In The Crisis of Vision in Modern Economic Thought Robert Heilbroner and William Milberg take as their principal concern the intellectual history of the economics profession since the 1970s.
Key to their understanding of that history is Joseph Schumpeter's concept of a "classical situation"--which is to say, a period of broad consensus among economists on the issue of theory that also enjoyed wide credence among noneconomists, extending to their confidence in its guidance in "the redress of specific economic problems" (94). The authors identify four such situations in the history of economics in the English-speaking world, which have been founded on the work of David Ricardo, John Stuart Mill, Alfred Marshall and John Maynard Keynes, respectively.
Given their concern with the recent past, their main concern is with the Keynesian moment emergent in the 1930s, and they devote considerable attention to the ways in which it represented a break with earlier thinking. For them the crucial difference was the movement from the Marshallian emphasis on utility-maximizing rational actors, to the Keynesian emphasis on the propensities of individuals (like the "propensity to consume," or the role of "animal spirits" in investment decisions).
This shift in emphasis had two major consequences on the level of theory. One was that the move away from "rational-choice microfoundations" diminished the deterministic, "scientific," natural law-like quality to which many economists aspired in favor of a greater stress on uncertainty (and irrationality) in the behavior of economic actors.
The second was its impact on the way in which we perceive an economy as a whole. The Marshallian view of utility-maximizing actors lent itself to a "summative" view of the economy as simply the sum of all the markets contained inside it. However, the Keynesian emphasis on propensity meant attention to "interactions that take place in a market system but not in any individual market"--what we might term today a recognition of the economy as a complex system that is more than the sum of its parts. The result was that a great many things that simply did not exist in a Marshallian world, like the "underemployment equilibria, liquidity traps, multipliers and the like," along "with their cumulative or transmarket repercussions" (38), were not just apparent to Keynesians, but appeared central issues.
These theoretical changes, in their turn, had significant practical consequences. The natural law-like image of the older, Marshallian economics gave economists' pronouncements the authority of Science, while making the economic process seem "depoliticized" and above social constructs, rather than an arrangement grounded "in the contingent historical and political requirements of the prevailing social order" (105). And the summative view of the economy left little room for improvement on market outcomes, whatever one made of them. However, the understanding of the economy as a complex system, one which did not always perform optimally when left to its own devices (with the result that a market could be in equilibrium under conditions of excess capacity and unemployment) offered an intellectually rigorous basis for a much more interventionist policy. This new understanding was certainly not welcomed by all, but under the circumstances of the Great Depression it did succeed in laying the foundations for a new consensus, and the policies that followed from it.
Of course, the consensus was tottering by the 1970s. The theory's loss of its sway, the authors acknowledge, was a reflection of its demonstrated weaknesses at the time--particularly its treatment of money and inflation, its failure to anticipate the phenomenon of "stagflation," and the disparities between its micro- and macroeconomics. Nonetheless, it was possible to see Keynesianism as a theory that held up well in unanticipated circumstances (as Alan Blinder argued was the case with the Phillips Curve), and which could and should be refined and adapted in light of the new information.1
Instead what happened was a rush to dispense with Keynesianism--because, above all else, of "the resurgence of natural law conceptions of economic inquiry" (104) of the sort that had gone out with the Marshallian moment, with all its sociopolitical implications (e.g. that market outcomes could not be improved upon, and government should play a minimal role). Moreover, this turn in the field was not disconnected with the world of practical politics, the broader rightward movement in society enabling neoclassical economics and affiliated theories to come to widespread attention, while marginalizing economic thought coming from the left that offered an alternative.2
This connection between our broader intellectual context, and the conventional wisdom of the economics profession, is the problem to which the book's title refers--the "pre-analytical vision" that thinkers bring to the subject decisive, but generally unacknowledged. Capitalism, Heilbroner and Milberg note, is the foundation of that vision--indeed, so much so that economics as we know it would be inconceivable outside of a capitalist society.3 However, capitalism as such is virtually unmentioned within mainstream economics.4 This is problematic not only in its biasing economic thinking in particular ways (e.g. toward excessive faith in the market), but its impoverishing the field intellectually, the reversion to the outmoded "natural law" vision of economic life, and associated failure
to recognize the insistent presence of this underlying social order, with its class structure, its socially determined imperatives, its technologies and organizations, and its privileges and rights . . . [leaving it] devoid of all the elements that connect economic life to a social matrix . . . [and] generate the resonances necessary for a fruitful vision (113).The resulting sterility is demonstrated by the failure of the would-be successors to Keynesianism to create a new classical moment, none of them winning wide adherence among economists, let alone the general public.5
In short, the revival of the Classical/Neoclassical idea of economics as scientific (through its building theory on the basis of rational micro-choice foundations) and apolitical (accomplished only by taking capitalism for granted) led not just to the abandonment of Keynesianism, but an inability to put anything up in its place. Since this failure, arguably manifest by the '80s, the field has turned inward, becoming preoccupied with debates that, in their irrelevance to real economic life, invite comparison with Medieval Scholasticism, while the profession fails in its duty to a global society in need of its advice as it struggles with problems ranging from ecology to automation to the implications of corporate power.
