Tag: History

After Piketty: Capital in the Twenty-First Century, Three Years Later

Posted on by Brad DeLong

Introduction to: After Piketty: The Research Program Starting from Thomas Piketty’s Capital in the Twenty-First Century http://delong.typepad.com/2016-08-31-piketty-volume-intro_hb052516.pdf

Thomas Piketty’s Capital in the Twenty-First Century is an astonishing, surprise bestseller.

Its enormous mass audience speaks to the urgency with which so many wish to hear about and participate in the political-economic conversation regarding this Second Gilded Age in which we in the Global North now find ourselves enmeshed.1 C21’s English-language translator Art Goldhammer reports (this volume) that there are now 2.2 million copies of the book scattered around the globe in 30 different languages. Those 2.2 million copies cannot and should not but have an impact. They ought to shift the spirit of the age into another, different channel: post-Piketty, the public-intellectual debate over inequality, economic policy, and equitable growth ought to focus differently. We have assembled our authors and edited their papers to highlight what we, at least, believe economists should study After Piketty as they use the book to trigger more of a focus on what is relevant and important.

Link to: After Piketty: The Agenda for Economics and Inequality

Read MOAR

Musings on “Just Deserts” and the Opening of Plato’s Republic

Posted on by Brad DeLong
Bradford delong com Grasping Reality with the Invisible Hand

Musings on “Just Deserts” and the Opening of Plato’s Republic:

Greg Mankiw Defending the 1% proposes what he calls the “just deserts” theory of social justice:

What you have gained and hold by playing by the economic rules is yours: social justice consists in not cheating or injuring people, and not being cheated or injured in turn.

This is an old theory: we see it first in the western intellectual tradition nearly 2400 years ago, in the opening of the dialogue that is Plato’s Republic. It is advanced by Kephalos…

The other participants in Plato’s dialogue, led by Sokrates, conclude relatively quickly that Kephalos’s argument–taken up by his son Polymarkhos–is unphilosophical, and thus unworthy of consideration by those who want to gain a deep and true understanding of the subject. For the rest of the dialogue, Kephalos’s position–that justice consists of getting one’s just deserts: not injuring or cheating people, and not being injured or cheated–is abandoned. The live positions are, instead,

  1. That “justice” does not really exist: it is merely a rhetorical weapon with which the strong control the weak.

  2. That justice consists of the right arrangement of human society, because a rightly arranged human society is an instrumental virtue that produces many many benefits.

  3. That justice consists of the right arrangement of human society, a good and worthwhile thing both because of the other benefits it produces and a thing very much worth having in itself.

Ever since Plato, moral philosophers have followed his lead–or, rather, the lead of the characters in his dialogue–in this dismissal of “justice is neither cheating nor being cheated”. But, as Obama CEA Chair Jason Furman pointed out to me, that cannot be completely right. First, justice as what Mankiw calls “just deserts” has enormous psychological resonance for human beings. To the extent that moral philosophy exists to account for an help us understand the morality we human beings do have, dismissing a very large chunk of our moral intuitions as wrong simpliciter is not very helpful. Second, given that human beings have a strong tropism toward Kephalos’s “just deserts” position–that justice consists of not injuring or cheating people, and not being injured or cheated–anyone who tries to set out what a rightly arranged society is without taking account of this strong human psychological tropism will almost surely fail.

My tentative ideas on this are unfinished, and probably wrong.

But I would suggest that we might be thinking about the fact that humans are, at a very deep and basic level, gift-exchange animals. We create and reinforce our social bonds by establishing patterns of “owing” other people and by “being owed”. We want to enter into reciprocal gift-exchange relationships. We create and reinforce social bonds by giving each other presents. We like to give. We like to receive. We like neither to feel like cheaters nor to feel cheated. We like, instead, to feel embedded in networks of mutual reciprocal obligation. We don’t like being too much on the downside of the gift exchange: to have received much more than we have given in return makes us feel very small. We don’t like being too much on the upside of the gift exchange either: to give and give and give and never receive makes us feel like suckers.

We want to be neither cheaters nor saps. It is, psychologically, very hard for most of us to feel like we are being takers: that we are consuming more than we are contributing, and are in some way dependent on and recipients of the charity of others. It is also, psychologically, very hard for most of us to feel like we are being saps: that others are laughing at us as they toil not yet consume what we have produced.

And on top of this evopsych propensity to be gift-exchange animals–what Adam Smith called our “natural propensity to truck, barter, and exchange”–we have built our complex economic division of labor. We construct property and market exchange–what Adam Smith called our natural propensity “to truck, barter, and exchange” to set and regulate expectations of what the fair, non-cheater non-sap terms of gift-exchange over time are.

But we face a problem: How do we enter into a gift-exchange relationship with somebody we will never see again? And we have a solution: a cash-on-the-barrelhead exchange. We devise money as a substitute for the trust that in this transaction one is indeed in a gift-exchange relationship, rather than a sap being taken by a grifter.
And on top of this we have constructed a largely-peaceful global 7.4B-strong highly-productive societal division of labor, built on:

  • assigning things to owners—who thus have both the responsibility for stewardship and the incentive to be good stewards…
  • on very large-scale webs of win-win exchange…
  • mediated and regulated by market prices…

There are enormous benefits to arranging things this way. As soon as we enter into a gift-exchange relationship with someone or something we will see again–perhaps often–it will automatically shade over into the friend zone. This is just who we are. And as soon as we think about entering into a gift-exchange relationship with someone, we think better of them. Thus a large and extended division of labor mediated by the market version of gift-exchange is a ver powerful creator of social harmony. This is what the wise Albert Hirschman called the doux commerce thesis.

Now it is certainly true that economists do not talk about this once. For example, in Books I and II of his Wealth of Nations, Adam Smith definitely does write as if self-interest mediated by exchange is at the foundation of the social order. But Adam Smith the moral philosopher (as opposed to Adam Smith the proto-economist attempting to disrupt the 18th century discipline of “political oeconomy”) does not believe that. And it is not true. People as economists conceive them are not “Hobbesians” focusing on their narrow personal self-interest, but rather “Lockeians”: believers in live-and-let live, respecting others and their spheres of autonomy and eager to enter into reciprocal gift-exchange relationships—both one-offs mediated by cash alone and longer-run ones as well. In an economist’s imagination, people do not enter a butcher’s shop only when armed cap-a-pie and only with armed guards, fearing that the butcher will not sell him meat for money but will, rather, knock him unconscious, take his money, slaughter him, smoke him, and sell him as long pig. Rather, there is a presumed underlying order of property and ownership that is largely self-enforcing, that requires only a “night watchman” to keep it stable and secure.

