Reconstructing Political Economy

The Great Divide in Economic Thought

William K. Tabb

• Publisher: Routledge
• Year: 2002
• Print ISBN: 9780415207621
• eBook ISBN: 9781134621637
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This volume offers an original perspective on the questions the great economists have asked and looks at their significance for todays world. Written in a provocative and accessible style, it examines how the diverse traditions of political economy have conceptualised economic issues, events and theory. Going beyond the orthodoxies of mainstream economics it shows the relevance of political economy to the debates on the economic meaning of our times.
Reconstructing Political Economy is a timely and thought-provoking contribution to a political economy for our time. In this light it offers fresh insights into such issues as modern theories of growth, the historic relations between state and market and the significance of globalisation for modern societies.

1 The two cultures in economics

[A]nalytic effort is of necessity preceded by a preanalytic cognitive act that supplies the raw material for the analytic effort… [T]his preanalytic cognitive act will be called Vision. It is interesting to note that vision of this kind not only must precede historically the emergence of analytic effort in any field but also must re-enter the history of every established science each time somebody teaches us to see things in a light of which the source is not to be found in the facts, methods, and results of the preexisting state of the science.

(Schumpeter 1954:41)

Arjo Klamer (1990) has a way of describing what is peculiar about modern economics. He draws a square to stand for the rigid axiomatic method that dominates most journals in the field. The square, he points out, is the ideal shape of modernist architecture and painting, of Mondrian and Mies van der Rohe. Squares are about facts and logic. Show me the theorem. Then he draws a circle some distance from the square. Circles are about metaphor and story. Circle reasoning is the other half. Tell me your story. Since the seventeenth century, and especially during the mid-twentieth century the square and the circle have stood in nonoverlapping spheres, sneering at each other.

(McCloskey 1993:69)

One is tempted to say that there are two types of people, those who require determinacy and closure, and those who can tolerate ambiguity and open-endedness.

(Samuels 1992:11)

The work of most economists consciously or not involves a characterization of their own time and place. For Adam Smith, it is the conflict between an old system of centralized authority in which the crown attempted to organize allocation of resources, and a new way of doing things in which individuals were to be trusted to know their own best interests; and, rather than these interests being only in conflict, Smith said that out of competition would come greater wealth for the nation (yet he did, as we shall see, support statist interventions in some circumstances). Within half a century, the business class had grown and the conflict between landlords and capitalists became the central issue. Thomas Malthus developed theories that supported the claims of the landlord class, whilst David Ricardo championed the manufacturers. These classical economists saw the period in which they lived as a transitional one of struggle for control over the future direction of society. Advocacy of competing claims brings out the creative talents of thinking individuals as they reconceptualize the world around them. In the Great Depression, John Maynard Keynes addressed the causes of unemployment by reinterpreting how capitalism functions. State intervention, which in Smith’s time was often an exercise in monopoly power to extend privilege and economic rents to friends of the sovereign, becomes for Keynes, in an era of democratic governance, a vehicle that, if used wisely, could produce stability and generate growth.

By the end of the twentieth century, the cutting edge of economics was a new classical economics which, because of developments in the larger society, theorized state intervention as the problem and not the solution. Deregulation, privatization and market flexibility were once again the point of departure for innovative economics. I will suggest that after neoliberalism as a policy practice, and new classical economics as a theoretical stance, have run their course, the strength of the political economy approach will become more prominent within the profession. The reason is that the social structure of accumulation and regulatory regime that dominated the postwar period has eroded. This process of decomposition is one in which market forces do this work, or rather their undoing work. At a certain point, it is argued, this negative moment comes to have severe costs; it goes too far in a sense, and there is need to build a new stable, regulatory pattern. This argument will be more appealing to readers for whom the political economy approach to the institutional embeddedness of markets and concerns over the costs of social inefficiency are core parts of how they understand economics.

Material conditions and epochal change interact with people’s Weltanschauung, world-view, pre-analytic vision, personal psychology and optimistic or pessimistic natures, and together contribute as much and perhaps more than their education and training to how they go about answering such questions. There are those who see order and stability underlying temporary dislocations; others see instability as the norm. The first group wants to explain permanence; the second studies the nature of evolution and change. The mainstream of economic science concerns itself with the first sort of project. This book is about understanding socio-economic transformation from the latter perspective, which I will call the mainline tradition. Our subject is how change in the political economy is experienced and theorized. We take a long view in examining how economists think and have thought over the last 200 years and more about the economy—how they make up the stories and ways of answering questions they label economic. This book explores how to think about our own time through a rereading of the history of economic thought. It is both an intervention in an ongoing conversation concerning what constitutes a usable economics and a reflection on the classical question of the nature and causes of the wealth and wellbeing of nations. It is written for those who are coming into this ongoing conversation with little knowledge of what has been said and are confused as a result. Of course, there are perhaps as many interpretations of what the conversation has been about as there are participants in the conversation, and so what follows, whilst it draws on a vast literature and on hundreds of opinions, is only one possible telling of the story.

