Subject: Jim Farmelant on _The Invisible Hand_  "Recently, I was looking through an old book, from 1965, The Invisible Hand, ed. Adrian Klaasen. Klaasen was an economics professor at Hope College in Michigan. The book consists mostly of pieces from economists of either the Chicago School or the Austrian School. It includes some big names like Milton Friedman, Ludwig von Mises, and Friedrich Hayek, as well as people who would be much less well known today. The book bills itself as a collection of essays in classical economics, which is arguably a misnomer, since most of the writers are, arguably, neoclassicals, in the tradition of Jevons, Walras, Marshall, Menger, etc., and not directly in the tradition of Adam Smith and David Ricardo. In fact, Klaasen does invoke the name of Adam Smith, but that is basically because he identified with the laissez-faire approach to economic policy that is attributed to Smith. One thing that is clear about this book is that it is very much a product of the cold war period and that anticommunism was very much the driving force behind it. One would think that given that, a critical engagement with the writings of Marx and his disciples would be characteristic of this book, but you would be wrong. It is evident that most of the contributors to the book had read very little or nothing of Marx and his disciples. There are some real howlers in this book. Thus, in an essay, by the editor, Adrian Klaasen, titled, “National strength through economic knowledge,” we are told such things that Marx derived his thesis that capitalism would eventually self-destruct from Thomas Malthus: “that as a population prospered it would expand and the resultant expansion would create an oversupply of labor. The oversupply of labor, in turn, would drive wages down until finally and inevitably all workers would be reduced to a basic subsistence level of existence.” We are also told that Marx derived his thesis that capitalism is driven to imperialist expansion from Hobson. Given that John Hobson was born in 1858, he was still a rather young dude when Marx died, that seems rather unlikely. What is far more likely, is that Klaasen confused Marx with Lenin. Apparently, Klaasen’s notions concerning economic knowledge did not include the ability to do basic scholarly research. One might have expected more from an economics professor. On the other hand, the book does include a piece by Henry Wallich, who was an economist who later served on the board of governors of the Federal Reserve, under Nixon. His piece, “Economic freedom versus Organization”, from his own book, Cost of Freedom, seems a bit more intelligent than some of the other pieces in this book. While very much opposed to communism and socialism, he openly acknowledged that it made little sense to argue that these systems could not work, since by the early 1960’s, the Soviets had some stunning achievements under their belt. As he wrote: “In addition to closing our eyes for too long to Russian accomplishments, we have been guilty also of closing our minds to the menacing power of Marxist doctrine. Those who have said that the philosophy of Communism consists in keeping the people in poverty, so that poverty may keep them in Communism, show little perception of the intellectual capacity of their adversary. Communism is a formidable intellectual structure, built by first-rate minds over many decades, with an inner logic and consistency that capitalism might envy. The average American, debating with a Russian the merits of their respective systems, would soon find himself in hot water, unless he were exceptionally nimble. An American economist facing a trained Marxist dialectician might find the going even harder.” It seems clear that Wallich was not overly awed by the socialist calculation arguments of people like Mises or Hayek that socialism was necessarily doomed to failure. Rather, his position seems closer to Schumpeter’s which was that intelligent and dedicated socialists might well find ways to make it work, even though he might that find that outcome to be undesirable. In fact, in his piece he actually did discuss ways in which that could be accomplished, including the use of computers to help facilitate economic planning. And he also acknowledged that capitalist markets were not always very efficient either." Sent from my iPhone CB: James Devine on Neo-classical superstitions http://dostoevskiansmiles.blogspot.com/2009/06/neoclassical-economics-and-problem-of.html?m=1 Monday, June 1, 2009 Neoclassical Economics and the Problem of Realization. The Neoclassical School of economic theory emerged from a dissatisfaction with classical political economy and the labour theory of value. Critics of capitalism, from the Marxian tradition, had hijacked the precepts of the classical school to analyze the historical tendencies of capital accumulation and the stumbling blocks inherent within the process. In a maneuver which ostensibly undermined the Marxian conception of exploitation and therefore capitalism, the neoclassical school sought to explain economic systems in terms of markets and the arbiter of economic allocation, the price mechanism. From this focus, the neoclassical economists developed the theory of general equilibrium, under which the price mechanism (within a condition of perfect competition) is conceived of as self-regulating, self-adjusting and therefore a stabilizing apparatus. In diametrical opposition, the Marxian tradition of political economy characterizes capitalism in terms of instability, structural contradictions and disequilibrium. The current financial crisis and burgeoning recession provide the empirical material necessary to weight and contrast the contrary claims of these two competing schools on the stability of the capitalist economy." Before a comparison with Marxian theories of capitalism is possible, the nature of neoclassical economics needs to be further delineated. In essence, neoclassical theory is a re-articulation of Adam Smith’s notion of the “invisible hand” and the self-regulating nature of markets in a “system of nature liberty”, distinguished however by the abandonment of Smith’s labour theory of value. Instead, neoclassical theory based itself upon a conceptualization of individuals and market forces augmented with the theory of marginal utility. The crucial nexus of these ideas is the neoclassical assessment of individual psychology." Wojtek: What I find more interesting is not the views of these people themselves. After all many so called experts are nothing more than intellectual prostitutes that will do any trick for the paying clients, to paraphrase John Kenneth Galbraith. A far more interesting question, imho, is the waning and waxing popularity of such views, or for that matter any "school" in political economy. Your reference to Cold War can probably go some length in that explanation. However, i would also like to point out the importance of scientific networks, as suggested by Bruno Latour. The idea here is that scientific paradigms advance if the people supporting them construct social networks of people who benefit one way or another from that advancements - scientists, practitioners, politicians, businessmen and other social groups. That may explain the popularity of keynesianism in the mid 20th century and neoliberalism thereafter. CB: There are different political sections of the ruling class; different political determinations of academe paid for in different time periods. The ruling ideas of major institutions of any age are the ideas of its ruling that classes . The ruled class fights back and ideas in its interest occupy the mass media from time to time.