In titling his book Europe and the People without History, Eric Wolf was of course being ironic: Wolf’s project restored history to people Europe had cast as trapped in a timeless past. But what about people who deliberately erase, distort, and forget their own history? In this piece I argue this is what economists have been doing since the 1970s. Neo-classical economics engaged in a history-erasing project, in part to bury their previous marginalization within the discipline. By restoring history to the economists, we may be able to have “critical conversations that genuinely cut in both directions” as Charles Stafford (2011) enjoined.
1. There is no direct line from classical to neo-classical economics
For many years economists have taken a few famous snippets from Adam Smith and painted him as the essence of laissez faire market economics, the direct ancestor of economists everywhere. It is only recently that a much richer picture of Adam Smith has emerged--as economist Herbert Stein famously wrote, “Adam Smith did not wear an Adam Smith necktie” (1994).
Although The Wealth of Nations from 1776 is Smith’s most famous book, it is now clear Smith considered his first major book, The Theory of Moral Sentiments (1759), to be equally important and necessary to the kind of society he promoted. The Theory of Moral Sentiments has been republished in 2009 by Penguin Classics, and contains an important introduction by Amartya Sen. Sen’s introduction is very instructive for recapturing Smith’s richness and understanding how neoclassical economics might be considered an impoverishment rather than an elaboration of Smith.
Within this wider context, some of the snippets from Smith--such as the oft-repeated “invisible hand”--take on different meanings. In his many pages of writings, Smith only used the phrase “invisible hand” two times in reference to economic activities. For Smith, market rationality and the invisible hand only worked if there was adequate awareness of moral sentiments and a capacity for sympathy with other human beings. Some prominent economists have even argued that the “invisible hand” does not actually refer to self-regulated markets, but to the state, or the legal framework for structuring markets.
Finally, even in The Wealth of Nations, a full reading of the text makes it clear Smith provides ample room for a variety of government interventions, including not just defense and justice, but also for public works, education, health, and community welfare. Smith also endorsed a quite malleable view of human nature, with basic human capacities shaped by the conditions of life:
The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown to maturity, is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. (Smith 1986:120; see also Peart and Levy 2005)
In short, Smith did not give birth to neo-classical economics--rather, neo-classical economics claimed Smith, attenuating his rich and wide-ranging observations for the purposes of a much narrower project.
2. Before the 1970s, neo-classical approaches were not hegemonic within economics
In reaching back to claim an attenuated Adam Smith, neo-classical economists were also seeking to erase and deny the importance of other economic approaches. It is a very little known history--even for most economists--that until the 1970s, neo-classical approaches were not hegemonic within the discipline. In fact, neo-classical economists were quite likely to feel marginalized and ignored. This is documented in a new book by Malcolm Rutherford, The Institutionalist Movement in American Economics, 1918-1947: Science and Social Control (2011). Rutherford argues that although institutionalism has been portrayed as a sideshow or fringe element, institutionalist approaches were very much part of the economic mainstream and may have even been dominant during this period.
The institutionalist economists were more like anthropologists--they were committed to empirical research and they felt economics should be based on a holistic and cross-disciplinary understanding of human complexity. Economists like Clarence E. Ayres explicitly linked the institutionalist movement to anthropology and the social basis of human nature: “Human beings are not what they are in any intelligible sense of the phrase ‘by nature.’ Human beings are social phenomena. Social patterns are not the logical consequents of individual acts; individuals, and all their actions, are the logical consequents of social patterns” (1951:49).
When a narrower model of Homo economicus re-emerged triumphant in the 1970s, the neo-classical economists sought to bury and erase any vestiges of institutionalism or heterodoxy. But this is not because neo-classical approaches were always dominant--instead, the virulent triumphalism (and missionary zeal) of neo-classical economists was rooted in prior marginalization.
Even within the mainstream neo-classical canon, there are sometimes unexpected motivations and purposes. Consider this declaration from Frank H. Knight, a founder of the Chicago School of economics:
It ought to be the highest objective in the study of economics to hasten the day when the study and the practice of economy will recede into the background of men’s thoughts, when food and shelter, and all provision for physical needs, can be taken for granted without serious thought, when “production” and “consumption” and “distribution” shall cease from troubling and pass below the threshold of consciousness and the effort and planning of the mass of mankind may be mainly devoted to problems of beauty, truth, right human relations and cultural growth. (Knight 1933)
It may indeed be important to reacquaint economists with this highest objective.
3. Contemporary economists still like Keynes
The neo-classical zeal to eradicate other ways of doing economics was quite effective. However, as a recent survey of academic economists revealed “the top-rated 20th century economist was Keynes, followed closely by Milton Friedman” (Wight 2011). Some other surprises from the graphs: Karl Marx rates at #5 for a favorite pre-twentieth century economist, and Paul Krugman is by far #1 for top-rated economists under age 60. There may be more existing heterogeneity within the academic profession of economics than might be readily apparent.
Many anthropologists receive a caricature of economics. This caricature has been promoted by neo-classical economists, who sought dominance and the erasure of heterogeneous approaches. Restoring a fuller history can help to promote a rapprochement between anthropology and economics.
I am grateful to the National Endowment for the Humanities Summer Institute, “Teaching the History of Political Economy” (Duke University, 2010) for much of this material. I particularly drew on seminar participants Jack Weinstein for new approaches to Adam Smith (see Weinstein 2001) and Craufurd Goodwin for introducing the insitutionalist movement.
Although the Summer Institute emphasized historical and heterogeneous approaches to economics, I also learned most economists are not ready for the kinds of meta-critique or reflexivity common in anthropology. As historian of economics Roy Weintraub writes, “economists appear to believe that there is a tangible object of study called ‘the economy’, and that facts and evidence and data derived from that economic reality can be used by economists to construct theories, while those theories themselves can be confronted by the data” (1999:149). Attempts to challenge such beliefs, or to show how a sphere like “the economy” has a constructed history, can be met with derision.
Ayres, Clarence E. 1951. The Co-Ordinates of Institutionalism. American Economic Review 41 (2):47-55.
Knight, Frank H. 1933. The Economic Organization.
Peart, Sandra J., and David M. Levy. 2005. The "Vanity of the Philosopher": From Equality to Hierarchy in Postclassical Economics. Ann Arbor: University of Michigan Press.
Rutherford, Malcolm. 2011. The Institutionalist Movement in American Economics, 1918-1947: Science and Social Control. New York: Cambridge University Press.
Smith, Adam. 1986. The Wealth of Nations: Books 1-3. London: Penguin Books.
------. 2009. The Theory of Moral Sentiments. New York: Penguin Books.
Stafford, Charles. 2011. Living with the Economists. Anthropology of this Century, Issue 1, http://aotcpress.com/articles/living-with-economists/.
Stein, Herbert. 1994. Adam Smith Did Not Wear an Adam Smith Necktie. Wall Street Journal, April 6.
Weinstein, Jack Russell. 2001. On Adam Smith: Wadsworth Publishing Company.
Weintraub, E. Roy. 1999. How Should We Write the History of Twentieth Century Economics? Oxford Review of Political Economy 15 (4):139-152.
Wight, Jonathan B. 2011. Economics Professors' Favorite Economic Thinkers. May 14. http://www.economicsandethics.org/2011/05/economics-professors-favorite-economic-thinkers.html.
Wolf, Eric R. 1982. Europe and the People without History. Berkeley: University of California Press.