Home > Uncategorized > Paul Samuelson and the Cold War rebirth of David Ricardo

Paul Samuelson and the Cold War rebirth of David Ricardo

from Erik Reinert and issue 92 of RWER

In complete contradiction to the ruling practice of the Marshall Plan at the time, Paul Samuelson started building what was to become Cold War economic theory with two articles in The Economic Journal in 1948 and 1949. Communism advanced under the utopian slogan “from each according to his ability, to each according to his needs”. With his renewed interpretation of David Ricardo, Paul Samuelson produced a counter-utopia: under the standard assumptions of neo-classical economics free trade would produce a tendency towards factor-price equalization: the prices of labor and capital would tend to equalize across the planet. This became the noble lie of the neo-classical economics and of neoliberalism as the West faced the evils of communism.

Today’s economists would naturally tend to believe that Cold War Economics – the theories that stood victorious after the 1989 Fall of the Berlin Wall – is part of a tradition that has ruled in economic science since David Ricardo’s 1817 book. However, recent n-gram technology has made it possible to illustrate how David Ricardo and his theory of “comparative advantage” were virtually neglected until the Cold War.

The n-grams below show how Cold War economics brought David Ricardo out of the shadows. Compared to other English economists and economic philosophers – father and son James and John Stuart Mill – David Ricardo had indeed been much less important during the first 100 years after his 1817 theory.

Figure 2 The frequency of “David Ricardo” (in English) during the first 100 years after the 1817 publication of his main work, Principles of Economics, compared to that of two other, then much more famous, English economists.

Figure 3 Frequency of the term “comparative advantage” (in English) from 1817 until today. As is clearly shown the term was very little used for the first 100 years of existence, but the use of the term started with the birth of the planned economy and exploded with the start of the Cold War in the late 1940s.

On the theoretical level, the Cold War (1947-1989) was fought between two cosmopolitical theories. Neither in neo-classical/neo-liberal theory nor in communism was the nation state a unit of analysis. In both theories the nation-state was not seen as having a place. Neo- classical economics is built on methodological individualism – the state assumed away – and also in Marxism the state was supposed to wither away as obsolete after a brief “dictatorship of the proletariat”. In practice, of course, it was not the state but the rights of individuals that withered away under communism.

An important goal of science must be objectivity. Friedrich Nietzsche described objectivity as attempting to gain as many perspectives as possible on a matter:

“There is only a perspective ‘seeing’, only a perspective ‘knowing’; and the more affects we allow to speak about one thing, the more eyes, different eyes, we can use to observe one thing, the more complete will our ‘concept’ of this thing, our ‘objectivity’, be.”9

In this way – by seeing the world from as many angles as possible – one can potentially understand the interplay between economic contexts and economic policies: how formulas for economic development will vary in different contexts. A condition for scientific objectivity,  then, is the ability to observe diversity.

With Cold War neo-classical economics, however, came a theory a) void of context, and b) with only one angle from which to see international trade. With the politics of neoliberalism arriving with Thatcher and Reagan came two myths – not only of creating free trade as the historical normality, as did Samuelson – but as part and parcel of the same problem came the myth of laissez-faire. All seriously studying the subject have come up with the same conclusion as an American business historian did: “King Laissez Faire was not only dead; the hallowed report of his reign had all been a mistake”.10

As economics Nobel Laureate James Buchanan wrote: “Any generalized prediction in social science implies at its basis a theoretical model that embodies elements of an equality assumption. If individuals differ, one from the other, in all attributes, social science becomes impossible.”11 Faced with this trade-off between “science” and “diversity”, neo-classical economics chose a supposedly “scientific” path, by in effect making all human beings (perfect information) and all economic activities (perfect competition) qualitatively alike. The basic metaphor of economics became equilibrium, taken from the physics profession of the 1880s.

A great intellectual mystery of the 20th century is how, on the one hand, standardized mass production and the concomitant growing importance of increasing returns to scale under imperfect competition came to dominate economic life in the rich industrialized countries. On the other hand, sometime in the 1930s increasing returns to scale – the very basis for standardized mass production – was thrown out of economic theory because it was not compatible with equilibrium.12 The logical thing had been to throw out equilibrium because it was not compatible with the most prevalent of all economic “laws” at the time, increasing returns.

