Economic theory has neither the exactness of science nor the insights of literature. Yet it remains the dominant form of organised knowledge in the modern world. James Buchan regrets the influence and arrogance of the discipline and reveals that Adam Smith himself was a plagiaristby / December 20, 1995 / Leave a comment
Published in December 1995 issue of Prospect Magazine
In 1766 the Marquis de Mirabeau, the father of the celebrated revolutionary orator, declared that history was over. “There have been, since the world began,” he wrote, “three great inventions which have principally given stability to political societies. The first is the invention of writing, which alone gives human nature the power of transmitting, without alteration, its laws, its contracts, its annals and its discoveries. The second is the invention of money which binds together all the relations between civilised societies.”
So far so good. But what could be the third invention to match or combine these two? At a distance of two centuries, one holds one’s breath. “The third,” the marquis wrote, “is the Oeconomical Table, the result of the other two, which completes them both by perfecting their object.”
The table in question, a bizarre arrangement of squiggles and zig-zags, has come down to us. A copy was discovered in the marquis’s papers in the French national archives in Paris at the end of the 19th century and published soon afterward to a mystification as deep as it was complete. Devised by Mirabeau’s friend, Fran?ois de Quesnay, a part-time economist and full-time gynaecologist to Mme de Pompadour, it purported to show the way in which money multiplies in society. In as much as any meaning can be disentangled, it is nonsense. The early economists were entranced by Harvey’s picture of the circulation of the blood: they took it over as their metaphor for society until Adam Smith popularised the theatrical image of the invisible hand. The tableau is interesting only as a primitive instance of the economists’ intense, almost mystical, yearning for the key to existence; and their love of rapturous conclusions.
A century later, the economists are still at it. In his Principles of Economics, Alfred Marshall, Keynes’s master and the founder of the modern British school of economics, announced that he had uncovered the secret of modern society. It was, he said in the accents of a man of the world, money: “… it is this definite and exact money measurement of the steadiest motives in business which has enabled economics far to outrun every other branch of the study of man. Just as the chemist’s fine balance has made chemistry more exact than most other physical sciences; so this economist’s balance, rough and imperfect as it is, has made economics more exact than any other branch of social science.”
Modern economists are not quite so gullible or rash. But common to all the economists I’ve met-and, who knows, maybe to the hundreds of thousands of tenured and commercial economists in the world-is a placid and ineradicable belief that only economics can provide a coherent picture of society: all else is anecdote or impression. It doesn’t matter that no two economists agree on anything except the prestige of their branch of study; that they are ignorant of the world and human nature and proud of it; that they like to sample their own merchandise, speculating in financial markets or binding themselves to narrow commercial interests; and that they devise models and make forecasts which are so maniacally precise that they are never borne out by events except by chance. Economics, they say, is the language in which human beings should describe their activity, and states should describe their affairs.
All intellectual castes try to impose their view of the world, if only to put bread on their own tables. But economists have an advantage over, say, mechanical engineers, because their stock-in-trade-money-has a property not found in applied mathematics: a property which, for want of a better word (and please forgive the impropriety), might be termed psychological. Just as money, because it will gratify all desire, becomes the equivalent of the most intense desire and will crowd out all other goals in life; so economics, the science and gospel of money, will tend to displace other intellectual activity. Economics, which has always claimed to reason on the basis of the rational pursuit of money, actually prospers because of money’s irrational cult.
The result is that governments and public are happy to consume economics in much greater doses than physics or ethics or Homer or even an honest, properly labelled religion. As a child in England in the 1960s, I was delivered nightly to the economic obsessions of British television. A profound gloom, appropriate to that prosperous epoch, lowered over my early schooldays. In the 1970s, the economists told me that the world was running out of fuel and I prepared for a Malthusian catastrophe which, however, was postponed. In the 1980s, I learned that inflation was always and invariably a monetary phenomenon, except when it wasn’t. In the 1990s, the economists told me that I had to import the German deflation through semi-fixed currency rates of exchange and when that didn’t work, that I shouldn’t. Now, the national history of Europe is drawing to a close. We hear, faintly through the temple door, the economists mumbling obsequies for it in their dead liturgical language: budget deficit, GNP, inflation and so on; but it is not a ceremony to which the public is invited. Economics, which is supposed to have had a hand in restoring democracy to Europe in the 17th century, has now abolished it.
at the heart of economics are notions that seem to me ludicrously antiquated-old-fashioned even in the 17th century. The most important of these is that reality must only be described in categories of quantity, the chief of which is money. Money is not simply the common denominator by which the costs and gains of technically rational conduct can be measured, explained and predicted. For the economists, money is a synonym of happiness: sums of money embody the welfare of the nation and the happiness of the individual. Admittedly, national welfare is no longer measured by holdings of bullion (as in the 16th century) or as an Overplus in Foreign Trade (as in the 17th) but as GDP or, an even greater refinement, GDP divided by the number of people sharing in it. But the hero of economics, its Achilles or Roland, is still the person who pursues money tenaciously till his last breath. The heir of antiquity and the age of faith, the culmination of 50 centuries of social evolution, is Cedric Brown of British Gas.
