A Research Annual: Volume 25 Part 1

Meadowcroft starts his discussion of the ethics of markets by stating that the primary feature of a market system is the right to self-ownership. The ownership of property is derived from the right to the fruits of one's labor. This right to private property allows individuals to freely pursue their personal objectives, as it provides the unconstrained means to achieve one's ends. The logic that follows is that only within a market system with private property is the right to individual self-ownership preserved. On the contrary, a non-market system fails to satisfy individual objectives because individual objectives depend on the objectives of others, and as such, the objectives of some may be ignored or superseded (pp. 12–19).

The book is part political polemic, part loosely logical philosophy, and (very small) part economic analysis. Despite its dramatic prose, many of the author's arguments are unconvincing, annoyingly redundant, very weak in their use of history, and highly selective in their empiricism. Stating what a chapter will do and then concluding at the end it has done so when the evidence in between is either weak or is based on circular reasoning is actually a common practice. Numbers are virtually non-existent despite many statements which suggest some quantitative work has been done.

Imagine walking into a pizza parlor, then buying a slice of pizza. You acquire that slice of pizza in exchange for some amount of your labor, let's say fifteen minutes worth. There is something altogether amazing about this mundane event. Part of what is amazing is precisely how mundane this event is. It is hard not to take it for granted. Yet, if you were on your own, truly on your own, you would not be able to produce a slice of pizza in a lifetime. You could not get started. (Getting started would involve, say, building a smelter and mining iron ore to make an oven. You would presumably need at least a shovel to do that, but if you truly were on your own, and had not yet begun to mine the iron to make it, where would the shovel come from, if not from trade?) We owe virtually all of our ability—all of our positive freedom—to the opportunity to trade. In turn, we owe almost everything to the division of labor that trade makes possible. The division of labor, Adam Smith noted so eloquently, makes each one of us thousands of times more productive in concert than we otherwise would have been. If anything, Smith was understating his point.

This is a remarkable and unusual volume. It is written by practitioners about practice, but their common focus is on the array of methodological difficulties and limitations of practice. These are confronted directly and neither ignored nor finessed.

It would be difficult to deny the claim that contemporary economics is one of very few disciplines to be defined less by its subject matter (the “economy”) than by its method—the maximization of some objective function by rational agents choosing among limitless means while being subject to particular constraints. In this formulation of our discipline, the autonomous maximizing agent is seen as the fundamental unit of analysis. In essence, contemporary economics reifies in its approach and its methods the modernist triumph of the sanctity of the individual over any other plausible social entity. Methodological individualism is more than a short-hand term for our methods. It is a term for our view of the world as it is and as it ought to be if aggregate well being (welfare) is to be maximized.

Commissioning and publishing autobiographical sketches by prominent economists has become something of a cottage industry at the Lubin School of Business at Pace University where the senior editor, Michael Szenberg, is based (Szenberg, 1992, 1998). This volume is the third major exercise in this genre. The first—entitled Eminent Economists: Their Life Philosophies—appeared in 1992. Some 22 outstanding economists (nine of whom were Nobel Laureates) contributed in this round. A second volume, published in 1998 under the title Passion and Craft: Economists at Work, solicited essays from economists a generation or so younger who were asked to write about how they practiced their profession. Twenty responded to this invitation. The volume under review returns to the “philosophy of life” theme and reports the responses of 26 contributors. A fair number of the essays in each of these volumes appeared originally in The American Economist, a journal edited by Szenberg.

Timothy Davis has produced a well researched, well written and scholarly piece of work that merits serious attention by historians of economic thought. His principal aim is to reassess Ricardo's credentials as an “applied economist,” and to that end he devotes a couple of very useful chapters to a blow-by-blow account of the UK's turbulent economic history between 1815 and 1825, four chapters to Ricardo and, also usefully, a series of appendices relating to the vital economic statistics of the period. The Ricardo that emerges from this study is (almost) a paragon of “applied virtue.” Ricardo was, we are told (repeatedly), fully conversant with the available empirical evidence, his writings were directed to concrete economic problems (except for the Principles, apparently) and, most importantly of all, his empirical analysis was “exemplary” and fully “validated” by events. The only real blemish was his law-of-markets based assumption of full employment at a time of general economic “distress,” leading him to reject all proposals for “relief works,” which Davis finds “particularly unsatisfactory” and “remarkable” (he might well have said “inexplicable”) in view of Ricardo's (supposedly) keen appreciation of economic reality. All in all, however, Ricardo's “applied” credentials are rather impressive.

Edward J. Harpham (2001, p. 139) once began an article by writing that “many Adam Smiths are presented to us in the secondary literature.” The new wave of Smith scholarship is so varied that one's reading of the 18th-century Scot is bound to change significantly as one switches secondary sources. While recent scholarship on Smith is, in fact, diverse in both its methodology and its overall picture of Smith's system, Harpham is wrong. There aren’t many Smiths. Essentially, there are just two: one that adopts a certain caricature bending A Theory of Moral Sentiments (hereafter TMS) into irrelevance, and one that regards him as a moral philosopher with a theory of political economy fully integrated into his ethics.