Some philosophers came to see diversity as a goal in itself. Johann Gottlob Fichte (1762- 1814) was one of them. When most Germans felt that the subdivision of Germany into a large number of small states – after the 1648 Peace of Westphalia there had been about 400 of them – Fichte argued that the diversity of the many states was an advantage.

The European Union has forced a one-size-fits-all policy on its member states, while at the same time locking many of them into the straightjacket of a common currency. “Fichte sought to establish that there were no inherent limits on the extent to which a world of multiple states would come to approximate his humanitarian ideal, despite remaining a world of states”.13 With an asymmetrical economic integration tearing the union apart, Fichte’s is a perspective which is probably worth re-considering in Europe, and also at the global level.  read more

 

9 Nietzsche, Friedrich, Genealogy of Morals, third Essay, New York, Oxford University Press, 1999 [1887].

10 Lively, Robert, “The American System: A Review Article”, in Business History Review, Volume 29, Issue 1, March 1955, pp 81-96.

11 Buchanan, James, What Should Economists Do?, Indianapolis, Liberty Press, 1979, p. 231. Italics added.

12 For a discussion see Reinert, Erik, How Rich Countries Got Rich… and Why Poor Countries Stay Poor, London, Constable, 2007. New edition, New York, public affairs, 2019.

  1. August 15, 2020 at 5:44 am

    Whatever Paul Samuelson might have brought out of the shadows during the Cold War, it had nothing in common with David Ricardo’s economic theory. The law of comparative advantage is a misinterpretation of his famous numerical example featuring the exchange of English cloth and Portuguese wine: https://dx.doi.org/10.2139/ssrn.3095473

  2. Yoshinori Shiozawa
    August 15, 2020 at 5:10 pm

    Comment on Erik S. Reinert “the Inequalities that could not happen: what the Cold War did to economics”

    I believe this is one of best papers written by a policy-oriented economist who has a real experience with economic life (The author has an experience to have run a small industrial company. This is a precious experience as an economist), is versed in history of economic policies not only in recent three centuries but even before Adam Smith (Is this Italian erudition?), and knows details of economies of various countries, particularly countries in the European Union. Figure 3 on the frequency of the term “comparative advantage” gave me a new impression on the history of international economics. I cannot write this kind of comprehensive paper. So, many policy-oriented people as well as economists would be supplied many subjects by reading this paper. In this comment, I want to add an objection on one point as a theoretician. Reinert’s analyses stay on a superficial level and lack a theory or theories that support his analyses.

    Theory is not highly respected in this web site (in Real-World Review Blog in particular). It may be a good occasion to show the necessity to have a good theoretical framework. I am not talking about neoclassical economics or its mathematical formalism. I am against neoclassical economics, be it either macro or micro. So, what I will talk as theory (or theories) is that of anti-neoclassical heterodox economics. Heterodox economics is not yet a coherent consistent system. There is no standard version of it. Nobody knows all of recent developments in this orientation. It is natural that Reinert has no chance to learn the new theory of international values although he argues many points that are closely related to international trade theory and wage rates discrepancy between counties. I contend in this comment that the new theory is not only instructive but in a sense indispensable to understand problems argued in this paper: rich and poor countries, trade policy with regard to industrialization, South- North problem, exchange rate flexibility, fixation exchange rates in Euro area, trickle-down effect, Beggar-thy-neighbor policy, growth centers, and differential wage rates structure of the world. These are all related to international trade theory. In this field economics either neoclassical or heterodox stay in an underdeveloped state. This fact leaves people without any proper theory to analyze these important phenomena. The arrival of the new theory is changing this state.

    Before showing the usefulness of the new theory of international values, let me add also that I am for the division of economy between the real economy and the financial economy, although I think other dichotomies argued by Reinert are an insufficient framework of analysis. What is now called financialization has, I believe, a close relation with increase of money that circulates only within the financial economy. Although I am studying this phenomenon, I do not comment on it (except the reason of financialization that I argue in pillar F), because I have yet no satisfactory theory on it. If I add only one point to Reiner’s arguments in this regard, recommendation of dishoarding alone may not work well, because there are many difficult problems in the real economy itself.

