A very insidious change occurred around 1890, when the study of “political economy” became the discipline of “economics,” following the great Alfred Marshall’s publication of Principles of Economics. I say “insidious” because the term “political economy” reminds us to study not merely prices, supply, and efficiency, but the institutions, laws, and policies that simultaneously enable and constrain commerce. One result of this seemingly minor change in terminology has been, on the one hand, a salutary deepening of our theoretical understanding of economic phenomena.
On the other hand, however, the change led to an “unmooring” of economic activity from its social and political context. Moreover, the conceptual “divorce” of politics and economics has led to extreme views that even Adam Smith, patron saint of capitalism, would have found ludicrous. Many Americans, for example, now claim that it is “unnatural” for government to be involved in the economy at all, and to the extent that government intervenes in economic matters, it can only reduce efficiency and result in poorer outcomes for all. Many Americans also claim the opposite, that only regulation and intervention will result in better outcomes for all.
Both sides fail to articulate good reasons for such beliefs, and given the structure of modern media reporting, most Americans will never be exposed to the fact that both sides are partially right, and partially wrong, let alone understand how and why. We now reduce complex issues to fit a 5 or 15 second “bite” or one minute Q&A response, to capture the increasingly attenuated attention of busy people.
Americans are divided, and the polarized viewpoints which represent each side’s orthodoxy are oversimplifications. Dangerously oversimplified, in many cases.
The most dangerous of these, in my view, is aforementioned separation of the “economy” from its context of social norms, history, law, and politics. In other words, the Marshallian transition of “political economy” to “economics.”
There are others, which get to the heart of our current divisions and polarization on economic issues. I cannot hope to clarify all of the complexities of modern economics; indeed, I don’t understand all of it, and some of it I understand but cannot explain well. In a series of posts, I hope to explain those areas I do understand, show how our contemporary debate is dangerously oversimplified, what the “more complex but realistic” picture looks like, and how each relates to current policy debates.
