Grand Pursuit: A History of Economic Genius

If the mass of humanity, nickle and dimed by the great risk shift, cannot improve their material circumstances, to what end is economic science whatever the perspective, Marshallian or Marxian?

Sylvia Nasar of Columbia University has arrived in the same pantheon of economic historians with her debut of her five part excerpt series on Bloomberg of her book Grand Pursuit: The Story of Economic Genius in the tradition of Robert Heilbroners The Worldly Philosophers and the London School of Economics (LSE) lectures on economic history of Lionel Robbins.

She makes a valiant attempt to bring to relief the nuances in the evolution of economic science since Alfred Marshalls demand curve and Karl Marxs critique of the distribution of economic output among the European social classes during the transition from feudal societies to the burgeoning industrial age of modernity as most political scientists characterize it (I date modernity to the invention of the printing press by Johan Gutenberg in the 15th century).

Karl Marxs economic critique of John Stuart Mills political economics of liberty seems as true at the onset of modernity as it does during postmodernity. If Leninism and Maoism had undone Mill, it feels now as though Mill has undone himself.

Average living standards have indeed risen, as bread rises upon the addition of yeast, since the Industrial Revolution. The poor are still poor but no better off because the entire income spectrum has been lifted, the top more so than the bottom, similar to a volcanic island congealing on the molten lava beneath. Technical change has changed the way of life, made it more convenient, but did not eradicate class, social before the American Revolution and socio-economic after. Class, the salient aspect of human nature, has remained ineradicable, Mill or Marx.

The central tenet of scarcity which begets the price of the barter of real things at the dynamic intersection of the upward sloping supply and downward sloping demand curves against a backdrop of perpetual uncertainty (dynamic stochastic general equilibrium or DSGE) only holds as long as the supply curve can be upward sloping ad infinitum.

The demand curve is the law of economics. The supply curve is not it is pure hope, a Pandoras Box, in the saga of geopolitical pestilence for the perpetuation of species survival. Economic science falls apart, at some point, as the production possibilities frontier grinds to a halt in the molasses of technical change. For how long this envelope can be pushed is the great game.

That economic development means ever more consumption of goods and services is precisely the wrong understanding of the economy. The stake through the heart of economics, the science of scarcity, is its presumption of eternal abundance. It is alchemy to seek the elixir of youth and cornucopia. History is riddled with quacks and charlatans peddling immortality and abundance. Overestimating and extrapolating the capacity of technology to increase longevity to live forever and produce plenty is absurd. It is an illusion caused by fiat money which is disconnected from any real resources but tied to gross domestic product growth driven by ever increasing consumption of goods and services which need real, finite resources to make. Economics needs to be rewritten to address this contradiction at its core. Malthus will prove to be true in the long run and, as Keynes said, we are all dead by then.

Nasars aspiration is to save open markets from their most vehement critiques in the aftermath of the Cold War and at a time when those markets are failing the worlds masses (or the uncertain middle classes in the industrialized world and the rising middle classes in the rest), invoking the ghosts of Marx, co-opted by the new autocracy of democracy in the 21st century just as they had served the interests of the upper aristocratic classes in the 19th.

Blessed are the meek: for they have always inherited the earth in their Armageddon with the wealthy and powerful.

Revolutions, American or Marxian, happen for a reason, for the masses always want to improve their lot in a system of political economy where the distribution of power and wealth is dynamic in their yearning for economic equity in individual liberty.

Sustainable political economics recognizes this imperative.