As a picture of both the individual and society, economics is almost unbelievably crude. To select something as measure simply because it can be measured, and not because it is particularly suitable, puts the economist in the position of the drunkard who has lost his house keys, and searches not where he thought he dropped them, but under a street light, because there is light. The economists do not tell you what people are doing, let alone why, only what they would do in various imaginary situations if they were perfectly wise and compulsively avaricious. As for nations, GDP does not begin to describe a nation’s welfare even at starvation levels and certainly does not measure the condition of a society, such as ours, which has been well-to-do since the voyage of The Golden Hind. And anyway money is the worst of all measures because it will not hold its value from month to month, let alone over centuries: imagine using a tape-measure that was forever expanding and contracting. That is why economists cannot understand the past or imagine a future: they are imprisoned in an ideal present. Keynes’s excursions into history, in the later sections of the General Theory, are deeply embarrassing. On October 16th 1929, Irving Fisher declared that “stock prices have reached what looks like a permanently high plateau.”
Does it matter? Aren’t the economists, to develop an idea of Dr Samuel Johnson, harmlessly employed? If they weren’t tinkering with their competitive equilibrium models in the shed, might they not be doing something horrible in the basement? Even economists, it seems, have alternative uses.
I am not sure. The economists are happy to claim for themselves or their profession the credit for gains of quantity such as expanded product, rising populations, and more houses, medicines, automobiles, televisions and things in general. For the sake of consistency, they should also take credit for the deteriorating quality of existence. For it is their philistine notions of personal and national welfare that have helped to ruin the natural world; confused technology with culture; reduced art to money, time to interest, sexual relations to pornography, friendship to advantage, charity to the charity ball and liberty to shopping, and wasted whole generations, who because they have been taught to think only in categories of money have, in Schopenhauer’s phrase, “missed the purpose of existence.” All these aspects of modernity, which are quite striking, are ignored by the economists to a degree that can only be termed pathological. The economists seem to be petrified of human nature: Sir Samuel Brittan wrote recently in the Financial Times that he had not read much of The Theory of Moral Sentiments (by Adam Smith) because it looked as if it might have some “armchair psychology” in it. (It hasn’t). In all the corpus of economic literature, I am aware of only three locations-a shy footnote in Marshall’s Principles of Economics, short paragraphs in Keynes’s Economic Possibilities for our Grandchildren, and Book V of The Wealth of Nations-that attempt to describe the world you and I live in.
Where did economics go wrong? The short answer is that it never went right. In a passage in the Politics, Aristotle breaks off from a discussion of lending at interest to say that such discussions were all very well but not really a proper occupation for a philosopher. In that he was quite right, not for reasons of social propriety or Standesw?rde but of the proper allocation of resources: “economic” preoccupations distract a person from the much more important studies of ethics and politics. Joseph Schumpeter, in a commentary of blissful ignorance, accuses Aristotle of being a bad economist: to which Aristotle would no doubt have replied that Schumpeter was a bad philosopher.
In the middle ages, the integrity of thought and character that we associate with antiquity begins to break up under the pressure of mercantile self-interest. New questions come rushing in. What is prosperity? How does it relate to national power? What is trade? And how does it relate to agriculture and money? What is money, anyway? And why is Holland, though it only makes cheese, so rich and powerful, while Spain, with all its American silver, is so poor and weak? What is the best form of government? The merchants need a new language in which to pose and answer these questions, a language which will derive its authority not from the stale old world of church or court but the new certainties of natural science. It will be Newtonian science carried over into society, and will aim, in the ominous words of Sir William Petty, “to express itself in terms of number, weight or measure, to use only arguments of sense and to consider only such causes as have visible foundations in nature; leaving those that depend upon the mutable minds, opinions, appetites and passions of particular men to the consideration of others.” This process culminates 100 years later in the pseudo-Newtonian system of Adam Smith, in which the role of gravity is taken by self-interest.
