The Free Market 18, no. 12 (December 2000)
Rumor has it that the economics profession has finally been “won over” to a free-market view of the world. If the complimentary economics textbooks that cross my desk are a bellwether, however, it is not yet time to break out the champagne.
There is almost nothing in these texts on the strategic importance of private property, and forget anything that smacks of Austrian capital theory and the Austrian business-cycle theory. Instead, we get the usual celebration of antitrust law as a vehicle to “protect competition,” among many other statist ideas.
For example, a new text by Bradley R. Schiller gives lip service to the role of prices in the market. But it does not take long for him to point out that market mechanisms often result in failure. In his view, “The goal of every society is to attain the best possible (optimal) economic outcomes-the most desirable mix of output, the most efficient production methods, and a fair distribution of income.”
Just what is this “most desirable mix” that society seeks? Schiller does not say. Apparently, everyone already knows the solution, but those money-grubbing capitalists just won’t do what society wants them to do.
He gives us a hint in chapter four, however, as he leads off with a quote by the Marxist Robert Heilbroner: “The market has a keen ear for private wants, but a deaf ear for public needs.” Later in the chapter, Schiller again gives us the Heilbroner quote, as though the man were speaking ex cathedra.
When I was a college senior in 1975, I read Heilbroner’s An Inquiry into the Human Prospect in which he gave us all of the usual Malthusian rants and called for worldwide dictatorship to head off disaster. In that book, he emphasized his point that free markets will simply lead us down the wrong path, but a wise dictatorship that consisted of all-knowing leaders would keep those capitalists from killing all of us with their greed.
Heilbroner’s predictions-like most of the other things he has written on economics-are completely false. That an author would quote Heilbroner as an economic authority (and not instantly lose credibility with his peers) tells us more about Schiller and the state of the economics profession than it does about some imaginary optimal mix of “private wants” and “public needs.”
Look at how Schiller treats classical economics in general and Say’s Law in particular. Schiller begins by declaring that prior to the 1930s, “macroeconomists thought there could never be a Great Depression.” He goes on to say that classical theory denied the possibility of lengthy periods of unemployment and unsold inventories. Say’s Law was simply the economists’ version of “Field of Dreams”: If you produce it, you will sell it.
That a man with a PhD in economics would make such a statement in the face of historical facts is breathtaking. First, by 1930, classical economics was dead, having been laid to rest by neoclassical economists such as Carl Menger, William Stanley Jevons, and (to a lesser degree) Alfred Marshall. David Ricardo and John Stuart Mill’s writings, especially when it came to understanding the nature of value, had already been bypassed. As for Say’s Law, J.B. Say himself, in writing his famous chapter XV (book I) in his Treatise on Political Economy, began by describing conditions of what today we would call a recession.
In other words, the “classical” economists and their successors had all lived through various downsides of the business cycle. To say that they denied the possibility of economic depression after having lived through a number of them is ludicrous.
Furthermore, the Great Depression actually vindicated much of the theory known as classical economics. Their point was that in the absence of constraints on wages and prices, the economy would ultimately find a balance. As Murray N. Rothbard has shown us in his classic America’s Great Depression, the US government under Herbert Hoover did everything in its power to prevent wage and price flexibility.
All of this is lost on Schiller, who simply apes John Maynard Keynes and his unfortunate “classic” The General Theory on Employment, Interest, and Money. What he gives us is not an explanation of economic theory, but rather a hodgepodge of myths, fallacies, and ex cathedra statements trying to pass as economics.
Perhaps my optimistic colleagues are correct in saying that economists are moving more and more toward free markets. Yes, there are some good books out there, but if Schiller represents the mainstream, then the economics profession has a long way to go before it manages to give a believable answer to how the world really works.
William L. Anderson, adjunct scholar of the Mises Institute, teaches economics at North Greenville College (anderwl@prodigy.net).
