Speaking to Occupy Wall Street protesters at Zuccotti Park in New York City last October, the Columbia economist Jeffrey Sachs placed himself squarely on their side, saying, “You are doing a magnificent job. This is how history is made. This is how this country is going to turn. Anything I can do, I’m going to be with you to support you.” Using the most popular slogan of that fall, he distanced himself from the wealthiest Americans, insisting, “They are the 1%. We’re the 99%.”
This was a bit rich. Sachs, as many in Zuccotti Park that day surely knew, had been a key player in the privatization of struggling economies from Bolivia to Poland in the 1990s, when American advisers were urging those countries to adopt free-market policies as rapidly as possible. This advice led to terrible economic suffering for the “99 percent” of Bolivians and Poles, and to violent repression of protests against what its proponents called “shock therapy.”
However we may judge Sachs’s actual complicity in these events, his impulse to strike a populist note says something interesting about the self-perception of economists, at least liberal ones, in the post-crash political landscape. Since the late 1960s, when the Nobel Prize Committee first decided to award a prize in economics, the intellectual prestige and political capital of the discipline has been high. But this was not always so. After the Great Depression, economists were viewed with far more suspicion than today (not least because prominent economists like Irving Fisher made such optimistic predictions of long-term stability just before the crash in 1929). And at mid-century, though it is hard to believe, even business schools looked askance at economics departments, which were seen as having become too mathematical and theoretical to give future business leaders any relevant knowledge. It was only the historical coincidence of the dawn of the financialization of the American economy with the last golden days of the Pax Americana that gave the field its magical aura of being both a realm of arcane scientific knowledge and a source of practical wisdom. That aura took literary form in the genre of advice to investors—a genre that runs from Burton Malkiel’s 1973 best seller A Random Walk Down Wall Street, now in its tenth edition, to books like Nassim Taleb’s 2007 Black Swan: The Impact of The Highly Improbable. Words like “random” and “improbable” are not in the title of those volumes for no reason; they helped convey to a mass readership the sense that the authors were trained in the kind of financial math that made them The Smartest Guys in The Room.
The crash of 2008 did some damage to this image. After all, the implosion was facilitated, if not created, by financial instruments whose risky character was both enabled and disguised by the mathematical sophistication with which they were designed, and that mathematical sophistication is the fruit of post-war economics. Little wonder, then, that many observers—from academics and financial journalists to politicians and activists—felt that at least partial blame for the meltdown rested with economists.
The book tries—and fails—to vindicate the idea of a
genius particular to economic thinking in exactly the moment when such “genius”
has been in serious question.
So it is noteworthy that one recent high-profile book about the rise of professional economics, Sylvia Nasar’s Grand Pursuit: The Story of Economic Genius, would be framed as an emphatic defense of the intellectual merit—indeed the glory—of the field. Compared to her last book, the best-selling A Beautiful Mind (which was later made into a film starring Russell Crowe), Grand Pursuit did not make much of a splash. But it is an interesting book nonetheless, not least for the way it tries—and fails—to vindicate the idea of a genius particular to economic thinking in exactly the moment when such “genius” has been in serious question.
This is no easy task, and Nasar’s first gambit is to set her tale entirely before the era of economics’s greatest prestige (and greatest swagger). Beginning with a brief look at the glaring contrasts between wealth and poverty in mid-nineteenth-century England, and pausing over the ideas that led to the appearance of the first great English-language economics textbook (Alfred Marshall’s Principles of Economics, published in 1890), Grand Pursuit spans the two world wars. Focusing on this period lends itself well to the story of “genius” Nasar wants to tell—there is very little math to worry over, and there is drama to be found in the ways economists of the period are not quite fully professionalized, nor yet have the ears of the governing classes. The first half of the twentieth century is the adolescence of the field, so to speak. As the curtain rises, economics has grown more empirical and detailed than Adam Smith was ever able to be, but it has not yet become so technically inscrutable that the lay observer might mistake its language for a kind of elite arcana. In this sense, Nasar’s book is framed as a coming-of-age story.
