Hoisted From Comments: Duncan Foley "Fairness" to the Past (Wie Es Eigentlich Gewesen Department)

Duncan Foley writes, apropos of his history-of-economic-thought book, Adam's Fallacy:

Brad DeLong's Semi-Daily Journal: The Childish Babbling of a Say...: Just, as Brad suggested, to get things clear:

I use "Adam's Fallacy" in the book to refer to two things. First is Adam Smith's claim that the pursuit of self-interest, which is morally problematic (not necessarily immoral, but in need of examination) in most human interactions, is unambiguously a social good in the context of competitive market interactions.

Second, I take this problem as representing a deeper issue that runs through Adam Smith's writing and the work of all the political economists I discuss in the book. This is the idea that there is an economic sphere of life subject to special laws, either moral or scientific. The book makes an extended case that this "fallacy" (which is not just Adam's) runs through the history of political economy and economics.

Whether or not I actually committed all of the Follies Brad identifies I leave to readers of the book to judge.

I think the way Smith uses Say's Law reasoning to support his analysis of free trade is a fair example of the way "Adam's Fallacy" works in his discourse. The discussion links up with the chapters on Malthus and Ricardo, Marx, and Keynes.

There is a broader issue about the impact of labor productivity increases on society, which is the "destructive" aspect of Schumpeter's "creative destruction". Cost-reducing technical change may not reduce employment in the sector in which it occurs, but it can have (and has in many cases) devastating effects in other sectors and economies. It is hard to look at the polarized world economy today without acknowledging this.

I don't think the lack of a long-run trend in unemployment in and of itself can settle the question of Say's Law, at least in the form "aggregate supply in the willingness of input owners to sell their resources creates its own aggregate demand", because in the long run the aggregate supply of inputs is adjusting, along with aggregate demand. The classical and Marxian analyses of macroeconomics, in which population is endogenous, are a good example of this.

I did not, as I say in the Preface, write the book to be "fair" to Smith or Malthus or anyone else. (As far as I can tell, all these guys are doing fine without my help.) I did write it to raise questions and prompt debate about the presumptions of economic policy discourse. I'm glad Brad de Long has taken me up on this and generated this discussion.I did not, as I say in the Preface, write the book to be "fair" to Smith or Malthus or anyone else. (As far as I can tell, all these guys are doing fine without my help.) I did write it to raise questions and prompt debate about the presumptions of economic policy discourse...

Let's pick up the thread:

Foley's claim that cost-reducing technical change powered by modern capitalism is the cause of mass poverty in "the polarized world economy [of] today" was decisively answered two generations ago by Joan Robinson: "It's a terrible thing to be a worker exploited in the capitalist system. The only worse thing is to be a worker unable to find anyone to exploit you." Where wages are lowest in the world today, it is because of the absence, not the presence of industrial capitalism and the technical change it drives forward.

Moving forward, Foley on pp. 36-7--writing "Smith concludes that the national interest is best served by getting rid of tariffs.... This argument rests on several assumptions.... Smith assumes that Say's Law is operating, so that there will be no long-term unemployment of labor or capital..."--runs into trouble with Foley on page 11: "Over long periods of time, it appears that something like Say's Law does operate." You just cannot say on one page that Smith's argument that free trade is good in the long run is flawed because it assumes that Say's Law operates in the long run, and say on another page that Say's Law operates in the long run. That's just not fair.

Last, apropos of Foley's declaration that he "did not... write the book to be "fair" to Smith or Malthus or anyone else": Robert Heilbroner's The Worldly Philosophers: The Lives, Times And Ideas Of The Great Economic Thinkers is eminently fair to all the writers he discusses. For that reason, I think, Heilbroner's book cannot help but do a much better job of raising questions and prompting debate about the presumptions of economic policy discourse.

Smith, Malthus, Ricardo, Marx, the marginalists, Keynes, even Hayek--these are all mighty and powerful thinkers who deserve interpreters and commentators who will treat them fairly.