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, who are undergoing a kind of crise de foi in the light of the myopia of neoclassical analysis, look wistfully in the direction of a “political economy.”

But what kind of political economy? Here the problem reveals its difficulties. The holistic, all-embracing schemata of the early masters applied to a world in which a more or less laissez-faire economic system imposed its powerful dynamics upon a largely passive or acquiescent political system, so that the “political” element in their analyses applied mainly to the changing shifts in the fortunes of different social classes caught up in a process of impersonal and imperious change.

Today’s society, capitalist or socialist, is marked by the presence of powerful political structures that consciously direct, oppose, or struggle with the economic process, so that a return to a classical model of society, with its economic engine and its political caboose, is out of the question. Instead, society is pulled by two engines, one economic and one political, sometimes working together, sometimes not. Hence if “political economy” is to elucidate the operations of a very different kind of social mechanism, the “political” analysis will have to be introduced as a separate and independent element, not merely as a few observations about the political effects of economic tendencies.

But this plunges us still deeper into difficulties. For the mode of analysis peculiar to economics does not apply to the problems of power that we call “political.” Central to this difficulty is the conception of economics as a “science.” By this I mean that the economist, following the lead of the natural scientist, looks for causal relationships, for regular sequences of patterned dependence, that enable him to predict that if variable A behaves in this fashion, variable B will behave in that fashion.

This image of the social universe as a kind of replica of the natural universe, bound together by a web of causal ties, is both the triumph and the fatal weakness of neoclassical analysis. For we all know, as Frank Knight pointed out many years ago and as Adolph Lowe has recently again emphasized, that the social universe is not a replica of the natural universe; that the resemblance is forced at best and misleading at worst.* The critical difference is that unlike the interaction of atoms and stars, the elements of the social universe are conscious of their mutual dependencies: they have wishes and feelings instead of (or as well as) “negative” and “positive” economic charges. That is, social particles behave, in a meaning of the word that has no counterpart in the physical universe.


This brings us to the point where conventional economic analysis and political analysis separate. For the economist cannot handle in his functional equations the quicksilver moods or the brute existential realities that enter into the architecture of the political world. Ambition, fear, fellow-feeling sub- and superordination—to name only some of the fundamental “charges” of the political universe—require for their description and analysis a set of concepts and a mode of analysis that are entirely different from those of conventional economics.

What sort of description and analysis could this be? The classical political philosophers unhesitatingly used the concept of “human nature” as their touchstone for the elucidation of power. We are a more sophisticated lot and turn to the tools of depth psychology. But the results are much the same. The language of the political philosopher is of necessity personal, ad hominem, subjective; in contrast to the impersonal, abstract, “objective” discourse of the economist. The aim of the political philosopher is for “insight,” “shrewdness,” “wisdom,” in contrast to the aim of the economist for “rigor,” “clarity,” “elegance.” Who could call a contemporary economic growth model “insightful,” “shrewd,” or “wise”? Indeed, if such adjectives were applicable it would suggest that the economic model was not pure enough, that it was too “sociological.”

Impure, sociological, psychological, intuitive: this is the language, and more than that, the mode of analysis of the political philosopher—I will not say the political “scientist.” It is the language of Plato and Aristotle, of Machiavelli and Hobbes. It is a language and mode of thought that reduce the world of political action to a “logic” of its own—a logic not one iota less convincing because it cannot be reduced to functional notation.

I am particularly struck by the necessity for, and the validity of, such a political (or psychological) language when I consider the work of Marxian economics whose protagonists lay claim to “political economy” as inherent in their method. For what I find in most Marxist writing is only an updated version of classical political economy, with economics as the engine and politics as the caboose, despite the clear lesson of the twentieth century that the caboose (if in fact it ever was just a caboose) has been equipped with a powerful engine of its own. Certainly the main lesson of the present century, above all for socialists, is that politics exists independently from economics, as a force in its own right—the histories of modern Russia and China being two cases in point.

Yet we find no such independent political analysis in Marxist literature. Political phenomena, such as the class struggle, or war, or the changing structures of power, are invariably treated as secondary, derivative phenomena—the results of the “real” forces at work, namely the economic drives of workers and capitalists. Perhaps this accounts for the fact that Marxian economists have also failed to foresee the economic trends in our time I have mentioned, of which many (although not all) have their roots in political intervention into the economic world. In prescience or foresight—I avoid the word “prediction” as smacking too much of a deterministic analysis—the Marxians have as poor a record as the neoclassicists.

This long introduction brings me to an ambitious book that goes further in integrating the languages and logics of economics and politics than any that I have read in a long time. This is America and the World Political Economy by David P. Calleo, Professor of European Studies at Johns Hopkins, and Benjamin M. Rowland, Assistant Professor at the same university.

Calleo’s and Rowland’s book is a terse, often eloquent analysis of the “political economy” of contemporary international relationships, concentrating in particular on America’s relation to Europe and to a lesser extent to Japan and the Third World. As we would expect, the book proceeds simultaneously on two levels. One is the level of economic analysis, in which quantitative data and standard elements of neoclassical analysis, such as production-possibility curves, are brought to bear on the economic realities of international dependence. (I might add that much of this analysis is carried out in seventy-five pages of footnotes at the back of the book, so that the reader is continually thumbing his way between the text proper and the supporting economic commentary, a maddening and unnecessary arrangement.) The other level of analysis, largely confined to the main text, proceeds in the language and mode of thought of political philosophy, and is concerned with the behavior of nation states and the forces of nationalism that underlie the very existence of these states.


Three main problems are examined in this double perspective. The first is the idea of the Atlantic Community itself, that “mixture of free trade and federalism” that has provided so persuasive a vision for American-European relations, at least from this side of the Atlantic.