    My first point is the necessity to distinguish theory and policy. Although Reinert argues levels of abstraction in Section 4, it does not seem that he is aware of the necessity to distinguish theory (or theory framework) and policy which can be derived from the theory. Generally speaking, theory cannot give a unique policy recommendation such as free trade or protection policy. They depend on the situation and purposes that a nation or people seeks. A typical confusion is seen about Ricardo’s “theory of comparative advantage.”

    There are two kinds of misunderstanding with this regard. Ricardo contended for free corn import (with law tariff) and was against the Corn Law, effective at his life time. But, this was not a direct consequence of his theory of international trade. First, the term of “comparative advantage” was not Ricardo’s. He used terms like “comparative cost”, “comparative quantity of labour” and “comparatively cheaper foreign commodities” but they are not used in comparative advantage arguments. This term is an invention of later economists. The dichotomy of trade theory between absolute and comparative advantage may be a product of the 20th century and became famous by the textbooks of Paul Samuelson. We have much to study what happened in the first half of the 20th century (Figure 3 is indicative for this change).

    The second misunderstanding is the identification of Ricardo’s theory of trade (and the “four magic numbers” named by Samuelson) and Samuelson’s theory of trade (Samuelson 1948 and 1949). Two papers of Samuelson cited here have little relationship with Ricardo’s trade theory (Morales Meoqui is absolutely right in this point). What Samuelson argued is the new theory that is later called Heckscher-Ohlin or Heckscher-Ohlin-Samuelson theory (The latter naming would be better, because it is not easy read this theory in Heckscher and Ohlin’s books.). This theory is very different from Ricardo’s. Samuelson himself compares the difference between the two (Samuelson 1948 p.1964).

    To identify HOS theory with Ricardo’s theory is an error even in the teaching of mainstream course of international trade. Nowadays it is taught that there are four generations of trade theories: (1) Ricardo’s theory, (2) HOS theory, (3) New trade theory (à la Krugman), and finally (4) New new trade theory that was inaugurated by Marc J. Melitz (Econometrica 71(6): 1695-1725, 2003). As for (1), the explanation by comparing two ratios of four numbers is common, but it is now (in these 15 years or so) understood that this is a misinterpretation that was started by James and John Stuart Mill (See Senga et al. (eds.) 2017, Chapters 2, 4, 6). Generations (2), (3), and (4) are all typical neoclassical theories. (1) is the only one that is rooted in classical political economy. Why did mainstream economics retained (1) as the origin of international trade theory? Samuelson (1948) gives a hint. He was doubtful of Heckscher-Ohlin’s research program, in other words factor-proportions analysis. In Section 11 “The Limitation to Factor-Proportions Analysis”, he questions himself in this way:

    Is it reasonable and useful to set up the hypothesis that production functions are the same the world over? Is it possible to find reasonably homogeneous and commensurable factors of production in diverse parts of the world, so that relative proportions can be defined and compared?” (Samuelson 1948 p.181)

    Although Samuelson contributed to the promotion of HO theory, he was not very happy with this theory. There was a schism between his position as theorist and his position as popular and influential policy leader. The same is true for Ricardo. Ricardo contended for free trade but it does not mean that his theory or its generalization necessarily implies a free trade policy. I will explain this point later.

    Ricardo’s theory (even in its textbook version) was unique in the sense that it assumed the difference of production technology for each nation. Theories (2) and (3) are a partial theory in international trade situation of general equilibrium theory and assumed the same production function (i.e. the same technology) for all countries. Although it treats the American economy, Melitz’s theory is a theory of “small” open economy and is not really a theory of international trade.

