What’s important about the gold standard is the discipline it provides to support price stability.
With his three-volume biography of John Maynard Keynes, Lord Skidelsky crafted a throne for himself in the Olympus of contemporary historians. He masters the art of historical biography like very few others. Alas, reading his latest book, What’s Wrong With Economics? can be a rather painful experience. Whatever admiration you had for the historian, it is likely to falter once you start turning the pages of this volume, which is best described as a goofy attempt to make a straw man out of contemporary economics.
Today’s economics is not perfect or beyond questioning by honest observers and thinkers. When Queen Elizabeth II visited the London School of Economics and asked why the economics department did not have a clue about the financial crisis, she voiced the perplexity of many. Contemporary critics of the economic science have long shown doubts vis-à-vis the technique of economic modelling, let alone what is often perceived as the over-mathematisation of economics. Skidelsky recognises that “econometrics is vastly oversold as a way of testing theories.”
On the one hand, Skidelsky is basically making a plea for a more humble economics. He wants economists to understand the background of their theories. He is ashamed that the history of economic thought was removed from the curriculum in “nearly all economics departments.” He also believes that economic history should be more closely studied by economists and considered in itself, rather than merely as a repository of useful data to prove this or that thesis. Skidelsky claims that economics “needs other fields of study, notably psychology, sociology, politics, ethics, history to supply the gaps in its method of understanding reality.” No man is an island, nor is any science.
On the other hand, Skidelsky seems to believe that there is no legitimate pursuit of economics qua economics. He is apparently convinced that all social scientists agree with Karl Marx that the philosophers so far have only interpreted the world, and now we shall change it. He writes with full confidence that “the only defensible purpose of economics is to help abolish poverty, opening up a more spacious life for humanity. Beyond that it has no obvious purpose, and should leave the stage to others.” It sounds paradoxical that an historian sees social science as basically a political platform—as if interpreting the world, trying to understand it, was not, per se, a worthy endeavour.
Certainly context is important in seriously studying the history of any science. But is it the only thing that matters? No one would deny that “economic doctrines . . . are connected to particular historical conditions and episodes.” Everything human, after all, is connected to some particular circumstances. But is this fact enough to claim that it has nothing to say beyond those circumstances?
Perhaps Skidelsky is influenced by his own studies. Keynes certainly craved political influence. He became the maestro of the economic policy orchestra of two (or three?) generations because of his brilliance, but also because he worked, day by day, to increase his own influence.
“Not all economists are Keynes” is a platitude Lord Skidelsky is well aware of, but he has difficulties with the notion that not all economists want to be Keynes. He does not consider the possibility that a scholar could merely be interested in figuring out how some particular phenomenon works.
Economics as a Science
For Skidelsky, bad economics is “neoclassical,” “mainstream,” and “marginalist,” all words that he uses interchangeably. “Marginalism” he sees as “a scientific, as well as political, triumph.” He admits “it explained (or explained away) many puzzles in the older value theory” but it also “knocked away the foundations of Marxist exploitation theory.” Picturing Jevons, or Walras, or even Menger as Cold-Warriors ante litteram seems hardly accurate. Even more surprising, however, is that Skidelsky is oblivious that solving the puzzle of value thanks to the principle of marginal utility is a genuine scientific achievement in economics. Pace Skidelsky, understanding that the last bite of a cake has less value than the first one does not give you a political agenda—but helps you make sense of the world.
Skidelsky thinks that the economic mainstream is an accomplice of “what has gone wrong with economic life in the last thirty years, starting with the dismantling of labour protections and proceeding, via the explosion of inequality, to the crash of the global financial system in 2007-2008.” Since he refers to things which went wrong in the last 30 years, he apparently does not join the chorus of the critics of so-called neoliberalism, who tend to believe the end of the world began on May 3, 1979, when Margaret Thatcher won the election with a majority of 43 seats against James Callaghan.
This view of economists as an undifferentiated lot, and all working undercover to make laissez-faire great again, is comical. Indeed, by March 1981, 364 British economists signed a letter criticizing Thatcher’s “monetarism.” The situation has not changed much in the last 40 years: professors of economics were and are (almost) all Keynesians now. Skidelsky may consider them spurious Keynesians, influenced by the “neoclassical synthesis” worked out by and large by John Hicks. Still, if we focus less on the nuts and bolts of their macroeconomics and more on their general outlook (their politics), we see that most economists incessantly work to point out the imperfections of the market order. Skidelsky presents the cliche of perfect competition as an ideological device to fool people away from understanding market failures. But it may be argued that, if standard economics can be considered a political tool at all, it serves almost the opposite purpose: providing a standard against which real, existing markets can be deemed as failures.
Skidelsky describes the assumption that “pending the invention of an omniscient computer, everything should be left to the market” as “mainstream.” But can we accuse modern economists of being at the same time technocrats and libertarians?
Skidelsky is right in pointing out that ideology is pervasive and it clearly affects the questions we ask ourselves, not to mention the answers we give. Yet it is hard to believe that any form of classical liberalism is the unifying ideology of the economic professions, particularly on the top rungs of the ladder. Furthermore, even the most politically committed scholars are not necessarily full-time political campaigners. Skidelsky agrees with the maestro Keynes almost by definition, but he is less keen to trust the power of ideas, as Keynes did (as he famously wrote that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood”).