By opening the tale of economics with Charles Dickens, Prof. Nassar immediately sets the tone of this unorthodox history. Indeed, Charles Dickens, who most of us do not think is an economist, replaces Adam Smith, widely considered the first economist. Rather than stick merely to the economic theories, this book explores the environment in which those theories grew as well as how personal events shaped the economists. For instance, Sen was greatly affected by witnessing the famines of India as a child and Schumpeter by the suffering in Austria post WWI. For Irving Fisher, his own bout with tuberculosis transformed him into fanatical personal health advocate. I was further surprised by how often the works on socialism were written by people (Webb, Marx, Engels) who really had little common background with the common worker. Webb spent a mere 3 days attempting to live the common life (instead of her advertised 3 weeks) while Marx, the father of Communism, never bothered to visit factories despite being in the heart of the industrial revolution. Marx, perhaps unjustifiably, is portrayed as a bum constantly living on someone else’s dime. While these moments are relevant to explain (or question) a person’s views, Sylvia spends a significant amount of effort describing the various affairs / love conquests of Schumpeter, Robinson, and Keynes. I can understand that this gossip gives a sense of their personalities, but I think these moments are far less interesting and informative.

While this storytelling style offers insight, it unfortunately can be very confusing since a lot of names are introduced to the reader. If you are not already familiar with the major economic players and vaguely what they are known for it is very easy to get lost. Also Prof. Nassar has a bad habit of sometimes introducing a person without giving you their names. Two examples of this are the first mention of Hayek and Bela Kun. The first time Hayek is mentioned is in relation to his grandmother; my reaction to his name was “well, if I didn’t know Hayek would be talked about later I would be confused why emphasis was placed on his name.” Bela Kun is introduced without a name and then you are expected to make the connection when all of a sudden this guy named Bela Kun is discussed at length. I had to google him to make sure I was right about his identity. However, often these side tangents to minor players such as Dr. Harvey Kellogg and Herbert George Wells add cultural insight and are entertaining. If you are unwilling to cope with a lot of characters, then you will dislike the writing style.

The book is organized into three main Acts: Hope, Fear, and Confidence. This choice is succinct and emphasizes the evolution of thought. The first section, Hope, is all about how economics developed as the hope to improve daily life. This feeling is a sharp contrast to the dismal conditions of Malthus. The second, Fear, is strongly tied to the disaster caused by the First World War. Many economists believed this war could not happen due to the interconnectedness of the economies. War was viewed as economic suicide. The war and the following depressions created a fear that life couldn’t / wouldn’t get better. The last section, Confidence, is about how we finally felt like we knew what we were doing with the economy post WWII. Economists had confidence that they could eliminate great depressions. This conclusion, however, may be more debatable given the current economic events since 2009.

Since familiarity with the economists greatly enhances the readability of the text, a list of the major players is given below with a brief statement about their views/ contributions. These statements are purely based on my understanding from the text. Even though they are placed in the act they are introduced, many of them span several acts and are entangled with each other.

Act I: Hope

K. Marx (German): Father of Communism. No means existed to convert production increases into higher wages and living standards.

A. Marshall (English): Productivity. As opposed to the views of Malthus where humanity would forever be trapped in poverty, the cure to economic woes and higher living standards was to increase productivity.

B. Webb (English): Government safety net. Destitution is preventable in a population and public services (like education) are overall beneficial for the economy despite taxation to pay for it.

I. Fischer (American): Everything is interconnected in the economy and money greatly affects the real economy. He is perhaps best known in American history texts as an opponent of William Jennings Bryant and “the cross of gold.”

Act II: Fear

J. Schumpeter (Austrian): Austrian finance minister tasked with fixing the economy post WWI. Unlike the traditional economic viewpoint that a nation’s economic health depended on its resources, he believed what matters was what a country did with what it had. Innovation, entrepreneurs, and credit are necessary to drive progress.

F. Hayek (Austrian): Anti-Communist. He is perhaps best known for his book “The Road to Serfdom.” This piece was an attack on the Soviet system and a defense of free markets. He believed that central planning was incompatible with freedom.

M. Keynes (English): Arguably the best known name in economics. Instability, not inequality, was the greatest threat to capitalism. While the traditional cure to stabilizing the economy was balancing the books to restore investor confidence, he believed the real solution was easier money. This approach avoided the liquidity trap and got money to those who could spend it: the government needed to be prepared to be the spender of last resort. His theories were the rational behind FDR’s New Deal.

