Love among the Ruins: Understanding The Romantic Economist by Richard Bronk (2009)

Unusually, some considerable thought has been invested in devising a cover that is both appropriate and provocative, overlaying a reproduction of a painting by Romantic artist Caspar David Friedrich with a photo of the City of London skyline by Martin Twomey. Sadly, the effort doesn’t really bear fruit and slips rather too easily into the “tried, but failed” basket. Covers should signal or reflect the material waiting to be unlocked inside. But doing this requires a delicate visual balance to be achieved, which is at the same time arresting even to a casual browser. In the Bronk book, you can certainly tick off the essential contrast between romanticism and calculation. Nor could you choose a better representation of the German Romantic Movement as part of the cover art. Perhaps part of the reason I find the end result a bit tired is my inability to fully appreciate the art produced by Caspar David Friedrich. But I suspect what mostly makes the cover something that the eye simply slides over is a combination of the greying and fuzzing down of the original works, as well as the fact that the marriage of the images doesn’t really work. This hardly bodes well for the central theme of the volume, which would seem to be somewhat akin to a shotgun wedding.

The early split between the Romantic Movement and the rising class of economic calculators in part stems from the irritating certainty with which many of its proponents issued their conclusions and formulated their laws.

Indeed, some of those who felt that the free working of the market was the only long-term solution to mass poverty criticized the possessing classes for their feeble response to mob violence. The Rev. Thomas Malthus denounced “the extreme ignorance and folly of many of the higher classes … particularly the clergy.” He said that by denouncing “middlemen” as the cause of shortages they actually encouraged riots—“half the gentlemen and clergy of the country,” he wrote, were thus liable to be prosecuted “for sedition.” Both the country gentry and the urban middle class—whose social conscience became an important phenomenon from the 1790s onwards—took elaborate steps to interfere in the workings of the market, much to the fury of experts like Malthus. (Johnson 1991:163)

Perhaps Edmund Burke, whom Bronk somehow ensnares within his Romantic net, best sums up the disdain for the cold-blooded calculations of those early economists.

The age of chivalry is gone.—That of sophisters, economists, and calculators, has succeeded; and the glory of Europe is extinguished for ever. (Burke 1790:113)

The unattractive dogmatism that inflicted some of these early economists (and many of them since) has been pointed out by their brethren who tended to take a more flexible approach to the discipline.

Their [Ricardian economists’] agreement with one another made them confident, the want of a strong opposition made them dogmatic; the necessity of making themselves intelligible to the multitude made them suppress even such conditioning and qualifying clauses as they had in their own minds. Therefore, although their doctrines contained a vast deal that was true, and new, and very important, yet the wording of these doctrines was often so narrow and inelastic that, when applied under conditions of time and place different from those in which they had their origin, their faults became obvious and provoked reaction. (Marshall 1923: 759–760)

Plato pushes this point much more explicitly, deliberately castigating poets for their inability to provide rational explanations or to enlarge to any degree reasonable understanding. Perhaps this is an early statement of Snow’s (1959) Two Cultures which provides one of the platforms from which Bronk launches his critical analysis of mainstream economics. Certainly, characterizing economists as possessing literary skills became a back-handed compliment within the profession.

For a poet is indeed a thing ethereally light, winged, and sacred, nor can he compose anything worth calling poetry until he becomes inspired and as it were mad; or whilst any reason remains in him. For whilst a man retains any portion of the thing called reason he is utterly incompetent to produce poetry or to vaticinate. (Plato 1821)

A perennial issue in economics continues to be the usefulness of the mechanical metaphor given the complexity of any economic system. It may be a convenient simplification or equally an unfortunate distortion.

The Walrasian model is admirably suited to the study of the incentive function of prices, the performance of which is a necessary but not sufficient condition for the coordination of a decentralized system. But from the standpoint of dynamic theory, it remains what cyberneticians term a clockwork model—a strictly deterministic, Newtonian mechanism in which prices perform the functions of levers and pulleys. (Leijonhufvud 1968:394–395)

In one case the reader is asked to believe that humans are born innocent and initially good, while the other forgets that the literal meaning of utopia is “no place.” The eternal dissatisfaction clinging to Romantic thinkers is best exemplified by Rousseau (1953) in his Confessions. Rousseau is what Bronk (2009:247) chooses to categorize as belonging to “the cult of sensibility,” a forerunner of the nineteenth-century Romantic Movement. (The Earl of Shaftesbury is also in this group, the man often credited with the questionable concept of the noble savage.) In his Confessions, Rousseau admits to being unable to perform with a beautiful courtesan on finding that her right breast failed to be symmetrical with her left.