    [A supplementary note: Theoretically it is possible to introduce different production functions for neoclassical trade theory. But, such a research program does not work because it has no possibility to get useful results except the existence of equilibrium solutions. For example, international specialization was traditionally famous problem but it is difficult to deal with this question in the general equilibrium models because we have to deal with corner solutions. Xiaokai Yang (born as Yang Xiguang) was a brave person (He was also a brave activist against China’s repressive regime when he was young) who attempted to do this (Yang et al. 2005). He was once deemed to be an Economics Nobel Prize candidate but, after his premature death by cancer, nobody continued his challenge. Simply speaking, Yang’s research program was destined to fail because it was impossible to overcome the power-order increase of case bifurcations.]

    The new theory of international values is an extension of Ricardo’s simple two-country two-good economy. But, the new theory is very general, because it is the theory that assumes as standard case M-country, N-good economy with input trade and choice of production techniques (Shiozawa 2017a). Although it was a result of my study for a long period, it is still advancing. Shiozawa and Fujimoto (2018) and Shiozawa (2019 Section 2.6) contain a new definition of regular international values (set of wage rates for countries and prices for products) that was not known in the time of Shiozawa (2017). The new definition has made the analysis of unemployment situation much easier than the original definition that drew on the facet of world production possibility set. The new theory has good characteristics that all three generations of neoclassical trade theories do not have: (i) It makes possible to analyze the effects of technology gaps between countries. (ii) It can treat input trade in general forms. (iii) It can analyze unemployment and industrial degradation that become inevitable by trade liberalization. Direct consequences of these properties are: (i) The new theory is a theory that explains how the wage rates among different countries are determined. (ii) It gives a general framework to analyze global supply chains. (iii) The theory is not just a theory that explains gains from trade but also explains losses from trade and provides basis of various political economics analyses.

    Now, let me try how the new theory can be applied to the points that Reinert has commented. As they are not necessarily connected with each other, the order of points picked up is arbitrary.

    (A) Declaration of 1997 by former WTO director Renato Ruggiero’s (p.187)
    As Reinert put it, Ruggiero expected that “the borderless economy” has “potential to equalize relations among countries and regions”. Similar comments are found later in page 188 (a noble lie of the neoclassical economics).

    I do not know if Ruggiero was thinking of factor-price equalization theorem of HOS theory, but it is quite possible. It is evident that such expectation was not fulfilled. Factor-price equalization theorem is evidently false (It does not tell the tendency to equalize factor prices [one of which is wage rate], but describes that factor prices are equal as long as the theorem holds.)

    The new theory tells that real wage rates cannot be equal as long as technology gap persists.

    (B) Increasing returns to scale (pp.190, 196) or dynamic returns

    A great intellectual mystery of the 20th century is how, on the one hand, standardized mass production and the concomitant growing importance of increasing returns to scale under imperfect competition came to dominate economic life in the rich industrialized countries. On the other hand, sometime in the 1930s increasing returns to scale -the very basis for standardized mass production- was thrown out of economic theory because it was not compatible with equilibrium. The logical thing had been to throw out of equilibrium because it was not compatible with the most prevalent of all economic “laws” at the time, increasing returns. (Reinert p.190)

    As I have argued elsewhere (See my “Reply” to Robert Locke on August 13, 2020 at 11:28 am as a comment to Peter Radford’s article “The missing middle?” in RWER Blog on August 11, 2020), refutation of increasing returns to scale was not a result of observations. It was an assumption forced by the theoretical structure of neoclassical economics (Necessity to define supply function). Its inconsistency with the Marshallian system was recognized by Marshall himself. He was obliged to distinguish internal and external increasing returns to scale. So, it is not exact to say that “sometime in the 1930s” “increasing returns to scale” “was thrown out of economic theory”. The reason that Reinert has given is right. It was not compatible with equilibrium, or more precisely with the demand and supply equilibrium theory. But this is not my point to say in this pillar.

    Although increasing and decreasing returns to scale are important property that separates agriculture (and mining) and manufacturing, more important difference was whether they had a dynamic increasing returns property (dynamic efficiency). When agriculture was left alone, there was little possibility to increase productivity. Before the Industrial Revolution in England, the manufacturing was in a similar state. But Industrial Revolution made it possible to obtain dynamic increasing returns, in other words, the ability to improve its production methods rapidly (when compared with its speed in Medieval period). Although increasing returns to scale works in manufacturing, its effects may not be as big as dynamic increasing returns. (I hope somebody try to measure effects of two “increasing returns”.)