This extended pattern of independence is a very valuable piece of our societal capital.

Thus, given these psychological and institutional facts-on-the-ground, in my view any rightly arranged society has to successfully do all of:

  1. setting up a framework for the production of stuff…
  2. setting up a framework for the distribution of stuff…
  3. creating a very dense reciprocal network of interdependencies to create and reinforce our belief that we are all one society…
  4. and doing so in such a way that:
    • people do not see themselves, are not seen as, and are not saps–people who are systematically and persistently taken advantage of by others in their societal and market gift-exchange relationships.
    • people do not see themselves, are not seen as, and are not moochers–people who systematically persistently take advantage of others in their societal and market gift-exchange relationships.

Achieving these results is complicated and difficult, for reasons related to [the water-diamonds paradox][]. But I am now far afield, and need to get back to my main topic…

Cf., also:

Communism and Really Existing Socialism: A Reading List for Post-Millennials

Posted on by Brad DeLong
Manchester 1844 Google Search

What should someone coming of age in 2020 or so–someone post-millennial, who has no memories of all of any part of the twentieth century–learn about communism, and really existing socialism?

It is, I think, very clear by now to everyone except the most demented of the herbal teabaggers, and should be clear to all, that communism was not one of the brightest lights on humanity’s tree of ideas. Nobody convinced by the writings of Marx and his peers that a “communist” society was in some sense an ideal who then achieved enough political power to try to make that vision a reality has built a society that turned out well. All, measured by the yardsticks of their time and geographical situation, were either moderately bad, worse, disastrous, or candidates for the worst-régime-every prize. None attained the status of:

a prayse and glory that men shall say of succeeding plantations, “the Lord make it like that of New England.” For wee must consider that wee shall be as a citty upon a hill…

Moreover, those who took Marx most seriously and fell under his intellectual spell either did first-class work only after they had liberated themselves and attached themselves to some other’s perspective (as Perry Anderson did to Weber via “modes of domination” and as Joan Robinson did to Keynes). Too close and uncritical a study of Marx is a mode of self-programming that introduces disastrous bugs into your wetware. The thinkers useful for the twenty-first century are much more likely to be along the lines of Tocqueville, Keynes, Polanyi, de Beauvoir, Lincoln, and (albeit in his intellectual rather than his political or personal practice) Jefferson than Marx. (And Foucault? Maybe Foucault–nah, that is too likely to introduce a different set of dangerous bugs to your wetware…)

Yet the ideas and the arguments for “communism” were (and are?) powerful. And they were very convincing to millions if not billions of people for fully a century and a half. How should post-millennials understand this? How much about this ought they to learn? And how best to present the subject so that they gain the fullest and most accurate understanding, in the short time that is all that they can afford to spend on it?

Here’s my first second take on readings, in the order in which I would put them a course:

More Scattered Things I Have Written: on and About the Subject:

What Thinkers Will Define Our Future?: No Longer Fresh at Project Syndicate

Posted on by Brad DeLong
Preview of Untitled 3

Over at Project Syndicate: Which Thinkers Will Define Our Future?: BERKELEY – Several years ago, it occurred to me that social scientists today are all standing on the shoulders of giants like Niccolo Machiavelli, John Locke, Adam Smith, Alexis de Tocqueville, Max Weber, and Émile Durkheim.

One thing they all have in common is that their primary focus was on the social, political, and economic makeup of the Western European world between 1450 and 1900. Which is to say, they provide an intellectual toolkit for looking at, say, the Western world of 1840, but not necessarily the Western world of 2016. What will be taught in the social theory courses of, say, 2070? What canon – written today or still forthcoming – will those who end their careers in the 2070s wish that they had used when they started them in the late 2010s? Read MOAR at Project Syndicate

Several years ago I had a thought: it seemed to me that the social sciences we’re still standing on the shoulders of giants—thinkers like Niccolo Machiavelli, John Locke, Adam Smith, Alexis de Tocqueville, Max Weber, Emile Durkheim, and company. You can indeed see far when you stand on the shoulders of a giant. But, unless you adopt a twisty and undignified posture , you see best only in the direction that the giant is looking. And the giants of social science were all looking at the Western European world from 1450 to 1900–looking at its orders and disorders, its structures and changes, and its problems and proposed solutions.

We will very shortly be trying to understand the world of the second fifth of the 21st century. Attempting to do so using an intellectual toolkit that is really focused on 1840 or so seems hazardous. So I asked myself: what will be taught in the social theory courses of, say, 2070? What authors and what toolkits–written today or still unwritten—will those who will end their careers in the 2070s wish that they had focused on when they started their careers in the late 2010s? I started a file folder: “The Social Theory of the Late 21st Century”. I filled it with things when I found something I thought had purchase on something likely to be an important problem over the next couple of generations. I put things in. I took things out. I looked at the folder again last week. The bulk of it consisted of the writings of three people: Alexis to Tocqueville, who wrote in the 1830s and 1840s; John Maynard Keynes, who wrote in the 1920s and 1930s; and Karl Polanyi, who wrote in the 1930s and 1940s.

Now the fact that I appear to think that the cutting-edge social theory of the 2070s will then be composed of books between 125 (Polanyi’s The Great Transformation) and 235 (Tocqueville’s Democracy in America) may simply be a consequence of my own stupidities and biases. But maybe, just maybe, there is something more here.

John Maynard Keynes’s central concerns as he wrote in the 1920s and 1930s were five:

  1. The fragility of our collective prosperity.
  2. The grave tensions between the demons of nationalism and the rootless cosmopolite attitudes needed to support a peaceful and prosperous global society.
  3. The need to figure out how to organize our lives and utilize our prosperity to create a world fit for humans to live good lives in.
  4. The bankruptcy of the ideological nostrums—laissez-faire, spontaneous order, collective cooperation, socialist command-and-control—with which his world was faced.
  5. The delicate and technocratic problems of running a prosperous economy—and the economic, moral, and political disasters that would follow from failing to do so.

But after World War II the problems that had spurred Keynes’s concerns faded into the background. The Thirty Glorious Years after World War II allowed some to believe that they were permanently—rather than temporarily—solved. The subsequent inflation of the 1970s could be blamed on social democratic overreach, and the claim that the Thatcher-Reagan correction had been salutary and effective was highly credible to the moneyed classes that prospered thereafter, and to their tame ideologists who dominated the 1980-2010 public sphere.

But today the problems that had spurred Keynes’s concerns are back.

