THE MINORITY ECONOMISTS
Word count: 3,438
Two hundred years ago less one, Adam Smith, a professor of Moral Philosophy at the University of Glasgow, published an Inquiry into the Nature and Causes of the Wealth of Nations. A great deal can be said in favor of pursuing the “social sciences” collectively as “moral philosophy.” With our present knowledge of behavioral genetics we know that we have certain sentiments because of our biological constitution. In our present ignorance of behavioral genetics, however, the safest path to an understanding of these instincts is inference from our literature. This was Adam Smith’s method of inquiry and it was quite fruitful. Some may object to his saying that “God had planted the sentiment of sympathy in the breast of man,” but at least Smith recognized the presence of this and other “moral sentiments.” Unfortunately, such modes of expression were discredited by the Enlightenment. In the moral skepticism which followed the baby was thrown out with the bathwater – or rather, the baby was thrown out and the bathwater retained.
The bathwater was moral imperatives, of which the traditional ones came under prolonged attack. Innovative imperatives, such as “The greatest happiness for the greatest number” were tolerated, perhaps because they were shallow enough to be harmless. That is to say, it is doubtful that our views on economic or political questions would have differed greatly had Bentham expressed his moral confusion less foolishly. The real problem in the nineteenth century was that the independent status of morality, understood not as imperatives but as genetic behavioral patterns, had been destroyed. On these matters the reformist imagination was awarded a dangerous measure of liberty. It became possible to look at institutions as arbitrary and alterable at will. Among Northern European political and economic theorists there was still an instinctive affection for the old and tested institutions. But increasingly they were defended on utilitarian grounds, which failed to emphasize, as “moral philosophy” had tacitly done, their biological foundation.
The Wealth of Nations can be said to be a study of the efficient use of human energy in society. The central lesson was that, with the institutions of property and contract, human energy is given maximum incentive and proper direction. Smith went into great detail about this, but his emphasis on prosperity as the product of human effort never waned.
It is only to the extent that a man sees his civilization as a product of his people that he will earnestly defend that civilization. Smith’s readers understood “industrial society” or “commerce and industry” in that manner. Today our institutions are explained differently. There is a family of harsh names each of which, so far as I can tell, was invented by a Jewish economist and which reflect, in a broad way, and view of our society. “Capitalism” was coined by Karl Marx and is a favorite of minority writers of all political inclinations. The “market economy” was first used by L. von Mises. His student, F. A. von Hayek, first used “the price system.” These expressions all reflect a materialistic view of what is going on. Among the non-Jewish writers, on the other hand, the names for our system are more likely to be associated with patterns of human conduct. We have already mentioned “industrial society” and “commerce and industry.” Marshall, the great British economist, used “the enterprise system.” Many of the older writers simply said “property and contract. “
On the whole, the literature of economics in the nineteenth century was comfortable to our moral instincts. Except in detached essays on special topics, the literature abounded with references to scriptures and to the classics. Concepts were explained etymologically, a tacit but forceful reminder that our thoughts and views have a racial history. Business customs were favorably described. A sense of continuity was evident, not the “science” of “capital-output ratios,” “factor proportions,” “marginal rates of substitution” and “demand elasticity.”
But in the nineteenth century literature there was, as farmers might say, “one big pig in one big poke.” The london stockbroker David Ricardo had written a treatise in 1817 in which a very curious view of society was presented. In it was the potential for a dehumanized treatment of what is today called the “economy.” Only a thorough knowledge of modern economics can adequately explain what Ricardo has done to the science. As the founder of what might be called the science of commodities, he occupies a place in economics somewhat like that of Freud in psychology.
Ricardo’s view of “production” was the combination of “land, labor and capital,” a view in many respects inferior to the “earth, air, fire and water,” of the ancient philosophers.
Adam Smith’s view of society as an organic unit was not present in Ricardo’s work. Instead of people working for each other, as Smith viewed the economic world, Ricardo saw the “produce of the earth . .. divided among three classes of the community,” the landowners, the laborers and what are now known as capitalists. “To determine the laws which regulate this distribution is the principal problem in Political Economy … [other writers] afford very little satisfactory information respecting the natural course of rent, profit and wages.”