For his biographer, if Keynes’s ideas were disinterested and pure, alas, his opponents’ are not: “in economics . . . the profession’s own research agenda partly reflects non-scientific interests.” Thus, “it is . . . not irrelevant to ask: who finances the institutions from which economic ideas spring?” Skidelsky should know the answer to this question: the state. But he eagerly reminds us, though he gives no specific names, that private companies sometimes support economic research too and points to “the huge influence of ‘City economists’—bank analysts, financial journalists, and so on—in propagating a crude version of free-market orthodoxy.” I would venture to add that if it is true that some economic (not necessarily financial) journalists played a key role in promoting Thatcherite ideas in England (I’m thinking of Andrew Alexander and even Samuel Brittain), it is hardly a rule, and the vast majority of prominent economic journalists today (think of Wolfgang Münchau or Martin Wolf) sing a very different and statist song. Skidelsky wants to see himself as a lone wolf, versus the hordes of market fundamentalists. Like many others on the left, he considers his intellectual enemies as corrupted by whoever is their paymaster.
Social Science and Punditry
But the problem with What’s Wrong With Economics is bigger than such storytelling. Its author is apparently incapable of understanding the pursuit of social science as something different from policy punditry. It is revealing that Skidelsky is puzzled by a quote from Milton Friedman, who charmingly described himself as “somewhat of a schizophrenic”: “On the one hand, I was interested in science qua science, and I have tried—successfully, I hope—not to let my ideological viewpoints contaminate my scientific work. On the other, I felt deeply concerned with the course of events and I wanted to influence them so as to enhance human freedom.”
Some economists, political scientists, or philosophers may enter their fields because of their political vision of how the world should be improved. Yet it does not mean that they do not try to challenge their own opinions about the facts. Nor does it mean that they may not be, in pursuing their studies, interested merely in understanding how or why a particular phenomenon happened. Friedman honestly described a difficult navigation which is hardly exclusive to the economist. (Consider a Democratic reporter at the Republican National Convention, for instance.) Skidelsky dismisses Friedman by asserting that “the whole of his ‘scientific’ work was directed to demonstrating the futility of government intervention in the economy.” Students of Milton Friedman’s work would disagree. For example, he maintained all his life that the government should have a monopoly of the money supply; he invented (as a war measure in the 1940s) taxation by withholding before the wage was paid; in agreement with economists on the left in the 1950s such as James Tobin, he recommended direct income subsidies to the poor.
It is particularly interesting to see the treatment Skidelsky reserves to Deirdre McCloskey. McCloskey has been a prominent critic of economics’s ultra-positivism, at least since her The Rhetoric of Economics. Skidelsky acknowledges it, and his themes partly overlap with McCloskey’s. Yet he cannot stand that “McCloskey believes that the market system has ensured progress and prosperity.” The verb “believe” is an interesting choice of word when referring to a scholar who is famous for empirical, historical work of the sort Skidelsky should approve.
Skidelsky attacks the “closed worlds” of economics, which are “like the world of games, in which aims are given, the rules are fixed, and there is only a limited number of moves.” But he considers them “the stuff of microeconomics.” Certainly, a proud Keynesian cannot but have a taste for macro. Yet if economic models are pernicious and misleading, they are certainly more so when they pretend to come up with grand predictions for society than when they provide us with a sketch of the possible evolution of the price of a single good, under certain conditions. “Micro” is less ambitious, less influential, and more careful in clarifying its assumptions. Skidelsky seems to believe this is not the case, and may have little sympathy with an accomplished price theorist (a Chicago word for microeconomist) like McCloskey.
But more relevant is that Skidelsky seems to believe (and the word choice here is deliberate) that by suggesting economists should think about rhetoric, McCloskey thought that economics was “rhetoric dressed up as science.” Yet McCloskey’s point was precisely the opposite: it is not that economics has no scientific content, that there is no room for quantification, that the science practiced by Smith and Ricardo and Keynes is nothing but the utterance of some political views embellished with numbers. All economics, and any articulation of a speaking species, has a rhetoric.
McCloskey maintains that economists should think about their figures of speech, their models, the way in which they frame their theories, and the words they use to argue better. Rhetoric is not political chit-chat, but a practise of arguing meaningfully, in the long conversation humankind had in the search for truth. Skidelsky is convinced that “economists should pay much more attention to the conditions of political consent.” For example, he says that “market integration across borders is a not unworthy goal. But it should be pressed only as far as, and by means which, the conditions of political consent allow.” Besides the obvious fact that “opening” (or “closing”) a market is indeed a political decision, and decision-makers are likely to pay more attention to opinion polls than to The Wealth of Nations, he sketches a view of the economist (and the social scientist more generally) as little more than a congressional staffer.
For McCloskey, persuasion is the natural goal of most people in a free society: we try to persuade others, sometimes by saying “please,” sometimes with a dollar bill, sometimes doing both things at the time, to satisfy our needs. Smith believed the same, and said so. In a scientific dispute, we must try to persuade our opponents of our views. Hence, arguments and hence rhetoric, which is a way to test good arguments.
The greatest disappointment in Skidelsky’s book is that he obviously took little interest in providing us with arguments to prove his point. The book assumes that the world in which we live is neoliberal and awful (and awful because neoliberal) and that contemporary economics made it so. In spite of calling for a more humble economics, he is keen to concentrate resources in the state and have government planners decide which investments have to be undertaken. Skidelsky criticizes the public choice economists for a narrow understanding of politics, but his own political philosophy is scarcely more elaborate than “government good, market bad.”
The author displays a carefully selected erudition, mentioning names that may ring a bell to his supporters, and attempting to settle accounts with some people he particularly dislikes. But his rhetoric is poor. Good arguments to improve economics are always needed—not to make it subordinate to this or that political goal, but to make us better understand the many riddles of economic life.