Heilbroner and Milberg contend that the field's rehabilitation requires its abandonment of the natural law conception of economic life--and the embrace of a "vision" which recognizes the sociopolitical character of economic arrangements. In other words, economics would have to set aside the "physics envy," the pretense to the apoliticism of economics and the market, and the hostility to the public sector generally part of the package, recognizing that the public sector does have an essential role in guiding society (120). Indeed, the authors of this book suggest "Political Economics" as a name for this successor to today's Economics.6
The case Heilbroner and Milberg make for the role of pre-analytic vision in the intellectual history of economics is compelling, as are many of their specific insights about that history. Particularly impressive is their discussion of the way in which deep-rooted intellectual differences about the proper character of the field (e.g. whether or not one sees it as a physics-like subject built on rational micro-choice foundations) translate to vast differences of educated opinion on practical issues like the performance of markets and the desirability of government intervention. They are also quite persuasive in connecting these differences with the collapse of Keynesianism, and at the same time, the failure of other theories to gain wider credence than they have. Yet, it also seemed to me that they spent less time than they could have explaining the connection between those views, and the broader trend of politics in society.
What, for instance, was the connection between the rightward turn of the '70s, and that resurgence in the natural law outlook? Was the latter simply a convenient instrument of the former, or was it the other way around, the conservative turn instead giving the natural law outlook its chance? Additionally, the authors do not have much to say about the reasons for either the broad political turn, or the intellectual shift within the field, which can seem oddly timed. During the '70s, Heilbroner had certainly predicted a movement away from markets, toward a more active and accepted public sphere in response to the problems so clearly apparent at the moment (and which have only worsened since). Why did he, and the others who thought as he did, turn out to be wrong about that? Additionally, the claims for economics-as-science ran counter to the postmodern tendency in philosophy and the increased doubts about social science and expertise in general during these years.7 Why did economics buck the trend? Such questions are not even addressed, let alone answered.
None of this invalidates what Heilbroner and Milberg argue, but it does make clear that they present only part of the story, and that there is much still in need of explanation. Additionally what they do not account for points to the other area where one might regard this book as falling short--its consideration of the prospects for a redress of the situation. The note on which the study concludes, particularly the call for greater respect for the role the public sector has to play, put me in mind of John Kenneth Galbraith's The Affluent Society. Of course, they are rather less optimistic than Galbraith was about significant change in the course of policy at the time of that book's writing, conceding that "such a radical reorientation of our discipline is obviously unlikely today" (128). They are certainly less optimistic about the prospects of change coming from what Galbraith termed the "educational and scientific estate," which here seems to be part of the problem rather than the solution, especially when one considers the "rigid, hierarchical" organization of the economics profession.8
Nonetheless, they did hold out hope for tomorrow. Eighteen years on those hopes would not seem to have been validated, either at the level of the profession, or of political debate more broadly. Heilbroner and Milberg characterize capitalism in their time as "on the defensive before forces of its own making, but not under its immediate control" (128). In the view of many, it remains so today--but the mood of mid-century reformism that gave Galbraith some hope that the system would adapt seems the very inverse of the tone now prevailing.
1. The Phillips curve concerns the relationship between unemployment and inflation, with the decrease of the latter driving up the former. While the curve's usefulness was increasingly questioned in the '70s, Blinder wrote in his 1987 article "Keynes, Lucas and Scientific Progress" that contrary to the claims of anti-Keynesian Robert Lucas, "once modified to allow for supply shocks" the Phillips curve "has been one of the best-behaved empirical regularities in macroeconomics." Blinder, "Keynes, Lucas and Scientific Progess," The American Economic Review 77.2 (May 1987), p. 133. Heilbroner and Milberg do not take a side in this debate, but do reference Gregory Mankiw's interesting analogy with astronomy, noting that "Five centuries ago . . . a navigator who steered by the Ptolemaic system would have guided his ship more successfully than one who followed the still poorly understood Copernican one" (68)--with Keynesianism, of course, in the place of the Copernican system.
2. Indeed, in discussing the limited influence of Marxism, the authors note its close identification with the Soviet Union, and the hostility of most Western thinkers to Marxist analysis (99). However, they do note the role of other factors, such as the divisions among Marxist thinkers themselves, and the propensity of institutional economics to offer critique rather than positive statements.
3. According to Heilbroner and Milberg's definition, capitalism has three key characteristics, which are, respectively, sociopolitical organizational and administrative--namely the process of capital accumulation as the driving force of the system, the allocation of income by the market, and the existence of dual private/public realms permitting capitalist actors wide latitude to act. Interestingly, Heilbroner offered a slightly different standard in his earlier Business Civilization in Decline.
4. The exceptions have been most prominent on the left, but the authors also note that they have been conspicuous among the Austrian economists--von Mises, von Hayek and Schumpeter, and their adherents.
5. This is in many cases due to theoretical failings, but also their irreconcilability with the prevailing fashions. "Black-boxed" monetarism lacks the rational-choice microfoundations dear to the hearts of those who view economics in natural law terms. Rational expectations is not only tautological, but denies human agency. New Classical economics suffers the self-contradiction of using the "Robinson Crusoe concept of the individual as a basis for a social inquiry" (83), while like rational expectations, treating government as impotent--and therefore being of little policy use. And New Keynesianism is a "response to the New Classicals, not a research effort aimed at putting forth a new economic vision" (90).
6. This, of course, harkens back to the evolution of Political Economy (which was premised on class divisions) into Economics (which focuses on individuals rather than social classes).
7. One interesting possibility is that economists recast their field in this more "scientific" mold in the hopes of regaining their prestige and credibility with the broader public--ultimately, unsuccessfully.
8. As they note, position-holders at a handful of elite universities "carry a disproportionate amount of power over hiring, publishing and the granting of research funds," while these professors are themselves trained in "only a few select graduate programs," limiting the possibilities for change (100) from this avenue.