Karl Polanyi’s central concerns writing in the 1930s and 1940s was that a market society could indeed produce a great deal of material prosperity, but it did so by making people and the fabric of their lives puppets and playthings of mindless market forces, and that people really did not like that. The task was to grasp the prosperity that came with a market economy without suffering the risks of poverty, the destructions of enterprise, and the erosion of community and expectations that came with a market society. If the modern bourgeois order failed at this task, Polanyi warned, fascist and communist authoritarian or totalitarian forces would benefit.

Like Keynes’s problems, Polanyi’s closely-related problems faded into the background for the Thirty Glorious Years immediately after World War II. And in the subsequent Neoliberal Age the argument that the prosperity of a market society was great and worth the price paid was, again, highly credible to the moneyed class and to their tame ideologists.

But today the problems that had spurred Polanyi’s concerns are back.

Alexis de Tocqueville’s central concerns writing in the 1930s and 1940s were about the consequences of the destruction of caste—the big castes of supposedly Frankish nobles of the sword and supposedly Gallo-Roman villeins, bourgeois, and nobles of the robe; and all the little castes with all their little privileges and liberties that gave them autonomy and a measure of control over their lives—and that came, of course, with obligations attached that grew as social status declined. Tocqueville saw this ordered world of societal orders being replaced by societal democracy and formal social equality—in which everyone would be equally free, but would also be at the mercy of society. No privileges or liberties would protect you if you failed to find a counterparty in the market, or ran afoul of the tyranny of the majority, or simply sought some form of direction as you tried to decide who you were supposed to be.

Tocqueville’s concerns never went away. But in Tocqueville’s world the destruction of caste was partial only: Tocqueville wrote for white men who knew their nationality, knew what those caste memberships meant, and knew what privileges they brought. Now, however, the destruction of caste and caste privilege is taking another step forward. Who, we all now ask, are the inhabitants of Birmingham? And we are trying to deal with it and grasp the opportunities for human betterment thereby created.

So my answer is: No, we have not resolved the concerns that spurred Tocqueville, Keynes, and Polanyi to think and write. We and our successors face their problems and opportunities in a transformed and reshaped form. Mark Twain said that history rhymes. And right now it looks as though the rhyme scheme is very strict.

Which Thinkers Will Define Our Future?: Live at Project Syndicate

Posted on by Brad DeLong

Over at Project Syndicate: Which Thinkers Will Define Our Future?: BERKELEY – Several years ago, it occurred to me that social scientists today are all standing on the shoulders of giants like Niccolo Machiavelli, John Locke, Adam Smith, Alexis de Tocqueville, Max Weber, and Émile Durkheim.

One thing they all have in common is that their primary focus was on the social, political, and economic makeup of the Western European world between 1450 and 1900. Which is to say, they provide an intellectual toolkit for looking at, say, the Western world of 1840, but not necessarily the Western world of 2016. What will be taught in the social theory courses of, say, 2070? What canon – written today or still forthcoming – will those who end their careers in the 2070s wish that they had used when they started them in the late 2010s? Read MOAR at Project Syndicate

Must-Read: Carles Boix and Frances Rosenbluth: Bones of Contention: The Political Economy of Height Inequality

Posted on by Brad DeLong

Must-Read: Carles Boix and Frances Rosenbluth: Bones of Contention: The Political Economy of Height Inequality: “Human osteological data provide a rich, unmined source of information…

…about the distribution of nutrition, and by extension, the distribution of political power and economic wealth, in societies of long ago. On the basis of data we have collected and analyzed, we find that the shift from a hunter–gatherer to a labor-intensive agriculture opened up inequalities that had discernible effects on human health and stature. But we also find that political institutions intervene decisively in affecting the distribution of resources within societies. Political institutions appear to be shaped not only by economic factors but also by military technology and vulnerability to invasion, leaving important questions for additional exploration.

Must-Read: Gideon Rachman: Xi Jinping Has Changed China’s Winning Formula

Posted on by Brad DeLong

Must-Read: Gideon Rachman: Xi Jinping Has Changed China’s Winning Formula: “What Mr Xi has done is essentially to abandon the formula that has driven China’s rise…

…created by Deng Xiaoping… and then refined by his successors…. In economics, Deng and his successors emphasised exports, investment and the quest for double-digit annual growth. In politics, China moved away from the charismatic and dictatorial model created by Mao Zedong and towards a collective leadership. And in foreign affairs, China adopted a modest and cautious approach to the world that became colloquially known in the west as hide-and-bide…. Under Mr Xi, who assumed the leadership of the Chinese Communist party towards the end of 2012, all three key ingredients of the Deng formula have changed….

China has moved back towards a model based around a strongman leader…. The years of double-digit growth are over…. The Xi era has seen a move away from hide-and-bide towards a foreign policy that challenges US dominance of the Asia-Pacific region….

In economics… the shift to a new model is perilous… an unsustainable splurge of credit and investment…. China still has to get used to lower rates of growth…. A healthy economy is crucial…. The country’s leaders have relied on rapid economic growth to give the political system a ‘performance legitimacy’, which party theorists have argued is far deeper than the mandate endowed by a democratic election…. When it comes to politics, in the post-Mao era the Communist party has… embrace[d] a collective style of government, with smooth transitions…. Mr Xi has broken with this model…. Many pundits believe that Mr Xi is now determined to serve more than two terms in office…. At the same time as economic and political tensions within China have risen under Mr Xi, so the country’s foreign policy has become more nationalistic….

The key to the Deng formula that created modern China was the primacy of economics. Domestic politics and foreign policy were constructed to create the perfect environment for a Chinese economic miracle. With Mr Xi, however, political and foreign policy imperatives frequently appear to trump economics. That change in formula looks risky for both China and the world.

Hoisted from the Archives: Me Reviewing Robert Skidelsky on John Maynard Keynes

Posted on by Brad DeLong

J. Bradford DeLong(2001): Review of Robert Skidelsky, John Maynard Keynes: Hopes Betrayed and The Economist as Saviour: Robert Skidelsky (1983), John Maynard Keynes: Hopes Betrayed (London: Macmillan: 033357379x). Robert Skidelsky (1992), John Maynard Keynes: The Economist as Saviour (London: Macmillan: 0333584996). And my review of volume 3: Fighting for Britain.

A couple of months ago I wrote a less-than-totally-enthusiastic review of the third volume of Robert Skidelsky’s Keynes biography–Robert Skidelsky (2000), John Maynard Keynes: Fighting for Britain (London: Macmillan: 0333604563). I wrote that I was disappointed: that:

I was expecting this to be a great book: as stunning as the first two volumes…. But it was not. Do not get me wrong: it is still a good book, well worth reading. Anyone who loved Skidelsky’s first two volumes will like this one…

Now let me repair the damage by writing a totally enthusiastic, totally adulatory review of Skidelsky’s first two volumes. He gives us John Maynard Keynes’s life, entire. And he does so with wit, charm, control, scope, and enthusiasm. You read these books and you know Keynes–who he was, what he did, and why it was so important.

