’ aside – was ever fully committed to command planning? As historian Richard Toye has ably documented, ‘‘pro-planning’’ opinion within the Labour Party invoked ‘‘scientific planning’’ to justify a wide variety of policy options ranging from Soviet-style physical planning to the mixed economy and public enterprise (Toye, 2004).16 And as Stephen Brooke has noted, socialist planning ‘‘was a notable, if unlikely casualty of Labour government after the Second World War . . . The old creed of physical controls had given way to a new one: demand management’’ (Brooke, 1991, p. 687). Though Caldwell (like Hayek) repeatedly supposes that ‘‘planning’’ implies command planning and considers intellectual opinion in the 1930s and 1940s wholly favorable to planning in Hayek’s sense, the accuracy of these suppositions is moot. For example, Caldwell cites Findlay

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Mackenzie’s (1937) Planned society and Sir Daniel Hall’s (1934) The frustration of science as evidence of the pro-planning intellectual climate (2007, p. 8). And indeed, the word ‘‘planning’’ appears repeatedly in both volumes.17 Mackenzie’s Planned society, however, makes abundantly clear that planning (often merely an ill-thought out slogan) can mean pretty much anything (including command planning). Moreover, the volume includes essays by Henry Simons (surely a Hayekian fellow traveler), Harry Gideonse, and Gustav Cassel.18 Consequently, the make-up of the 1930s pro-planning movement (together with the set of policies that they apparently included under the catch-all rubric of ‘‘planning’’) was seemingly rather more diverse than Caldwell and Hayek would have us believe. As Charles Merriam – one of Hayek’s rather more vehement critics – puts it, Hayek apparently did not allow for any kind of ‘‘middle-way’’ (what Hayek himself would often refer to as the ‘‘muddle of the middle’’) and readily brushed ‘‘aside all the many forms of city planning, state planning, regional planning, national planning, with one broad sweep of his pen’’ (Merriam, 1944, p. 234). Indeed, ‘‘[t]hat there are scores of planning agencies actively at work in England and the United States does not disturb . . . [Hayek] in the least . . . [Hayek] waves them all aside and substitutes his own terminology . . . If [Hayek] . . . wishes to discuss economic planning, the world is wide and the way is open, but why confuse the terms widely accepted by both public and private agencies in great sections of the modern world?’’ (Merriam, 1944, p. 234).19 More research is clearly warranted on this topic.

CONCLUSION In his introduction (reprinted in this volume) to the 1994 edition of The road to serfdom, Milton Friedman argues that while ‘‘[i]ntellectual opinion [in the 1940’s] . . . was far more hostile to . . . [Hayek’s views] than it appears to be now . . . practice conformed to it far more than it does today’’ (Friedman, 1994, p. 262). Similarly, Friedman – noting that ‘‘[g]overnment in the postWorld War II period was smaller and less intrusive than it is today’’ ([1994] 2007, p. 262) – implied that Hayek’s thesis had rather more applicability to the early 1990s than the late 1940s. Intriguingly, and anticipating the general tenor of Friedman’s remarks, Jacob Marschak noted that the ‘‘terms ‘plan’ and ‘socialism’ have often been used [in the US] to include monetary and fiscal policies, social security, and even progressive income tax’’ (Marschak, [1943] 2007, p. 251). Similarly, Fritz Machlup – writing to Hayek during the war – argued that the ‘‘generation brought up by Keynes and

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Hansen . . . [were] blind to the political implications of their economic views’’ (Machlup, quoted in Caldwell, 2007, p. 15). Consequently, as Friedman, Machlup, and many of Hayek’s critics (e.g., Stigler and Samuelson) attest, one can readily infer Hayek’s argument to have an applicability that is wider than – as Caldwell would apparently have it – to command planning alone.20 As Hayek made clear in 1956, while ‘‘few people in the Western world now want to remake society . . . according to some ideal blueprint, a great many still believe in measures which, though not designed completely to remodel the economy, in their aggregate effect may well unintentionally produce this result’’ (Hayek, [1956] 2007, p. 44, italics added). Ultimately, however, as Paul Samuelson (2001, p. 305) has wryly observed, ‘‘[e]very author has a call option on vindication but in the first half-century of life for The road to serfdom the realities of post-Roosevelt America, post-Thatcher-Blair UK, post-Palme Sweden and Hayek’s own Austria have not yet brought this book’s options’ market value back up to its original exercise price.’’

