A History of Heterodox Economics Free

In November of 2008, on a visit to the London School of Economics, the Queen of England asked why the catastrophic financial crisis had not been predicted by British economists. It took the economists in question until July of 2009 to respond, after a British Academy forum entitled “The global financial crisis – why didn't anybody notice?” held by the British Academy on June 17. The letter stemming from this meeting acknowledged that signs of great financial risk were present, and that a number of institutions including the Bank of England had issued official warnings. But these warnings, the letter explained, were counterbalanced by a faith in the rationality of markets and the inherent stability of capitalist economies. Except that these arguments were not couched in such explicit language. In fact, the language used became strangely generalized and nonspecific, both about what was believed and by whom. “Against those who warned,” the letter explained, “most were convinced that banks knew what they were doing.” And again “There was a broad consensus that it was better to deal with the aftermath of bubbles…than to try to head them off in advance.” Intervention to address a potential economic crisis was in any event ill‐advised. Fiscal policy had been ruled off the table, and even with monetary policy “the prevailing view was that monetary policy was best used to prevent inflation and not to control wider imbalances in the economy” (Besley and Hennessy, 2009).

Given the catastrophic results of this complacent view of markets, did these economists engage in a deep reexamination of their models and belief systems? No indeed. The problem, they concluded, was simply that they did not talk to each other enough, so they failed to see the whole picture. Each highly specialized economist “seemed to be doing their own job properly,” and in fact “they were often doing it well.” After a strange digression into pop‐psychological references to “the psychology of herding” and the “mantra of financial and policy gurus”, which displaced the blame somehow onto the prevailing culture, the conclusion was that they really should have gotten out of their offices and talked to each other more (Besley and Hennessy, 2009). And that they would do so in the future (especially if the government would fund the effort).

Among a number of striking aspects to this letter are its total lack of self‐criticism about the fundamentals of the economic model the writers had been using, as well as the implicit presumption that this model was the only one available to economists. In fact this was not and is not the case. A number of economists outside the mainstream economic paradigm had been repeatedly expressing alarm about the risky behavior of insufficiently regulated financial markets. In the face of repeated assertions that “nobody could have predicted” the financial crisis, more than one heterodox economist (more on this terminology below) responded “I guess I should change my name to ‘nobody’” (for example, James Galbraith on PBS, 2009).

After all, the history of economic thought offers numerous analyses that could shed light on the instability of financial markets in the first decade of the twenty‐first century. Karl Marx noted the imperative within capitalism to turn money into more money without end, even when the outcome is economic crisis. Capitalists who want to survive must play by these rules: “it is only in so far as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations,” Marx argued, “that he functions as a capitalist, that is, as capital personified and endowed with consciousness and a will” (Marx, 1867/1967, p. 152). Institutionalist Thorstein Veblen offered a different explanation for the reckless drive for accumulation, arguing that humans have both constructive instincts and instincts toward “predation” that manifest themselves in “ceremonial” quests for ever more power and conspicuous display:

For a third example, John Maynard Keynes observed that the risks attendant on the uncertainty inevitable in productive investment combined with a growing ease of speculative behavior to create a situation in which would be entrepreneurs are drawn into what is essentially gambling behavior instead of what he somewhat idealistically viewed as socially‐beneficial activity:

The result, Keynes warned with classic British understatement, could be an economic system that is unstable and fails to meet its citizens' needs for employment and a living: “When the capital development of a country becomes a by‐product of the activities of a casino, the job is likely to be ill‐done” (Keynes, 1936, p. 159).