The place to start is with the observation that John Maynard Keynes appeared to live more lives than any of the rest of us are granted.

Keynes was an academic, but also a popular author. His books were read much more widely outside of academia than within it. Keynes was a politician–trying to advance the chances of Britain’s Liberal Party between the wars–but also a bureaucrat: at times a key civil servant in the British Treasury. He was a speculator, trying to make his fortune on the stock market, but also at the core of the ‘Bloomsbury Group’ of artists and intellectuals that did so much to shape interwar culture.

For the litterati it is Keynes of Bloomsbury–his loves, enthusiasms, acts of patronage, and wit–who is the most interesting. For economists like myself, it is Keynes the academic who is the real Keynes: he was the founder of the half-science half-witchcraft discipline of macroeconomics. For those interested in the political and economic history of the twentieth century, it is Keynes the author and politician who is primary. In either case, John Maynard Keynes is the man who has the best claim to be the architect of our modern world–whether it is how our central banks think about economic policy, what our governments believe that they must try to do, the institutions through which they work, or the habit of thought that views the economy not as Adam Smith’s ‘system of natural liberty’ but as a complicated machine that needs adjustment and governance, all of these trace large parts of their roots to the words and deeds of John Maynard Keynes.

How did this man come to be?

That is the question answered by the first volume of Skidelsky’s biography: it is a bildungsroman, a story of growth and development. Skidelsky writes the best narrative interpretation of growing up as a smart and privileged children of academics in late Victorian Britain than I can ever conceive of being written. He writes of how Keynes was one of a relatively small number of brilliant students thrust as a leaven into the mass of Britain’s upper class at Eton, and thus became part of ‘an intellectual elite thrust into the heart of a social elite’ (HB, page 77). An entire cohort of Britain’s upper class thus learned before they were twenty that Keynes could be very smart, very witty, very entertaining–and very helpful if there was a hard problem to be thought through or something to be done.

Skidelsky then writes of Keynes at Cambridge, his joining the secret society of the Apostles, and his eager grasping with both hands of the philosophy of the aesthete common among the students of the philosopher G.E. Moore. As Keynes put it in 1938, he believed that one should arrange one’s life to achieve the most good, where ‘good’ was nothing more or less than:

states of mind… states of mind… not associated with action or achievement or with consequences [but]… timeless, passionate states of contemplation and communion…. a beloved person, beauty, and truth.

Thus Keynes left Cambridge convinced that:

one’s prime objects in life were love, the creation and enjoyment of aesthetic experience, and the pursuit of knowledge. Of these love came a long way first… (HB, page 141).

This embrace of aestheticism was and remained the key to the ‘Bloomsbury’ avatar of John Maynard Keynes, for whom the lodestars were to ‘be in love with one’s friends, with beauty, with knowledge’ and who was and remained an enthusiastic member of the Bloomsbury group, sharing ‘its intellectual values and its artistic enthusiasms,’ and participating ‘in its wild fancy dress parties’ (HB, page 234). Keynes was a man who could celebrate this appointment to the British Treasury with:

…a party for seventeen… at the Café Royale…. Afterwards they went back to 46 Gordon Square for Clive [Bell]’s and Vanessa [Bell, the sister of Virgina Woolf]’s party. There they listened to a Mozart trio… and went upstairs for the last scene of a Racine play performed by three puppets made by Duncan [Grant], with words spoken by the weird-voiced Stracheys. ‘The evening ended with Gerald Shove enthroned in the center of the room, crowned with roses…’ (HB, page 300).

But at the same time Keynes’s pursuit of knowledge was shading over into politics and policy as well. For Keynes it was never enough to pursue knowledge in order to achieve a good state of mind, one had also to be sure to cause the knowledge to be applied to make the world a better place. And how one could act in politics and policy was greatly constrained by the limits of our knowledge. One argument from Edmund Burke, especially resonated with Keynes. As he wrote:

Burke ever held, and held rightly, that it can seldom be right… to sacrifice a present benefit for a doubtful advantage in the future…. It is not wise to look too far ahead; our powers of prediction are slight, our command over results infinitesimal. It is therefore the happiness of our own contemporaries that is our main concern; we should be very chary of sacrificing large numbers of people for the sake of a contingent end, however advantageous that may appear… We can never know enough to make the chance worth taking… (ES, page 62).

Keynes’s industry and intelligence thus made him a trusted and effective member of Britain’s intellectual and administrative elite well before the eve of World War I. Sir Edwin Montagu, especially, pushed him forward both before and during the war. Before the war Keynes decided that he wanted the life of an academic rather than of an administrator: Cambridge rather than the India Office or the Treasury. Yet he kept a strong presence in both worlds, writing his practical and policy-oriented book Indian Currency and Finance in spare moments as he worked on the deeper and philosophical project that was his Treatise on Probability.

Thus it was no surprise that Keynes found an important and powerful job at the Treasury during the national emergency that was World War I. How do you mobilize the financial resources of Britain to support the war effort? How large a war effort could the British economy stand? How could an international trade system geared to consumer satisfaction be harnessed as an instrument of national power? These are all deep and complicated questions. These are what Keynes worked on. But as the death toll from World War I mounted up toward ten million, Keynes became angrier and angrier at this monstrous botch of human lives and social energy that was World War I–and angrier and angrier at the politicians who could see no way forward other than mixing more blood with mud at Paaschendale.

Keynes’s friend David Garnett wrote him a letter condemning his work for the government, calling Keynes:

an intelligence they need in their extremity…. A genie taken incautiously out… by savages to serve them faithfully for their savage ends, and then–back you go into the bottle…. Oh… our savages are better than other savages…. But don’t believe in the profane abomination.

The interesting thing was that Keynes ‘agreed that there was a great deal of truth in what I had said…’ (HB, page 321). And then the whole project of post-World War I reconstruction went wrong at Versailles–when the new German government was treated as a foe rather than a democratic ally, when the object seemed to be to extract as much in plunder and reparations from Germany as possible (‘until the pips squeak’).

Skidelsky quotes South African politician Jan Christian Smuts on the atmosphere at Versailles:

Poor Keynes often sits with me at night after a good dinner and we rail against the world and the coming flood. And I tell him that this is the time for Grigua’s prayer (the Lord to come himself and not to send his Son, as this is not a time for children). And then we laugh, and behind the laughter is [Herbert] Hoover’s horrible picture of thirty million people who must die unless there is some great intervention. But then again we think that things are never really as bad as that; and something will turn up, and the worst will never be. And somehow all these phases of feeling are true and right in some sense… (HB, page 373).