    The new theory of international value (as well as the classical theory of values, Shiozawa 2016) assumes increasing returns to scale in the short run (when the production capacity is fixed) and constant returns to scale in the long run. However, this does not mean that the new theory neglect the dynamic increasing returns. It aims to analyze the effects of technological change on economic growth (See my paper “A new framework for analyzing technological change” to appear in Journal of Evolutionary Economics). I doubt if there are conceptual confusions in Reinert’s arguments concerning increasing and decreasing returns.

    Dynamic efficiency or rapid productivity change of production technology is the main motive force that enabled capitalism to be a dynamic system. Richard Koo referred to Lewis Turning Point (LTP) in his article “Inequality challenge in pursued economies” in the same number of RWER as Reinert’s paper (No. 92). It concerns the phenomena called industrialization or take offs. They happened in various countries like Japan, Korea and Taiwan, and other South East Asian countries and China. The first industrial revolution in England can be seen as one of many repeated events that occurred later in different countries.

    While Lewis turning point can be explained mainly in the framework of technological development in a single country as it was done in Section 4 in my New Framework paper (JEE, to appear), another phenomena that Koo called shift to pursued economy can only be understood in the framework of international competition and therefore by the new theory of international values. The USA had lost its dynamism in manufacturing in 1970’s, first pursued by Japan and from 1990 mainly by China. The American real wage stagnation after 1970s can be explained by fact that manufacturing industry was put under constant pressure to keep wage rates as low as possible in order to keep competitiveness first with Japanese and then Chinese products. Even keeping wage rates low, many manufacturing firms were obliged to close down and workers were forced to be laid off. American economic growth since then owes mainly to two industries: financial economy and platform companies in CIT industry. Japan is situated in a similar situation since 1992. Stagnation continues for nearly 30 years. QQE (Quantitative and Qualitative Easing) could not redress Japanese economy, because the main problem was not financial one. It was the international competition, mainly competition with China, that impeded Japanese economy to grow. In these years, productivity in manufacturing increased in the USA (See Ruico’s Figure 5) and in Japan. But, once countries like China (and Japan during 1970 to 1990) starts to catch up technologically in a free market system (the second phase of Reform and Opening Up), the USA and Japan could not effectively compete with China, because wage rate gap was so big (Japanese wage was 20 times higher than that of China around 2000).

    Many advanced countries including Europe are facing similar problems (Koo Exhibit 7). They cannot find investment chance within their countries. It inevitably decelerates economic growth.

    (C) Why does the loss of exchange rate flexibility matter? (p.194)
    European experience of Euro shows another case of usefulness of the new theory of international values. Each country has its set of production techniques (roughly the state of technology of the country). The new theory tells that a proper set of wage rates must be assigned for each combination of sets of production techniques in order that all countries enjoy full employment. Proportions of wage rates between countries change dynamically, when technology changes differently by countries.

    Even when exchange rates were fixed in the form of Euro, the set of production techniques of a country changes by its own speed at least for a long period (by structural and cultural reasons). In the case of Euro countries, Germany and Holland had higher productivity growth rates whereas South countries including Greece and Italy had a lower rate of productivity growth.

    Under the flexible exchange rate system, the difference of productivity growth was adjusted through the change of exchange rates. Under Euro system, there was no such adjusting mechanism. For the adjustment works, there are no many options: Either high productivity growth rate countries increase their average wage rates faster than low productivity growth rate countries or low productivity growth rate countries cut down their wage rates. If latter solution is difficult, there is no other way to increase wage rates in high productivity growth rate countries.

    (D) Differential structure of wage rates and trickle-down effect
    Reinert talks about differences of wage rates between countries. Sweep workers in Frankfurt receive 10 Euro for an hour whereas cell phone workers in Estonia receive 1 Euro for the same hour. Polish workers immigrated to the West. Workers in Western Ukraine move to Poland. Moldovan workers found well-paying jobs in Ukraine. These differences between countries form a structure like a stair. Unless the huge technology gaps that exist between EU countries are eliminated, we cannot flatten down this differential structure of wage rates, which is a conclusion of the new theory of international values. Of course, trickle-down does not work immediately. In a long run, huge immigration of workers may engender flattening of production techniques. When all European countries come to possess similar set of production techniques (this is not to say the all countries have the same competitive industries), they can have more moderately differential wage rates.