Themes of a political economy for our time

Defining trends are hard to read as they unfold. That is part of the reason why economists line up on different sides of explanatory divides; but they also disagree for the reason Joseph Schumpeter suggests—they begin with different ideas about the way the world works and should function. They have different pre-analytic visions. He believed that such vision is ‘ideological almost by definition’ (Schumpeter 1954:42). Since, as Schumpeter thought, it is the ‘preanalytic cognitive act that supplies the raw material for the analytic effort,’ vision selects the topics and the approach to their study without which there is no economics. As a result, when we look at our subject from various angles, and when different people do the looking, the world can take on a multitude of shapes. Methodology has become a growth industry in economics, although we shall not comment on the many efforts to organize the topic (Khalil 1995; Dow 1997; Samuels 1997).

My account of how our time in economic history can be understood may tell something of my own approach. It stands at variance to the mainstream procedure that proposes economic science to be relevant to all times and places and its task to be building a system of logical order from given premises. Like much of the work in the mainline tradition, my account stresses historical specificity and institutional embeddedness, and builds generalized models from such awarenesses. The view taken is that the central process that characterizes our time is that of decomposition of the particular postwar technological foundation and the regulatory regime that went with it, and a recomposition based on a very different pattern of production and of spatial arrangement within the world system. I want to argue that seeing economics in this way, as a set of questions better described from the stance of the study of political economy, is a tradition of long standing in the history of economic thought. Seen in this way, contemporary approaches that fit this mainline approach need to be understood as a broad and historically influential methodology. The fact that mainstream economics has marginalized this approach, has weakened the profession in ways that will be discussed. This book is an effort to restore the holistic quality of economics or political economy as a social science. In periods in which the institutional givens and broader political economic context in which economists work are changing, this broader understanding of the discipline is especially essential.

The transformation of the late twentieth century is talked about in many ways. Some stories stress the importance of flexible and time-responsive innovation and niche marketing, a freeing of finance, a reordering of our industrial relations system, and of government as an actor in the political economy. Today we can speak of the world rushing headlong in two directions at the same time. The accelerated project of modernity, the efficiency driven reorganization and rationalization of commodity space, coexists with a renewed vitality of identity politics and its strong resistances based on notions of self-preservation and traditional understandings of fairness. Thus, on the one hand, there is the globalization of economies, a technological revolution in communication, a sweeping aside of traditional ways and the more secure accommodations of the past, and a forcing of a new stance on nations wanting access to leading technologies, lowest cost capital, and widest choice of products. Countries, corporations, and individuals are all being told that they need to get more competitive through privatization and balanced budgets.

On the inevitable other hand, this process which economists applaud—thinking it is better to ‘get with’ historic change than to try to stop ‘progress’ —has created many losers who are in pain, confused, and angry at being told that they ‘don’t have the right attitudes,’ that they aren’t showing proper ‘flexibility.’ The pressures have spawned freelance efforts to survive through work in the underground economy to individualized acts of violence. Politically, movements of collective resistance organize around local identities—nationalism, ethnicity, racial and religious—in an effort to forge an ‘us’ suitable for venting dissatisfaction, outrage, and anger over what is happening, and to change a future that seems to exclude the sort of life the various ‘we’ want, and were brought up to think possible, even likely. The world moves in one and the same historical conjuncture toward a hyper-modernism of economic integration and a post-modern fragmentation of localisms.

Many economists tend to be optimistic, believing that developments in technology, given freedom to play themselves out, will produce employment and raise living standards. Innovations in computational power, biotechnology, new material sciences, and all manner of capacities undreamed of in the philosophies of even a few years ago, are opening doors to a better future. A new ‘industrial’ revolution, based upon the power unleashed by the microprocessor, has the potential so far only hinted at to lighten work and produce a dazzling array of consumer products and business services. The combination of free markets, global mobility, and technological innovation will free humankind from age-old miseries, or so it is hoped. Others ask how widely these benefits will be enjoyed in a world where half the world’s population has never even used a telephone—the dirt road of the information highway.

A globalized economy reemerged after a hiatus of two world wars, a great depression and postwar recoveries. It is built upon technological underpinnings that, as usual in periods of significant transition, are experienced most dramatically in innovations in communication and transportation. Mainstream economics is constrained in making sense of such discontinuous developments by its methodological privileging of marginal change, regularities and self-equilibrating tendencies. Viewing economic processes as part of the larger societal functioning is discouraged by the broader specialization among academic disciplines, and the focus on understanding economics-as-science leads to a technical framing of issues that diminishes the role of social choice and enforces an economic determinism. For its first century (roughly from Adam Smith’s The Wealth of Nations published in 1776 to the neoclassical revolution circa 1870), economics was called ‘political economy’ and reflected a continuity with its earliest origin in the management of the public household and in ethics. The separation of some of its broader concerns, with the division at the end of the nineteenth century into the academic disciplines of the social sciences, increased the analytic power of the specialized discourses but perforce narrowed the scope of what had been political economy. Social concerns were for the most part left to the ‘soft’ academic disciplines and as topics for religion and politics. Economics aspired to scientific status and the profession came to marginalize these older traditions.