Keynes exploded with a book called The Economic Consequences of the Peace. It condemned the political maneuvering of Versailles and the treaty that resulted in the strongest possible terms. He excoriated short-sighted politicians who were interested in victory rather than peace. He outlined his alternative proposals for peace:

German damages limited to £2000m; cancellation of inter-Ally debts; creation of a European free trade area… an international loan to stabilize the exchanges…

And he prophesied doom–if the treaty were carried out and Germany kept poor for a generation:

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for long that final civil war between the forces of reaction and the despairing convulsions of revolution, before which the horrors of the late German war will fade into nothing, and which will destroy… the civilization and progress of our generation… (HB, page 391).

The Economic Consequences of the Peace made Keynes famous. His horror at the terms of the peace treaty won him friends like Felix Frankfurter, a powerful molder of opinion in the United States. In his book, propelled by ‘passion and despair,’ Keynes ‘spoke like an angel with the knowledge of an expert’ and showed an extraordinary mastery not just of economics but also of the words that were needed to make economics persuasive. Before The Economic Consequences of the Peace Keynes was primarily an academic (with some government experience) with a lot of influential literary friends. Afterwards he was a celebrity. He was not only the private Keynes: ‘the Cambridge don selling economics by the hour, the lover of clever, attractive, unworldly young men, the intimate of Bloomsbury.’ He was also–because of what he had done with his pen after Versailles–‘the monetary reformer, the adviser of governments, the City magnate, the feared journalist whose pronouncements caused bankers and currencies to tremble… conferences jostled with holidays, intimacy merged into patronage. In 1925 the world-famous economist would marry a world-famous ballerina in a blaze of publicity…’ (HB, page 400).

So after World War I Keynes used what power he had to–don’t laugh–try to restore civilization. In Skidelsky’s–powerful and I believe correct–interpretation, Keynes before 1914:

believed (against much evidence, to be sure) that a new age of reason had dawned. The brutality of the closure applied in 1914 helps explain Keynes’s reading of the interwar years, and the nature of his mature efforts… to restore the expectation of stability and progress in a world cut adrift from its nineteenth-century moorings… (ES, page xv).

Skidelsky’s narrative of the mature Keynes–Keynes in the 1920s–is far from being a one-note recounting of the brave but losing struggle against the approaching Great Depression, against political insanity, and against the Nazi Party’s attempted revenge for the German defeat in World War I. Bloomsbury takes up a good chunk of the narrative. Skidelsky’s book includes love letters from Keynes to his future wife Lydia Lopokova:

In my bath today I considered your virtues—how great they are. As usual I wondered how you could be so wise. You must have spent much time eating apples and talking to the serpent! But I also thought that you combined all ages—a very old woman, matron, a debutante, a girl, a child, an infant; so that you are universal. What defence can you make against such praises? (page 181).

But when he tries to paint a picture of what it was like to be a member of the Bloomsbury culture group in the 1920s, Skidelsky’s words fail him. Instead, he resorts to the imaginings of one of the characters of novelist Anthony Powell, who thinks that Bloomsbury must have been:

…every house stuffed with Moderns from cellar to garret. High-pitched voices adumbrating absolute values, rational statse of mind, intellectual integrity, civilized personal relationships, significant form…. The Fitzroy Street Barbera is uncorked. Le Sacre du Printemps turned on, a hand slides up a leg…. All are at one now, values and lovers (page 11).

Virginia Woolf had a different, less happy and romantic view. She wrote of her:

vivid sight of Maynard by lamplight—like a gorged seal, double chin, ledge of red lip, little eyes, sensual, brutal, unimaginate. One of those visions that come from a chance attitude, lost as soon as he turned his head. I suppose though it illustrates something I feel about him. He’s read neither of my books… (page 15)

There is a clear lesson: if your circle includes novelists with wicked pens, read their books and praise them as often as possible.

The bulk of this second volume–The Economist as Saviour–is however devoted to Keynes’s political and intellectual struggle for stable money and full employment, and against deflation, overvalued exchange rates, and the sacrifice of the happiness of today’s populations in the hopes of regaining the imagined benefits of the classical gold standard at some time in the distant future. Keynes spent more than a decade arguing against central bankers who ‘think it more important to raise the dollar exchange a few points than to encourage flagging trade.’ He tried to prevent Britain’s return to the gold standard in 1925 at an overvalued exchange rate, for by overvaluing the exchange rate Britain’s Treasury Minister, Winston Churchill, was willing:

… the deliberate intensification of unemployment. The object of credit restriction, in such a case, is to withdraw from employers the financial means to employ labor at the existing level of prices and wages. This policy can only attain its end by intensifying unemployment without limit, until the workers are ready to accept the necessary reduction in money wages under the pressure of hard facts…. Deflation does not reduce wages ‘automatically.’ It reduces them by causing unemployment. The proper object of dear money is to check an incipient boom. Woe to those whose faith leads them to use it to aggravate a Depression! (page 203).

But in the end Keynes failed.

He was unable to persuade British governments that economic policy should be decided upon by rational thought rather than by obedience to old poorly-understood verities. He failed to achieve any material easing of the terms of the Versailles treaty. He failed to prevent deflation and high unemployment in Britain. He failed to convince people that the Great Depression was a man-made catastrophe that could be cured relatively easily. His pen–though strong–was not strong enough. His allies were too few. And among central bankers and cabinet ministers understanding of the situation in which they were embedded was rare.

So the 1930s saw a change of emphasis. Fewer short polemical articles were written. Instead, Keynes concentrated his attention on writing a book, a book which he thought:

…will largely revolutionize–not, I suppose, at once but in the course of the next ten years–the way the world thinks about economic problems. When my new theory has been duly assimilated and mixed with politics and feelings and passions, I can’t predict what the upshot will be in its effects on actions and affairs. But there will be a great change…’ (pages 520-521). And he was right.

His General Theory of Employment, Interest, and Money did change the world.

It ends with a bold claim for the importance of ideas rather than interests that, in context, has to be read not as a considered judgment but as his desperate hope:

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas…. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil… (page 570).

The extraordinary thing is that Keynes was right.

The other extraordinary thing is that Skidelsky has told the story so well.

So buy these books. Read these books. These are great books. Time spent with them is time well-spent. Robert Skidelsky deserves great honors for having devoted so much of his life to writing down the story of John Maynard Keynes, and writing it down so well.

Are there any problems with the books? A very few–usually caused by the fact that Skidelsky is not a technically-trained economist.

