How did the ‘political’ get removed from political economy?

In this post I continue to use historical research to challenge present political rhetoric. Matt Groening paints a vivid picture of a businessman from the 1980s in Futurama. It is satirical, but satire is only so funny because of that disturbing ring of truth in the description of homo economicus and his contemptuous disregard for the past:

“You’re a shark. Sharks are winners.
And they don’t look back, because they don’t have necks.
Necks are for sheep.”
–1980s business guy in “Future stock” episode of Futurama

Argument #2: Economies are inherently political

One of the core assumptions of “free”-market advocates is that economics can be separated from politics, both in practice and in theory. This is an idea that dates only to the late 19th century, the era of robber-barons and laissez-faire economic instability.

On the theory side, John Locke, Adam Smith, David Ricardo, Thomas Malthus, John Stuart Mill, Friedrich Engels and Karl Marx all worked with the assumption that the governing of a nation and its economic welfare were integrally linked. Smith did flesh out many of the concepts of a national economy, but even when he was publishing (1759-1789), no-one had yet put a name to a ‘national economy.’ In the 1700s, the term ‘economy’ only meant efficiency; we still use it that way when we say that some objective was achieved with ‘an economy of means,’ but this usage has almost been forgotten. The root term ‘oeconomy’ was still used in the 1700s to mean the management of the material resources of the household (oikos). Heilbroner (1992: 265) identifies a quote of Smith in which he uses household-management as a metaphor for national resource-management:

“What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” (Book IV, Ch.ii, p. 293 of the 1993 Oxford press edition).

I once interviewed Robert Reich about the genealogy of these terms. He argued that Smith would have called himself a moral philosopher. The theorists in the early and mid-19th century, from Ricardo to Marx, called their field of inquiry political-economy. So when did economy become conceptually divorced from politics? Towards the end of the 19th century. Reich suggested I look at the writings of Alfred Marshall.

So here is an interesting thing: “free”-market advocates almost universally revere Adam Smith, and almost never mention Alfred Marshall. That is weird. Jacques Derrida suggests that hegemonic ideologies often erase or suppress the moment of their origin in order to maintain an illusion of ‘inevitability’ or ‘naturalness.’ How Marshall became forgotten I cannot understand, because he wrote the textbook that frames economics as we understand it in the 21st century. Principles of economics was first published in 1890. By the eighth edition (1920), it was the established textbook that explains things like the supply and demand curves. Paul Samuelson’s Economics (1948) continues the tradition of describing economics without politics, and remained in publication through the 16th edition of 1998. But to underscore the specific influence of Marshall’s Principles, note that the premier textbooks on economics today use exactly the same title as Marshall. Case & Fair’s (1990) Principles of economics is now in its 10th (2012) edition; N. Gregory Mankiw’s Principles of economics (1998) is now in its 6th edition (2010); Robert Frank and Ben Bernanke version of Principles of economics is now on its 5th edition (2011).

So what did Reich mean when he argued that Marshall tried to de-politicize economics? Let Marshall himself answer the question, on p. 36 of the 8th edition of Principles:

But though thus largely directed by practical needs, economics avoids as far as possible the discussion of those exigencies of party organization, and those diplomacies of home and foreign politics of which the statesman is bound to take account in deciding what measures that he can propose will bring him nearest to the end that he desires to secure for his country. It aims indeed at helping him to determine not only what hat end should be, but also what are the best methods of a broad policy devoted to that end. But it shuns many political issues, which the practical man cannot ignore: and it is therefore a science, pure and applied, rather than a science and an art. And it is better described by the broad term ‘Economics’ than by the narrower term ‘Political Economy.’

Let’s pick this nugget apart. First, it is worth noting Marshall’s gendered assumptions that both economists and political decisionmakers must be male. We can dismiss (apologize) for this gender-bias as a ‘product of its time,’ but at some point we need to take responsibility for how that past continues to directly shape our present.

Second: Marshall is trying to promote legitimacy for the discipline of economics as a “science,” which fits with prevailing assumptions about positivism and objectivism. 21st-century scholars (and universities) categorize economics as a social science, which is a halfway-measure to reject the idea that it is a natural (and thus most-prestigious) science like chemistry. Outside of the academy, economics is an unmistakably political Art. By this I mean that the implementation of economic policies relies on practical judgment (phronesis) to make decisions based on indeterminately complex uncertainties. Natural sciences rely on unchanging principles such as number theory and physical laws (at least we used to think they were unchanging, back in the 1890s when Marshall was writing). Thus, scientists generally use the epistemic mode of reasoning. But economic policy, like city planning, cannot be boiled down to exact and absolutely certain principles. If it could, I don’t think the financial panic of 2008 would have occurred.

Third: Marshall makes an intriguing rhetorical maneuver at the end of the paragraph: he calls “economics” a broad term, and “political economy” a narrow term. So, if we exclude politics and only focus on mathematical formulas for supply, demand, and inflation rates, that is supposed to be more broad? Even considering the difference in ideas and assumptions of the 1880s and 1890s, it is hard to fathom how Marshall can conclude a paragraph in which he describes the removal of policy and politics from consideration as a broadening of the discipline.

The politics in economics

In the 21st century, it might seem like a straw-man argument to pick on Marshall, if I could dismiss the fact that so many standard textbooks still imply that economics is an exact (read: scientific) discipline; if I could dismiss the fact that they not only emulate the framework of Marshall’s textbook, they use its exact name. The polite workaround for this weird distortion was to introduce a new subdiscipline of ‘Macro-economics.’ The scope of macroeconomics is national and international economics—in other words, the same scope as political economy from Smith (1776) to Marx (1859). Economics, as Marshall framed it, is now ‘microeconomics’ in contrast to ‘macro.’ But if the modifiers are omitted, ‘economics’ is assumed to be the narrow, quantitative discipline that Marshall described—and at the same time, it is assumed to be comprehensive. Who was it that politely sidestepped this contradiction and framed the concept of macroeconomics in the 20th century? Alfred Marshall’s student: John Maynard Keynes.

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