The useful economist and economic research

from James Galbraith

The useful economist

The common characteristic of almost all of this work, excepting a few who preoccupied themselves with logical skirmishes with the neoclassical orthodoxy – e.g., the Cambridge-Cambridge controversies over the theory of capital (Robinson, 1956; Sraffa, 1960; Harcourt, 1972), or in microeconomics (Keen, 2011) – is that the protagonists were concerned, in the first place, with the practical questions of policy facing their governments or the international community of which they were a part. Whether reformist or revolutionary, their economics was (and still is) the elucidation of problems and the means of dealing with them. The purpose of economic reasoning is to inform and buttress political and social choices. It is not merely to create a simulation that kinda-sorta emulates some run of economic data.

The useful economist is one who engages in the quest for solutions. A truly useful economist does so in an open-minded, informed way, aware of underlying principles but not hypnotized by them, and independent of financial gain and personal ambitions, whether political or for status and celebrity among economists. The behavior of bankers and speculators, the emissions of factories and transport networks, the withdrawal of critical resources from a finite reserve in the crust of the earth, the level and distribution of wages, profits and rents, fair and effective taxation, how to achieve the willing cooperation of free citizens in pursuit of the common good – all these are part of what a useful economist may study. The person who stands outside and aloof from such questions, who purports merely to “model the system” is, for most purposes, an idler, not so much a scientist as a hobbyist.

Thus: Adam Smith’s objective was to promote the interests and welfare of the trading community of which he was part, by expounding the virtues of large markets and the division of labor. David Ricardo sought to shift the burden of taxation from profits to rent, and Henry George sought to shift them from wages to rent, in both cases so that taxes would fall on the idle and unproductive landholding classes. Karl Marx wrote Capital as a theoretical foundation for the expropriation of capitalists. John Maynard Keynes sought to save and reform Britain and the bourgeois democratic order by advancing a practical cure for mass unemployment. John Kenneth Galbraith (1958, 1967) turned the attention of his readers to the economic problems of abundance: public squalor, pollution, residual poverty, the cultural and aesthetic wasteland, and corporate power. Hyman Minsky described the phase transitions of financial instability – hedge, speculative, Ponzi – and the need for Big Government and a Big Central Bank as stabilizing devices. Milton Friedman, an engaged conservative, co-wrote a monetary history to support a case for monetary rules (Friedman and Schwartz, 1963). In brief, the notion that any significant economist of any century has stood aside from the policy questions of their time is purest pretense.

Economic research

Economic research as it should be, is therefore a matter of trying to understand how the particular complex system in which we happen to live functions – or malfunctions – at any particular time, and to what sort of forces, pressures and policies it responds. Here one illuminating example is P. Chen’s (2021) demonstration, from real data, that exchange-rate crises “can only be caused by financial oligarchs”. Another was Mandelbrot’s (1999) showing that the movement of capital asset prices is well-modeled by a multifractal generator, hence open to intrinsically unpredictable crashes. Such findings have the property that they are drawn from, or compared directly to, the phenomena of the real-existing economy in such a way as to motivate political and social choices. They do not consist in deriving policy from first principles, nor in exploring the properties of mathematical systems that – however interesting in themselves – map poorly or not at all to the complex economy in which we live. Again, examples of good work can be multiplied; the problem is not that research on the real world is lacking among economists and (especially) physical scientists turning their attention to economic questions. It is rather that such research lacks the standing it deserves, because it cannot be integrated into the dominant theory.