NOTES 1. As Hayek noted in his 1956 foreword, ‘‘it was already fairly obvious [in the early 1940’s] that England . . . was likely to experiment after the war with the . . . policies which I was convinced had contributed so much to destroy liberty elsewhere’’ (Hayek, [1956] 2007, p. 40). In the1948 unpublished postscript, Hayek says that he began to write The road to serfdom in the early 1940s because of the high probability that Britain would soon have a socialist government. Hayek ([1944] 2007, pp. 208–209) argued that the Labour Party was ‘‘committed to the creation of a ‘planned society’’’ and stood ready to eagerly implement a ‘‘scheme which not only in general outline but also in detail and even wording is indistinguishable from the socialist dreams which dominated German discussion twenty-five years ago’’ (Hayek, [1944] 2007, pp. 208–209). 2. Similarly, Hayek’s history of the role played by German socialist thinkers in the genealogy of Nazi doctrine was criticized by Bert Hoselitz (1945). For example, Hayek ([1944] 2007, p. 182) quotes August Bebel as remarking in 1892 that ‘‘the Imperial Chancellor can rest assured that German Social Democracy is a sort of preparatory school for militarism!’’ As Hoselitz notes, ‘‘[Hayek] omits to add that the remark was made ironically. In the session of December 13, 1892, the chancellor in a speech had remarked that army officers were satisfied with the discipline shown by socialist recruits. Bebel, referring to the discipline in the socialist party, then made the above remark. That is was meant ironically and was so understood is proved by the stenographic report which contains the word ‘laughter’ after the quoted sentence’’ (Hoselitz, 1945, p. 932). Moreover, Hoselitz charges that rather than

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providing evidence for his case, Hayek’s favored examples (e.g., Lensch and Plenge) are ‘‘spurious or special cases . . . [that] can hardly be used as representative of the dominating ideas or as typical examples for an indictment of the socialists’’ (1945, p. 934). Though providing a slew of helpful editorial notes, Caldwell misses a rather glaring error in Hayek’s text. Hayek ([1944] 2007, p. 182) thinks that Bismarck was chancellor in 1892. As Hoselitz points out, Bebel’s ‘‘words were directed against a remark of Caprivi. Bismarck’s chancellorship ended in 1890’’ (1945, p. 932). 3. Noting Hayek’s remark that ‘‘this is not what the book says,’’ Caldwell (2007, p. 28) suggests that Hayek ‘‘may have been implying . . . that the condensation and cartoon versions of his argument were . . . in part responsible for the . . . misreading of his message.’’ This is rather incongruent alongside the public testimony Hayek paid to the editors of the Reader’s Digest condensation for the ‘‘extremely skillful manner in which this was done . . . It is inevitable that the compression of a complex argument . . . produces some oversimplification, but that this was done without distortion . . . is a remarkable achievement’’ (Hayek, [1956] 2007, p. 41, italics added). Additionally, the cartoon version (appearing in Look magazine) provided a rather accurate rendition of Hayek’s logic (e.g., the dynamics of chapter 5). The cartoon version can be found at http://www.mises.org/TRTS.htm 4. Similarly, Hayek argued in 1976 that The road to serfdom was intended to provide ‘‘a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want’’ (Hayek, [1976] 2007, p. 55, italics added). Again in a 1977 interview, Hayek argues that ‘‘The road to serfdom was meant to be a warning: ‘Unless you mend your ways, you’ll go to the devil.’ And you can always mend your ways’’ (Hazlitt, 1992, p. 8, italics added). 5. As George Stigler (1988, p. 146) rather aptly notes, it ‘‘is a fair reading of [Hayek’s thesis] . . . to say that forty years more of the march toward socialism would lead to major losses of the political and economic freedom of individuals. Yet in those forty years we have seen that continuous expansion of the state in Sweden and England, even in Canada and the United States, without consequences for personal freedom so dire as those he predicted.’’ 6. The Hayek–Samuelson exchange over the inevitability thesis would have provided a welcome addition to the volume (refer Farrant & McPhail, 2009). 7. Elsewhere, Hayek argues that partial planning ‘‘will cause reactions which will defeat its own end, and that any attempt to act consistently will necessitate further and further measures of control until all economic activity is brought under one central authority’’ (Hayek, [1935] 1948, p. 134). Indeed, favorably citing Ludwig von Mises’s ([1929] 1977) Interventionismus, Hayek contended that ‘‘well-accepted analysis shows that . . . [partial planning] does not provide an alternative which can be rationally chosen’’ ([1935] 1948, p. 134). As Hayek ([1939] 1997, pp. 199–200, italics added) would later remark, ‘‘[i]t is not necessary to review the familiar economic arguments which show why mere ‘interventionism’ is self-defeating and self-contradictory, and how, if the central purpose of intervention is to be achieved, intervention must expand until it becomes a comprehensive system of planning.’’ Hayek there again cites Mises’s book. 8. Samuelson (1983, p. 7) argues that both ‘‘[c]ross-sectional and time-series analysis’’ readily supports Hayek’s view ‘‘that controlled socialist societies are rarely