    Reinert always talks by means of dichotomies: North and South, rich and poor countries, colonizing and colonized, agriculture and manufacture, increasing and decreasing returns to scale. Dichotomy explains only a typically opposed economic situation. It is ineffective in explaining the differential structure as detected above. Another manifest failure is the case of East Asian miracles, including now China. There are many countries that cannot take off despite a big wage gap between those countries and advanced countries. Persistence of rich and poor countries cannot be explained by a simple dichotomy like colonizing and colonized or agriculture and manufacturing. We must look at different aspects under the surface.

    (E) Beggar-thy-neighbour policy
    While Reinert condemns the loss of exchange rate flexibility, he is also against beggar thy-neighbour policy (Sweden against Finland). But when there is competing countries, similar effect is inevitable if we want to redress our economy by exchange rate management. If wrong wage rates are established like the case of West and East Germany just after the reunification, both areas suffer. This is also an inevitable effect after the new theory.

    (F) Financialization
    Financialization is of course phenomenon of financial economy, but at least a reason that drives economy to have greater financial economy may lie in the real economy. As argued above, advanced countries cannot find their investment occasion within their countries. In order to equate saving and investment, the saved money must be transferred to less advance countries. Part of this money flow is managed by multinational enterprises. Large part of pension funds and savings for lives after retirement must pass through finance firms. Substantial parts pass through New York and London, the financial centers of the world. When the circle of saving to investment and returns to savers becomes long, financial economy becomes bigger by proportion. However, financialization must not be a way out from troubles for many countries. The number of financial centers is limited. Even for the USA, finance sector cannot absorb all workforce expelled from manufacturing and services.

    (G) Growth centers
    Why do some areas become growth centers? For moment, there seem to be two types: growth center in advanced countries and growth center in developing countries. The growth center in advanced countries must satisfy two conditions: (1) Be able to produce new products that are new all over the world and can attract new demand and (2) be able to increase labor productivity further. The growth center in developing countries must also satisfy two conditions: (1) Be able to produce new products that was impossible in the country but was produced in advanced countries and (2) able to increase labor productivity further. Even if a country has a low wage rate, this fact alone does not assure that an area can be one of growth centers.

    Catching-up, Middle income trap and technological opportunities are problems that require a new framework that is possible to analyze dynamical progress of technology of a country. The new theory of international values is for the moment a unique theory that can do it. Standard neoclassical trade theories in four generations cannot do it, because they are inappropriate in analyzing dynamical technological change.

    Literature (Papers and books cited in Reinert’s paper are omitted.)
    Melitz, Marc J. 2003 The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71(6): 1695-1725.

    Senga, Fujimoto and Tabuchi (eds.) 2017 Ricardo and International Trade. Routledge, Abingdon, Oxon, UK, and New York, NY.

    Shiozawa, Y. 2016 The revival of classical theory of values. Chapter 8, pp.151-172, in Yokokawa, Yagi, Uemura and Westra (eds.) The Rejuvenation of Political Economy. Routledge, Abingdon, Oxon, UK and New York, NY.

    Shiozawa, Y. 2017 The new theory of international values: an overview. Chapter 1, pp.3-73 in Shiozawa, Oka and Tabuchi, A New Construction of Ricardian Theory of International Values: Analytical and Historical Approach, Springer Nature Singapore, Singapore.

    Shiozawa, Y. 2019 A large economic system with minimally rational agents. Chapter 2, pp.53-138. Chapter 2, pp.53-138, in Shiozawa, Morioka and Taniguchi Microfoundations of Evolutionary Economics, Sprnger Japan, Tokoyo.
    See the book review by Marc Lavoie although he does not mention international value theory part.

    Shiozawa, Y., and T. Fujimoto 2018 The nature of international competition among firms. Chapter 2, pp.43-96, in Fujimoto and Ikuine (eds.) Industrial Competitiveness and Design Evolution, Springer Japan, Tokyo.