For example, Skidelsky seems frustrated at the apparent appearance and disappearance of the quantity theory of money from Keynes’s thought (and from economic thought in general). He writes that:

In his youthful exuberance Keynes claimed that adherence to [the quantity theory] was a test of scientific competence…. A few years later he cheerfully jettisoned it; in the 1970s back it popped…. If economics were really like physics, it would be impossible for ideas fundamental to the subject to disappear one moment and reappear the next… (HB, page xviii).

To an economist this sounds simply silly. In the Marshallian tradition in which Keynes was trained, it was always clear that the constant-velocity quantity theory of money was just a first approximation–and indeed Keynes’s General Theory is very clear about just how he intends to get a better, second approximation that reduces to the constant-velocity quantity theory when velocity is indeed constant. The quantity theory may have ‘popped back’ into the sights of economic journalists like Skidelsky in the 1970s; but it had always been present in economists’ models under the guise of the LM curve.

And Skidelsky does not seem to be able to clearly set out what Keynes was trying to achieve in his Treatise on Probability. This is no crime: Keynes was not able to set it out clearly either. We today can because we have the mathematical tools–information sets and expected values taken with respect to them–that make Keynes’s objections to what he took to be ’empirical’ theories of probability both cogent and obvious.

Strangest of all–and this I really do not understand–is Skidelsky’s apparent belief that Keynes’s despair in the immediate aftermath of World War I was an echo of ‘the Victorian fear of a godless society.’ Skidelsky thinks that the rise of atheism ‘severely depleted’ the ‘moral capital which sustained the accumulation of economic capital…’ (HB, pages 401-2). As if everyone would have been optimistic after the Versailles peace conference if only everyone had still gone to church on Sundays! The existential crisis of people seeking meaning for their lives when they can no longer find it in transcendental sanction is one thing. The slaughter of Verdun, the panic of hyperinflation, the social waste of high unemployment, and the (temporary) end of economic progress in Europe is quite another.

No one needed the Death of God to cause despair when they looked around them after World War I, and contrasted the world they saw with the world as they had seen it only six years earlier.

What can the state see? Or, the extraordinary power of the night-watchman state

Posted on by Brad DeLong

Hoisted from 2010: James Scott, “Legibility,” Flavius Apion, Anoup, the Emperor Justinian, Robin of Locksley, Rebecca Daughter of Mordecai, King Richard, and Others..: Cato Unbound: James Scott: The Trouble with the View from Above.: A comment:

In 542 AD the late Roman (early Byzantine?) Emperor Justinian I wrote to his Praetorian Prefect concerning the army–trained and equipped and paid for by the Roman State to control the barbarians and to ‘increase the state.’ Justinian was, Peter Sarris reports in his Economy and Society in the Age of Justinian, upset that:

certain individuals had been daring to draw away soldiers and foederati from their duties, occupying such troops entirely with their own private business…. The emperor… prohibit[ed] such individuals from drawing to themselves or diverting troops… having them in their household… on their property or estates…. [A]ny individual who, after thirty days, continues to employ soldiers to meet his private needs and does not return them to their units will face confiscation of property… ‘and those soldiers and fioderati who remain in paramonar attendance upon them… will not only be deprived of their rank, but also undergo punishments up to and including capital punishment.’

Justinian is worried because what is going on in the country he rules is not legible to him. Soldiers–soldiers whom he has trained, equipped, and paid for–have been hired away from their frontier duties by the great landlords of the Empire and employed on their estates and in the areas they dominate as bully-boys. One such great landlord was Justinian’s own sometime Praefectus Praetorio per Orientem Flavius Apion, to whom one of Flavius’s tenants and debtors, one Anoup, wrote:

No injustice or wickedness has ever attached to the glorious household of my kind lord, but it is ever full of mercy and overflowing to supply the needs of others. On account of this I, the wretched slave of my good lord, wish to bring it to your lordship’s knowledge by this present entreaty for mercy that I serve my kind lord as my fathers and forefathers did before me and pay the taxes every year. And by the will of God… my cattle died, and I borrowed the not inconsiderable amount of 15 solidi…. Yet when I approached my kind lord and asked for pity in my straits, those belonging to my lord refused to do my lord’s bidding. For unless your pity extends to me, my lord, I cannot stay on my ktema and fulfill my services with regard to the properties of the estate. But I beseech and urge your lordship to command that mercy be shown to me because of the disaster that has overtaken me…

The late Roman Empire as Justinian wished it to be would consist of (a) slaves, (b) free Roman citizens (some of whom owned a lot of land), (c) soldiers, (d) bureaucrats, and (e) an emperor. The slaves would work for their masters. Slaves along with their citizen masters and non-slaveholding citizens would farm the empire (some of the citizens owning their land; some renting it). All would be prosperous and pay their taxes. And the emperor would use the taxes to pay the soldiers who dealt with the Persians, the Huns, the Goths, and the Vandals; to fund the building of Hagia Sophia and other works of architecture in Constantinople; and to promote the true faith and extirpate heresy. If the countryside were legible to him, that is how things would be–slaves and citizens in their places, landlords and tenants in their mutually-beneficial contractual relationships, all prosperous and all paying their taxes to support the empire.

But Justinian knows very well that the countryside is not legible to him. The contracts that Flavius Apion makes with his tenants are made under the shadow of the threat that if Flavius Apion does not like the way things are going he will send a bucellarius to beat you up. Anoup is not pointing out to Flavius Apion that their landlord-tenant relationship is a good thing and that keeping him as a tenant rather than throwing him off the land for failure to pay the rent is in both their interests. Instead, Anoup is calling himself a slave (which he is not). Anoup is calling Flavius Apion a lord (which he is not supposed to be). Anoup is appealing to a long family history of dependence of himself and his ancestors on the various Flavii Apionoi and Flavii Strategioi of past generations. Justinian thinks that things would be better served if the countryside were properly legible to him and he could enforce reality to correspond to the legal order of slaves and citizens, tenants and landlords interacting through contract, and taxpayers. Flavius Apion would prefer that the order be one of proto-feudalism: that all the Anoups know and understand that they are at his mercy, and that the emperor is far, far away. And we don’t know what Anoup thinks. We do know thait does not sound as though he experiences the lack of legibility of the countryside to the emperor and his state as a full and complete liberation. And we do know that the Emperor Justinian was gravely concerned about the transformation of his soldiers into bucellarii, into the dependent bully-boys of the landlords–both because it meant that they were not on the borders where they belonged and because it disturbed what he saw as the proper balance of power in the countryside and what he saw as the emperor’s justice.

Justinian’s big (and to him insoluble) problem was that the Flavius Apion whose bully-boys beat up his tenants when they displeased was the same Flavius Apion who headed Justinian’s own bureaucracy.

