Lords of Economics
A couple of years ago, Liaquat Ahamed’s Lords of Finance: The Bankers Who Broke the World (Penguin Press, 2009) became a resounding bestseller. If you liked that story — about four central bankers whose efforts to maintain the gold standard dominated the years after World War I until their efforts finally came undone in the Great Depression — you’ll love Grand Pursuit, for Sylvia Nasar has done something similar. (See “Sylvia Nasar: The Thought Leader Interview,” by Rob Norton, s+b, Autumn 2011.)
In Nasar’s first book since A Beautiful Mind (Simon & Schuster, 1998), the best-selling biography of math genius John Nash, she turns a long-ago adventure into a compelling story for the present day. It is about a handful of economists who, in the long century between 1848 and 1960, transformed the discipline from a counsel of despair into “an instrument of mastery.” The story’s heroes are Alfred Marshall, Irving Fisher, John Maynard Keynes, Friedrich Hayek, and Joseph Schumpeter; its villains are Thomas Robert Malthus and Karl Marx.
The story unfolds in three acts of economic narrative that Nasar labels Hope (1843–1911), Fear (1914–1939), and Confidence (1945–2007). In 1848, Europe tottered on the brink of revolution. Malthusian reasoning about the tendency of the human population to outstrip its food supply dictated harsh terms for relief of the poor. Charles Dickens is a surprising entrant here; his much-loved A Christmas Carol, from 1843, with its images of plenty, turns out to be a tract against economic pessimism. Journalist Henry Mayhew wages a spirited campaign in London’s Morning Chronicle to persuade political economy to “take some little notice of the claims of labour” and provide higher pay and better working conditions. But not until Alfred Marshall (and others) took up the cudgels was new life breathed into a faltering discipline. “Before 1870 economics was mostly about what you couldn’t do,” Nasar writes. “After 1870, it was mostly about what you could.” World War I, with its shocking carnage and cruel aftermath, leading 15 short years after its outbreak to the Great Depression, cast the world into despair — but not Keynes or his great rival, Hayek, who in the 1930s both experienced periods of intense creativity. In their very different ways, they led the developed nations into the sunlit uplands of postwar prosperity. (Brief chapters on Paul Samuelson, Joan Robinson, and Amartya Sen conclude the book.)
Grand Pursuit is clearly meant to buttress Keynes’s famous claim that “the ideas of economists and political philosophers…are more powerful than is commonly supposed; indeed the world is ruled by little else,” but I am not so sure Nasar makes the case. Her worldly philosophers often look more like rubberneckers sallying forth periodically to observe and rationalize the concrete achievements of the world’s more practical sorts. The rising living standards that Marshall sought to explain owed more to the makers of the Industrial Revolution and the public health movement than to readers of his Principles of Economics. Lloyd George surely derived more inspiration from Otto von Bismarck, who invented the modern welfare state in the process of unifying Germany, than from Fabian Socialists Beatrice and Sidney Webb, who cofounded the London School of Economics. Recovery from the Great Depression stemmed more from preparations for World War II than from any deliberate application of Keynesian principles. And the Marshall Plan that helped Western Europe clamber back to its feet had more to do with President Harry Truman’s experience in World War I and Soviet Communism than with any reading of Hayek or Keynes. That doesn’t mean economists were useless, rather that it took somewhat longer for their investments to pay off. A grand pursuit indeed!