What Calleo and Rowland make clear is the extraordinary fashion in which political and economic beliefs have worked together to create and support that vision. The political belief was the idea of federalism, deeply rooted in American experience. Out of this came the firm conviction of the superiority of the American system over the “crazy-quilt” of European nation-states, although as Calleo and Rowland point out, the crazy-quilt remained at peace for nearly a hundred years while the federal union dissolved into the bloodiest war of the century.

Free trade was the economic ideology of the federal vision. I say “ideology” to denote that the theory served political purposes, although I am certain that most of its proponents, past and present, had no such conscious intent. These purposes were the formation of an American hegemony, an invisible imperium, that was the successor to the highly visible British Empire. The advocacy of free trade, which powerfully supported the interests of this imperium (as of the empire before it), was ideologically biased by preaching that the tenets of free trade would benefit mankind in general through superior efficiency, higher productivity, faster growth, and other familiar benefits.

Were not these benefits real? They were certainly real “in theory,” and highly successful for the American economy. But Calleo and Rowland point out with devastating effect the dubious foundations and implications of this theory for “mankind in general.” One problem they emphasize is the near impossibility of using a theory based on such unreal assumptions as “perfect competition” as a guide for national policy, especially for nations whose economies do not obviously benefit from free trade. Even more telling is their exposure of the ideological content of the benefits that free trade was supposed to bring, such as consumer sovereignty, higher efficiency, faster growth, etc.

Why, they ask, should these “benefits” take priority over other goals that could only be attained by non-free trade policies? Why should the consumer, that force-fed beast, be “sovereign,” when his sovereignty may require men to be shuttled around from one occupation or region to another, as if work and place had no value in themselves? Why should economic “efficiency” take precedence over pleasure at work? Why should growth be encouraged when it leads to such empty, not to say dangerous, ends? Calleo and Rowland mince no words when they declare that the basic principles of free trade—consumer sovereignty and free mobility of the factors of production—would, if ruthlessly applied, “mean the collapse of modern civilization.” The indifference of neoclassical economics to such considerations is only evidence, in the authors’ words, that economic theory, “when heedless of the political dimension, tends to become either irrelevant or a self-serving ideology of power.”

The second main problem to which Calleo and Rowland direct their political-economic gaze is the present crisis in international affairs. Having revealed the shaky foundations of the federalist and the free trade assumptions in American political thought, the authors are free to devise a number of solutions to current dilemmas that are ruled out by the American ideology. They point out, for example, that fixed exchange rates are of great importance for nations whose dependence on exports or imports is heavy, whereas floating rates may be more convenient for nations, such as the United States, for whom the inflow or outflow of goods is relatively small and who are therefore more or less indifferent to the price changes that exchange fluctuations bring.

Calleo and Rowland therefore strongly urge that the economic solution must be the further cementing of a European Community, which will maintain fixed exchange rates among its trading members, while the Community as a whole should face the United States with a single currency unit that would float against the dollar. This solution requires, of course, a unified European monetary policy, of which Calleo and Rowland are strong supporters. Whether this will be possible is an open question, but the authors’ analysis makes it clear that this is probably the only direction in which we can hope for a solution for the present dangerously unstable state of monetary affairs.

The third main problem of the book, following the dissection of the Atlantic idea and the diagnosis of the various aspects of the present Atlantic disarray, is an examination of nationalism itself. Indeed, one might say that the unifying theme of the varied topics of the book is a defense of nationalism as an indispensable agency for human survival in our day.

It need hardly be said that a strong endorsement of nationalism comes in sharp contrast to prevailing ideas that see nationalism not only as the seedbed of war, but as a force that mischievously interferes with the attainment of economic “rationality.” Calleo and Rowland do not deny the potential destructive nature of nationalism. But they argue with great effect that nationalism is the only force with deep enough roots—“the psychological hunger for identity in a bewildering world”—to ward off the dangers that are inherent in a world in which rampaging economic forces work their will amid weak, “minimal” states.

It is difficult to see how the modern world can long avoid catastrophes foreseen for the environment without a firm control over industrial growth. And this control implies a much stronger, more confident, and more legitimate authority than the American system has provided, or that any supranational state in Europe is likely to provide. The nation-state may all too seldom speak with the voice of reason, but it is the only serious alternative to chaos.

It must be apparent that I find Calleo’s and Rowland’s book not only ambitious but successful to an unusual degree in integrating a political perspective with the standard procedures of economic reasoning. Yet I do not wish to leave the impression that the book wholly achieves its ambitious goal. What we have here, so to speak, is an unorthodox economic analysis less abstract than that of neoclassical economics with its diagrams and equations, and a somewhat more orthodox discussion of power politics, especially as it concerns certain economic issues.

I have already indicated that much can be gained by the admission of the “impurities” of political observation into the sterile economic laboratory. But there is a further goal that is not yet attained. This is the formulation of explicit methods by which political “insight” and economic “reason” are to be combined. Perhaps such a genuinely path-breaking methodology is beyond us, and we will have to be content with the more or less ad hoc admixture of economics and politics that Calleo and Rowland provide. But it strikes me that possibly an answer to the problem lies by proceeding still more boldly along the lines that Calleo and Rowland have staked out.

This would entail not merely the elevation of politics to the position of an equal partner to economics, but its clear delineation as the superior partner of the two. It would further require not merely a revelation of the ideological component of economics, but of its dubious pretensions to independent “scientific stature.” Economics then becomes reduced to a much more modest, although by no means unimportant, position, that of a handmaiden to political authority, an instrument for the attainment of whatever material goals a polity may establish for itself. The political economy of the early nineteenth century has vanished, both as theory and as actuality; but the economically planned polity seems to be emerging in the late twentieth century as the new synthesis of politics and economics in fact, if not yet in theory.

This Issue

November 29, 1973