Thus when James Scott speaks of how local knowledge and local arrangements having the ability to protect the people of civil society from an overmighty, blundering state, I say ‘perhaps’ and I say ‘sometimes.’

It is certainly the case that the fact that Sherwood Forest is illegible to the Sheriff of Nottingham allows Robin of Locksley and Maid Marian to survive. But that is just a stopgap. In the final reel of Ivanhoe the fair Rebecca must be rescued from the unworthy rogue Templar Sir Brian de Bois-Guilbert (and packed offstage to marry some young banker or rabbi), the Sheriff of Nottingham and Sir Guy of Gisborne must receive their comeuppance, the proper property order of Nottinghamshire must be restored, and Wilfred must marry the fair Rowena–and all this is accomplished by making Sherwood Forest and Nottinghamshire legible to the true king, Richard I ‘Lionheart’ Plantagenet, and then through his justice and good lordship.

A state that makes civil society legible to itself cannot protect us from its own fits of ideological terror, or even clumsy thumb-fingeredness. A state to which civil society is illegible cannot help curb roving bandits or local notables. And neither type of state has proved terribly effective at constraining its own functionaries.

In some ways, the ‘night watchman’ state–the state that enables civil society to develop and function without distortions imposed by roving bandits, local notables, and its own functionaries, but that also is content to simply sit back and watch civil society–is the most powerful and unlikely state of all.

AlphaChat: Underappreciated Moments in Economic History

Posted on by Brad DeLong

Underappreciated Moments in Economic History

Cardiff Garcia: Welcome to AlphaChat, the business and economics podcast of the Financial Times. I’m Cardiff Garcia….

First up on the show is Brad DeLong, an economist and economic historian at the University of California at Berkeley. He is also the coauthor of the New Book: Concrete Economics: The Hamilton Approach to Economic Growth and Policy. We are going to be discussing this book in a forthcoming episode of Alphachat-Terbox, our long-form sister podcast segment. But for this I have asked Brad to choose three under appreciated moments in economic history, and to give us the lessons we should learn from those events. I do not know what Brad’s chosen. I will be learning along with you.

Brad: Thanks for common on AlphaChat.

Brad DeLong: Thank you very much.

Cardiff Garcia: So what is first on the agenda? What is the first underappreciated event in economic history that you want to share with us?

Brad DeLong: The first is the bursting of the 1825 canal bubble in Britain, centered on London finance. It is the first time we have a business cycle that is truly triggered not by the embarrassment of some dominant banking house and not by some government default–like Charles II Stuart’s Stop of the Exchequer or the financial manipulations of Felipe II Habsburg of Spain, whom his bankers called “the borrower from Hell”.

Instead, it is the first time we have a wave of enthusiasm in high-tech investment–i.e., canals–leading to lots of overinvestment due to overoptimism (and to the failure of one set of canal builders to realize how much the market for their canal’s services would be eroded by the construction of other canals). We then have the crash. And there follows the spillover of the crash to manufacturing as a whole. 1826 sees the first year in which mechanized cotton production falls, ever, by 30%.

It also had powerful consequences for both economic theory and economic policy practice.

Jean-Baptiste Say.

He was the originator of Says’ Law. He was the first person to ever say that a general glut–a short-of-demand-driven business cycle that led to mass unemployment was not something we had to worry about. Why not? Because, Say argued, nobody made something to sell unless they planned to then use the money to buy, and so while you could certainly have excess supply in some industries that would be matched by excess demand in other industries. Thus people would shift from demand-short to demand-surplus industries quickly: the market would do its job of reallocating resources and tuning the economy to maximum productivity.

1825-26 in Britain convinced Say that he had been wrong.

His subsequent writings do not dismiss general gluts–short-of-demand-driven business cycles–as impossible, but recognize them.

1825-26 was also the first time that central banks engaged in lender-of-last-resort activities in response to a tech crash. The banking house of Pole, Thornton, and Co. was one that had made among the most canal loans and was among those most likely to be highly embarrassed. E.M. Forster’s great-aunt’s nephew, the very young Henry Thornton, then 25 or so, appears to have been the only non-somnolent partner of the bank in London in December 1825 when the crisis hit. He went to the Bank of England. He lied. He said: “We are solvent but illiquid.” And the Bank of England agreed to support him.

That weekend, Sunday morning before dawn, the Governor and Deputy Governor of the Bank of England counted out banknotes (to preserve secrecy) and then wheeled them through the pre-dawn streets of London in the December gloom so that when the bank opened the following Monday morning they could show huge piles of banknotes behind the tellers to suggest that they were in fact well-capitalized.

It tells us a number of things. We see a major move in economic theory, as the patron saint of the austerity point-of-view, Jean-Baptiste Say, abandons the positions he had been pushing since 1803. It shows the origins of large-scale lender-of-last-resort activities in response to a financial crisis produced by a large-scale bursting of a high-tech or other speculative investment bubble.

And it also shows the first case of the bankers successfully manipulating the central bank–inducing it to come to their rescue and so emerge from the crisis whole and even enriched via government support, even though the were the ones whose rash, risky, and inappropriate lending had caused it.

Cardiff Garcia: A fantastic example. I often lament that when we talk about bubbles we tend to stay with modern examples. We tend to get into comparisons between the housing bubble and the dot-com bubble and we talk about the remnants of those bubbles and the damage left behind by them. A lot of the time we ignore the fact that bubbles are as old as many and credit. There are great lessons to be learned.

Brad DeLong: As soon as you have large-scale credit where the borrower no longer knows the lender–where the fact that borrowings have been good for so long that you think you do not need to check whether borrower is in fact good for it–the value of being able to borrow in the future is so high that who would risk their reputation? When everyone stops checking the quality of the debts they own, and when the debts they own circulate as money, as assets widely perceived to be safe, then you are looking for a crisis. At some point it will become clear that things you thought were safe really were not safe at all. After all, the debts of Felipe II Habsburg of Spain–Master of the New World, owner of all the gold of the Aztecs and the Incas, proprietor of the mountain of silver that was Pitosi in Peru–how could he possibly get himself embarrassed? Well, he gave away enough land grants and pensions to the nobles of Spain, and he spent so much on the Wars of the Counterreformation in their attempt to suppress the insurgency of the fundamentalist religious terrorist fanatics who were the sixteenth-century Dutch–Protestant religious fanatics then–that he managed to get himself bankrupt.

Cardiff Garcia: Wonderfully insightful. What is your second example?

Brad DeLong: My second example is something I just learned about this week. One of our Berkeley graduate student, Gillian Brunet, is studying World War II for her dissertation.

World War II in the U.S. has always been of great interest as it sees the rapid movement of an economy from a depression-economics economy with lots of slack to an inflation-economics economy with excess demand pressure.