There is a political payoff to focusing on the period of the two wars, as well. If one studies the mainstream Euro-American economic history of the period from, say, the late nineteenth century to immediately after World War II, it is easy to script it as a tale of triumph: a series of global downturns in the 1890s lead to a world war, whose resolution in 1919 is handled with an eye only to vengeance for the victors, and with no concern for economic realities, which leads one young economist (John Maynard Keynes) to predict a disaster that soon arrives in the form of a global depression and another world war, but by this time governments have learned to pay attention to economists, making the generosity of a Marshall Plan and the bringing-round of Europe and Japan to unparalleled prosperity a perfect contrast to the economically shortsighted and vindictive Treaty of Versailles. Told this way, the “story of economic genius” is not only a coming-of-age story but a tale of level-headed professionals beginning to assert themselves as a class—specifically, a class whose passion for ideas preserves them from all the ugliness that “class” might otherwise imply.
So there is genius, you might say, in how Nasar has framed her story. But the book is unpersuasive. It neither works as a coming-of-age tale, nor as a defense of the field: her attempt to turn economists into compelling literary characters falls flat, producing awkward sentences that mingle marriage plots and interest rates, and skimping on the intellectual content of the “genius” she so prizes. Indeed, reviews of Grand Pursuit, while generous, reflected bewilderment about the attempt to endow the history of economics with literary qualities: while acknowledging that elsewhere (as in A Beautiful Mind) Nasar was clearly able to tell a compelling story, most questioned whether the story of the professionalization of the discipline, whatever its real-world benefits to humanity, was tellable as a heroic tale.
The early twentieth-century history of economics
should be able to be told in a heroic mode—certainly the discipline retains
tremendous intellectual prestige—but something about Grand Pursuit suggests
that it can’t be.
And this is what interests me about the book. The early twentieth-century history of economics should be able to be told in a heroic mode—certainly the discipline retains tremendous intellectual prestige—but something about Grand Pursuit suggests that it can’t be. The problem has to do with the content of what Nasar takes to be “economic genius.” She is very clear that her book is not a history of the profession of economics so much as “the story of an idea”—and though she never tells us explicitly what that idea is, across the volume’s 500-plus pages it emerges as a prosperity gospel in which economists are apostles of the message that, far from being doomed to scarcity, humanity has the potential to live in abundance, if only it gets the theory right.
This idea dates to Marshall, whose Principles is built around the theory that, given technological improvement, the accumulation of wealth need never be a zero-sum game that pits, say, workers against owners. As Nasar puts it,
[Earlier economists believed that] working conditions, if anything, worsened over time. Marshall saw not only that this was not so in fact, but also that it could not be so. Competition for labor forced owners to share the benefits of efficiency and quality improvements with workers, first as wage earners, then as consumers. The evidence confirmed that Marshall was right. The share of wages in the gross domestic product—the nation’s annual income from wages, profit, interest, and proprietors’ income—was rising, not falling, and so were the levels of wages and working-class consumption—as they had been in most years since 1848, when The Communist Manifesto and Mill’s Principles of Political Economy appeared.
This passage captures in miniature much of the intellectual character of Nasar’s book: her sense that the story of economics is primarily a story of “optimism” overcoming the fables of scarcity propounded by early economists like Thomas Malthus and David Ricardo; her admiration for Marshall’s turning to empirical observation rather than mere theory; her citation of the existence of statistics somewhere that confirm the correctness of that turn to the empirical; and her sense that the ability to point to “rising standards of living” is a refutation of the Marxist critique of political economy.
Nasar, like most economic thinkers, is haunted by Marx, and she very much wants to believe that ideas like Marshall’s will dispel his specter forever, because the data proved Marshall right. Again and again in Grand Pursuit, Nasar wags her finger at Marx—whom she believes wished suffering upon the working classes, so that they would spring despairing into revolutionary action—while pointing triumphantly to some moment in some place or other when the “standard of living” of the poor briefly rose. It’s the most repetitive gesture in the book.
But standards of living, even construed within the restricted terms of economics, can fall as easily as they rise: just this November, The New York Times reported that wages as a portion of American GDP (a key feature of how Nasar understands “standards of living”) were the lowest they’d been since 1929. So it’s hard to treat a temporary condition of the economy as a permanent achievement of the field that studies it. The numbers belie the story arc.
