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Issn 2318-2377 ISSN 2318-2377 TEXTO PARA DISCUSSÃO N 612 HOW ECONOMICS BECAME AN INTERVENTIONIST SCIENCE (AND HOW IT CEASED TO BE) Rafael Galvão de Almeida Setembro de 2019 Universidade Federal de Minas Gerais Textos para Discussão Jaime Arturo Ramírez (Reitor) A série de Textos para Discussão divulga resultados Sandra Regina Goulart Almeida (Vice-reitora) preliminares de estudos desenvolvidos no âmbito Faculdade de Ciências Econômicas do Cedeplar, com o objetivo de compartilhar ideias e obter comentários e críticas da comunidade Hugo Eduardo Araujo da Gama Cerqueira (Diretor) científica antes de seu envio para publicação final. Kely César Martins de Paiva (Vice-Diretora) Os Textos para Discussão do Cedeplar começaram a ser publicados em 1974 e têm se destacado pela Centro de Desenvolvimento e Planejamento diversidade de temas e áreas de pesquisa. Regional (Cedeplar) Ficha catalográfica Frederico Gonzaga Jayme Jr (Diretor) A447h Almeida, Rafael Galvão de. Gustavo de Britto Rocha (Vice-Diretor) 2019 How economics became an interventionist science (and how it Laura Rodríguez Wong (Coordenadora do ceased to be) / Rafael Galvão de Programa de Pós-graduação em Demografia) Almeida . - Belo Horizonte : UFMG/CEDEPLAR, 2019. Gilberto de Assis L.ibânio (Coordenador do 23 p. - (Texto para discussão, 612) Programa de Pós-graduação em Economia) Inclui bibliografia (p. 19-23) ISSN 2318-2377 Adriana de Miranda-Ribeiro (Chefe do Departamento de Demografia) 1. Política econômica 2. Planejamento econômico. 3. Liberalismo I. Universidade Bernardo Palhares Campolina Diniz (Chefe do Federal de Minas Gerais. Centro de Departamento de Ciências Econômicas) Desenvolvimento e Planejamento Regional. II. Título. III. Série. Editores da série de Textos para Discussão CDD: 338.9 Aline Souza Magalhães (Economia) Ficha catalográfica elaborada pela Biblioteca da Adriana de Miranda-Ribeiro (Demografia) FACE/UFMG RSS117/19 Secretaria Geral do Cedeplar As opiniões contidas nesta publicação são de Maristela Dória (Secretária-Geral) exclusiva responsabilidade do(s) autor(es), não Simone Basques Sette dos Reis (Editoração) exprimindo necessariamente o ponto de vista do Centro de Desenvolvimento e Planejamento Regional (Cedeplar), da Faculdade de Ciências http://www.cedeplar.ufmg.br Econômicas ou da Universidade Federal de Minas Gerais. É permitida a reprodução parcial deste texto e dos dados nele contidos, desde que citada a fonte. Reproduções do texto completo ou para fins comerciais são expressamente proibidas. Opinions expressed in this paper are those of the author(s) and do not necessarily reflect views of the publishers. The reproduction of parts of this paper of or data therein is allowed if properly cited. Commercial and full text reproductions are strictly forbidden. 2 UNIVERSIDADE FEDERAL DE MINAS GERAIS FACULDADE DE CIÊNCIAS ECONÔMICAS CENTRO DE DESENVOLVIMENTO E PLANEJAMENTO REGIONAL HOW ECONOMICS BECAME AN INTERVENTIONIST SCIENCE (AND HOW IT CEASED TO BE)* Rafael Galvão de Almeida Mestre em Economia, PPGEC/UFSCar-Sorocaba Doutorando em Economia, CEDEPLAR/UFMG CEDEPLAR/FACE/UFMG BELO HORIZONTE 2019 * Work in progress. 3 How Economics Became an Interventionist Science (and how it ceased to be) - TD 612(2019) SUMÁRIO 1. INTRODUCTION ............................................................................................................................... 6 2. ECONOMICS IN THE 1930S ............................................................................................................ 7 2.1. Importance of Keynes .................................................................................................................. 8 2.2. Socialist economic calculation debate .......................................................................................... 9 2.3. Quantitative methods .................................................................................................................... 9 3. DEVELOPMENT OF THE THEORY OF ECONOMIC POLICY .................................................. 11 3.1. Theoretical developments ........................................................................................................... 11 3.2. Theory and ideology ................................................................................................................... 13 4. THE RETURN OF FREE-MARKET TO A RELEVANT POSITION ............................................ 14 4.1. Fall in the 1930s and reorganization .......................................................................................... 14 4.2. Public choice and political business cycles ................................................................................ 14 4.3. Friedman and rational expectations ............................................................................................ 