On the 50th anniversary of its publication, the author, Milton Friedman (1953), speaking at the annual American Economic Association meeting via a phone hook-up, categorically insisted that he had said all that needed to be effectively stated and could see no reason to alter his original analysis. However, placed in the context in which it was written, Friedman and his close friend George Stigler were intent on pushing back the challenge of judging theories based, at least in part, on the soundness of the assumptions chosen. The aim was to shut down further methodological discussion rather than to encourage further debate.

The view that the worth of a theory is to be judged solely by the extent and accuracy of its predictions seems to me wrong. Of course, any theory has implications. It tells us that if something happens, something else will follow, and it is true that most of us would not value the theory if we did not think these implications corresponded to happenings in the real economic system. But a theory is not like an airline or bus timetable. We are not interested simply in the accuracy of its predictions. A theory also serves as a base for thinking. It helps us to understand what is going on by enabling us to organise our thoughts. Faced with a choice between a theory which predicts well but gives us little insight into how the system works and one which gives us this insight but predicts badly, I would choose the latter, and I am inclined to think that most economists would do the same. (Coase 1994a: 16–17)

This drive is reflected to some degree in the post-war Chicago School and particularly the work of George Stigler who spent his career expanding the reach of rational choice theory and the related theory of perfect competition.

It’s getting more and more, more and more part of him as he got older actually, this whole view. He insists it’s rational. He would tell you, “There is some rational explanation for it. It’s just that you haven’t looked completely into it and found it.”(Conversation with Sam Peltzman October 1997)

To forestall any potential confusion, David Ricardo and his influential work of this period has to be eliminated from this category of classical liberal economists. More than anyone else at this formative stage he exemplifies the peculiar vice of jumping from abstract and broadly generalized theory to specific policy recommendations.

This approach left one free to argue over theory and to put forward alternatives; however each and every one would be left with the problem of how to make any conclusion operational. The leap from theory to policy would remain illegitimate.

More generally, it can be said that establishing a theory is somewhat like passing a curve through a certain number of fixed points. An infinite number of curves can satisfy this condition (Pareto 1971: 31–32).

Many of the policy tenets ascribed to classical liberal economists seem to be based on observation, history and experience rather than the conclusion of any theoretical deductions. This didn’t mean that such a stance left them free from dogmatic stances or ideological imperatives, but it did help curb the worst of these excesses.

People understand their business and their own interests better, and care for them more, than government does or can be expected to do. (Mill 1967:947)

It was very good of God to let Carlyle and Mrs Carlyle marry one another and so make only two people miserable instead of four. (letter between Samuel Butler and E. M. A. Savage, November 21, 1884)

Centuries later this approach was deftly summarized by the idea that “It is better that a man should tyrannize over his bank balance than over his fellow-citizens and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative” (Keynes 1964:374). Albert Hirschman (1997) devoted an entire book to exploring the revolutionary approaches that sprang forth from that Enlightenment idea of self-interest. This intuition has a much older heritage. The concept of unintended positive consequences, created through myopic self-interest, finds something of a reverberation in the work of the ancient Greek writer Galen (1916), who saw an anatomical concordance arising out of the individual operations and objectives of the bodies’ organs.

In particular, Levy and Peart (2001) see nineteenth-century British economists as supplying an essentially progressive voice in that era. Carlyle’s (1849) attack on Mill and on economics as being the “dismal science” stemmed from his determined refusal to accept human equality, mounting instead a defense of slavery.

