Listen to the economic debates of the past couple of years, and it’s tempting to conclude that no progress has been made in the field in over half a century. There’s John Maynard Keynes on the one side, arguing for deficit spending to offset the aftereffects of a once-in-a-lifetime financial crisis. On the other side there’s Ludwig von Mises (his fellow Austrians Joseph Schumpeter and Friedrich von Hayek seem too moderate for the role), thundering that all government intervention in the economy is doomed to failure.
Keynes and Mises are of course both long dead. But it is the resilience of their ideas that makes studying the history of economics so rewarding for non-economists. As a rule, economists don’t know much about history. So at times like these, anyone with a bit of familiarity with the giants of the past can weigh in on big economic issues with about as much authority and credibility as the credentialed experts.
This is one explanation for the continuing popularity of Robert L Heilbroner’s book The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers. Another is that once a book makes its way onto undergraduate required-reading lists, as Heilbroner’s did, it doesn’t easily fall off.
That kind of success makes a tempting target for imitators, and over the past decade, word spread among economics writers that Sylvia Nasar was at work on a new “Worldly Philosophers” — something to update and possibly supplant Heilbroner. Nasar is no knockoff artist; a professor at Columbia Journalism School and a former economics correspondent for The New York Times, she wrote what is perhaps the best economics-related book of the past quarter-century, A Beautiful Mind, a near-perfect biography of the game theorist John Nash.
Now Nasar’s new book is here. As it turns out, it isn’t really a Heilbroner update. For one, it doesn’t make much chronological headway: the postwar giants Paul Samuelson and Milton Friedman get a few pages, as does the philosopher and development economist Amartya Sen, who is still alive and writing books. But the major developments of post-1950 economics are for the most part ignored. So, for that matter, are the major developments of pre-1850 economics.
At the core of Nasar’s narrative is an account of the economically troubled decades between the two world wars, as told through the experiences of Keynes, Irving Fisher, and Schumpeter and Hayek. The least well known of this lot is Fisher, a Yale professor best remembered today for his insistence in 1929 that stock prices were perched upon a “permanently high plateau”. He was also the founder of modern monetary economics (his adherents include Milton Friedman and Ben Bernanke) and for a time a successful entrepreneur (he invented and commercialised a precursor to the Rolodex).
Fisher believed that free markets were prerequisites for prosperity, but that their functioning could be improved with government action, mainly monetary policy by central banks. Keynes, himself a successful speculator and investor, held similar beliefs but came to espouse more aggressive government action than Fisher. Which leaves Schumpeter and Hayek. In modern political shorthand, they were champions of free enterprise, their ideas wielded in opposition to those of the socialist Keynes.
The two men's views were shaped in Vienna in the terrible years after the end of World War I and the fall of the Austro-Hungarian Empire. Schumpeter did a stint as finance minister in a socialist government in 1919, an episode in his life that is usually treated as a joke, but Nasar renders it as a densely detailed tragedy. Schumpeter had a sensible plan for addressing Austria's ills, but no politician would go for it, and he was thrown out of government after seven months. Hayek spent part of the 1920s chronicling his country’s travails at an economic-forecasting institute (founded by his mentor Mises). By the time the two made their way west in the early 1930s – Schumpeter to Harvard, Hayek to the London School of Economics – they had become understandably critical of the notion that politicians could easily fix what ailed the economy.
But they weren’t so sure that economists couldn’t come up with solutions. Schumpeter was mentor at Harvard to Samuelson, who became a great expositor of Keynes’s ideas, while Hayek befriended Keynes and in Nasar's telling had come around by the 1940s to embracing at least a few Keynesian prescriptions.
The epic of intellectual progress Nasar wants to tell is not an unmitigated success. It doesn’t entirely square with the facts she so ably digs up. And her last few chapters offer not a rousing finale, but a muddled letdown. Still, the book as a whole is made up of so many wonderful parts that one is inclined to excuse its shortcomings.
In the end, the economists whose lives Nasar describes are depicted as one more or less happy family, advocates of an economy with free enterprise and free markets at its core, but a significant amount of government meddling to make things work better. In fact there was such a synthesis, its details hammered together by Samuelson, who gets a chapter late in the book but still feels underdescribed, and by a host of other young economists who go unmentioned. Within a few decades that synthesis began to disintegrate, leaving us with the debates we witness today.
That, however, is another story. Nasar writes that since 1950 we have enjoyed an age of global prosperity that even the Great Recession has been unable to derail. A permanently high plateau of prosperity, you might say. There’s something unnerving about such confidence. But you don’t have to share it in order to appreciate this rich, in places dazzling, history.
Justin Fox, the author of The Myth of the Rational Market, is editorial director of the Harvard Business Review Group.
GRAND PURSUIT
The Story of Economic Genius
Sylvia Nasar
Simon & Schuster
558 pages; $35
©2011 The New York Times News Service