Someone who has only been introduced to mainstream (also known as neoclassical) economics might validly ask what has happened to the arguments of these three analysts of capitalism^[1]. Did they fail to rise to the top in the “marketplace of ideas” (although Keynes' name, if not his actual words, still makes an appearance)? The answer is that in fact their ideas are still very much alive, and that different schools of economic thought – Marxist, institutionalist, Post Keynesian – have studied, built on, and debated their works, as well as the works of other critical thinkers, since their inception. In another letter to the Queen, written in August 2009 in response to the British Academy letter, ten economists of various heterodox tendencies were pointed in their critique of the July letter for failing “to acknowledge any deficiency in the training or culture of economists themselves.” Their critique was focused particularly on the privileging of mathematical model‐building in economics training, to the exclusion of “psychology, philosophy or economic history,” resulting in an economics discipline “that is detached from the real world” and centered on “unrealistic assumptions that have helped to sustain an uncritical view of how markets operate” (Dow et al., 2009). Implicit in these arguments is the need for economists to reacquaint themselves with their roots, and with the broader social and philosophical sciences with which they used to be associated. Since there are, in fact, economists who have been doing exactly this all along, could this be a moment when mainstream economics turns to them for insight? Sadly, although not surprisingly for those who have labored as heterodox economists, the answer is largely no. Economics as a discipline has spent a century or more expunging from its ranks ideas that challenge the mainstream paradigm that is taught, largely uncritically, on all levels from high school through PhD programs. If this narrow approach was not the outcome of an open and meritocratic competition in which the “best” model triumphed (as is the general assumption among mainstream economists), how did the economics profession become dominated by one paradigmatic model to the virtual exclusion of all others?

Fred Lee's valuable and almost overwhelmingly meticulous book provides a detailed account of an intentional process, persistent but with periods of more determined effort, of purging economics of inconvenient views, beginning before the turn of the twentieth century and continuing into the present. At the same time, he chronicles the formation, successes, and struggles of non‐neoclassical schools, with a particular focus on the development of Marxist/radical and Post Keynesian economics in the USA and Great Britain, and their more recent attempts to establish a unified identity as “heterodox” economics. Importantly, Lee is focused in this book on the process of community building among the various groups of non‐neoclassical economists. The establishment of a school of economic thought is a community process; and the size, strength, and unity of that school will help determine its effects on actual policy.

Lee's book is a compilation of research he has conducted over more than a decade, and it reads at times more like a collection of essays than a unified work. In addition, his extraordinary attention to detail has generated a collection of footnotes that in essence become a book in themselves, chronicling, quantifying, and listing a decade and more worth of information from historical texts, interviews, primary documents, and his own numeration of the challenges faced by economists who deviated from orthodoxy, from sweeping policy changes to anecdotes and facts pertaining to the fate of individual non‐mainstream economists. His appendixes, largely of data he compiled himself, are so extensive that they cannot fit within the book, but must be accessed on‐line. I found much of this detailed information fascinating, and some of it deeply distressing; but it was also overwhelming in sheer amount and detail. Perhaps inevitably given the scope of what he covered, there are places in the histories of events and people with whom I was personally familiar when I would have given a somewhat different account. In addition, the volume as a whole was in serious need of a careful edit for typos, missing words, and numerous syntax errors that disturbed the flow and at times confused the meaning of the arguments. More importantly, I finished the book less than convinced that heterodox economics can in fact be conceived of as a united front against mainstream economics, or that it would be advisable to emulate a professionalized model based on publication and citations that bears a striking resemblance to the putative “meritocracy” of mainstream economics. That said, Lee has provided an important service in this book, and I hope that this history of the struggles to maintain a presence for heterodox economics within our profession receives the attention it deserves.

Lee focuses his attention on two schools of heterodox economics – Marxist and Post Keynesian economics – and on two countries – the USA and Great Britain. This focus makes sense for him personally and intellectually, since these are the schools and the countries with which he has first hand experience. I did find myself at times wishing for a wider perspective, but given his attention to detail it probably would not have been possible. Lee actually has three objectives in this book. First, he chronicles the history of the community of economists in the USA and Britain in the first 70 years of the twentieth century. While the specific experiences in the two countries vary, the over‐arching theme is one of startlingly heavy‐handed attempts to remove Marxist and later Post Keynesian economists from economics departments, especially in the PhD granting institutions. Here the text in the chapters is in some ways less compelling that the long lists of threatened, compromised, or destroyed careers chronicled in the footnotes. Second, Lee describes the persistence of heterodox economics in clubs, reading groups, labor colleges and so one during this period, culminating in the late 1960's in the formation of active organizations of non‐mainstream economists – the Union for Radical Political Economics in the USA and the Conference of Socialist Economists in Britain. And third, he advocates and offers proposals toward his goal of strengthening heterodox economics as a community unified across the different schools, with the ability to make a significant impact intellectually and in the realm of public policy. His examination of the success of mainstream economics in establishing itself as the dominant community within economics, and the histories of the successes and challenges of community‐building within the heterodox schools are all ultimately aimed at understanding how to achieve this end.