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efficient and virtually never freely democratic.’’ Similarly, Stigler ([1964] 1981, p. 543) writes that Hayek’s argument ‘‘that comprehensive political control of economic life will reduce personal liberty . . . to a pathetic minimum . . . seems to me irresistible and I know of no serious attempt to refute it.’’ 9. Hayek ([1944] 2007, p. 159) put it thus, ‘‘socialism can be put into practice only by methods which most socialists disapprove.’’ 10. ‘‘[I]t might well be argued . . . the Atlee government’s policy in the 1940’s was merely interventionism under the barest veneer of planning’’ (Toye, 2004, pp. 4–5). 11. Elsewhere, Hayek remarks that the substitution of ‘‘cold socialism’’ (the welfare state) for the ‘‘hot variety’’ (command planning) has ‘‘much slowed down the process which I had [in 1944] predicted hot socialism would bring about. But can it lastingly avoid the same effects? There are strong reasons for doubting that cold socialism can avoid them’’ (1978, p. 300, italics added). Hayek (1960, p. 256) argues that reformers ‘‘are likely to be led to impose more and more central control over economic decisions . . . until we get that very system of central planning which few now consciously wish to see established.’’ Similarly, Hayek mentions ‘‘socialist leaders who,’’ having abandoned ‘‘‘hot socialism’’ (command planning), have ‘‘now turned to a ‘cold’ socialism which in effect may not be very different than the former’’ (Hayek, 1960, p. 257, italics added). As Hayek had put it earlier: ‘‘Without . . . a revised conception of our social aims [cold socialism], we are likely to continue to drift in the same direction in which outright socialism [the hot variety] would merely have carried us a little faster’’ ([1956] 2007, p. 52, italics added). 12. Caldwell (2007, p. 30) notes that when he has outlined Hayek’s logical point in seminars, members of the audience have often noted its similarity to the Arrow Impossibility Theorem. Hayek’s thesis, however, posits causality: Planning leads to dictatorship. As Lindbeck notes, however, ‘‘[i]n all communist dictatorships today, dictatorship came first and nationalization afterward, rather than the other way round (except for the Soviet Union, where nationalization and the present form of dictatorship came simultaneously). The same sequence – first dictatorship, later nationalization – certainly holds also for a number of noncommunist dictatorships with largely nationalized economies (for example Burma and Syria). There does not seem to be an example of a country where it is reasonable to say that nationalization resulted in dictatorship, or that the two had to go together’’ (Lindbeck, 1971, pp. 64–65, italics added). Similarly, Raymond Aron points out that the ‘‘totally planned economy put into practice by revolutionary parties . . . was the result of a seizure of power. It has never been the final culmination of a partially planned economy introduced by a party such as the British Labour party, which wanted to be faithful to liberal values’’ (1970, pp. 85–86). The historical record would appear to support Pigou’s suggested causality rather than Hayek’s. 13. I do not think Caldwell adheres to this latter view. 14. As Marwick (1964) has noted, however, while ‘‘everyone’’ was a planner in the 1930s, planning meant widely different things to different people (refer also Toye, 2004, pp. 48–49, 185–192). Marwick argues that from the ‘‘groundwork of social and political ‘agreement’ in the thirties . . . there arose the ideological structure which took Britain safely through the forties and brought her to rest in the fifties. That is to say, the mixed economy, ‘Butskellism’ (in all but name) . . . [and] all-party acceptance for a welfare state . . . were concepts which received their vital nurture

