Is economics value-free? Can it be? Economics emerged alongside other social sciences in the nineteenth century, aspiring to apply the scientific method to the study human behavior. Economists draw a distinction between positive and normative economics - positive being descriptive and normative being prescriptive. The latter requires value judgments, making it beyond the realm of science. While an economist may wish to offer his or her perspective on what should be done, economics eschews prescriptive behavior. But is that the way economics works?
In The Keynesian Revolution, Dr. Victor Claar and Dr. Greg Forster argue the story economists tell about themselves does not match reality. Simply reading the book title, one might assume this is another installment in the ongoing battle between Keynesianism economics and other economic theories. It is not. The authors say something transformative happened in the 1930s with the rise of John Maynard Keynes’ economics, misshaping the discipline. Virtually the entire discipline (including the free-market Chicago school and Austrian economics) battles about means to end from within the Keynesian framework. The authors conclude with thoughts on a reforming agenda but first take us on a rich historical journey.
“Economics” Before the Nineteenth Century
Until the nineteenth century, “economics” was part of moral philosophy - political economy more specifically. Philosophers and theologians made normative appeals for economic behavior. Human existence has ultimate purposes. They inseparably connected their normative prescriptions to teleological realities. The authors identify a succession of three ethical paradigms related to economic thought over the millennia.
Nature paradigm – Classical philosophy. “What sets classical thought apart is the idea that nature has purposes, and human excellence consists in fulfilling those purposes.” Wisdom comes from correctly understanding nature and its purposes. From this wisdom, we shape our daily affairs, including economic activity.
God paradigm – Judeo-Christian theology. “It began with the assumption that human beings are created by and under the authority of God, and are placed both within and over nature by God. Their economic needs and behaviors are structured by God’s design in creation and are being restored to that design through the redemption of the world in Christ, so conformity to God and his purposes was their standard for economic thought.”
Reason paradigm – Born in Enlightenment philosophy. “It began with the assumption that human beings are rational, and their economic needs and behaviors can be understood and arranged rationally, so conformity to reason and its purposes (they understood ‘reason’ to include moral reason, including teleology or purposes) was their standard for economic thought.”
Claar and Forster revisit these three historic paradigms throughout the book, demonstrating their normative and teleological components in contrast with Keynes emerging philosophy in the 1930s. The authors identify a fourth paradigm with Keynes, the Consumption paradigm. So how did the Consumption paradigm emerge?
The Beginning of Modern Economics
As scholars labored to establish economics in the late nineteenth century, there was substantial intra-disciplinary conflict about how to proceed; differing on what roles historicism, theory, and science should play. (The book gives some great history.) John Neville Keynes, John Maynard Keynes’ father, assumed the role of peacemaker. He popularized the “positive versus normative” frame and worked to move scholars beyond endless squabbling toward productive research, thereby gaining credibility for the discipline.
Despite these ambitions, economics was not born in a vacuum. From the 1890s up into World War I, societal gatekeepers saw themselves as stewards of a moral and cultural order, envisioning evermore progress and human improvement in keeping with the Reason paradigm. Decades before, John Stuart Mill had introduced homo economicus, human beings as rational, utility calculating machines. Mill and these later economists retained at least a sense of the progress teleology, even as they begin to apply the scientific method to evaluating behavior. Homo economicus was a knowingly simplified anthropology, but with research, one might imagine revision and nuance could be brought to bear over time. A variety of social changes in years prior to and through World War I rocked confidence in the progress narrative, leaving the discipline adrift. Enter John Maynard Keynes.
The Keynesian Revolution
We frequently view John Maynard Keynes as a tedious academic. In reality, Keynes was a core member of the highly influential Bloomsbury Group in London, a collection of intellectuals and artists including Leonard and Virginia Woolf, E.M. Forster, Clive and Vanessa (Woolf) Bell, Duncan Grant and Lytton Strachey. They embraced, in Keynes words, an “immoralist” philosophy devoted to pursuing pleasure. “Though they weren’t sure what the highest forms of pleasure might be, their sense was that they could be found only among their greatest loves—in intimate relationships and in things like the arts, theater, and music—rather than in more pedestrian forms of enjoyment.”
The Bloomsbury Group was disdainful of traditional values. This included values like diligence, frugality, self-control, found in the Reason paradigm. Wealth accumulation and consumerism were dehumanizing influences obstructing pursuit of pleasure. However, they believed only a select few were capable of pursuing pleasure the way they envisioned. A materialistic bourgeois existence was the best for which the rest of humanity could hope. It was the task of the elite to shepherd the masses toward this end as the elite went about their higher pursuit of pleasure. Claar and Forster walk us through how Keynes’ economics reflects this philosophy but I will jump to a couple of takeaways for sake of brevity.
The most revolutionary effect of Keynes’ influence is his reshaping of means and ends. Mill introduced homo economicus as a rudimentary construct to aid in economic inquiry, not a characterization of human essence. Within Mill’s construct was an assumption that we will rationally discern and pursue certain ends. Reason is the means for choosing between various courses of action in achieving those ends. These ends include teleological ends.
