Political Economy and Economic Science

Having dealt with this issue already in Chapter 7 of Deane (1989), Deane took it up again in a lecture delivered on 9 May 1990 at the occasion of the hundredth anniversary of the foundation of the University of Fribourg— Switzerland (1989-1990). Thus, this lecture, entitled Political Economy and Economic Science, was delivered a century after the publication of Marshall’s Principles of Economics, at a time when

economics was an infant academic discipline, recently recovered from a painful crisis of confidence in its scientific identity... The founders ofpolitical economy— e.g. the Physiocrats, Adam Smith, the English classical economists, and even their unorthodox follower Karl Marx—had started with the confident presumption that there was a natural economic order whose laws could be discovered by applying objective principles of analysis (analogous to those of the natural sciences) to real world phenomena ... They took it for granted that political economy was a science. But by the middle of the nineteenth century the process of industrialisation, and especially its uneven development between regions and over time, had demonstrated that the section of the real world to which economists sought to apply scientific methods of enquiry was subject to change on a scale the physical world was not (Deane 1991: 173).

The classical vision of a naturally self-equilibrating economy was starting to be questioned:

Even in Britain, certainly by the 1840s and 1850s, the widening gap between rich and poor generated by industrialisation in the leading industrial nation was putting the advocates of economic freedom on the defensive against the claims of economic justice. When, in the early 1870s, a prolonged boom in international trade was followed by world market depression, the need for a politically more relevant perspective for economic theory and analysis was felt by the acknowledged leaders of the discipline throughout the western world—and not merely by its critics (ibid.) ... [Around 1870] time was ripe for a new approach to economic analysis and the reconstruction of economic theory which took place in the last three decades of the nineteenth century represented a response to that challenge. The international dimension of the response was dramatically underlined by the virtually simultaneous appearance, in three geographically separate locations, of three innovative texts which launched the so-called marginal revolution in economic theory. They were Jevons’ Theory of Political Economy and Menger’s Principles of Economics (both published in 1871) and Walras’s Elements of Pure Economics [1874] ... Each of these theoretical innovators reinterpreted the theory of value as a theory of market exchange and shifted the central focus of economic analysis from a macroeconomic to a microeconomic perspective ... Their common characteristic was a clarification and purification of would-be scientific theory—achieved by detaching it from its political and ethical implications in order to facilitate the professional consensus that seemed prerequisite to a cumulative advance of economic knowledge (ibid.: 173—174).

Deane’s insight is impressive. Broadly since the mid-1970s, the neoclassical economists have indeed achieved a professional consensus that is overwhelming. The neoclassical mainstream has succeeded in creating an internationally recognised community and set of methodological standards, based on mathematics and econometrics, to the almost total exclusion of alternative strands of thinking. These developments were in fact rendered possible as a result of events that occurred in England in the year 1890 which

was a landmark in the professionalisation of the discipline. For two books were completed in that year which together provided the textual basis for the system of thought destined to replace classical political economy in the Englishspeaking world. The first was Marshall’s Principles of Economics which became the Bible of neoclassical economics. The second, by John Neville Keynes, was the treatise [published in 1891] that was designed to put an end to the tedious methodological controversies of the 1870s and 1880s [for example, the German Methodenstreit between historians and theoreticians]—disputes that had seemed to many, inside and outside the discipline, to be discrediting the scientific credentials of classical political economy ... Accordingly, Neville Keynes, with the advice and encouragement of his teacher Marshall, set out the taxonomic ground rules that should enable the academic student of economics to distinguish assumptions and findings about what is (constituting the positive core of economic science) from.statements of what ought to be (whose scientific justification belongs to the moral sciences) and, on the other hand, prescriptions for achieving desired ends (i.e. the art of political economy) ... The importance of this system of classification was that it allowed the theoretical economist to insulate his fundamental theorems from accusations of ideological bias, or immorality, or relativity, and at the same time from failures of economic policies (ibid.: 174).

As Schumpeter later put it, the Marshallian-Walrasian system constitutes the Magna Carta of economic theory. A sound alternative way of theorising is not possible. For Schumpeter, ‘the only fundamental cleavage in modern economics is between good work and bad’ (Schumpeter quoted in ibid.).

This somewhat arrogant attitude has been undermined by the Great Depression in the 1930s, the so-called Keynesian episode of 1945-1973, and the financial crisis which started in 2007-2008. Even serious criticism, like the capital theoretic critique of the 1960s, could not damage the neoclassical citadel, the main reason being that the critics were not able to set forth a convincing complete theoretical system based on a vision of man and society other than liberalism or socialism.

In fact, what

Marshall offered the rising generation of would-be economic scientists in the 1890s was his personal vision of a Darwinian model of the advancement of economic knowledge, to replace the Newtonian vision that had inspired Adam Smith. His Principles explained the history of what he insisted on calling ‘economic science’ as a continuous evolutionary advance in economic knowledge, building on theoretical foundations laid down by Smith, Ricardo and Mill, and embodying the insights of both the historical and mathematical schools (Deane 1991: 174).