J. Robinson (English): Communist. The free market economy would tend to long-run unemployment, excess industrial capacity, and stagnation. Supposedly, she had a huge disdain for mathematics. I do not understand how this is possible for an economist.

M. Friedman (American): Permanent income hypothesis. During WWII, he constructed a huge database of consumers and their purchases. This put him in a unique position to analyze spending patterns. He believed taxation could be used to stabilize the economy.

Act III: Confidence

P. Samuelson (American): Unemployment. He emphasized the importance of preventing unemployment, particularly after the demobilization of WWII.

A. Sen (Indian): Freedom. The expansion of freedom is viewed both as the primary end and the principal means of development.

The test is full of pure facts; Prof. Nassar stays away from any topic where there is not a clear-cut conclusion and she would need to offer her opinion. For instance, she goes into great depth describing the economic fallout following WWI. No one will dispute this mistake since it led to another world war. However often she hints at more modern economic results, but does not go into what they are. Milton Friedman, for instance, is described as the future father of Reagan-era tax cuts (in opposition to his earlier positions), but this story is not explained further because the jury is still out on whether or not these tax cuts were a good idea. The one exception is that the author clearly believes the Soviet model of communism is a mistake (many western economists will not dispute this, but communists may disagree). Specifically, “China’s remarkable leap in modernity left the Soviet Union in the dust and finally discredited the Soviet economic model.” I wish the test included more modern economics (post – 1970s) and further explained such statements.

Overall the text is extremely well written and engaging as expected of a professor of journalism. The book is full of good references to historical texts (e.g. The Economic Consequences of Peace) as well as many solid one-liners. The main reason for reading this book is summed up in the epilogue: ” economic intelligence was far more critical to success than territory, population, natural resources, or even technological leadership. Ideas matter.” I don’t entirely agree with this statement, but economic theory is nonetheless an important determinant for society. Furthermore, it is shown what has been done and whether or not it worked. These statements are particularly relevant to price controls, which surprisingly larger numbers of countries are still trapped in. This text should be required for all politicians and leaders.

Having looked at other reviews here, I noticed many recommend “The Worldly Philosophers” over this book. I’m currently in the process of reading that and it appears that book is a better reference for understanding the economics. However, I prefer to think that the books compliment rather than subtract from each other.

The Grand Pursuit is engrossing and for me very stimulating. After reading the reviews, I was prepared to be disappointed that the book does not cover the details of evolving economic doctrine. But what a surprise.

I am not an economist. As an undergraduate 45 years ago, I planned to devote my life to the economic history of the Roman Empire and took many courses in Latin, Greek, economics, and mathematics. Instead, I went into law and am now a retired lawyer.

Throughout my life, I have read many economic works merely as a pastime, including the Skidelsky’s new biography of Keynes, Milton Friedman’s joint autobiography, assorted works of Schumpeter, Joan Robinson, Hayek, and Paul Samuelson. So there wasn’t much in the Grand Pursuit that was totally new.

But what was new was putting this all together in a continuous narrative that shows interrelationships that I never suspected. Ms. Nasar writes extremely well, and I found the entire book engrossing.

It also has stimulated me to read or reread quite a few books. I have now reread Keynes’s Economic Consequences and am halfway through the General Theory. Next I’m going to reread one of Schumpeter’s books, and then I will tackle some of the works of Lon Walras, beginning with L’conomie politique et la justice (hlas it is cheap on Kindle, but only in French!).

The Grand Pursuit provided me with just kind of reading experience I enjoy. A very good book.

A wonderful read. I found it engaging throughout and learned a lot about economics and the thinkers whose ideas are still prevalent today.

I hope you find my review helpful.

A wonderful epic type of story telling by one of most qualified writers. Totally enjoyed the reading.

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