Smith ignored the warnings of Aristotle and compartmentalised his thoughts on ethics, the law and political economy. I suppose he was practising a crude division of philosophical labour. The trouble is that nobody reads The Theory of Moral Sentiments or the Lectures on Jurisprudence, but large numbers of people have heard of the argument of The Wealth of Nations. I understand that even some economists have read it, though not to the end. If, as Adam Smith does here, you dispense with all human psychology except its self-regarding tendencies, and all social experience except mercenary exchange mediated by money, you can still have a view of society of sorts; but it ain’t likely to be very accurate or edifying. And then to suggest that it’s all for the best, in the best of all possible worlds, presided over by a benign mechanical deity or invisible hand. How soothing to bad commercial consciences! The whole production is shot through with an intense, and very Scottish, mystical fervour: “It is the produce of the land which draws the fish from the waters; and it is the produce of the surface of the earth which extracts the minerals from its bowels.” Just Isaiah, really, but about Mammon, not God.
The book has some very witty passages, but it has no new thoughts. I confess that I have not read all the 17th century English and Scottish economic pamphlets in the British Library, or indeed more than a fraction of them; but from my reading of these and the 18th century writers, it is clear that Adam Smith is a compendium of existing notions. The most important thoughts-that the merchants should be left alone to make money, that self-interest is the engine of history and that it is all for the good-were self-serving commonplaces in England (and, presumably, Holland) by the middle of the previous century; so is the distinction between real and nominal wealth; the theory of specie-flow (in which trade imbalances are adjusted by exports and imports of precious metals) and so on. The division of labour was well understood in antiquity. Other passages are taken from Diderot’s encyclopaedia-for example the famous description of the making of a pin-John Law, Hutcheson, Hume or Mandeville.
in truth, all the interesting thinking in economics had been done by the 1720s. The Wealth of Nations, far from inaugurating economics as a science, is actually its swansong. The life has all gone out of it. Though Smith seems to have been a nice enough man in an absent-minded sort of way, how one misses the raffish brilliance of his predecessors. I am not saying that you need to be a duellist, or murdered by your cook, or be excluded by name from a general amnesty, or start a revolution, to be a good economist, merely that the greatest economists-William Petty, John Law, Richard Cantillon, James Steuart, Alexander Hamilton-did all those things. They experienced the world, not a model of it. That is what Sir Walter Scott had in mind when, in Rob Roy, he blamed the division of labour (that is, Adam Smith) for the departed glory of the world.
For economics was not the only or even the best intellectual response to the changes of the 16th and 17th centuries. At the same time as the first economic pamphlets are being written, the novel is invented in prose, the language of commerce. At no point does Cervantes tell us that he is trying to portray the revolution in prices in 16th century Spain; but he does, he does. A hundred years before Cantillon cracks the Spanish conundrum (in a passage of such brilliance that but for him the economists might still be worrying at it today), we have the Knight of the Doleful Countenance wandering, violent, heart-broken and deranged, through a land of money. The best novelists cover the same social ground as the economists, but take on the frightening questions of ethics and psychology. While Smith, Mill and Jevons intone their litanies about money being a means of exchange, token, counter, wholly insignificant, a “Meer Conveniency,” George Eliot and Balzac show us the true face of modernity: the face of the compulsive miser. Dickens jeers at the economists’ quantitative approach when he describes an industrial process in Hard Times: “So many hundred Hands in this Mill; so many hundred horse Steam Power. It is known, to the force of a single pound weight, what the engine will do; but, not all the calculators of the National Debt can tell me the capacity for good or evil, for love or hatred, for patriotism or discontent, for the decomposition of virtue into vice, or the reverse, at any single moment in the soul of one of these its quiet servants, with the composed faces and the regulated actions.”
The good novelists are superior to the economists not just in their awareness of the breadth and variety of human life and the distinction between right and wrong; nor even in their analytical precision; but in their very fallibility. Both economists and imaginative artists make fictions: but the economists don’t realise it. And it is the sense of fallibility, as Socrates used to argue, that distinguishes the philosopher from the charlatan.
If any economist has got this far (which I greatly doubt), he or she would answer that, yes, modern economics is wearisome, abstruse and corrupt but, kept in its place, it can be an aid to good government; that societies are much better enslaved to economists than to soldiers, lawyers, philosophers or priests; and that the form of government promoted by economics-plutocratic oligarchy, essentially-is the best form of government so far devised by human beings. I am sure all that is true. Somehow, I just thought there was more to life.