Keynes retains the idea of homo economicus but with substantial revision. With Keynes, there is no teleological purpose to guide economic behavior. “Animal spirits” drive human behavior, not reason in pursuit of meaningful action. Reason is how each individual can best satisfy animalistic desire. Consumption to meet these desires takes center stage. For Keynes, homo economicus is not simply a methodological construct. It is an anthropological given. We must base economic policy on this premise.
"In the General Theory [Keynes seminal book), economics abandons its nineteenth-century ambition to moral neutrality. It no longer seeks a place alongside chemistry and physics as a detached, disinterested, purely positive observer. It becomes, once again, a practical discipline with a moral vision.
But now the moral vision is radically different. Instead of the virtue, piety, or the progress of humanity, the moral vision of the General Theory is an animalistic homo economicus whose only economic goal is to satisfy his own consumption appetites. …"
Another aspect of Keynes’ influence is his introduction of “the economy.” Prior to Keynes, economics was microeconomics. It was focused on how individuals, firms, and other players make decisions. Keynes introduced macroeconomics, with its focus on aggregate economic phenomenon for a nation or other large societal entity - money supply, interest rates, aggregate employment, gross domestic product, and so on. Macroeconomics came to dominate the discipline to the point that when people hear “economics” today they think of macroeconomic concepts.
For Keynes, “The economy” is a machine-like entity employed by elites like himself and members of the Bloomsbury Group in transmuting humanity to an elevated state. Keynes was sympathetic to socialist aims but he writes:
"It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary."
The authors note:
"Keynes shares Marx’s goal of giving the state control over our economic lives, which is to say, over all the most intimate and important decisions we make. He just thinks the state can accomplish this control without seizing ownership of assets."
The authors paraphrase Keynes’ view this way:
"In an ideal state, we would ‘transmute’ human nature, raising people not to care how much money they end up with after playing the “game” of money-making. However, for now we need to keep the game going. If we stop, we’ll have nothing to eat; the economy runs not on productive work but on satisfying consumer appetites. Thus it is the responsibility of government to keep the game going. Keeping the game going involves all the players being highly motivated and playing to win—“strongly addicted to the money-making passion.” The wise and prudent statesman will therefore “manage” human nature, keeping it in a state of socially beneficial greed , rather than attempt to “transmute” it toward real selflessness, at least so long as we live in the current state and not the ideal state."
Keynes has a vision of where he wants to take feckless humanity. His superior wisdom and that of people like his Bloomsbury peers will lead us there. Pragmatically, it must be done with manipulation. Moreover, some will never be transmuted. Keynes had an answer for that. He was chair of the British Eugenics Society from 1937-1944. He deemed eugenics to be most important branch of sociology.
Keynesianism and Its Rivals
Claar and Forster explain Keynes was not particularly eloquent in expressing his ideas. Articulate acolytes popularized his economic constructs. Paul Samuelson, Nobel economist and author of the leading economics textbook for decades, was probably the most important figure in advancing Keynesian ideas. However, these advocates made substantial qualifications to give us what we know as Keynesianism today.
The Keynesian advocates muted Keynes’ crusading vision and reclaimed the idea of economics as value-free science. However, they continued to embrace the view that people are bundles of appetites driven by animal spirits – Keynes’ version of homo economicus. The goal should be to maximize consumption, enabling people to satisfy their appetites. Economists should guide the economy machine in these pursuits. This was the Consumption paradigm. It effectively institutionalized Keynes homo economicus while eschewing teleological judgments.
The Chicago School (and the older but smaller Austrian School) emerged as the primary competition to Keynesian economics, rejecting Keynesian interventionism in favor of free market systems. They offered resistance to “economics” as purely about large aggregate concepts and called for greater attention to microeconomic decision making. Claar and Forster write:
"However, the attention-grabbing conflict between these schools conceals a deeper uniformity. Both counter-revolutions accept most of the key elements of the Consumption paradigm. Most importantly, they accept Keynes’ redefinition of the purpose of economic systems: to maximize consumption possibilities. They also accept Keynes’ redefinition of Mill’s homo economicus, which lay at the heart of the new focus on maximizing consumer satisfaction—they accept the instrumental rather than substantive understanding of rationality, and they accept the reversal of the relationship between gaining wealth and enjoying wealth."
The Keynesian constructs became so dominant that even schools that emerged to challenge aspects of Keynesian economics have internalized core Keynesian concepts.
The Consequences
The consequences extend well beyond an intra-disciplinary dispute. To a degree unparalleled by other social sciences, economics has succeeded in exerting influence over public policy and commerce, which has had ripple effects into other societal institutions. With varying degrees of resistance, homo economicus is largely how we institutionally treat our existence.
The problem, the authors would argue, is that we are not homo economicus. Human beings are meaning makers. We see ourselves inside of teleological narratives. We want not only to experience pleasure but also to participate in activities with lasting significance. We have not only have consumption preferences but also production preferences. The impact of homo economicus is a world with greater prosperity but that is largely vacant of meaning. In an existential sense, “we are all dead.” This lack of meaning has people restless and increasingly impatient with societal institutions. A consequence is the rise in populism ranging from Donald Trump to Bernie Sanders, amassing power by feeding on palpable anger and frustration.