The English Romanticism that Bronk explores had definite roots in the major German thinkers and artists of the late eighteenth and early nineteenth century. (Notice it is a painting by Caspar David Friedrich that partially composes the cover art.) Bronk however chooses to rest much of his case on Herder and Schlegel despite Goethe and Schiller being more towering figures of that era. For that matter, though classified as a German Idealist, Hegel’s exclusion from this group, which includes Nietzsche but bars Marx, is far from self-evident. (As something of an aside, Bronk attaches a Hegelian label to the well-worn structure of thesis/antithesis/synthesis. Unfortunately, this bit of analysis can be laid more precisely at the door of Fichte, even though commonly attributed to Hegel.) On examination, what these Romantic club members seen to have in common appears less striking than what differentiates each one from the other. Accusing Bronk of contriving associations through convenience would be going too far. Such charges would dismally fail to survive any careful scrutiny. Bronk is too scrupulous to fall into any such obvious errors. Yet, the particulars that tie together his chosen Romantic groupings can still leave a reader feeling more than a bit uneasy.

Volume I of Marshall’s Principals (1920) clearly focuses on static equilibrium analysis using a mechanical analogy. Whether the unwritten Volume II on dynamics would have employed something resembling economic biology can only be a matter of supposition since the volume was never written. Nevertheless, Marshall firmly believed that complexities of biology offered a more conducive path than mechanics. “The Mecca of the economist is economic biology rather than economic dynamics.” (Marshall quoted in Brinley 1991:1) For further analysis of Marshall’s objectives and methods see Hart (2012).

Based on these criteria, Marx would seem like a natural candidate, or at least as capable of providing an accurate template, for the role of Romantic Economist that Bronk draws as a scholarly exemplar. If we accept the Althusserian interpretation of Marx, where over-determination rules out the essentialism disliked by Bronk, then rejecting Marx most likely reflects a failure to understand precisely what dialectical materialism attempts to accomplish. Anything resembling a mechanical metaphor seems to predetermine Bronk’s judgment. There are a multitude of reasons for finding Marx wanting, but misinterpretation lacks any grounds of legitimacy. Marx may have dismissed imagination and sentiment, not because they fail to make a contribution, but because they could reduce the clarity that Marx sought in his constructed framework.

Nevertheless, Marx—like the classical economists—thought that organicism has no role to play in understanding the capitalist system itself. Indeed, his invective against capitalism is derived almost entirely from seeing it through the prism of the machine metaphor favoured by classical economists. So for example, in Das Kapital, he wrote that capitalist methods “mutilate the labourer into a fragment of a man, degrade him to the level of an appendage of a machine”; workers, he thought, are alienated from their true nature by the inhuman functioning of the capitalist machine, which turns them into mere commodities. There was, of course, some truth in Marx’s diagnosis of the wretched state of the labourer at the time of the early Industrial Revolution. His failure, however, to see that the mechanical metaphor may not be the best template for understanding or realising the potential of the capitalist system contributed significantly, I believe, to the ultimate failure of his doctrine. (Bronk 2009: 146–147)

In the early nineteenth century, the line between poetic imagination and scientific hypothesis was not sharply drawn. In the excitement generated by the construction of a new, modern world, inspiration was welcome no matter what the source. Poets were not to be lightly dismissed.

A more likely explanation, in Coleridge’s view, was that “all power & vital attributes” depended on “modes of arrangement.” Davy, thus prompted, put it in more “scientific” terms: “forms of natural bodies may depend upon different arrangements of the same particles of matter.” This foreshadowing of atomic theory is a striking demonstration of the importance of imagination in forming scientific hypothesis: Coleridge and Shelley could see possibilities in nature with the intuition of poets and so open the eyes of the experimental scientists. The early nineteenth century was a great age of science precisely because it was also a great age of poetry, (Johnson 1991: 555–556)

Bronk’s preference for poets rather than novelists is curious. Dickens’ sentimentality and yearning for a bygone and kinder world dominates his crusading writing. His works are full of the downtrodden poor as well as grasping and single-minded capitalists to an extent worthy of any Marxian diatribe.

It is wise to keep in mind that during the first few decades of the nineteenth century, the conclusions of the new science of economics were propounded with certainty. Its laws seemed more unalterable than those of the physical sciences.