To Ricardo how the pie was shared was more important than its size or how it was baked. Here was the origin of the theories of economic class struggles. One who was unhappy with Western Civilization could find abundant food for thought in Ricardo’s work.
What the older writers called commerce and industry Ricardo saw as movements of physical facts. He was oblivious to business practices, contracts and negotiable instruments. A few non-Jewish economists have reminded their readers that, etymologically, credit meant trust. Economically speaking, nothing so human and so correct ever came from non-Western pens. Adam Smith and his disciples understood bank credit currency as a species of promissory note. Ricardo wrote that bank notes were “coins, the entire cost of which is seigniorage.” The reader can interpret for himself the meaning of that statement-written by a man now celebrated as a “rigorous logician” and an “analytical genius.”To Ricardo, “The value of a commodity, the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production.” Valuation is not understood to be a mental process; it is the exchange ratio of physical things as observed by someone who saw nothing but the movement of these objects. There is a famous passage in Adam Smith which says that man is “led by an invisible hand to promote an end which was no part of his intention.” There is a lot of teleology here, but at least men are being led to perform and not “commodities” and “factors of production” moving according to meta-human laws.
In Jewish economic literature, everything is usually explained from the point of view of “commodities.” All transactions are conceptualized as exchanges of one good for another. E. R. A. Seligman even transformed Robinson Crusoe into a trucker. When Crusoe decides what he wants to do, he “exchanges one good for another with nature.” Murray Rothbard writes that “leisure is a good” in order to explain the implications of the fact that working is irksome. When Paul Samuelson wrote his now ,unfortunately, famous “theory of government,” the government was treated as a supplier of “public goods.” Samuelson’s “theory,” as one might expect, was a modification of supply and demand.
Professor Paul Roberts, a Western economist, has written a little book in which he attacks the commonly held view that Karl Marx was a humanist. One of Roberts’ points is that Marxian alienation was not the social alienation that we hear so much about but the alienation of property. Marx, according to Roberts, hated exchange because he thought it awful to have to part with property. It is doubtful if a non-Jewish economist was asked the meaning of “alienation” he would say that it is the feeling experienced when he sells something.
But perhaps the crowning achievement of supply and demand came off the roller of the typewriter of Gary Becker, a former student of Milton Friedman. Becker is famous for “applying economics” to such things as population, time and crime. In his “classic” paper Crime and Punishment: An Economic Approach, Becker concludes that fines should be more widely used, since other types of punishment “misallocate resources.” Becker writes: “One argument made against fines is that they are immoral because, in effect, they permit offenses to be bought for a price in the same way as bread or other goods….A fine can be considered the price of an offense, but so too can any other form of punishment; for example, the ‘price’ of stealing a car might be six months in jail. The only difference is in the unit of measurement; fines are prices measured in monetary units, imprisonments are prices measured in time units, etc. If anything, monetary units are to be preferred here as … in pricing and accounting.”
The origin of comparing “offenses” to “other goods” can be traced to Ricardo.
In pursuing political economy as the science of “commodities,” human conduct took an ancillary role. Only a very simplistic view of human nature could be entertained by such economists and Homo economicus [emph. added] filled the bill. Man does nothing but seek the highest monetary reward. We can be proud that it was not one of our ancestors who set that concept afloat.
In the nineteenth century this view of man was not generally accepted by economists. Ricardian materialism was a benign tumor which only later became malignant. Ricardo is praised today, but only in retrospect. In the history of human ideas what is called “the belated recognition of genius” is often merely one dormant germ among many finding its fit nutriment. It was not until economics became a self-conscious academic specialty that the growth erupted.
It is interesting to note some of the contemporary reaction to Ricardo. Alfred Marshall wrote in 1876: “Both the merits and the defects in Ricardo’s work are obviously due to his Semitic origin. No Englishman has ever thought like Ricardo.” The Irish-American Henry Carey called Ricardo’s work a pack of “Jewish subtleties.” William Stanley Jevons complained, “Ricardo had shunted the car of economics down the wrong line.” Jevons was under no illusions about race. He referred to Negroes as an example of a “lower race” and to Jews as a “predator race.” Walter Bagehot attributed Ricardo’s contribution to the theory of trade to “the Jewish ability to manipulate figures.” Many of the early treatises never mentioned Ricardo and then only in reference to some special topic. With one exception, no one accepted him as a model. The one exception was the Blockhead, as Friedrich Nietzsche called John Stuart Mill.
