A laymen’s portraiture of the giants of classical economy, coming to dwell on Keynes’ 20th-century predominance. Since Smith, the field has sought for a Newtonian (i.e., physical or cause-and-effect) set of laws governing socioeconomic activity but instead settled on a more Darwinian (biological or dialectical) approach, premised on any number of phenomena.
• Ricardo: specialization is determined by whomever has the lowest opportunity cost. Therefore, prudential reshoring is simply a revaluation of cost – it cannot be left to agency bust must be principally viewed (but see also ‘transfer earnings’)
• Mill: positive economics describes (predicts) the world as it works, as it should normatively govern a set of morals or ethics. When otherwise, there is need for reform. Following Burke, he sought for equality of opportunity; equally so, it is government’s obligation to demonstrate the likelihood of an intervention’s improving matters.
• Marx: economic changes are cause-and-effect, social changes (in the so-called superstructure) are ideological and potentially revolutionary. The Marxist focus on labor value shortchanges capital including ideas (entrepreneurship) and delayed gratification, which are not free goods
• Marshall: marginalism asserts the past is over, what counts is what’s nest. Microeconomics hold actors take new steps only if benefits outweigh the costs: man is not a constant. Look at one factor at a time, impound the rest
• ‘Old’ institutionalists hold that large (private) firms belied marginalism. ‘New’ institutionalists use Marshall’s neoclassical tools to study how firms influence society. For example, does efficiency equate to justice? The latter also identified the principal agency problem
• Keynes: when consumers boost savings and investment, so will merchants, thus decelerating the economy in times of crisis. Say’s Law (production creates demand) is false. He was, however, a capitalist: not robber barons but national actors cause slumps. Keynes’ multiplier theory (government pump priming) is contemporary economic evidence of progressive belief in expertise.
• Monetarism holds velocity is more stable than in Keynes’ view, so money supply is government’s foremost tool. Government spending does not influence price unless money also changes. In the 1980s and afterward, saving reduced velocity, as did inflation’s fall. Friedman (not Hayek, who gets little attention) is emblematic
• Public choice: government too is self-interested. Keynes seemed to be aware progressivism undermines popular sovereignty but offered no answer to the principal-agency problem. Instead he felt the bureaucrats meant well.
• Feldstein, Boskin, Krugman, Summers et al focus on aggregate supply, coalescing around government and productivity, toward improved living standards, which requires investment, which entails tuning the tax regime
• Deduction seeks conclusion in incontrovertible laws; induction in recognizing more limited patterns and unprovable hypotheses that lead to predictive models. Put another way, the more or the more importance that can be attributed to law, the more deduction pertains; the less, the more induction holds. Relatedly, Friedman observed the test of a model is its predictive value not its ex ante accuracy
The author touches on ‘rational expectations’, a somewhat nihilist approach, and behavioralism; the book is too early for modern monetary theory. Using a droll style, large free of technical terms (and no charts), the author often projects a protagonist’s conclusions forward to the 1980s and 90s.