16 5. CONCLUSION: ECONOMICS AND ITS POLICY RECOMMENDATIONS CHANGE ............ 17 REFERENCES ...................................................................................................................................... 19 4 How Economics Became an Interventionist Science (and how it ceased to be) - TD 612(2019) ABSTRACT The relationship between economics and State has been intimate ever since classical political economy. However, perceptions about the role and size of the State have changed according to the epoch. In other words, economic theory assigned a bigger or a smaller role to the State depending on the political situation. This article analyses the change in economists and economic theory’s perception of the role of the State in the economy, from favoring an interventionist approach from the 1930s to the 1960s, and a liberal approach from 1970s, in order to understand the factors behind this change. Keywords: theory of economic policy; economic planning; liberalism; neoliberalism RESUMO O relacionamento entre ciência econômica e o Estado tem sido íntimo desde a economia política clássica. Porém, as percepções sobre o papel e o tamanho do Estado mudaram de acordo com a época. Em outras palavras, a teoria econômica aceitou um papel maior ou menor ao Estado dependendo da situação política. Esse artigo analisa a mudança da percepção dos economistas e da teoria econômica do papel do Estado na economia, de uma abordagem intervencionista da década de 1930 até a década de 1960, e uma abordagem liberal da década de 1970 em diante, a fim de entender os fatores por trás dessa mudança. Palavras-chave: teoria da política econômica; planejamento econômico; liberalismo; neoliberalismo JEL: B22 5 How Economics Became an Interventionist Science (and how it ceased to be) - TD 612(2019) The world under heaven, after a long period of division, tends to unite; after a long period of union, tends to divide. Luo Guanzhong, Romance of Three Kingdoms 1. INTRODUCTION Economics and public policy have had an intimate relationship ever since the establishment of the classical political economy. The current attitude towards State intervention in the economy is not positive towards it: “In an article published in the New York Times not long before the financial crisis exploded, some interviews with eminent economists implied that rules in favor of ‘free markets’ had become social norms. Princeton professor Alan Blinder declared that ‘anyone who says anything even obliquely that sounds hostile to free trade is treated as an apostate’. David Card, a professor at Berkeley, said, ‘You lose your ticket as a certified economist if you don’t say any kind of price regulation is bad and free trade is good.” (Dequech, 2017, p. 1638-9). The stereotype of the economist is someone who is a supporter of the free-market, that problems eventually will solve themselves through supply and demand (Klein, Stern, 2007), exemplified by Margaret Thatcher’s famous dictum: “there is no alternative”1. However, it was not always like that. By the 1940s, Durbin (1949, p. 41) wrote “we are all planners now”, Alvin Hansen pronounced the death of individualism in his textbook on economic policy (Hansen, 1947, p. 14), and Seymour Harris claimed that the invisible hand abandoned its followers in the hour they needed it most (Harris, 1949, p. 15). Frank Knight wrote in 1933: “We cannot go back to laissez-faire in economics even in this country…Now it seems to me inevitable that we must go to a controlled system” (apud Burgin, 2012, p. 4). Stigler complained about the conservatism of economists in policy, part of their stereotype of the time, and how they do not give the due attention to entrepreneurs, instead focusing on bureaucrats (Stigler, 1959, p. 522). For an economist in our current age, the idea that free-market used to be a heterodox idea seems a bit weird. It shows how the perception of economists towards their own discipline tends to change over time. In contrast, Tinbergen (1956, p. 6, emphasis added) was blunt on what entails economic policy: “economic policy consists of the deliberate manipulation of a number of means in order to attain certain aims”. What cause this change? The primary objective of this article is to show how this change occurred in time, so it is, by no means, an extensive history of all the changes related to the interventionist-liberal dichotomy, only the ones we considered to be most important. This article has 5 sections besides this introduction: Section 2 explores, in a summarized way, the source of the transformations in economic theory in the 1930s that 1 “This is the mantra chanted by 'dries' during the prime ministerial reign of Margaret Thatcher, by which they demonstrated their belief that
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