Within economics, methodologists have gone through cycles of new ways of thinking about their field. Logical positivism, Popperian falsification, Kuhnian paradigm conflicts, Lakatos research programs, and McCloskey rhetoric projects have all grabbed their attention, until they tired of a particular way of talking about how economists communicate with each other and judge how they do what it is that they do (Blaug 1976; deMarchi and Blaug 1991). There are endless ways of thinking about the profession’s subcultures as a collection of ideas, symbols and learned aspects that pattern thoughts and perception, which are taught to disciples and reinforced by peers and acknowledged gifted practitioners. There are indeed separate grammars and imageries, stories and approved modes of story telling among these separate discourses. The distinctions can be variously grouped and differences can be overdrawn, of course; but sometimes it seems that distinct groups of economists are part of different tribal groupings.

In truth, there are many possible taxonomical categorizations possible for setting apart the branches of economic thinking. I am drawn to a simplifying strategy that is inspired by C.P.Snow’s idea of ‘the two cultures.’ The contrasting cultures that C.P.Snow saw, looking at the humanities and the sciences, have I think a parallel in a division between two cultures within economics that has always been present since economics was first understood as a separate intellectual undertaking. It is not surprising that economics, which has roots in moral philosophy and its aspirations in being a ‘real’ science (for example like physics), should be caught in this two-cultures tension. Snow’s discussion of what it was like for a scientist like himself, who was also a novelist, to truck between groups, one that was for the most part uninterested in literature and the humanistic traditions and the other appallingly ignorant of basic science, paints a picture not unfamiliar to those who have watched theorists and institutionalists, orthodox and heterodox, and other categories among economists talk about the way they do economics.

There are many kinds of conversations going on within the profession, with very different conventions and interpretative structures. My suggestion is that amidst this diversity there is a pervasive and deep cultural divide. I shall employ an A/B categorization (which will be explained at the start of the next chapter) throughout this book to describe what I think of as the most important division within the profession. Of course, any such dualistic distinction oversimplifies the complexity of interlocking and overlapping positions but can have the virtue of sharply focusing on the tensions at work. In Chapter 2, after explaining the A and B modes of doing economics, I will have more to say about the claim that these approaches represent different capacities to do science, and then suggest something of the way economics, is theorized and taught by telling two stories commonly related by mainstream economists, which are deconstructed and retold to suggest the way assumption and pre-analytic vision color the project of doing economics.

Chapter 3 is devoted to the father of economics, Adam Smith. This is not because he was the first economist (he wasn’t) but because The Wealth of Nations was the first book to describe something we can recognize as the economic world in which we live in a fashion that remains illuminating and accessible. Smith influenced millions who have never read him but who have absorbed something of what he said, or is reported to have said. Subsequent chapters take the story through (among others) Ricardo, Malthus, Mill, Marx, Marshall, Walras, Keynes, and Schumpeter. The last part of the book examines modern growth theory and then explores economic restructuring in our time, the experiences in combining market and state, especially with regard to globalization trends and its theorizations, labor market roles and the recomposition of classes that have resulted. Our project is one of revalancing these categories, which are at the center of the debates on the economic meaning of our time. This will be undertaken in the context of the rereading of the history of economic thought. This history reminds us of the wide canvas on which political economists once created pictures of social existence and discussed the relations that defined the way their world worked. As we shall see, a number of the profession’s best and brightest have struggled to combine A and B mode approaches in their work. For their pains, they have typically been accused of eclecticism,¹ a charge that appears especially prominently in what are known as Whig histories (Samuelson 1988).

Whig history reads from the present back, looking for the origin of the accepted truths of the modern period. Whig historians are willing, as Herbert Butterfield writes, ‘to praise revolutions provided they have been successful, to emphasize certain principles of progress in the past and to produce a story which is the ratification if not the glorification of the present’ (Butterfield 1959: v). Thus Paul Samuelson, a confirmed Whig in his approach to the history of ideas in economics, remarks that ‘within every classical economist there is to be discerned a modern economist trying to be born.’ He builds models of classical economics that formulate their core ideas parsimoniously in terms of modern theory (Samuelson 1978:1415). In response, those critical of such Whiggery call attention to the tendency in such an approach to imagine that one has discovered a root or an anticipation of modern phenomena ‘when in reality he is in a world of different connotations altogether’ (Butterfield 1959:12).

An alternative to Whiggish history is the study of canon formation, which works at the level of the problematics rather than the solution to the problem. As Richard Rorty writes, it spends more of its time asking ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• 1 The two cultures in economics
• 2 Of dialogic debates and the uncertain embrace
• 3 Contestation and canonicity: the Adam Smith problem
• 4 The legacies of classical political economy
• 5 Marx and the long run
• 6 The neoclassical (counter) revolution
• 7 Heterodoxy and holism
• 8 Keynes and the world turned upside down
• 9 The last half-century in the mainstream
• 10 Theorizing economic growth
• 11 From equilibrium into history
• Notes
• References
• Index