Economics was not so much a subject to be studied as a theory which its advocates believed was unarguable. The only problem, in their view, was how to teach it to the working classes, to stop them from burning hayricks and smashing machines when times were hard. Its “iron laws” were as true and immutable as Isaac Newton’s. As the Quarterly Review, by no means extreme in such matters, put it in October 1825: “It would be a real blessing if the working classes could be made acquainted with some of the fundamental principles of Political Economy, such as the laws of population … the circumstances which regulate the market of corn, or the market of labour. They would then perceive that inequality does not originate in the encroachments of the rich or the enactments of the powerful, but has been necessarily coeval with society itself in all its stages; they would learn that the recompense of labour is governed by definite principles—and we are grateful for any measures which may tend to diffuse such knowledge.” (Johnson 1991: 862–863)

Bronk is much more conscientious when marshalling critical voices that point out limitations and inconsistencies in modern mainstream economics, leaning on Colander (2001), Dasgupta (2002), Maki (2002), Mirowski (1989) and Ormorod (1994), among others, to support his position.

More exactly, though the dog does not clearly bark, close attention to the matter will yield a few stifled whimpers, which are as much of interest for the fact that they are stifled as for being made at all.

“Is there any point to which you would wish to draw my attention?”

“To the curious incident of the dog in the night-time.”

“The dog did nothing in the night-time.”

“That was the curious incident,” remarked Sherlock Holmes. (Doyle 1961: 347)

Without delving into formal definitions, what is intuitively meant by economic efficiency (the back story) is that resources are used to produce the greatest possible output and that the output produced best meets the demands of consumers. Note that the nature of these demands or their formation is not questioned.

The emphasis here is on systems based on individual choice rather than Marxian alternatives reliant on class struggle. For Marx, the individual is not the building block of analysis.

Literal readings often serve only to impede communication and understanding. Strangely enough Biblical fundamentalism, based on the literal and inerrant word of God, which needs to be believed in its smallest detail, grew its deepest roots during the last half of the nineteenth century, part of the very same Romantic Period admired by Bronk. Such readings seem more fascinated by details than the core intuition conveyed. In this case, examining rational choice theory too literally distracts rather than illuminates.

At least national differences seem more a question of application rather than necessitating alternative theoretical structures. Certainly development, history and customs mean that incentives operate in different ways depending on time and location. But basic trade-offs and sacrifices that advance individual well-being seem operable in diverse countries. The poor of Kenya have been observed to skip meals to pay for mobile phone service which in the longer run allows them to improve their position. Hence Bronk’s extended discussion on varieties of capitalism seems once more to fail to recognize the difference between theory and application. In this particular case, Bronk doesn’t consider an alternative analysis that recognizes the ways in which different countries may utilize an alternative combination of governance structures, which rely more heavily on implicit rather than explicit contracts. It is not clear that the alternative examples can’t be comprehended by the core principles of contract theory.

Different institutional frameworks allow for different forms and degrees of coordination. In particular, the German national system of capitalism (and its close relatives in Sweden and Holland) provides firms with non-market institutional resources for coordination (such as business associations and works councils); whereas the US and UK systems force firms to rely much more on market coordination. (through competition, price signals and legal contracts) (Bronk 2009: 159)

Literature of the Romantic Period, which Bronk chooses to ignore, is literally chock-a-block with narrowly self-interested characters. Some of these are not quite as dry and unemotional as Scrooge, but perhaps even more memorable than the more self-sacrificing heroes occupying other works. Thackeray’s (1847–1848) Becky Sharp (“Sharp by name, Sharp by nature”) and Balzac’s (1846) Cousin Bette (enrichissez-vous) are just two of many figures that fascinate and even enrage the reader. Even old Scrooge is more interesting before his redemption.

These two modes of being would seem to incorporate the two worlds in which decision makers simultaneously operate.

Nineteenth-century German sociology, drawing on Marx and Hegel and Sir Henry Maine, established a distinction between two ideal types of human society, the Gemeinschaft and the Gesellschaft. No pair of English nouns adequately conveys the intended contrast, but we may translate Gemeinschaft as “community” and Gesellschaft as “association.” They are distinguished by the different relations between people characteristic of each. In an association men connect with one another only when each expects private advantage from the connection. Links between people are impersonal and contractual. The perfect capitalist market embodies this idea. … A man is merely a means to another man under capitalism, but in the Gemeinschaft (and, to all appearances, under feudalism) his position is respected by his fellows. It restricts the uses they are prepared to make of him, and the uses he is prepared to make of them. (Cohen 1978:331–332)

Statistically we would be painfully naïve and uninformed to muddle the average age of a population with that of each member of the community. The more interesting question is whether different distributions with the same average represent different potential effects.