Lee begins his book with an explanation of what he views to be the unifying factors that would allow a disparate group of schools of economic thought – he includes “Post Keynesian‐Sraffian, Marxist‐radical, Institutional‐evolutionary, social, feminist, Austrian, and ecological economics” (p. 7) – to be grouped together, and more importantly to act together as a broad, interlinked community of Heterodox economists. He suggests that while the mainstream neoclassical model has allowed room for “heretics” who challenge and stretch the boundaries of the theory, heterodox economists are viewed as “blasphemers” who challenge core beliefs and thereby threaten the paradigm as a whole (p. 5). Heterodox critiques overlap across schools, Lee argues, and share traditions that “emphasize the wealth of nations, accumulation, justice, social relationships in terms of class, gender, and race, full employment, and economic and social reproduction” (p. 8). He sums up these concerns as a definition of economics as “the science of the social provisioning process” (p.8; italics in original) engaged in historical examination of “how capitalism works” (p. 9). I was left wondering whether some of the schools Lee includes would identify with this characterization of their approach. “Social provisioning” is a term that has been used by some institutional and feminist economists to describe their methodology (for example, Dugger, 1996; Power, 2004); but it is not a term generally shared among other schools of economic thought, and Lee does not provide any evidence that they would agree with this terminology.

As mentioned above, Lee's central project for this book is to recount the history of attempts to create communities of heterodox economists. Communities are necessary for the social production of knowledge; and while economic knowledge can be produced within a range of institutional settings including governmental and advocacy organizations, Lee argues that academic institutions, and specifically economics departments (and among those, especially graduate degree‐awarding departments) are the central producers of the jobs, publications, and training that further or impede the construction of heterodox economics (p. 16). While in this respect heterodox economists closely resemble neoclassicals in his view, there are crucial differences as well. Most importantly, while neoclassical economics maintains a clearly articulated and strictly enforced hierarchy among departments, fields, and journals (as documented in chapters 2, 8, and 9), heterodox economists are asserted to impose no hierarchies on theoretical content, journals, or economics departments (p. 17). I have two reservations about these characterizations of the community of heterodox economists. First, the focus on economics departments seems to me unduly narrow. Both because of their broader and more interdisciplinary approaches, and because of the inhospitable environment within orthodox economics departments, many non‐neoclassical economists have found institutional homes in other departments, including Geography, Public Policy, Labor Studies, Education, and Social Work among many others, from which perches they have been actively contributing to the production of heterodox economic knowledge. At the same time, these economists have formed fruitful conversations and collaborations across disciplines. And second, I am not persuaded that heterodox economists do not engage in internal ranking and hierarchical behavior, making judgments for example about the status of universities (not to mention undergraduate colleges), appointments in economics compared to other departments, or perceived “rigor” of research.

In addition, many of the schools of thought included in the category of “heterodox” economics have long histories in their own right, and tensions over methodologies and approaches (for example, the tension between institutionalists' commitment to an inductive approach and the frequent use of deductive reasoning by Marxists). Lee acknowledges in particular that the inclusion of Austrian economists in the tent of heterodox economics may not in fact be a view shared by the Austrians themselves, who “seem to have little interest in being part of it”, perhaps given the heterodox critiques of free markets (p. 282 fn10). In addition, areas of conflict can be observed in the attempts to construct a community of heterodox economists. Lee's account of the Conference of Socialist Economists in Great Britain, which began in the late 1960's, chronicles a sharp split between Marxist and Sraffian economists that essentially ended this organizing effort (pp. 131‐135). The Union for Radical Political Economics, founded in the USA in 1968, was more successful at unifying different schools, in part because the main impetus behind its organization was the broad tent philosophy of the New Left, but most importantly in my opinion because the focus was more external, on the issues of civil rights and the war in Vietnam that were experienced as emergencies in the USA at the time, rather than on internal intellectual paradigm‐building. In fact, American political economists had had little exposure to non‐neoclassical economics when URPE began (p. 64), as the dominance of neoclassical economics in college and university classes was extreme. Conflicts did arise, of course, including over the validity of Marxian economics and the usefulness of mathematical modeling. One conflict that Lee does not mention was over feminist economic analysis, as well as gender politics within the organization. As a founding member of URPE, I can attest that while papers on women's economic position and other feminist issues were present from the beginning, they were not always well received. In addition, the number of women in the organization was initially very small; and it took concerted effort from the Women's Caucus of URPE to achieve more attention to feminist issues in the intellectual discourse and to address the gendered division of tasks at the annual summer meetings.