First Franklin Roosevelt gets worried about Nazi Germany. He starts trying to assemble alliances. He fails miserably.

France and Britain draw a line in the sand, saying: “We will declare war on you if you attack Poland!” Hitler responds: “What could you do about it? Poland is on the other side of us Germans from you. Don’t make empty threats.” So Hitler attacks Poland. Behold! He finds that–contrary to all the canons of game theory–Britain and France actually meant it. This is unusual. Until 1944, when it was clear that the United Nations had the war won, France and Britain were the only countries that ever declared war on Nazi Germany. Other countries waited until the Nazi tanks had actually crossed their border–or, very rarely, until the Nazis had declared war on them–to enter the conflict. France was the only country that shared a land border with Nazi Germany that ever dared make the decision not to try to hide but rather to take the fight to the Nazis and put their country in harm’s way.

Thus after World War II in Europe starts in September 1939, Franklin Roosevelt wants to build as much military hardware as he can and send as much as he can to aid France and Britain in their fight. But it is not until the end of 1941, the Japanese attack on Pearl Harbor, and Hitler’s declaration of war on the U.S. that total mobilization begins.

Starting in 1942, therefore, the U.S. was a war economy: dedicated to defeating Hitler and Tojo no matter what.

The question is: how did this transformation take place? How do you go from a slack economy to an inflation economy? And what happens to standard macroeconomic patterns and correlations as you do?

It turns out–and this is the thing I learned this week–that only a little bit of central planning allows you to do an enormous amount to redirect economic activity without having runaway inflation and your price level quadruple as you try to send the market very strong price signals that war material is now very highly valued. All the federal government had to do was send an executive order shutting down the civilian uses of those assembly lines capable of producing tanks and airplanes and trucks. Demanding that they be redirected to military vehicles. In the aftermath, a huge chunk of industrial capacity switched over effectively immediately to serve the needs of the Pentagon-to-be. And the funding emerged as well without extraordinary inflation, for everyone who would have bought a car in 1942 or 1943 saved the money instead and loaned it to the government by buying war bonds. Thus the same money flowed from consumers to factory workers–but through the government, and directing the workers to build tanks instead of cars.

You thus managed to switch a lot of production over very quickly without much inflation by just using the right teeny amount of central planning. Possible applications to what we may decide to do in the next decade or two with respect to global warming–if something very bad happens, and it becomes the moral equivalent of war for us rather than something to simply leave as a mess for future generations.

Cardiff Garcia: And your final example of an under appreciated event from economic history?

Brad DeLong: Let me–I know we will do this next time–talk about Steve Cohen’s and my book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy. That subtitle is there because Alexander Hamilton is perhaps the only American who has, personally, made a real difference. That subtitle is also there because we are trying to sail as close as possible to the Lin-Manuel Miranda “Hamilton” boom in order to sell books, without ourselves becoming an intellectual-property misappropriation test case.

Our big overall thesis is that American economic policy has been remarkably good over the past two centuries–up until something happens around 1980. After that, the U.S. as a whole begins investing in the wrong industries: Health-care administration bureaucrats, financiers making lots of money by encouraging small investors to trade and then benefiting from the price pressure, people using quirks in the capital-structure fact that pension beneficiaries have cash-flow but not control rights to expropriate pension funds and then put the remaining obligations to the underfunded PBGC, the focus on sharply raising income inequality because our extremely-valuable overclass has been so underpaid since 1929 and won’t do their managerial and entrepreneurial jobs properly unless much more highly recompensed. These are not the industries of the future in any good sense. But these are the industries that America has been investing in increasingly since 1980.

Before 1980, we invested in other things: aerospace, computers, highways and suburbs, high-tech manufacturing of whatever day–electric power, internal combustion engines, machine tools, interchangeable parts, high-pressure steam engines. We invested in producing a comparative advantage in resource-intensive technological-frontier manufacturing, even though the British Empire’s Navigation Acts had left us with a strong comparative disadvantage in such industries. And so even back before the Civil War the British Parliament is sending over Commissions of Inquiry to ask: just how is it that New England productivity in these sectors of manufacturing has gotten so damned high? How did they accomplish this leap-frogging in machine-tool and even some aspects of textile technology?

The answer is precisely that Americans were not terribly ideological back before 1980 where the economic policy rubber hit the road. People back then overwhelmingly believed that the world was a mixed and complicated place where circumstances altered cases. What you need was to look down, around, up: to ask what was most likely to work out well now on the ground, rather than what conforms to some simplistic overarching ideological view of the world which explains everything in terms of some small set of simple principles you can count without taking off your shoes. An ideology allows you to live your life confident and smug. But it is also probably wrong.

Back around 1790 or so the ideologists were the Jeffersonians. The Jeffersonians believed that small yeoman farmers were good–ahem, Monticello?–and the only guarantee of middle-class prosperity and political liberty as well. Manufacturing, banking, urbanization, commerce in excess, a government investing in what was then high-tech–those are sources of corruption and very dangerous threats to freedom. Jefferson, at the end of the eighteenth century, said: Look at London, that corrupt resource-extracting machine, it’s taking the British down the road that in ancient Rome led to the collapse of the Roman Republic and to rise of tyrants like Julius Caesar. Our only chance is to cut ourselves off and to make our politics and our economic organization as far from Britain’s as we can.

Hamilton said: Hey, wait a minute. What works? Let’s see what industries are actually producing jobs for workers that pay high wages. Let’s see what are the opportunities for economic development here. Let’s see where there is a possibility for the government to exert a helpful nudge. And when Jefferson’s successors got into office and had to deal with the realities of power–well, they followed Hamiltonian policies: because they worked.

James Madison in opposition had argued very eloquently that the First Bank of the United States had been unconstitutional.

James Madison as president enthusiastically signed the bill creating and then had his attorney general aggressively defend the rights and powers of the Second Bank of the United States.

Cardiff Garcia: One of the themes of the book is that the debates of those early years about the country’s foundational economics have reappeared again. Brad, thanks for being on AlphaChat. We are going to be discussing Brad DeLong’s book with Steve Cohen, Concrete Economics: The Hamilton Approach to Economic Growth and Policy, on an forthcoming episode of Alphachat-Terbox, our long-form sister podcast.

But before we let you go, Brad, can you give us a longform recommendation?

Brad DeLong: Two books I am recommending right now are Martin Wolf’s The Shifts and the Shocks and Barry Eichengreen’s Hall of Mirrors. I think that if you read these two books you know what you need to know and more than 99.9% of the world knows about the current pickle that we are in: how we might get out of it, and why should be depressed (unless you are both already rich and willing to bear substantial risks in order to grab for returns).