Simply understood, firms, like consumers, are one-dimensional, input/output constructs. Consumers and firms transform flows of services into optimal levels of either utility or profit. This degree of abstraction serves to foster a greater theoretical generalization.

In order to study first the most essential features of exchange relations, it will be necessary to simplify the situation as far as possible by a process of “heroic” abstraction. (Knight 1971:76)

Bronk focuses on Marshall who was cautious of using mechanical models as more than heuristic devices.

Marshall understood well enough that eventually, of course, even the giants of the forest “lose vitality”: competition is a continual organic process of growth and decay marked by vastly different and unpredictable rates of success. (Bronk 2009: 123)

The u-shaped cost curve is easily ridiculed, but again this depends largely on looking at the back story, requiring a willingness to look beyond the textbook grasp of the issue. Such curves might be better conceptualized as having a flat (constant returns to scale) bottom, but entailing costs that eventually do increase, especially as the relevant market expands.

If average costs fall as a firm of a given size grows bigger, this suggests economies of scale exist for firms of that size. Results vary by industry. American dairy farms, for example, have been getting bigger but a recent paper shows there are still economies of scale to exploit, especially at those many farms with fewer than 200 cattle. By contrast, rail-industry studies show dwindling economies of scale over time as companies have grown. Overall, estimated cost functions suggest the limits of scale may have been reached for some very large firms. (Free exchange 2012:72).

Curiously, Machlup arrives at a conclusion that to some degree lies within Bronk’s comfort zone, even though it is devoid of Romantic figures or Romantic imagination. Like Bronk, Machlup allows the neoclassical model free rein within certain defined perimeters. Issues then arise in determining appropriate boundary conditions.

I conclude that the choice of the theory has to depend on the problem we have to solve. Three conditions seem to be decisive in assigning the type of approach to the type of problem. The simple marginal formula based on profit maximization is suitable where (1) large groups of firms are involved and nothing has to be predicted about particular firms, (2) the effects of a specified change in conditions upon prices, inputs, and outputs are to be explained or predicted rather than the values of these magnitudes before or after the change and nothing has to be said about the “total situation” or general developments, and (3) only qualitative answers, that is, answers about directions of change, are sought rather than precise numerical results. (Machlup 1967: 33)

Though model building must involve simplifying and limiting assumptions, to be pleased with too little is a misleading enticement. Taken to its logical conclusion, a frictionless economic world is highly contradictory. Thus Knight is less concerned with the abstract surface of a theory than the intuitive meat that can render it potentially useful.

The difficulty is, of course, avoided if “friction” be so broadly defined that “perfect mobility” means the absence of all resistance to the human will. But in a world where a breath could transform a brick factory building into a railway yard of an ocean greyhound, there would be no need for economic activity or economic science. (Knight 1971:34n)

The temptation to turn well-known economists and their work into convenient, but distorted, replicas can be overwhelming. Strategic use of such tactics can eventually undercut the practitioner’s own credibility.

Coase’s intentions are hard to miss given that his Nobel Prize speech provided him with the opportunity to underline what he viewed as the core of economics.

What is studied is a system which lives in the minds of economists but not on earth. I have called the result “blackboard economics.” The firm and the market appear by name but they lack any substance. The firm in mainstream economic theory has often been described as a “black box.” And so it is. This is very extraordinary given that most resources in a modern economic system are employed within firms, with how these resources are used dependent on administrative decisions and not directly on the operations of a market. (Coase 1994b: 5–6)

It can be argued that certainly in the past, most economists had been trained to operate in an equilibrium framework and would find it difficult, if not impossible, to discard such a useful tool.

Schumpeter points out the importance of path dependency in discussing the work of Sismondi.

Sismondi’s great merit is that he used, systematically and explicitly, a schema of periods, that is, that he was the first to practice the particular method of dynamics that is called period analysis. Moreover, he saw clearly the difference this makes and in particular the disturbances, discrepancies, and hitches that result from the fact that economic life is bound to sequences of which every unit is determined by the past and in turn determines the future. (Schumpeter quoted in Machlup 1959: 101)

A perennial confusion, one which Bronk often either ignores or muddles, is the use of heuristic models versus the way in which such models are applied.