Nevertheless, Ricardo had stirred up considerable interest. He raised some questions which appeared to be worthy of attention. In particular, his “wages theory of price” had been used by the socialists in their attack against non-wage income. Although avowedly a laissez faire economist, Ricardo presented his doctrines in a manner that left one with the feeling that nonwage income was unjust and “unearned.” In the last quarter of the nineteenth century his ideas came under heavy attack by the more conservative writers. But, perhaps unwittingly, the men who got involved in this controversy over the “cause of price” by attacking Ricardo on specific points emphasized his framework of analysis.
In the orthodox histories of economic theory, “the marginal utility theory of price” is said to be the great discovery by which the “classical school” was over thrown and modern analysis ushered in.
Three men – W. Jevons, L. Walras and Carl Menger – are said to have discovered marginal utility independently during the 1870s. Essentially what these men said was that consumers adjust their purchases to prices. The nth unit purchased is just worth the price.
The chief effect of marginal utility was that it facilitated the development of mathematical models. Each of the “fathers” of the utility doctrine had intended to overthrow Ricardo, but in effect they simply added “consumption” to the Ricardo-Mill framework of ” production, distribution and exchange of commodities.” Ricardo had ignored “consumption” or “demand.” The utility theorists did worse. They made it possible to reduce human conduct to one dimension-“utility.” As gravity keeps the planets in orbit, greed makes the commodities flow.
Adam Smith had defended the profit motive in business because production for undetermined customers had no other guide but market prices. In this respect self-interest served the national interest. In Smith this was an inference from observation. But in modern economics, self-interest or “individual preferences” is the only human force at work.
It is beyond the scope of this essay to comment on more than a few developments in economics during this century. It is sufficient to say that with the formal acceptance of an artificial view of human nature for the purposes of abstract theory all hope for a genuine science of economics was lost. By the 1920s economic theory would no longer consider the human characteristics that the producer knows are prime requisites for production. All of the mental and moral traits which made organization possible were pushed out of the classroom, since theory of greed did not comprehend our cooperative skills. In short, everything that goes under the head of “morality” was considered non-economic. And selfishness, which to us is “immoral,” was the only conduct which qualified as “economic.”
A good index of the decline of economic learning would be the volume of chalk dust in the trays at the bottom of classroom blackboards. The older economists lectured. Today the doctors of inflationary gaps and indifference curves draw diagrams and write out equations.
This sort of “science” appeals to three instincts in Western man. We have a spirit of objective inquiry, which the economist appeases by assuming he is explaining a part of the external world. There are objective data, the “invariables” measured in the monetary unit, and the economists can talk about the laws which govern the motions of these variables. He can compare himself to the physicist. Secondly, we are intellectual esthetes. The economist can dally in the appreciation of abstract order and symmetry. And lastly, we are humanists. The economist can express his reformist inclinations by showing, with diagrams, that the govern ment ought to do this or that. The first type of economist should study a natural science. The second type should study abstract probability theory and keep silent about social affairs. The third type should quit the scene entirely.
To us good economics is common sense. We can understand how the economic system “works” because we can understand attitudes and practices upon which the system was constructed. However, starting with Mill’s popularization of Ricardo’s doctrines, economics has done nothing but teach us to be skeptical of common sense. Common sense at least puts constraints on unfounded dogma. With training in economics a person can believe anything.
Except for the abstract trivia, twentieth century economics has been wholly polemical. The great issue has been government intervention vs. free enterprise and in this dispute economic theory has served both the left and the right. For the most part non-Jewish economists have been critical of the theory and hence of the system that theory was supposed to explain. The position taken by the leading exception helps to explain why.