    Yang, Xiaokai, Wenli Cheng, Heling Shi, Christis G. Tombazos (eds) 2005 An Inframarginal Approach to Trade Theory. World Scientific, Singapore.

    • Yoshinori Shiozawa
      August 17, 2020 at 12:38 pm

      Another possible usage of the new theory of international values is that it gives a new framework for analyzing Global Value Chains. Please see my post on July 25, 2020 at 5:03 am (the fourth in the comment page of my comments which starts with “[I]t is not easy to say”) that is a comment on Peter Radford’s article “Ontology, framing, and all that jazz” posted on July, 22, 2020. A short history of the new theory of internationalvalues is given.

  3. August 18, 2020 at 9:19 am

    This quote of Buchanan is quite remarkable in at least two ways. First, accepting differences between humans should be regarded as a distinctive feature of social sciences giving it its particular spice the natural science’s dish just does not have. Assuming this key feature away makes social sciences obsolete as natural sciences are much better suited to deal with identical individuals or identical groups of people. Second, the very assumption of homogeneity of some degree stands in the way of another treasured foundation of economics: the methodological individualism. Buchanan implicitly refutes individualism thus moving economics towards a collectivist view of humankind.
    Bottom line is Buchanan’s quote has to be fixed: “Individuals differing, one from the other, in all attributes, makes social sciences an exiting and challenging scientific endeavour.”

    • Yoshinori Shiozawa
      August 24, 2020 at 3:48 am

      If the citation from Buchanan (1971) is to be corrected as Christian Mueller point it, the meaning of the phrase changes substantially. If Mueller is right, social science is exciting and challenging attempt if they are difficult to do.

      I have searched by Google if I can find the same phrase. I found three but all of them were a citation in papers written or edited by Erik Reinert. I hope Reinert will check himself whether his citation is correct.

  4. Ken Zimmerman
    August 23, 2020 at 5:18 pm

    Most of these post World War II theories about national development (political scientists and economists), racial and ethnic differences (sociologists and anthropologists), the expansion of communism (political scientists, the RAND corporation), international aid (RAND and anthropologists), etc. showed themselves to be not just garbage, but dangerous in a multi-polar world and useless for policy setting purposes. An old joke about forecasting and the military (Army Air Corps.) during World War II seems apropos here. Weather forecasting for bombing missions over France and Germany was only slightly better than simply flipping a coin. The Generals in charge were so informed. Their response: we are aware of the accuracy of the forecasts but need them for planning purposes. For years I puzzled over this response. Then I remembered my own time in the Marine Corp. The Corp. does not do as much planning as the Army, but still a lot. When we left on patrol, I was given a situation update based on latest data, but then told in precisely these words, “be ready for anything.” That is were planning and all these pretentious post World War II theories fit. They provide a tenuous baseline for, in my case Marines going into harms way, and for policy makers a baseline to deal with problems they do not fully understand and for which there is little reliable data on the feasibility and usefulness of the theories that supposedly explain them. Sometimes the theories have luck on their side and end up on the predicted side of the coin. Sometimes they do not. That is when the advice, “be ready for anything” comes into play.

    Even Keynesian economics proved not to be lasting after the war’s end. By the 1970s it was taken as a failure as the historical circumstances in which the theory was constructed had ceased to be by then. One of the major changes in historical circumstances was the creation of a long-term public and private effort to replace (or perhaps better displace) Keynesian thinking with cultural notions (including new and revitalized formal theories, journals, and research) that leaned towards purer free market policies, rather than the mixed economy which requires a significant role for government intervention. These notions embraced a dislike of large governments which were seen as prone to interfere excessively in the lives of their citizens; an intellectual preference for Classical or Neoclassical economics and related schools; or in some cases a belief that their individual interests were best served by promoting a limited role for government in all areas of life. Efforts against Keynesianism took place on three fronts – in the academic world, in politics, and in the wider world of business and public opinion. I can not speak about other countries, but in America most of these notions contradicted both the letter and the spirit of the US Constitution and many of the laws to which the Constitution gave rise.

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