Review of the Book
The Making of Modern Economics
by Mark Skousen
Mason Gaffney
[
A review of the 2nd edition of this text,
published by M.E. Sharpe; Comment by Mason Gaffney, October, 2012]
This is much less than a full review of Skousen, but more than a
rebuttal to his personal attack on me as a conspiracy theorist.
Skousen's book is most readable and probably sells well. It is
gossipy, with details on the personal lives of "the great
thinkers". It brims with illustrations and vignettes, both
relevant and not. I was fascinated to learn about the life and times
of Menger, for example, who had been just a shadowy name to me, and is
now a real person, with strengths and human flaws - including a sex
scandal involving Austrian royalty. This is juicy tabloid stuff, but
it is not economics. More relevant is his inability to update and
republish and translate his pioneering work.
What I do not find is any clear statement of why Menger deserves all
the credit for "discovering" marginalism, which is implicit
in so much of earlier classical economics. This is often stated and
repeated, as though repetition in tertiary sources makes something
true, but has anyone DEMONSTRATED it in a scholarly way? Skousen has
done scholarly digging in the past - his Structure of Production is
very useful and documented - but the present work is not of the same
quality.
In praising Menger, Wieser, and Böhm-Bawerk (who may deserve it
as individuals) Skousen detours into identifying them with Vienna and
Austria, which he exalts. He glosses over the fact that Austria was in
a long decline, leading to near-extinction, during their lifetimes,
their influence with royalty, and with the repressive statist
bureaucracy inherited from Metternich. He credits them for attacking
Prussian-German economists, even as Prussia was displacing Austria as
the dominant central economic and political power, defeating Austria
and France in battle, and moving into the Balkans, Austria's turf. He
credits the Austrians for dominating American higher education in
Economics, when in fact most American economists found higher
education in Germany. J.B. Clark, German-trained, followed by Knight
and Stigler, devoted major efforts to exorcise Austrian capital theory
from American thinking. Skousen exalts Vienna, citing Mozart,
Beethoven and Freud to exemplify its cultural leadership, although
Mozart had flourished 100 years earlier under the would-be
Physiocratic reformer Joseph II, and Freud is now discredited. As for
Beethoven, after 1815 and the Congress of Vienna, "Austria came
under the stifling rule of Metternich. For the rest of Beethoven's
lifetime and beyond, Vienna crawled with secret police, informers,
spies, and repressive bureaucrats hostile to art and freedom."
Skousen's bête noir is David Ricardo, first for
promoting a labor theory of value, feeding raw meat to later Marxists
claiming exploitation of labor. This is a common opinion from tertiary
sources, but if one actually reads with any care Ricardo's chapter
one, on value, Ricardo distinctly credits the capital input for adding
to value. Ricardo was unlikely to paint his own profession as
parasitic, and didn't.
Ricardo's other great sin was methodological, to rely on abstract or
a priori reasoning without reference to the real world. If
Skousen is to fault Ricardo for that, he can hardly turn around and
beatify von Mises, for example, who makes a virtue of relying on
reasoning a priori and rejects statistical testing. Skousen
does not acknowledge, or try to reconcile, this apparent
contradiction. Nor does he mention that Ricardo's theories were
relevant to a major political issue, England's "corn laws".
He does not note that Ricardo showed that land rents depend on the
price of corn, not the other way around, refuting the claim that
Ricardo based prices on cost of production, without recognizing the
demand-side view that Austrians developed later. Neither does Skousen
mention Hayek's debt and tribute to what he labeled "The Ricardo
Effect".
No, Ricardo's primary offense to property interests, in my view, was
demonstrating that land rents are unearned. This, following upon
Smith's soft hints, and Turgot's hard activism, paved the way for
Mill's and A.R. Wallace's proposals to tax land values and encourage
subdivision, to George's more sweeping proposal to focus most taxes on
land rents and values. It opened the gates for the Edwardian
governments under Campbell-Bannerman, Asquith, and Lloyd-George who
pulled the teeth from the House of Lords in the Parliamentary
Revolution of 1909-11, in order to pass their proposed national tax on
land values.
By focusing on Vienna and central Europe, Skousen makes the
left-right struggle into a rivalry between Marxist communism and free
enterprise. South of The Alps, Pope Leo XIII used the same stratagem
in his 1891 Encyclical Rerum Novarum. In fact, Marx was little
known in Anglophone nations before the Russian Revolution of 1917.
American Progressives and English Radical-Liberals and Fabians leaned
more toward downtaxing commerce, industry, housing, and labor. They
would replace the revenues by uptaxing land values, melding free
enterprise with radical land reform. Henry George was not alone, but
prominent among the progressives.
To his credit, Skousen does devote a few pages to George (pp.
230-34), but they are shallow as a morning dew and spun like a
spiderweb. He explains that Georgism died because it was "too
extreme", whatever that means. Only this and nothing more. He
then dismisses George's exegetes using ridicule and a personal attack
on me: "By George, it's a conspiracy!" He supports this with
a statement I never wrote, that he says he found on an old
dust-jacket. He alleges that I am part of a "tight-knit political
or religious group filled with true believers". His short (p.233)
box demeaning me and my work contains "conspiracy" five
times. Actually, my long chapter ("The Neo-classical Stratagem")
in the book that Skousen cites contains "conspiracy" only
once, quite incidentally, preceded by "as though". The word
and the concept are his, not mine.
Skousen also leans on the authority of J.B. Clark. George was wrong
because Clark said so. If Skousen had read my chapter (the evidence
says he didn't) he would find 12 pages analyzing and refuting Clark,
and 26 works by Clark in the bibliography. Clark's major causes were
two: undercutting George, and undercutting Böhm-Bawerk and other
Austrians. He succeeded in both efforts, in American academe. It is
incongruous for Skousen, a self-proclaimed Austrian, to rely on the
authority of Clark, the dogged nemesis of Austrians. My chapter
purports to show how the two causes fit together. It is accessible at
www.masongaffney.org.
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