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Subtitle: The Great Policy Debates and Experiments of the Last Hundred
Years. Cambridge Univ. Press, 428 pgs., 2012, index, figures, paperback
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Reviewer comments
- This is a very important book that contains much more information than that
which appears on the surface. The content itself reveals that the causes of our
current political/economic condition go back over a hundred years. But when the
reader combines this information with the century of political and social
history the full story becomes clear. The author has focused, as his title
indicates. on the realm of economic theory. But, as Richard Weaver wrote,
"Ideas Have Consequences'. And consequences can accumulate and build on
each other creating more and more adverse outcomes. When false ideas become
central in the education system, generations will come to believe whatever they
are taught. Dr. White describes the origins of the ideas over which the 'clash'
on which he focuses were brought by the late 19th century "Progressive'
movement economists from Germany and incorporated right into the foundation of
the American Economic establishment. But throughout the 20th century these
ideas were continually challenged by other economists who held a variety of
competing ideas and theories. Dr. White's organization of his material is
mostly chronological, with asides and 'flashbacks' as needed to reveal
antecedents.
The text is strong on providing biographical studies of the leading economists
whose ideas were clashing. Dr. White's own assessments of the validity of
individual ideas are apparent, but his full treatment is even-handed. For
instance, a given biography is simple and factual, so the reader can draw his
own conclusions about the person described. One theme that is clear, but not
explicitly noted, is the strong influence from generation to generation by a
named teacher on his named students who went on to equal or greater influence
and fame. Throughout, the names of Dr. Lord Keynes and Dr. Frederick Hayek
recur as these two economists not only serve as symbols of two major opposing
schools of economic theory but also were in practice the longest active
proponents in the public eye. But Dr. White shows that there were many other
very influential advocates of one or another economic theory.
This brings me to propose one of my own theories, political influence, outside
the scope of the book itself. It is clear from the direct quotations of many of
these economists that the motivations of successive generations shifted from
more pure pursuit of theoretical knowledge for itself to active desire to
change the world via exercise of influence on governmental policy. And this
shift was not coincidental, but accompanied the growth of the modern state
apparatus whose political leaders (rulers) sought theoretical justification to
legitimize their expanding power over the economic as well as all other aspects
of the lives of their citizens. All rulers from as far back in antiquity as we
delve are observed as requiring some legitimizing theory, frequently religious.
Another theme is the urgency in which economists seek to proclaim that their
discipline is 'scientific' - the more so the less it actually employs
'scientific method'. But the clash has been conducted in much more personal,
even vitriolic, terms than typical clashes in say, chemistry or physics. And,
as noted above, so many of the theories in economics are clearly designed not
only to influence political leaders, but also to advance the position ( career)
of the economist. The 'ironic' result is that professional economists hardly
act in the way they claim 'economic man' acts rationaly to maximize his 'utes'.
The reader also may compare this battle of theories with those waged in the
13th century by the competing Dominicans and Franciscans at Universities such
as Paris and Cambridge. Today our economists have assumed the role of 'secular
theologians'.
I will insert much more of my commentary along side the summary descriptions of
the content of each chapter.
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Introduction
- Dr. White begins by identifying many of the "dramatic experiments in
economic policy" of the last hundred years. He describes these clearly in
terms of the actual political - social events and trends that were either
caused by or resulted from these theories. He is specific in writing:
"Behind these movements and countermovements in economic policy lies an
ongoing and often dramatic clash of economic ideas." The key words link
'ideas' and 'policy'. Ideas indeed do have consequences. Dr. White writes a
history of the development of ideas About economics, rather than an economic
history. But he does indicate the link between these Theories ( stress
theories) about economics and the results seen in economic history.
The author continues: " Economists are notorious for the frequency of
their policy disagreements." He continues: "The immediately
policy-relevant parts of economic thought are not the whole of economic
thought, and the other parts involve somewhat less disputation and more
collaboration." And: "In this book the focus is on economic theory
and empirical work that are related to public policy, though much of the
literature was written for other economists rather than for the layman."
Therefore, he writes, the book is organized in terms of the sequence of
politically relevant controversial economic theories with attention also to
their adherents, rather than as an encylopedia of economic thought en total.
Dr. White then provides a summary outline of the content. He writes: "The
episodes and debates examined here were chosen for their historical importance
and for the light they shed on how the rival positions have evolved that are
held in today's major disagreements over economic policy. Policy - relevant
theorizing rarely arises in a self-contained ivory-tower, or purely in response
to other theories."
The reader should note, therefore, that the economists are indeed seeking to
influence public policy and are developing theories they hope will achieve that
purpose. The result, if they are successful, will be to provide a theoretical
basis for the legitimacy of real and significant political decisions. And this,
in turn, is because governments today play and seek to play a much more
intrusive role in the economic life of their citizens and of course then also
base their legitimacy for the votes of citizens on providing favorable economic
conditions.