The problem for Nasar’s book is worse than the numbers not turning out in her favor, however; indeed, part of the problem is with numbers. Nasar takes on faith the virtue of empiricism while never asking how the figures she imagines being able to cite (she rarely cites them) are arrived at. As the economics writer Yves Smith pointed out after the crash of 2008:
Even when findings are empirical rather than theoretical, economists can give them more credence than they warrant. People tend to see figures as “hard” outputs: objective, reliable, repeatable, verifiable. But a good deal of economic data, such as unemployment, inflation, and GDP growth, are statistical approximations, rather than “hard” data points.
Even if Nasar were able to acknowledge that “the facts” she prizes are actually more like statistical approximations, she would still be facing a deeper problem, which is that, in the period immediately after her story ends, economics goes down a rabbit hole in which statistics begin to be significant simply because they are statistics. This problem is characterized with typically merciless wit by the gadfly economist Deirdre McCloskey in her 2002 manifesto, The Secret Sins of Economics:
It is also completely obvious that a “statistically significant” result can be insignificant for any human purpose. When you are trying to explain the rise and fall of the stock market it may be that the fit (so-called: it means how closely the data line up) is very “tight” for some crazy variable, say skirt lengths (for a long while the correlation was actually quite good). But it doesn’t matter: the variable is obviously crazy. Who cares how closely it fits? For a long time in Britain the number of ham radio operator licenses granted annually was very highly correlated with the number of people certified insane.
Even McCloskey, though, will not take the next step and acknowledge that it’s not only the more fanciful ideas in economics, but also the central ones, that face this problem. Take, for instance, the idea of “wealth,” which Nasar’s economists universally equate with the ability to purchase commodities, especially luxury goods. For support in making this reductive equation, Nasar approvingly cites the conservative economist Joseph Schumpeter, who wrote in his 1942 masterwork Capitalism, Socialism, and Democracy that “Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls.” It takes a more than a little habituation to “economic” thinking to realize that this statement conveys the essence of the profession’s idea of “wealth.”
Nasar is unable to acknowledge that economics, far
from being an adventure in pure thought or a disinterested “science,” is in
fact “scientific” only in the highly specific sense that it is the science of
capitalism—or, more accurately, the science of defending capitalism.
But drawing stockings over the weary legs of a factory girl will no more make her “wealthy” than a thin scrim of romantic subplots and coming-of-age tropes will make the story of modern economics into a romance of the scientific intellect, and Nasar cannot see this. She is unable to acknowledge that economics, far from being an adventure in pure thought or a disinterested “science,” is in fact “scientific” only in the highly specific sense that it is the science of capitalism—or, more accurately, the science of defending capitalism. Through the back door, Nasar admits this thought into her story: the preface describes economics as the search for “a way to improve the lot of the poor without overturning existing society”; and in a description that applies to the vast majority of economists, she notes that Keynes “regarded instability, not inequality, as the great threat to capitalism.” Others are more direct about the managerial function of the field. Robert Heilbroner, whose 1953 book, The Worldly Philosophers, remains one of the most influential histories of economics ever published, wrote in 1995 that “[the] inextricable entanglement of economics with capitalism appears to be the best guarded secret of the profession. Indeed, one suspects that the secret is not even known to all economists.” He adds that “the very meaning of ‘economic’ would be unintelligible outside capitalism.”
This entanglement is lost on Nasar, who writes as though it were economic ideas rather than capitalism transforming the world. Observers cannier than I have noticed this trouble with the book: in his review for The Wall Street Journal, James Grant writes that “economists no more set the world to producing and consuming than baseball statisticians hit home runs.” The real geniuses, he suggests, are successful capitalists.