The academic economists were now no longer ‘obliged to develop or defend timeless, universal, economic laws. Instead, having admitted that real-world problem situations reflect environmentally specific conditions, they could try to arrive at generalised historical explanations of how, why and where such situations were likely to arise’ (ibid.: 174). Each historical situation may now be explained, even the great crisis of the 1930s, which Samuelson claimed was a monetary accident. In modern terms, explanation is by supply and demand shocks. In terms of the Walrasian model, everything may be explained ex post through parameter changes within the general equilibrium model:

Marshall had already extricated political economy from the false position of being a repository of simple economic truths and infallible policy prescriptions in 1885, when he told the Cambridge students gathered to hear his inaugural lecture that: “thatpart of economic doctrine which alone can claim universality has no dogmas. It is not a body of concrete truth but an engine for the discovery of concrete truth" [italics in Deane] ... Marshall’s vision of an infinitely progressive cumulative research program in economic science, and his rejection of doctrinal dogma, had immense inspirational force for the professionalisation of economics in the twentieth century (ibid.: 174-175).

All this tells us is that Marshall’s influence is still overwhelming at present. His Principles is certainly by far the most important book on economics ever written. Indeed, all the textbooks we have at present derive somehow from Marshall. In fact, it is really Marshall, assisted by Neville

Keynes, who built up the extremely solid neoclassical citadel, which still resists the gunfire of the critics at the beginning of the twenty-first century. It is an important achievement of Deane to have brought out this fact very clearly and succinctly in her 1990 Fribourg lecture. This aside, she goes on to say that there

remained, however, an inescapable tension between political economy and economic science—tension that could not, in practice, be bypassed by detaching positive economics from moral and ethical considerations, or pure-theoretic from applied economics. The object of any economic scientist’s research is ultimately (if not always proximately) the solution of certain practical policy problems ... Marshall himself envisaged the cumulative results of systematic economic research as being useful and accessible to practical men of business as well as legislators ... However, being more sensitive than most Marshallians to the tension between the pure science of economics (of which he was an acknowledged master) and the art of political economy (which he wished to serve), he made it his rule ‘to avoid taking part in the discussion of a burning political question even if it contains a large economic element’ (ibid.: 175).

Marshall’s extreme reluctance to take a position in the ‘free trade versus protection’ issue is an example (see ibid.: 175-177).

It seems reasonable to argue that Chapter 7 of Deane (1989) and her 1990 Fribourg lecture were the starting points for the writing of her last book on The Life and Times of J. Neville Keynes: A Beacon in the Tempest (Deane 2001), ‘one of the finest jewels in the crown of our profession’ (Harcourt 2012). This becomes evident from the, perhaps, most important chapter, number VIII, ‘Faculty Conflicts and Tripos Reform’:

Neville Keynes was an unreconstructed product of the pre-1883 moral sciences tripos. He held that, at the undergraduate level, economics should be taught alongside logic, psychology and ethics; and that specialised study of it was best reserved for mature students . He dreaded the establishment of a separate economics tripos because he rightly foresaw that it would lead to political economy being excluded from the moral sciences tripos altogether (Deane 2001: 243).

However, after a Senate vote on 6 June 1903, ‘Marshall had finally achieved his ambition and Cambridge had an economics tripos’ (ibid.: 245). Political economy considering the political society as an entity had become economics with the autonomous individual moving to the fore. This heralded the splitting up of the moral sciences, which constituted a broad unity because society and the state were considered an entity with the economy taking on an ancillary role. For his part, however, ‘John Maynard Keynes had no inhibitions about mixing politics with economics ... Keynes’s principal contribution to the art of political economy was to bring into sharp focus what is still its basic problem, i.e. identifying the scope for government intervention’ (Deane 1991: 177). In fact, Keynes’s life work implies a clear movement away from economics in the direction of political economy, grounded on a social and political philosophy. Given this, Maynard Keynes forcefully initiated a return to the social and political sciences, the modern form of Neville Keynes’s moral sciences (on this, see Fitzgibbons 1988; Bortis 1997, 2013). In this context, Maynard Keynes always insisted on economics being a moral science.

Only a political economist like Deane, being simultaneously an excellent economic historian and an outstanding historian of economic ideas, could bring the issue of political economy and economic science into sharp focus. Based on this fundamentally important distinction, the way is now open to arguing that both approaches to dealing with economic phenomena involve two fundamentally different paradigms, that is, classical-Keynesian political economy and neoclassical economic science or neoclassical economics (Bortis 1997, 2010, 2013). This is likely to open new perspectives in the development of economic theory and policy. Indeed, neoclassical theory, founded on the timeless principle of supply and demand, grounded, in turn, on the marginal principle, does not represent the only ‘engine for the discovery of concrete truth’. Classical-Keynesian political economy, in a Keynesian vein a moral and cultural science, is based on three principles: the labour value principle, the surplus principle, and the principle of effective demand (Bortis 2013), which also provide a most powerful engine for the discovery of concrete truth. It is open to discussion which of the two theoretical systems is more plausible.

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