Balancing the World’s Accounts

America and the World Political Economy

by David P. Calleo, by Benjamin Rowland
Indiana University Press, 371 pp., $2.95 (paper)

The term “political economy” is enjoying a kind of nostalgic high esteem these days. This is hardly surprising, in view of the condition of conventional or “neoclassical” economics. Consider the following disconcerting illustration. I think most people would agree that the main economic trends of the years since 1945 have been these:

  1. strong growth in the industrialized world

  2. the appearance of chronic inflation in all industrialized, and most nonindustrialized, nations

  3. a startling turnabout in America’s international economic position, from unassailable strength to unsuspected weakness, paralleled by just the opposite trend in the position of Japan

  4. the rise of the multinational corporation as the main instrument of international economic relations in the capitalist world

  5. the appearance of environmental constraints as a major—perhaps the major—long run economic problem.

What is remarkable is that the economics profession did not foresee a single one of these major events. The prevailing concern of conventional economists until the early 1950s was chronic depression, not growth. No conventional economist of stature, much less the profession as a whole, predicted the advent of chronic inflation, and those few who did write with alarm about inflation were dismissed as antiquated fogies who stupidly associated government spending with inflation, showing that they did not understand Keynes (which, to compound the irony, was true). I am unaware of any leading European or American economist who warned of the coming turn in the international fortunes of America or Japan, and I am certain that the profession as a whole had no such premonitions. The multinational corporation was discovered by Business Week and Fortune long before it appeared in the American Economic Review. Environmental problems were at first the concern of the Sierra Club, not of the American Economic Association.

I do not exempt myself from the charge of blindness to the drift of economic events. I only drag this skeleton from the closet to account for the fact that we find a yearning for a new “political economy” that will offer us something that neoclassical analysis does not—namely, a sense of history. For however flawed was the foresight of the original practitioners of political economy—Smith and Ricardo and Mill and of course Marx—their economic theories did at least project a torchlight some distance into the future, giving to their contemporaries a surprisingly prescient anticipation of the immediate direction of events. No reader of The Wealth of Nations could fail to foresee the upward gradient of a system of “perfect liberty” (what we would call a competitive market system); no reader of Ricardo’s Principles could miss the impending necessity of repealing the Corn Laws if England’s manufacturers were to prosper. No student of Mill’s could any longer fall back on the apologists of economics as a defense against nascent social legislation; no student of Marx’s could fail to discern the great sea changes that were overtaking capitalism during the last half of the nineteenth century.

It is understandable, then, that today’s economists …

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