And this is the crux of the problem with Grand Pursuit: the big idea lurking behind “economic genius” is the defense of capitalism, but, brought out in the open, the defense of capitalism tends to sounds heartless. Its sunny side lies in the Marshallian gospel of good times: as long as the wheels are spinning, we can all get wealthier, even if some of us get wealthier than others. Its dark side, which readers can depend on Schumpeter to provide, is that the bad times, when the poor suffer the most, are just the way of the world. Nasar quotes him with sympathy: “Like it or not, [Schumpeter] liked to say, ‘the pattern of boom and bust is the form economic development takes in the era of capitalism.’ ”
That’s an interesting phrase, “the era of capitalism”; it implies it might end. For Schumpeter, nervously gauging the possibility of a socialist East in the 1930s, this was a real concern. For us in 2012, it sounds disingenuous, as though capitalism were just something we’re all trying out while we weigh its pros and cons. But the window for such debates has long since closed, and even if it hadn’t, economics would not be the field to pursue the question of alternatives to capital. It cannot imagine society organized differently than today. No wonder it proved so difficult to write the history of the profession as a romance of the intellect: the paradise of economic theory is simply 2012 with more silk stockings.
In 2006, the economic journalist David Warsh published an enthusiastic history of the field called Knowledge and The Wealth of Nations in which he had the misfortune to focus his zeal precisely on the rise of the mathematics that would come to signify the profession’s complicity in the crash of 2008, a problem Nasar knew well to avoid. But the two books’ admiring portraits share a strong resemblance. For Warsh, until the 1980s and the beginning of the PC revolution, economics really had been the science of scarcity. But, in his story, the rise of the era of the personal computer made economists realize that the source of wealth isn’t stored up in our diminishing natural resources—but in our boundless creativity. In terms very much like the Marshallian ones on which Nasar depends, Warsh’s book tells the story of the rise of what economists have taught us to call “human capital”: the idea that the origin of value (which is seen to have an origin) lies not in material goods per se but in our capacity to recognize the infinite wealth-creating potential in technology. Warsh assigns a much later date to this discovery of abundance—it’s the PC, rather than the railroad or the automobile, that finally rescues us from scarcity—but the storyline is the same.
One wonders whether the real force of the epithet “literary”
is that “literary” work fails to acknowledge the hard truth behind the
prosperity-messaging: the truth, à la Schumpeter, that capitalism is not an
optional experiment in living, but a compulsory experience of turmoil.
There is an illuminating difference between Warsh’s book and Nasar’s, though, and it lies in Warsh’s frank account of how the profession policed itself along the road to its math-driven adulthood. Throughout his book, he notes that the worst dismissal that a postwar economist’s work could suffer was that it was “literary.” He describes economists using the word as a cudgel with each other; he uses it himself. For Warsh and his protagonists, the problem with literariness lies in its un-mathematical, and therefore un-scientific nature. But since there is no shortage of commentary among recent economic writers who are willing to say in public that math does not a science make (see, for instance, sympathetic books by Robert Nelson and Jonathan Schlefer), one wonders whether the real force of the epithet is that “literary” work fails to acknowledge the hard truth behind the prosperity-messaging: the truth, à la Schumpeter, that capitalism is not an optional experiment in living, but a compulsory experience of turmoil.
The word “literary” is particularly revealing in this context because, futile though her attempt may be to make a romantic narrative out of the history of economics, Nasar may have been on to something when she tried. She may have sensed, more thoughtfully than Warsh, that there’s something in economic anti-literariness, and in its pretensions to “science,” that calls out for remedy. But she misunderstands the problem, which is not that economics may once have had a literary soul. The problem is that there’s no resolving the conflict between capitalism and what I hope you won’t mind my calling poetry—if by “poetry” I may be permitted to mean the ability to imagine the world otherwise.
For Nasar, touchingly, economics is “scientific” not because it’s rigorous, but because it’s a product of the Enlightenment: she wants very badly to be able to tell the story of economic thinking as a tale of technical progress, in which economists drive poverty from the earth like medical scientists drove away polio. Certainly, liberal economists would like to think of their profession this way, as a prophecy of plenty; they have chafed at the epithet “the dismal science” since Thomas Carlyle first deployed it against the field’s pro-slavery arguments in 1849.
Carlyle’s coinage was, of course, a clever inversion of the idea of a “gay science”—first known to us in Provençal as gai saber, the art of writing poetry, and later, via Nietzsche, as the wisdom of a “science” that revels in not needing to defend itself by claiming to be one. But nobody who’s paying attention to economic theory could mistake it for a science. Unfortunately for economics, it isn’t poetry either. And as the art of apology for the world as it is, it never will be.