How to Understand the Economy

Educated friends who have never studied economics themselves often ask the economist Duncan Foley to recommend a book that will explain what economics is about. He doesnot find it easy, sees correctly that the standard seven-hundred-page elementary textbook is essentially unreadable, and usually ends up by suggesting the late Robert Heilbroner’s 1953 classic The Worldly Philosophers, not a bad choice. But he feels the urge to try his own hand at it, and teaches a course for nonspecialists at Barnard College and the New School University. Adam’s Fallacy is the result.

Like Heilbroner’s book, it proceeds through the standard list of Great Economists, beginning with Adam Smith, T.R. Malthus, David Ricardo, and Karl Marx. That is one possible device, but the mere history does not reveal by itself what Foley thinks the curious educated reader should know. The tip-off is the subtitle: the book is a guide to “economic theology.” I don’t like that word: theology is about God, and God does not play any role in these pages. I understand Foley’s reluctance to say “ideology,” because controversy has left so many layers of meaning on that word. It is clear anyway that he is interested in big, general themes, especially about capitalism, and not in nitty-gritty like the price of beer or the balance of trade.

There is an alternative view of the content of economics. I once wrote a brief comment on Heilbroner’s book and entitled it “Even a Worldly Philosopher Needs a Good Mechanic.” Any capitalist economy is full of “mechanisms,” compounded out of natural and technological facts, legal rules, individual motives and behavior patterns, social norms, historically contingent institutions, and the like, that together have a lot to do with the price of beer, the balance of payments, the degree of wage inequality, and so on. These mechanisms may differ from one capitalist economy to another, and will certainly differ between any feudal economy and any capitalist one. The job of economics, in my view, is to figure out how these mechanisms work, and maybe how they could be made to work better, or at least differently. The educated reader needs to understand how economists try to achieve that understanding. There is little or nothing about “how things work” in Adam’s Fallacy.

The split between “theology” and “mechanics” is much more than an expository preference; it is a determining substantive choice. Here is an illustration of the difference in approach implied by the choice. The beginning of the book—in fact the first two thirds, which is itself indicative—takes up the ideas of Smith, Ricardo, and Marx. The “labor theory of value” figures very prominently in their work and in Foley’s discussion. It claims that the “value” of a produced commodity is the cumulative amount of labor (of average skill, say) directly and indirectly required to produce it. There are many possible subtleties here, but we can ignore them. I put “value” in quotation marks because this is actually a definition; the “value” of a bottle of…

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