Sunday, May 25, 2014

Philosophy and economics in Adam Smith and beyond

Rachel M. Cohen has a post about an important but neglected figure in US economics: Marginalized Economists: Revisiting Robert Heilbroner U.S. Intellectual History Blog 05/25/2014.

In part of her post, she makes a reference to the philosophical background of Adam Smith, the classical philosopher of capitalism and pioneer political economist:

Robert Heilbroner's most famous book, The Worldly Philosophers, provides insight into what he thought about these new professional trends. Published in 1953, the book which traces the lives of economists like Adam Smith, Karl Marx and others, became one of the most widely-read texts ever written on the history of economic thought. Although Heilbroner self-described politically as a democratic socialist, he reserved immense admiration for economists like Smith and Schumpeter. In fact, realistically, he hoped to see a return to economic conversations rooted in the spirit of thinkers like Smith. That would demand, for example, that to really theorize on markets and businesses, as Smith does in The Wealth of Nations, one must also delve into topics like justice, virtue and conscience, as Smith does in The Theory of Moral Sentiments. In a 1999 New York Times interview, just six years before his death, Heilbroner said, "The worldly philosophers thought their task was to model all the complexities of an economic system — the political, the sociological, the psychological, the moral, the historical... modern economists, au contraire, do not want so complex a vision. They favor two-dimensional models that in trying to be scientific leave out too much." [my emphasis in bold]
Cohen also makes a good point on an issue the late John Kenneth Galbraith also highlighted. Cohen:

Heilbroner also strove for economic conversations that ended the "precipitous decrease" in the presence of the word capitalism. Without referring to the economic system by name, Heilbroner argued, we encourage individuals to forget what the system is for and in whose interests it is working. He looked to Joseph Stiglitz, who penned a 997-paged economic textbook, and found in it a grand total of zero references to the word "capitalism." These types of absences reinforced Heilbroner's angst that society was losing sight of a fundamental descriptor necessary to conceptualize modern economics. [my emphasis in bold]
Galbraith devoted the first short chapter of his book-essay The Economics of Innocent Fraud: Truth for Our Time (2004), the last book published during his lifetime, to that very point, "The Renaming of the System":

Managers, as will later be emphasized, not the owners of capital, are the effective power in the modern enterprise. For this reason and because the term "capitalism" evokes a sometimes sour history, the name is in decline. In the reputable expression of economists, business spokesmen, careful political orators and some journalists, it is now "the Market System." ...

During World War I, sophisticated thought, extending to belief, held that the source of the conflict and its mass death and destruction had been the rivalry between the great arms and steel combines of France and Germany. In back of the slaughter were those who, for profit, made the guns.

Later, and more destructive to the reputation of capitalism in the United States, was the visibly insane Florida real estate speculation, the rising corporate and industrial voice and, most important, the stock market explosion of the late 1920s. Then came the world-resonating crash of 1929 and, for ten long years, the Great Depression. Capitalism all too obviously did not work. So denoted, it was unacceptable.

There followed a determined search for a benign alternative name. "Free Enterprise" had a trial in the United States. It didn't take. Freedom, meaning for enterprise decisions, was not reassuring. In Europe there was "Social Democracy"-capitalism and socialism in a companionate mix. In the United States, however, socialism was {as it remains) unacceptable. In the next years reference was to the New Deal; this, however, was too clearly identified with Franklin D. Roosevelt and his cohorts. So in reasonably learned expression there came "the market system." There was no adverse history here, in fact no history at all. It would have been hard, indeed, to find a more meaningless designation - this a reason for the choice. [my emphasis]
If Occupy Wall Street didn't contribute anything else, it helped to put terms like "capitalism" and related ones like "the One Percent" into the American political vocabulary more prominently.

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