"The empty economy produces polarization, because our daily economic activities no longer convey meaning and purpose (leaving us to seek those things in extreme movements) and because our daily economic activities no longer establish shared, public moral commitments (leaving us convinced we have no common ground with our neighbors)."
A Way Forward
“What would it look like to study economics on the assumption that people really do have higher purposes in life, but that we need not agree about everything concerning those purposes?”
The authors argue that the way forward is to escape the Consumption paradigm with its “animal spirits” anthropology, and revisit teleological and anthropological assumptions. We may not thoroughly agree on every value across nations and cultures, or even within them, but our values have much more in common than we may think. Some things are good whether everyone chooses to do them.
"* People have production preferences as well as consumption preferences, including a desire to participate personally in the production of the intrinsically good. A sustainable economic life must account for both types of preferences (production and consumption) at the individual and cultural level.
* Production preferences can also be understood as stewardship preferences, meaning a desire to leave the world with more intrinsic good than it had when we arrived. A sustainable economic life must account in complex ways with the long-term time frames within which people make cost-benefit calculations, at the individual and cultural level.
* People are substantive reasoners who have the right and responsibility to discern the intrinsic good for themselves and participate personally in its production. A sustainable economic life must make this personal process of discernment and participation, not impersonal aggregate metrics, the goal of economic policy and discourse."
To conclude:
"In the long run, we are all dead—but life will go on when we are gone. We all know this, and in our economic lives we do not always behave as shallow, short-term consumers who don’t care what we leave behind. If the discipline of economics wants to understand economic behavior as it really is, it must come to terms with the moral reality of human life. To ignore normative and teleological realities is to ignore the human, and to ignore the human is strange way to conduct a scientific study of how humans behave.
If we do not care what kind of world we are leaving, our economic systems will continue to be wracked by moral anxiety and the outrage it produces. Nationalists and socialists have their own reasons for wanting to block any movement toward a moral renewal that would restore confidence in our systems, but the rest of us should be seeking such a renewal with all the energy that the urgency of our situation demands. A return to economic vitality must begin with a restoration of confidence in our economic systems and practices, on the basis of a sustainable moral consensus for a pluralistic society.
We love economics. We love it because it matters—a lot. Tough new questions that overturn old certainties are already being asked in the discipline. We look forward to finding out what comes next."
Assessment
In short: teleology matters. Claar and Forster pack a lot into this book. My summary only scratches the surface. It is well worth the read for both economists and for those who think more broadly about economics and values. While I work to be conversant with economics and the history of economic thought, I am not an expert in either of these fields. People with better bona fides will have to evaluate the veracity of details presented in this book. Yet based on what I do know, the overall argument rings true to me.
The history of how the Consumption paradigm came to dominate economics - with economists simultaneously fixating on consumption and claiming to be value free - is helpful. There is no way to do social science without anthropological models and value assumptions. Economics is no exception. Homo economicus may be useful as a methodological tool for aspects of economic research but it us insufficient as a model for grasping the complexities of human decision-making. I do not think that economics has so much rejected teleology, as it has uncritically embraced a teleology that is inadequate and subhuman.
I sense a discussion has been building on this topic in recent years. As with other social sciences, there seems to be an ongoing clash between those who pursue a grand unified theory and those who prefer more modest research into micro-level behavior from which larger models of human behavior can be derived. Economics, unlike other social sciences, is unique in that “economics” and the concept of “the economy,” a machine that can be directed toward particular ends by skillful elites, has gained considerable credibility in broader society. That likely makes challenges to macroeconomic models more difficult but the importance of economics in policy making also underscores the importance of getting underlying models of humanity right.
I think the most critical point the book makes is that “we are all dead.” Human beings have a desire to be a part of something meaningful, to pass on a legacy. Teleology matters. To use the authors’ words, there is a production preference as well as a consumption preference. The Consumption paradigm is dehumanizing. It robs people of meaning-filled work across economic strata. Resurrection of meaning in daily life will have to come from moral institutions outside of economics but we cannot realize that ambition of understanding human decisions without economics. If economics is a study of human behavior, can it be said to be to accomplishing its mission if it ignores the production preference aspects of human decision-making?
I appreciate the authors’ advocacy for common ground. Maybe a first step is for those of us invested in moral institutions to clarify our own values. As a Mainline Protestant, it strikes me that there is profound need for Christian theology to genuinely and respectfully engage economics, and to move away from what all too often is a sophomoric and adversarial posture. Repeatedly I encounter theologians and Christian thought leaders pontificating on economic issues, demonstrating they have not made the rudimentary attempts to grasp basic economic concepts or to represent those concepts faithfully. That is a conversation for another day. For now, we have this thought-provoking tome by Claar and Forster to serve as a point of engagement. It is well worth the read.
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