It's The Economics, Stupid!

Economists would like people to believe in a very strong claim: that economics is a science, almost an engineering discipline, that it has nothing to do with philosophy, and especially nothing to do with moral questions regarding the distribution of wealth. But nothing about economics except perhaps the brazen imperialism of its practitioners supports such a claim and, indeed, the central bit of reasoning in modern neo-classical economics seems, at least to me, something of an unsatisfactory tautology. So what accounts for the sway of 'free-market' economics over the popular imagination?

In a word: security. Economics promises to make sense out of things, to simplify and rationalize an always chaotic world. Never mind that the promise remains unfulfilled—the fact that it's made is security enough. Economics for all practical purposes has become a kind of secular religion... its high priests immune from sustained critical examination.

A slice of intellectual history is in order. From the time of Adam Smith, widely considered the father of 'free-market' thinking, through the late nineteenth century what was then called 'political economy' was always inextricably linked to some sort of philosophical foundation(s). Despite efforts by historians of economic thought like the late Nobel laureate George Stigler to purge original sources of philosophy the philosophical tradition was actually quite robust and pervasive (I recall how in his courses Stigler, for example, used to vehemently wave away half of John Stuart Mill, attributing his writings on distribution to the pernicious influence of Mill's wife, Harriet Taylor). At Cambridge, a center for 'political economy' in the English speaking world, up through the end of the century exams fell under the moral sciences tripos system, thus indelibly stamping the subject with a philosophical character. Finally a split took place, however, as the Cambridge baton passed from Henry Sidgwick to Alfred Marshall—a split driven in large measure by personal rivalry. Whether on their own merits ideological and doctrinal pressures might ultimately have forced economic reasoning away from philosophy is not quite so clear-cut as one might suppose.

Henry Sidgwick was one of the great moral philosophers of all time, now almost forgotten, though there has been a small resurgence of interest in him the past couple decades. During his lifetime, when Sidgwick was in charge of moral sciences at Cambridge he was an intellectual super-star, making major contributions over a wide range. Moreover, he moved at the highest levels of British society, with one brother-in-law the Archbishop of Canterbury and another becoming (after Sidgwick's death) Prime Minister. Marshall chafed in Sidgwick's shadow. While Marshall finally formalized the notion of analyzing supply and demand curves together (a non-trivial break-though that took almost a hundred years to figure out following Smith), and introduced the systematic use of mathematical notation, 'putting it all together' in a way that ranks with Smith, Marshall was no philosopher. Unable to compete with, build on, or probably even understand Sidgwick's subtle moral reasoning, Marshall's strategy for personal success overcompensated. He forced the use of a new term, 'economics', for 'political economy' and split it off from the moral sciences tripos into its own realm. Alfred Marshall's intellectual heritage thus leads in a straight line to Milton Friedman's 'positive economics' and the bulk of neo-classical 'free-market' economics today.

A philosophical digression. The core of modern economic analysis assumes that a sufficient measurable nexus exists between an individual's welfare and overall social welfare such that testable propositions about each may be obtained. That nexus is money. But such logic leads early on through a sort of tautological thicket: because we presume what is best for an individual is known (to that individual) we presume to know what's best for society by summing across individuals, via money. What's best is what's best. Fortunately for economists such a simple assumption allows an astonishing quantity of high level mathematics to be introduced, reinforcing strongly an appearance of science, when in fact what's happening is that the economists are just playing with equations. The problem with the theory is that what is best for individuals may well not be known, not even to themselves. And to the extent it is known it may often be primarily a function of some set of social relationships, not a set of ordered priorities determined from an atomistic individual point of view. Modern economics may be a beautiful mathematical edifice but its keystone is a will 'o the wisp without substance.

This is not to say everything about economics is wrong. It's not. Nevertheless, earlier generations of 'political economists' had a significant advantage in understanding that the study of exchange must follow from or defer to explicit philosophical assumptions. Economics is not and never will be a hard science.

Nor is money the measure of all things and we should have enough sense to know better. That idea took hold in universities in the 1970s and 1980s and has since spread like a plague through bastardized economics 101 courses into the general population. How entrenched exactly it has become may be seen in the passionate advocacy of 'free-market' ideas which exemplify the most vicious application of Darwinian thought, by Christian conservatives who simultaneously organize themselves to prevent the teaching of evolution. The bitter irony is, no doubt, lost on them...

Pointing out all the terrible things that are happening to our economy, to the poor and middle class alike, is no doubt a good thing. Wake up calls are in order. But these alarms will be all the stronger if they go after the smug religious certainty so commonly found behind bad policy. To take down economic theory a few notches is one thing. But to beat a theory one needs a theory, or at least the beginnings of one, or perhaps several. It's a critical part of the project to seek in, and demand from, those who would replace the Washington gang that runs things.