Abstract
In December 1935, while putting the finishing touches on The General Theory of Employment, Interest, and Money, John Maynard Keynes issued a warning to his colleagues in the academic discipline of economics: “It is astonishing what foolish things one can temporarily believe if one thinks too long alone, particularly in economics.” Almost ninety years later, his pithy remark rings as true as ever. Students opening an undergraduate economics textbook today can expect to encounter instructions suggesting they suspend disbelief about the gap between the subject matter being taught and the world in which they live. Instead, they are told to trust in elegant graphs and models built upon the assumption of firms engaged in perfect competition; of industries lacking barriers to entry; and of consumers and labor market participants guided purely by rational expectations. Academic publications in the field of economics, though less accessible to the uninitiated, typically proceed from a similar set of assumptions. Spend too much time alone with this material and it is indeed astonishing what foolish things one might believe.
Fortunately, not all economists confine their inquiries to the narrow parameters permitted by orthodox thought. In the years since the financial crisis of 2008, in particular, a growing number of heterodox economists have achieved prominence, both within the profession and, especially, in broader discussion about economic policy. Figures such as Stephanie Kelton, Isabella Weber, and J.W. Mason, to name just a few, have emerged as leading public intellectuals and have offered influential interventions in debates over the most pressing economic questions of the day. Moreover, economists themselves have increasingly lost their monopoly on economic analysis to scholars from other fields—historians such as Adam Tooze, for instance, have drawn on a deep understanding of the process of economic development to offer insightful interpretations of the current moment.
If these figures are now ascendant, however, they are building on a tradition in economic thought that is not new. In Reforming Capitalism for the Common Good: Essays in Institutional and Post-Keynesian Economics, Charles Whalen provides much needed historical perspective on these alternative currents within the discipline and compellingly demonstrates the ongoing value of heterodox economics. A heterodox economist himself, Whalen’s volume is composed of essays drafted over more than three decades as both a scholar and a practitioner in and around the labor movement. They are useful, therefore, not only for understanding the economy but also for thinking strategically about how we might change it for the better.
Two distinct yet related strands of heterodox economics are institutional economics—which flourished in the United States in the 1920s and 1930s—and post-Keynesian economics—which developed in the 1970s. Whalen’s book introduces readers to each through intellectual biographies of leading thinkers from the two camps: the institutional economist, John R. Commons, and the post-Keynesian economist, Hyman Minsky.
Institutionalists, as Whalen demonstrates, believe that “economic outcomes are shaped by history, institutions, and expectations about an uncertain future.” In its heyday during the interwar period, institutionalism rivaled the more conservative “neo-classical economics,” with strongholds in leading universities such as Wisconsin and Columbia. For nearly a half century between the 1890s and 1940s, John R. Commons stood as one of this tradition’s leading figures. Most well known for his work in labor economics and labor history, Commons’ voluminous output covered subjects ranging from the role of the law in capitalist development, the dynamics of the business cycle, and the function of monetary policy. In this last area, Whalen shows, in a fabulous and original essay, that Commons’ insightful work on the potential for monetary policy to be used to moderate economic fluctuations prefigured seminal contributions by John Maynard Keynes. Indeed, upon reading the Wisconsin institutionalist’s work, Keynes wrote that “there seems to be no other economist with whose general way of thinking I feel myself in such general accord.”
The work of Commons and other institutional economists served as the intellectual backdrop to much Progressive Era reform and in time provided the framework within which such landmark New Deal legislation as Social Security and the National Labor Relations Act was conceived. In the essays recovering Commons’ contributions, Whalen illuminates the extent to which the liberalism that developed in the twentieth-century United States owes as much or more to the institutionalism tradition as it does to what would come to be understood as Keynesianism. And insofar as the decline of New Deal liberalism has been attributed to the failure of Keynesianism to reckon with the structural problems of modern capitalism—including, for instance, the 1970s crisis of stagflation—Whalen’s treatment of the institutionalist contribution to that tradition stands as an invaluable source for revisionist interpretations.
Post-Keynesianism emerged in the wake of that 1970s crisis of liberalism. It was the result of a cohort of heterodox thinkers’ attempts to recover the best theoretical insights of the Keynesian tradition and blend it with the sort of socio-historical analysis offered by institutionalists. A leading figure here was Hyman Minsky, whose pioneering work on financial instability has only become more relevant with time. The decades after the World War II, Minsky contended, had witnessed the emergence of “money manager capitalism,” in which the speculative pursuits of shareholders and other investors had taken command over virtually all economic activity. That such a system would be prone to recurring and devastating crises, Minsky observed, should surprise no one.
Whalen’s essays on the relationship between Minsky’s thought and the work of figures such as Henry Simons (University of Chicago) and Joseph Schumpeter—neither known for their radicalism!—will prove most compelling to those interested in the history of economic ideas. These essays illustrate, among other things, just how wide ranging among economists was the concern with finance, crisis, and capitalist development through most of the twentieth century. Just as valuable are Whalen’s observations on how Minsky can help us think about what he calls an “Economic policy for the real world”—and how to think concretely about the urgent task of reforming the financial system.
Running through all the essays in the book is Whalen’s conviction that the needs of working people must always be placed at the center of economic analysis. Ultimately, however, it may be the case that only a sustained working-class movement can force labor’s issues onto the agenda of economic research—and, more importantly, of economic policy. The foolishness that marks so much of the modern economics profession did after all emerge in the context of union decline. From that perspective, the fate of the new wave of heterodox economics may depend as much as anything on what becomes of the exciting organizing developments of recent years. In any case, Reforming Capitalism for the Common Good is an invaluable resource for everyone interested in what that field could and should look like in the future.