Frank Knight was undoubtedly the most reflective and scholarly of post-Marshallian economists. Although a religious skeptic, his Midwestern Protestant background helped him retain his common sense during the 1930s and 1940s when he was at the University of Chicago. But his work was chiefly critical. He spent half of his time “rehabilitating!’ abstract theory and the other half stressing the limitations of the theory. But he never outgrew the view that the “fundamental economic problem of society” was “allocating resources.” His attack against Veblen’s criticism of the “free market” and against Keynesism boiled down to the following: there is no objective criterion for the “best” allocation of resources or for the “best” things to produce. The only non-arbitrary criterion is individual choice. Now this is an argument against bureaucratic decision-making but not a compelling case for market institutions, though basically its appeal is “moraL” Knight went on to say that the bureaucrats would impose their preferences. Thus the government is condemned because it is operated by selfish men. But it is, as Ralph Nader has recently demonstrated, very easy to condemn private enterprise using the same assumption. Since Northern Europeans do not like to think of themselves as selfish, when Knight turned around to explain how the “economic system” worked, he used the concept of “economic man” but very reservedly. Jewish economists, on the other hand, had no inhibitions in openly subscribing to this concept.
If we read the Western economists who wrote in the earlier part of this century we can readily verify that selfishness was not regarded as the central force of social life. The first complete theory of individual preferences tugging on commodities in order to form prices was presented by Irving Fisher of Yale University. The materialistic point of view is reflected in his definition of “utility” as “desiredness” – not a human attitude toward a commodity but an attribute of the thing itself. A mathematician by training, Fisher was the utility theorist of his time. Until his death in 1947, he was a prolific writer. His Nature of Capital and Income (1906) taught the world how greed could be formulated mathematically.
Although hostile to the mathematical approach, another Jewish economist was teaching the same gospel from his chair in Vienna, while Fisher was solving equations. Ludwig von Mises insisted that egotism (which he called “human action”) was the fundamental axiom upon which all economic truth was based. Later at New York University, Mises trained a generation of freedom fanatics whose names are familiar to the Buckleyites and the “libertarians” as the latter call themselves. The leaders of this movement are all Jewish. Murray Rothbard, the anarchist, is one of Mises’ former students. It would be difficult to describe Ayn Rand in one word, but she is another of Mises’ disciples. For the deep thinker and at a steep price, F. A. von Hayek’s works can teach us the dangers of our instincts. When these writers stray from their dominant theme of evil in government, it is invariably to attack some traditional practices of non-Jewish businessmen. Their general view of Western Civilization is that with rational utilitarianism Europeans were at last freed from their barbaric prejudices.
Such economists flourish in an open society. Mises and Hayek escaped Hitlerism for New York and academic freedom. In the United States the socialist economist Abba Lerner enjoyed a standard of living he would have never realized in his native socialist Russia. Milton Friedman’s mother left that same country for freedom in Chicago. One need not look any deeper than this for an explanation of why some Jews have enthusiastically cultivated and picked the fruits of our society.
But a strong distaste for the morality embodied in traditional Western economics is also evident in the work of Milton Friedman. Unlike the others mentioned above, Friedman’s influence is largely within the profession. In his one popular work, Capitalism and Freedom, he gives as a “basic” reason for economic freedom its service to what he calls “political freedom.” The latter he understands not as a right to participate in a constitutionally limited democratic process but as the right to agitate to change the system. All of his illustrations are radical activities of minority groups.
Friedman’s “monumental” Monetary History of the U.nited States (written with Anna Swartz) is a sustained attack on traditional American banking practices. For two and a half centuries, bankers have regarded their essential function as supplying short-term credit to the business community. Adam Smith defended this policy. Until two decades ago, this was taught in business schools. The analysis was not always sophisticated; money and banking texts were often dogmatic. But the established view was that banks were not to create credit for capital expansion. To Friedman, the !’money supply” is the factor determining national income. Friedman sells this and his frequent appeals to expand the money supply to the American conservative as anti-Keynesism. But those who buy Friedmanism might take a closer look at what he is getting at.
In the 19th century Jews sought to destroy the West’s economy with theories of class war. More recently, at the other extreme, they have been pushing an equally destructive line-free-market anarchism. This intensifying double whammy may account for much of the confusion in present-day economic thought.
INSTAURATION Vol. 1, No. 2, 1976
(To be continued)