For a book claiming that it “introduces the reader to the major concepts,” I was quite disappointed by the papers devoted to the application of economic reasoning to legal rules. No one directly defined the core of the Chicago approach. There were no quotations from Becker about the “economic way of thinking” and no mention of Posner's famous claim that “the common law bears the stamp of economic reasoning.” This section provides examples from three papers to illustrate the lack of a clear presentation of the meaning of the economic analysis of the law, as defined by the Chicago school.

While David Hume and Adam Smith have tended to steal the Scottish Enlightenment limelight, Hamowy treats Ferguson as an equal player on this stage. One simple indicator that this attention to Ferguson is appropriate is the extraordinary popularity Ferguson enjoyed in Great Britain, on the continent, and, somewhat surprisingly, in North America during his own lifetime. Ferguson's An Essay on the History of Civil Society (1767) went through seven English editions in his own lifetime, as well as being translated into French, German, Italian and Russian. In the United States between 1777 and 1813, the Essay could be found in over one-fifth of catalogues and booklists. Ferguson's popularity in North America is surprising in that he opposed the American Revolution. In fact, he was paid by the British government to write in opposition to it. The Americans, he argued, did not have a good cause. They wished to escape paying for services, notably defense, that the British government was rendering to them. This is not to suggest that he was anything but sincere in his opposition. His position towards the colonists flowed naturally from his political principles. Ferguson rejected, for reasons similar to those of Smith and Hume, the standard theoretical doctrines of the radical Whigs from Locke onwards. There never was any such thing as an original “state of nature” as posited by Locke and many Americans. Mankind had always lived in groups. Nor did society and much less government arise out of a social contract based on consent. Government evolved over time in response to changing circumstances, chiefly economic circumstances. Laws evolved to curtail abuses of already existing social hierarchies. Ferguson did suggest that providing the Americans with better representation might be a good idea, but in his thinking there was no justification for an appeal to the “laws of nature” from the laws of Great Britain. The Americans mistook their mere interests for their rights. The French revolutionaries made even graver errors under the influence of an abstract doctrine of rights. Hamowy quotes Ferguson as describing the French Revolutionary forces as “the Antichrist himself in the form of Democracy & Atheism” (p. 176).

Ringman starts by asserting that humans have been interacting in markets for centuries. However, in the modern era, markets are increasingly characterized by a structure of perpetual competition, where efficiency is the standard of measurement, and rationality dictates the actions of its agents. This structure has led to unprecedented levels of economic prosperity and phenomenal advancements in many essential goods and services (pp. 3–4). Ringman then states that “capitalism is a source of social progress and as such it is inevitable.” Thus, the controversy surrounding markets and the system of capitalism is with regards to the particular evolution of markets, and not their very existence.

In their Foreword, Augullo and Guidi identify the objectives behind the design features of their long-term project. One objective is to study “the history of economics from the viewpoint of the economists’ relationships with the institutional and professional environment.” A second objective is that of comparative methodology, the “systematic and meditated comparison among national cases…so that the interpretive framework of each might be enriched by cross-fertilization.” A third objective is that “economics was rooted in institutional contexts and had itself over time become an institution—a doctrinal corpus of knowledge which permeates and frames the mind of the student body, scholars, professionals and public opinion at large” and to do so “not merely from the canonical standpoint of doctrinal or paradigmatic evolution” (AG, p. xi).

Charles K. Rowley's thin chapter is titled “An Intellectual History of Law and Economics: 1739–2003.” I say thin in the sense that, by my calculation, for the dates it purports to describe, it covers about one decade of history per page. Perhaps “accelerated” might better capture its essence. Overall it is an adequate outline of the history of Chicago law and economics (with some notable exceptions). To his credit (unlike most of the other chapters in this book), perhaps because, as its co-editor and probably responsible for the title of the book, he (like Posner) does actually include a nice discussion of those who were part of the “origins of law and economics.” The chapter does have two major flaws. First, for some odd reason, he chooses to challenge the well-accepted moniker—legal realist movement—and invokes the “legal realist mood” and then tries (awkwardly) to maintain the “mood-spin” within his descriptive analysis—it just sounds silly. One wonders, who (other than he) even thinks to raise the question as whether the legal realists were a “movement” or a “mood.” Surely not Edmund Kitch, one of the mainstays of Chicago law and economics and a contributor to his volume. Kitch does not buy into Rowley's spin; like all other scholars who write on legal realism (both in and out of the field of law and economics), in the forward to his chapter, Kitch follows the legal scholarship and uses the widely accepted—legal realist “movement” (p. 54).

Economists should not, according to Jones, neglect the legal, cultural, and social impediments that affect the dissemination of full-blown market behavior outside Western society. Custom, traditions, beliefs, and values combine with economic choice to produce existing culture. But, within these interactions, the economic choices of self-interested individuals and their formal institutions hold the upper hand. Jones rejects the hypothesis of “cultural nullity,” according to which culture depends entirely on the economy. Jones also rejects the alternative “cultural relativist” hypothesis, where each culture maximizes its own values, and the free market and capitalism are themselves cultural artifacts. For Jones, the cultural context within which capitalism develops is relevant only as a second-order factor to explain the pace and uneven nature of the global diffusion of wealth-maximizing, self-interested, and competitive behavior.