The final section of Lee's book focuses on the development of heterodox economics, which he views as emerging gradually over the 1990's, culminating with general acceptance of the term among the non‐neoclassical schools by the end of the decade (p. 191). He documents this emergence through the numeration of uses of the term in journal articles and conference topics, and attributes it in part to the growing pool of economists who had earned their degrees in the small number of heterodox graduate programs in Great Britain and, especially, the USA. These economists, Lee argues, were trained in the range of heterodox theories and methodologies, and were willing and able to publish in heterodox journals across the schools of thought – a precondition for solidification of a community through professional integration (p. 193). This integration is his ultimate goal, and he has spent considerable effort compiling lists of the organizations, journals, e‐mail lists, and conferences, and even the total number of heterodox economists active in one way or another in the field. Lee is most intent on documenting the numbers of economists who are affiliated with more than one school of economics under the heterodox tent, as it is these cross‐communications, he believes, that will foster a strong and integrated community of heterodox economists.

In the end, Lee is motivated by far more than an archivist's interest in documenting the struggles of heterodox economics against the hegemonic paradigm. He is intent on unifying heterodox economists into an institutional presence that can rival neoclassical economics. To do this, Lee argues, heterodox economists have to pursue the same academic strategies as the mainstream, only more so, and without the invidious distinctions among the schools that typify the mainstream professional model. That is, heterodox economists need to “become more professionally and theoretically engaged through joining multiple heterodox associations, subscribing to multiple heterodox journals, attending multiple heterodox conferences, and engaging in open pluralistic theoretical dialogue with other heterodox economists” (p. 206). While I agree with Lee that heterodox economists would be well‐served both intellectually and professionally by cross‐school communication and alliances, the extent of effort he advocates seems daunting and exhausting – not the least because many heterodox economists need to engage in communication with mainstream economists as well, if for no other reason than to keep their jobs. In addition, this strategy seems to me excessively discipline‐based. As I discussed above, many heterodox economists do not work in economics departments; and many fruitful collaborations take place across disciplinary categories. Last, but not least, even heterodox economists need to have lives outside of their identities as heterodox economists. While I am sympathetic with Lee's goal of a solidified alternative to neoclassical economics, his prescription reminds me a bit of the quandary feminists have frequently found themselves in, of having to prove their seriousness by working twice as hard as their male colleagues.

Lee ends his book with a suggestion for creating incentives for cross‐school communication within heterodox economics via a “ranking” system that rates journals by their citations from other journals (seeking a “balance of trade” in citations across schools) (p. 210), and rates departments by the frequency of heterodox courses within their undergraduate and, especially, graduate offerings. While Lee refers to these systems as “rankings”, he also says that they would not be in fact hierarchical since, as he also asserted at the beginning of the book, “heterodox economic theory is not hierarchically organized and hence not hierarchically valued” (p. 208). This assertion needs to be validated with evidence, since the world of academia is rife with hierarchical values, by status of institution, reputation of journal, and so on. It is not clear why heterodox economists would be free of these prejudices. Further, it is a bit puzzling that Lee would suggest a ranking system, given that he spent two chapters of his book documenting the toxic effects of the Research Assessment Exercise in Great Britain on the hiring of heterodox economists.^[2] Still, while I am less convinced than Lee that replicating the traditional academic model is the best way to strengthen the presence and enhance the analyses of heterodox economists, I completely agree with him on the urgency of opening up economic discourse to the broadest possible range of economic thought. As we have all seen in the on‐going economic disasters of the past several years, bad economic models hurt people. An orthodoxy that expels anyone from the field who questions the efficiency of unregulated markets, or who suggests that inequality is endemic in capitalism, or that capitalist economies rely on strong public investment, is not only unjust. It is also intellectually weak and a poor guide to policy and must be challenged on both grounds.