Robert M. Solow How did economics get that way & what way did it get? Downloaded from http://direct.mit.edu/daed/article-pdf/134/4/87/1829009/001152605774431518.pdf by guest on 03 October 2021 My exposure to economics as a disci- ics, and I would like to provide a few pline began in September 1940 when I then-and-now snapshots. The differ- enrolled as a freshman in the elementa- ence, however, is that with economics ry economics course at Harvard College. something more is called for; the pic- I will try in this essay to make sense of tures have to be connected. I would like the evolution of economics over a span to tell a story about how and why the ar- of more than ½fty years. chitecture of economics changed. It will An analogy that comes to mind is be a sort of Whig history but without the from The Boston Globe. The Sunday edi- smugness. tion occasionally publishes pairs of pho- tographs of urban landscapes. They are There were three textbooks that were taken from the same spot, looking in used in the 1940 economics course at the same direction, but are at least thir- Harvard. One was a standard principles ty, forty, or ½fty years apart. One shows text by Frederic Garver and Alvin Han- a corner of the city as it looked then sen. Hansen had been at Minnesota with and the other as it looks now. Some Garver but by 1940 was a professor at buildings have disappeared, some new Harvard and–although we freshmen ones have been built, and some of the had no inkling–the leading ½gure in old ones are still there but with altered bringing the ideas of John Maynard facades. This description is also true of Keynes’s General Theory of Employment, the landscape and structure of econom- Interest and Money1 into American eco- nomics. The second text was a large in- Robert M. Solow, Institute Professor Emeritus troductory book called Modern Economic and Professor of Economics Emeritus at the Mas- Society by Sumner Slichter,2 also a mem- sachusetts Institute of Technology, has been a Fel- ber of the Harvard faculty and usually low of the American Academy since 1956. In 1987 referred to as the dean of American labor he received the Nobel Prize in Economics. At the economists. The book was more about time of this essay’s publication in the Winter 1997 issue of “Dædalus,” Solow was Institute Professor Emeritus at the Massachusetts Institute of Tech- 1 John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Mac- nology. millan, 1936). © 2005 by the American Academy of Arts 2 Sumner H. Slichter, Modern Economic Society & Sciences (New York: H. Holt and Company, 1935). Dædalus Fall 2005 87 Robert M. economic institutions and their func- older books mention one equation, the Solow tioning than about theory. The third text Quantity Equation.) The numerical ex- was a little green volume by Luthringer, ample, hallowed in economics since the Chandler, and Cline about money and days of David Ricardo, is still in use, but banking, one of a series of little green it is no longer the analytical workhorse. books. (Lester Chandler of Princeton The older books are long on classi½ca- was the only one of the authors whose tions–kinds of goods, kinds of indus- name we ever heard again.) It was a pret- tries, kinds of labor–and on descrip- ty boring text, as I remember, but fortu- tions of public and private institutions. nately we only had to read bits of it. This The ½rst 260 pages in Slichter’s text are is actually an important point, and I will exclusively descriptive of the U.S. econ- Downloaded from http://direct.mit.edu/daed/article-pdf/134/4/87/1829009/001152605774431518.pdf by guest on 03 October 2021 come back to it later. omy as it then was. I would guess that Even a quick physical comparison of fewer than one hundred of the next six a good contemporary elementary text hundred pages are devoted to the devel- with Garver and Hansen and Slichter opment of analysis or to the application tells us something. Leaving aside the of analysis. Most provide more institu- typographical changes–color, wider tional descriptions, very sensible discus- margins, larger type–the modern text sions of economic policy, and serious is sprinkled with diagrams, tables, even looks at recent history as it would be simple equations, whereas the older seen by an economist. No one should ones present page after page of unbro- underestimate the value of these histor- ken prose. In some seven hundred ical reflections. They are, in a way, the pages, Garver and Hansen have fewer application of analytical ideas. But there than forty tables or ½gures. Some of is a not-so-subtle difference. The mod- them represent the working-out of nu- ern textbook presents and uses econom- merical examples of simple proposi- ic analysis as a tool to be directly applied tions, and the rest, maybe half, contain to contemporary or historical situations. data about the U.S. economy. Similarly, The student is shown how to map real there are ½fty-½ve graphs, again divided events into the categories that appear on between a small number of analytical the axes of the diagrams or the terms in diagrams and a larger number of graphi- the equations. The older texts are simp- cal presentations of actual data. Slichter ly more discursive. The underlying ideas is not radically different in his nine hun- are treated more like categories that res- dred pages. onate to this or that bit of history or pol- The modern counterpart, while no icy; the authors ruminate more than more intellectually demanding for the they analyze. student (perhaps even less so), is full of One sees this clearly in the way these diagrams, tables, and equations. The use two books present the idea of supply and of analytical diagrams is probably ten demand. This is the one piece of analy- times as intense, and the volume of real- sis that gets careful treatment. Charac- world data presented is correspondingly teristically, however, Garver and Hansen greater. Propositions are often stated in are very good on how one should think the form of equations, but these are al- about different kinds of commodities– most always simple statements (i.e., perishable or not, bought frequently or two intuitively understandable quanti- seldom, standardized or not–but the ties must be equal); there is not a lot of student is not encouraged to make liter- heavy mathematics in these texts. (The al use of the apparatus of supply and de- 88 Dædalus Fall 2005 mand curves. Both books spend time some of them because new facts and How did discussing monopolistic elements in institutions emerged, some of them for economics get that way real-world markets, but most of the internal intellectual reasons. Not many & what way discussion is institutional. There is, of sub½elds seem to have disappeared, did it get? course, no serious treatment of monop- though there was some rearrangement oly price because there was very little as a more uni½ed macroeconomics ab- known at the time. sorbed segments like “business cycles.” I do not want to be misunderstood. At the most general level, however, the Garver and Hansen and Slichter were change in tone was as I have described it. serious people. Their reflections on the Many outside observers and some crit- workings of the economy are worth ics from within the profession have in- Downloaded from http://direct.mit.edu/daed/article-pdf/134/4/87/1829009/001152605774431518.pdf by guest on 03 October 2021 reading. They inspire bursts of nostal- terpreted this development as a sweep- gia; words like “civilized” came to mind. ing victory for “formalism” in econom- The point is that the modern text takes a ics. The intended implication is that eco- different approach. Of course it explains nomics has lost touch with everyday life, more; the intervening sixty years of eco- that it has become more self-involved nomic research have not been wasted. and less relevant to social concerns as it But it is the tone that I want to empha- became more formal (and more mathe- size. The modern text treats economics matical). I think that this view of the dis- as a collection of analytical tools to be cipline rests on a misconception about applied quite directly to observable sit- the change in the way mainstream econ- uations. omists go about their work. Barking may It is plain from this comparison that well be justi½ed, but not up the wrong there was a signi½cant change between tree. 1940 and 1990 in economics as a disci- If “formalist economics” means any- pline and also in the way it sees itself. thing, it must mean economic theory Perhaps this sea change deserves to be constructed more or less after the mo- called a transformation. One way to de- del of Euclid’s geometry. One starts with scribe it is to say that economics became a few axioms, as close to “self-evident” a self-consciously technical subject, no as they can be–although this is harder longer a ½t occupation for the gentle- to do when the subject matter is more man-scholar. And I mean that literally: complicated than points and lines in a nowadays economists arrive at their plane–and then tries to work out all conclusions by using an evolving collec- the logical implications of those axioms.