The Crisis Vision in Modern Economic Thought.

By Robert Heilbroner and William Milberg. New York: Cambridge University Press, 1995. Pp. 131. $39.95 cloth, $14.95 paper.

Why has Anglo-American macroeconomic theory been in disarray for the past 25 years? Robert Heilbroner and William Milberg believe the answer must be found by looking beyond economic analysis to the level of preconceptions -- to the pre-analytic "vision" that shapes all economic inquiry. Their study reveals that there has actually been substantial agreement in the macro field during the past quarter century. Yet it also reveals a socially disconnected discipline that is increasingly ill-suited to serving as a useful guide to real-world problems.

The first two chapters of the book explain what is at stake m modern economic thought and then present the orienting framework to be employed throughout the investigation. At stake is the discipline's ability to function as more than a mere intellectual exercise. The framework is rooted in Schumpeter's notion of a "classical situation," a period when one particular theory commands widespread assent. The authors use this concept -- and the argument that changes of vision may occur when dissonances arise between a "view" of the economic world and actual events -- to outline a meta-history of economic thought. This overview divides five classical situations into two categories -- one including those provided by Smith, Ricardo and Mill; and a more recent group rooted in the work of Marshall and Keynes.

Chapter Three identifies both the analytics and preconceptions of the Keynesian consensus. Although the starting point for this classical situation appears to be Keynes's General Theory, Heilbroner and Milberg explain that significant changes were needed to make both its vision and theory "digestible" to the profession. The result was the neoclassical synthesis first presented as a whole in Paul Samuelson's now famous textbook. While some have always considered this "bastard Keynesianism," both the approach and the Keynesian label dominated macroeconomics for more than two decades following World War II.

Chapters Four and Five trace the decline of Keynesian dominance and the simultaneous "inward turn" of macroeconomics. A principal challenge for Keynesianism (though not necessarily an equally-significant challenge for the actual economics of Keynes) was the problem of inflation. Three elements of this difficulty are discussed: inflation theory and the Phillips Curve; the appearance of stagflation; and the macroeconomic role of money. Also exploited by those with a different "vision" -- or at least a more extreme version of the vision beneath Keynesian theory -- was the fact that macro analysis did not rest securely on a utility-maximization microfoundation. The historical path from Monetarism to Rational Expectations and ultimately to today's skirmishes between the New Classical and New Keynesian camps is one that produced much stronger microfoundations but has also drawn economics deep inside the natural-law realm -- where it is isolated from time, devoid of social content, and prepared to offer nothing but laissez-faire advice for nearly every practical problem.

The resurgence of natural-law conceptions in economics is discussed further in Chapter Six. After a brief discussion of the rather chaotic and underdeveloped state of heterodox economics, the authors focus on the profession's obsession with mathematical sophistication and econometric techniques, and on its inability to recognize that economics has meaning not as a universally applicable discipline but only as the study of capitalism. This leads to the first of the volume's two conclusions: mainstream economics has failed to generate a new classical situation because its theories are detached from historical contingency and sociopolitical reality.

The book's other conclusion, presented in Chapter Seven, is that a revitalized economics must be constructed around a vision that contains a newly-appraised balance between the public and private sectors -- a vision that legitimates and elevates the role of public action. Instead of a discipline that demands blind obedience to market imperatives, the authors call for a Political Economics that helps society achieve publicly-discussed and democratically-chosen goals. While acknowledging that political excesses are an ever-present danger, they stress both that there is no such thing as an apolitical economics and that public action can be inadequate as easily as it can be over-extended.

The unique contribution of this review of modern macroeconomic theory is its stress upon the importance of preconceptions and its discussion of the link between vision, analysis and policy recommendations. It is a contribution of inestimable value to the whole enterprise of economics. In a crisp and elegant manner that has become the trademark of the volume's senior author, The Crisis of Vision prompts us to reflect not only on the purposes and fundamental assumptions of economic inquiry but also on the developmental path of the entire discipline.

Heilbroner has written elsewhere on the role of vision in economics p]. Yet readers of the present book may have benefitted from a further discussion of the various elements contained within a "vision" (as I see it, each vision includes conceptions of at least the following: society, the economy, values, and science). In addition, one hopes the authors will share more of their alternative to conventional preconceptions and analysis in future works. (A compatible effort to outline elements of a new "classical situation" can be found in Whalen [2].)

Since no new vision can triumph unless it manages to "mobilize our moral sympathies" [p. 47], economics is not likely to jettison its core beliefs -- which can be traced back to the Physiocrats -- unless its students are allowed to explore and experiment with the entire range of visions present in the history of economic thought. But the chance that this will be permitted is extremely remote in an era in which economics has elaborate institutional and conceptual defense mechanisms -- mechanisms that demand conformity as a prerequisite to professional advancement and that protect conventional theory from refutation. Yet visions rest upon judgments and as such can be altered by persuasion. Those interested in a fundamental reorientation of economics would have to look long and hard to find more persuasive spokespersons than Heilbroner and Milberg.

References

[1.] Heilbroner, Robert. Behind the Veil of Economics: Essays in the Worldly Philosophy New York: W.W. Norton & Company, 1988.

[2.] Whalen, Charles J., editor. Political Economy for the 21st Century: Contemporary Views on the Trend of Economics. Armonk, N.Y.: M.E. Sharpe, 1996.