Dr. Whites's outline
-Chapter 1 describes economic thought just prior to World War I and introduces
John Maynard Keynes and Friedrich A. Hayek -
- Chapter 2 is about the controversy between theories for central planning and
market price systems
- Chapter 3 is about early business cycle theory, especially the Austrian
school concepts
- Chapter 4 is about the 'institutional school of economics
- Chapter 5 focuses on Keynes's very influential book "General
Theory"
- Chapter 6 focuses on Hayek's book, Road to Serfdom
- Chapter 7 is about the British implementation of nationalization and
socialist theory
- Chapter 8 focuses on the opposing theories advanced by the Mont Pelerin
Society
- Chapters 9 and 10 focus on actual results of economic theory in two different
countries
- Chapter 11 is focused on the economic theories implemented at the Bretton
Woods conference
- Chapter 12 discusses the revival of monetarist theory that resulted from the
collapse of the Bretton Woods policy
- Chapter 13 focuses on the expansion of government intervention after World
War II and two different economic theories about this
- Chapter 14 is about the expansion of international trade and the conflict
between theories of 'free trade' and 'protectionism'
- Chapter 15 is again about a clash between Keynesian theory and opponents over
government debt.
Dr. White then turns to a discussion over the actual influence of original
economic theories and real political decisions. He notes that both Keynes and
Hayek claimed that economic theories influence political actions. In contrast,
he notes, Vilfredo Pareto claimed that politicians do what they want and only
select for public consumption the economic theories that support what they
wanted to do anyway. Pareto's view is also that of George Stigler.
In the next section Dr. White considers how economic theories are developed and
how they enter public discussion and acceptance as well as their possible
influence on politicians.
He then turns to a discussion of "Governments Versus Markets". He
writes: "Economic policy ideas clash when their advocates have different
views about the role governments should play in the economy. In this section he
also explains the Leninist concept of 'commanding heights'. This is exactly my
point - that economists only began seriously to develop theories about economic
behavior that clashed was when governments sought greatly expanded roles in
controlling economic behavior.
In his final section of the Introduction Dr. White describes and defines the
terms "Socialism versus Capitalism'
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Chapter 1 - The Turn Away from Laissez Faire -
But first, "Keynes and Hayek would come to play leading roles in the clash
of economic ideas during the Great Depression." Dr. White immediately
provides brief professional biographies of both individuals, describing the
influences on each by the current leading economist theoretitians. Next he
notes that Keynes rejected Adam Smith and the laissez-faire theory and along
with this he forcefully rejected theories that decentralized markets could or
would adequately create economic well-being.
Dr. White summarizes the whole conflict thusly: "Keynes was a leading
advocate of the view that government should take greater control over the
economy. Hayek was a leading advocate of the view that government should
interfere less with market forces.".
That is indeed the whole story. One does not have to imagine to realize which
theory would be advocated then by people who wanted to increase their role as
government politicans and bureaucrats.
Dr. White notes what we all see, that for most of the past century the
Keynesian supporters of expanded government control have won. He begins his
discussion of real history in the late 19th century 'progressive era' during
which (without any advice from Keynes) American politicians such as T.
Roosevelt and W. Wilson succeeded in their efforts. Dr. White identifies the
role of German economic theory (German historical School) on the generation of
Americans who professed to be economists even so far as to found theAmerican
EconomicAssociation as a 'professional' organization dedicated to advancing
both the role of economists and the expansion of government itself as well as
its power.
I might interject that this was a period of greatly increased German influence
in many fields after their victory in the wars with Austria and France - In
economics is was through the "German Historical School".
Dr. White continues by noting that "Keynes was not the First to Turn Away
from Laissez-faire Ideas". He writes that the role of Keynes and
conversely the idea that most economists prior to him did believe in
Laissez-faire are greatly exagerated by both Keynes himself and his adherents
even today. (Krugman among them). He points out that the role of government
greatly expanded prior to, then during World War I, and subsequently right into
the Depression all prior to Keynes taking the public stage. As with so many of
his other pronouncements, Krugman's pitch that Keynes faced the oppsition of
most contemporary economists is false. Dr. White continues with analysis of the
thought and influence of Alfred Marshal and Irving Fisher.
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Chapter 2 - The Bolshevik Revolution and the Socialist Calculation
Debate
The Bolsheviks make economic policy
Ludwig von Mises
The need for input prices
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Chapter 3 - The Roaring Twenties and Austrian Business Cycle Theory
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Chapter 4 - The New Deal and Institutionalist Economics
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Chapter 5 - The Great Depression and Keynes's General Theory
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Chapter 6: - The Second World War and Hayek's Road to Serfdom
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Chapter 7: - Postwar British Socialism and the Fabian Society
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Chapter 8: - The Mont Pelerin Society and the Rebirth of Smithian
Economics
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Chapter 9: - The Postwar German "Wonder Economy" and
Ordoliberalism
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Chapter 10 - Indian Planning and Development Economics
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Chapter 11: - Bretton Woods and International Monetary Thought
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Chapter 12: - The Great Inflation and Monetarism
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Chapter 13: - The Growth of Government: Public Goods and Public Choice
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Chapter 14: - Free Trade, Protectionism, and Trade Deficits
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Chapter 15: - From Pleasant Deficit Spending to Unpleasant Sovereign
Debt Crisis.
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Some additional references
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Antony Davies and James Harrigan - 'Transferism, Not Socialism, is the
Drug Americans Are Hooked On'. - FEE A very clever concept that both
Socialism and Capitalism as terms have lost their original meanings and do not
describe the reality of current government fiscal-monetary policy. Rather,
governments are engaged in massive transfer of wealth from producers to
consumers.
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L. Randall Wray - Modern Money Theory My review of this book
includes a lengthy list of links to other references on money
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