Frequently equilibrium will refer to a set of variables that fails to include some which are both relevant and significant for practical problems; such an equilibrium is sometimes denounced as a worthless or dangerous tool of analysis. To be sure, if an economist were to base policy recommendations on an analysis confined to such oversimplified equilibrium models he would be guilty of a gross lack of judgment. Yet such models may have considerable heuristic value. This value is not impaired if an important factor is left out, provided the omission is not inadvertent. Indeed, the importance of any factor can be demonstrated only by leaving it out of account and then showing the difference it makes when it is reinstated as one of the variables in the equilibrium system (Machlup 1958:7).

Adam Smith, a product of the Scottish Enlightenment, never promulgated the vision enshrining the rational economic man on the analytic throne of the discipline. Thus The Moral Sentiments (1976) is the natural complement to The Wealth of Nations (1976). Without societal values and the need to be regarded by others, market economies based solely on narrow self-interest would hardly triumph. For Smith, a certain sense of responsibility and duty oiled the wheels of commerce and economic life. “We resolve never to be guilty of the like, nor ever, upon any account to render ourselves in this manner the objects of universal disapprobation” (Smith 1976b:224). Smith was not imagining a world of Ebenezer Scrooges, one where narrow calculation would render even biological reproduction uncertain.

A well-known scientist (some say it was Bertrand Russell) once gave a public lecture on astronomy. He described how the earth orbits around the sun and how the sun, in turn, orbits around the centre of a vast collection of stars called our galaxy.

At the end of the lecture, a little old lady at the back of the room got up and said: “What you have told us is rubbish. The world is really a flat plate supported on the back of a giant tortoise.”

The scientist gave a superior smile before replying, “What is the tortoise standing on?”

“You’re very clever, young man, very clever,” said the old lady. “But it’s turtles all the way down.”

http://​www.​the-funneled-web.​com/​Hawking.​htm

The statement often attributed to Dr. Johnson in his role as editor is, “Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good.” Unfortunately, this piquant quote remains one of a number of things Dr. Johnson should have said, but seemingly failed to say.

It is true that economists tend to discover the statistical support for a theory that they expected to find. To a certain extent this has reduced statistical work to yet another form of rhetorical marketing, perhaps not even the most convincing alternative.

I remarked earlier on the tendency of economists to get the result their theory tells them to expect. In a talk I gave at the University of Virginia in the early 1960s … I said that if you torture the data enough, nature will always confess, a saying which, in a somewhat altered form, has taken its place in the statistical literature. Kuhn puts the point more elegantly and makes the process sound like a deduction: “Nature undoubtedly responds to the theoretical predispositions with which she is approached by the measuring scientist.” (Coase 1994b:24)

However, the alternative to statistical analysis is far from apparent while correspondingly, methods and techniques have improved. In the 2012 US presidential election, statistical analysis proved a far more accurate and precise predictive measure than the more romantic intuition and gut feelings of noted pundits.

When it comes to assessing the chances of some complicated combination of events, gut feelings are pretty much useless. Pundits are no better at forecasting election outcomes than they would be at predicting the final path of a hurricane. Smart pundits should consider either abandoning this activity, or consulting with the geeks before rendering their guess. (Thaler 2012:2)

Even the great Ghenghis Khan might have never left Mongolia had not a particularly wet and warm period created grazing that produced the horses powering his Golden Horde (The Economist 2012:74).

More recent research has raised questions about the value of these same patents. (See Boldrin and Levine (2013) and Moser (2013) for the case against patents.) The point here is that such issues must always be questions, resolved at least to some degree by examining the historical record as carefully and objectively as possible. We should not be gulled by the bedtime stories which soothe us into a dogmatic sleep.

Despite his failure to provide entertaining company, Scrooge’s detachment from the imaginative and emotional sphere is not entirely without some merits. Better a cold fish than a whining romantic.

Scrooge had as little of what is called fancy about him as any man in the City of London. (Dickens 1875:12)

“It’s not my business,” Scrooge returned. “It’s enough for a man to understand his own business, and not interfere with other people’s. Mine occupies me constantly.” (Dickens 1875: 9)