Grand Pursuit: The Story Of Economic Genius isn’t the story of economic genius- it is the story of Economists stumbling around trying to explain what is going on in western economies during the 19th and 20th centuries, usually after the fact. There were a lot of crazy theories floating around. There still are. Many of them sound good and seem like they do a good job of explaining our complex economies, right up until they don’t.
The real geniuses were using science and math to model their understanding of the economy. If Maynard Keynes was a genius it was only because he seemed to change his mind constantly in the face of new data.
Keynes is the linchpin of this book. The early chapters lead up to him and the later chapters show the impact he had on the thinking of those who followed him. The chapters on Marx and Engels are interesting as they show developing an economic theory in a vacuum, which explains much about Communism.
Schumpeter and Hayek are given short shrift. In my mind, they were right but their outsider status and their message worked against them. Their message wasn’t usually palatable to politicians either.
Grand Pursuit is about personalities, and Nasar is successful making them come to life. It is an enjoyable read and the characters are interesting. Although Economics can seem dull, she wrote an exciting book. I wish she had dropped the chapter on Samuelson- it seemed to go nowhere. Nasar could have expanded the chapter on the ‘German Miracle’ I thought she’d have more to say about the “Marshall Plan” and its authors. That plan was one of the most important foreign policy successes of all time and stands in contrast to the economic disaster that occurred after the First World War.
What Keynes called “The political problem of the mankind: how to combine three things: economic efficiency, social justice and individual liberty.” -p. xv
Cheap food enabled him, not to live in greater comfort, but to support an increased number of children. These facts lead to the conclusion that no material improvement in the condition of the working classes can be permanent, unless it is accompanied by circumstances that will prevent a counter-balancing increase in population. -Millicent Fawcett, p.61
He labeled the union leaders “professional mob orators” and their liberal sympathizers “sentimental busybodies.” –CMS, p.70
Marshall took from the episode that new ideas would prevail over old doctrines only after a carefully plotted, patient campaign to win the hearts and minds of practical men. -p.72 [an good example of evolution rather than revolution.]
In other words, higher productivity, the long-run determinant of wages, was a by-product of competition. -p.83
There were no intrinsic limits to growth. Human wants were infinite. Rising incomes and new desires provided just as much opportunity for profitable ventures as opening up new territories. As long as trade was possible, innovation could offset the constraints of population, territory, and resources. It was a beguiling, romantic, even a heroic narrative. His was an equal opportunity, optimistic, and, not coincidentally, unwarlike formula for economic success. –p.193 [about Schumpeter’s The Theory of Economic Development, May 1911]
Despite frequent crises and depressions since 1848, he pointed out, production and living standards had risen by multiples. Growth had occurred in spurts because innovations were not “evenly distributed in time but appear if at all in groups or swarms.” Innovation bred imitators, another burst of investment, and secondary rounds of innovation. Then investment subsided and consumer goods flooded the market, driving down prices and pushing cost higher. The squeeze on profits resulted in recession.
Constant dislocations were the downside to innovation, rising productivity, and higher living standards. In Schumpeter’s theory of economic development, booms were followed by bust- “perennial gales of creative destruction” – but the economy was inherently stable. If the system was in jeopardy, the threat originated in politics. Marx and Engels saw recessions as signs of failure and sources of instability. Schumpeter took the opposite view. Since the cycle produced development, depressions were healthy, a way to drive out inefficient firms and force companies to trim costs and rationalize their operations. The death of firms and industries was as inevitable as the death of human beings. Nothing lasted, Schumpeter observed: “No therapy can permanently obstruct the great economic and social process by which businesses, individual positions, forms of life, cultural value and ideals sink in the social scale and finally disappear.” But death also made room for new life. Growth required managerial talent, labor, and other resources to be shift from old to new industries. Thus if nations wanted progress, they had to accept slumps. Like it or not, he like to say, “The pattern of boom and bust is the form economic deployment take in the era of capitalism.” –p.272-273
Recessions produced enormous suffering- rising unemployment, declining wages, losses, and bankruptcies- but didn’t last long. “The phenomena felt to be unpleasant are temporary,” Schumpeter wrote, while “The stream of goods is enriched, production is partly reorganized, costs of production are diminished, and what at first appears as entrepreneurial profit finally increases the permanent real incomes of the other classes.” He insisted that constant change was requirement for economic stability, just as motion is needed to keep a bicycle upright. –p.273
In contrast to his more doctrinaire disciples, Keynes was a genius capable of holding two opposing truths in his mind: “Morally and philosophically,” he wrote in a long letter to Hayek, “I find myself in agreement with virtually the who of it [The Road to Serfdom]; and not only in agreement but deeply moved agreement…
Keynes went on to say that Hayek was too quick to dismiss the possibility that some planning was compatible with freedom, particularly if the planning was done by those who shared their values: “Dangerous acts can be done safely in a community which thinks and feels rightly which would be the way to hell if they were executed by those who think and feel wrongly.” He meant that a war economy run by Churchill or FDR was unlikely to lead to a totalitarian state even though ones run by Stalin and Hitler had. –p390-391 [Keynes can’t be so dense that he doesn’t see the problem here.]
Keynes was their hero and they were his disciples- intellectually disciples, that is; the “Keynesian” label did not imply support for Keynes’ policy proposals, much less his politics. Some were political conservatives. Some, particularly in Europe, were Socialist. Most fell within the spectrum defined by mainstream parties. That some rose to positions of power and influence and used those positions to pursue hidden agendas out of loyalty to a totalitarian regime says a great deal about them and their times, but very little about Keynesian ideas, much less about Keynes the man- except perhaps that, like everyone else, he could not imagine how such smart men could be so stupid or so bad. –p.398
After all, Europe had escaped the Malthusian trap of universal poverty and life on the edge of starvation by achieving economic growth just 1 or 2 percentage points faster than that of population growth. –p.438 [see A Farewell to Alms by Gregory Clark for a great companion to this book on this very topic.]
Autarky: A policy of national self-sufficiency and non-reliance on imports or economic aid.