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in the nineteen-thirties’’ (Marwick, 1964, p. 285). Similarly, Marwick quotes from a 1935 publication of the Next Five Years group: ‘‘The historic controversy . . . between the idea of a wholly competitive capitalistic system and one of State ownership, regulation and control – appears largely beside the mark . . . our actual system will in any case be a mixed one for many years to come; our economy will comprise . . . both direct State ownership and control, and management by public and semi-public concerns, and also a sphere in which private competitive enterprise will continue within a framework of appropriate public regulation’’ (Marwick, 1964, pp. 297–298). These sentiments hardly equate to advocacy of full-blown ‘‘planning’’ in Hayek’s sense. 15. Hayek himself undercuts Caldwell’s implication that everyone in the mid1930s was a ‘‘planner’’ in Hayek’s sense. Pointing to the German plan developed in ‘‘1919 . . . [by] R. Wissel, and his undersecretary of state, W. von. Mollendorf’’ (Hayek, [1935] 1948, p. 142), Hayek argues that their proposals for organizing ‘‘individual industries’’ resemble the ‘‘proposals for planning now [1935] so prevalent in Great Britain.’’ Hayek argues, however, that such plans ‘‘cannot be regarded as socialist proposals of the kind discussed here [full-blown command planning] but belong to the halfway house between capitalism and socialism’’ that Hayek contended would – assuming partial planning is persisted in – ultimately lead to full-blown command planning (Hayek, [1935] 1948, p. 134). 16. ‘‘[The Labour government] moved towards a final acceptance of a planning machine that had no executive power, and which has been compared with a mere ‘think tank’ . . . This was partly because . . . there were many direct obstacles to the creation of a planned economy in Britain. Equally, these institutional barriers were complemented and reinforced by the clear inhibitions to comprehensive planning inherent in the ideology and structure of the Labour movement itself’’ (Toye, 2004, pp. 236–237, italics added). ‘‘Herbert Morrison told the [1945] party conference, ‘this document [the Labour party manifesto] Let us face the future may be described as Labour’s Five Year Plan’ . . . [W]hen discussing the reconstruction of Britain, he [Morrison] was not afraid to refer to the Soviet example . . . [The manifesto] had in practice about as much connection to a Russian plan as Churchill’s four-year plan had to Goering’s. There was no commitment to establish any form of supreme economic authority. Substantial ‘constructive enterprise and private endeavour’ would co-exist with publicly owned industries . . . perhaps the strongest planning commitment, the national investment board, was abandoned by Labour in power’’ (Toye, 2004, pp. 154–155). 17. This is not strictly accurate in the case of the Hall book. My – admittedly rather cursory – examination of the text could only find Hall himself (1934, pp. 28–29) and P.M.S. Blackett (1934, p. 139) arguing for anything we could reasonably construe as command planning. 18. Hayek recommended works by Simons and Gideonse in The road to serfdom ([1944] 2007, p. 240). Hayek ([1944] 2007, p. 239) also recommends the very same Cassel essay that had appeared in the Mackenzie volume. Hayek’s unpublished 1948 postscript is very favorable toward Simons’ classic ‘‘Rules versus Authorities in Monetary Policy’’ (the very same Simons’ essay appearing in the Mackenzie volume). 19. Similarly, Barbara Wootton argued that ‘‘[r]ealistic discussion must concern itself, not with two extreme alternatives [plan and no plan], but with the endless possible quantitative variations of the mixture’’ (Wootton, 1945, p. 127).

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20. In his 1948 unpublished postscript, Hayek hinted at what Machlup may have meant when he alluded to the ‘‘political implications’’ of the policies favored by followers of Keynes and Hansen. Hayek argued that while many former socialists had abandoned command planning for Keynesian doctrine, the full-employment policies they now favored would generate inflationary pressure that led to an everincreasing regime of controls and planning and ultimately culminated in full-blown command planning.

ACKNOWLEDGMENT The author thanks David M. Levy, Ted Burczak, and Edward McPhail for helpful conversation on Hayek and related topics.

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