A Survey of Conservative, Liberal, and Radical Critiques

"The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

                                  John Maynard Keynes, 1936

A Growing Sense of Uneasiness

Late in 2000, while the nation was still experiencing the longest continuous period of economic expansion in its history, a discernible uneasiness began to settle over the American economic landscape. As the Clinton administration wound toward conclusion and the country prepared to elect a new president, there was much anguishing in the media, among the general public, and particularly by Republican presidential candidate George W. Bush about the possibility that the long economic boom might be in danger of coming to an end.

     A very long time had passed since the nation had experienced a genuinely serious economic downturn. In fact, except for the mild recession of 1990-91, close observers of the economy had to go all the way back to 1982 for the last period of honest-to-goodness "bad times." Indeed, a significant portion of the population was simply too young to have any useful recollection of an economy in recession. As the summer of 2001 drew to a close, no recession had yet officially arrived. Economic growth had slowed, but the technical requirements of a recession- two consecutive calendar quarters of declining inflation adjusted gross domestic product had not yet materialized. And then, on September 11, 2001, America fell victim to a heretofore unimaginable terrorist assault that very quickly put large segments of the economy into free-fall. Economic "unease" soon grew into full-blown economic uncertainty.

    As with all periods of serious economic uncertainty, a nervous citizenry has become increasingly interested in economic matters and the observations and advice that might be offered by the keepers of economic wisdom: economists. Mostly ignored in good times, economists can count on getting the public's attention when worries about bad times arise. And so, economists once again find a growing popular interest in their "dismal science."

     Alas, when they are thrust into the spotlight, economists invariably reveal something about their discipline that ordinary citizens tend to forget during the good times. As those watching economists recently on TV or reading recent op-ed pieces by economists were soon to discover (or, if old enough, rediscover) that economists are rarely of one mind with respect to matters of deep and immediate economic impact. Some Americans suffering unease about the economy in general may experience a heightening of this malady as a result of the evident lack of unanimity in the economics profession. However, this has been abiding characteristic of the keepers of economic wisdom for a long time.

    It is well for the reader to remember that throughout the long history of human efforts to understand and explain economic matters, disagreement rather than consensus has been the rule. In a nation that puts stock in consensus building as the ultimate tool of governance an principal device for sustaining social order, this may be a disconcerting fact. In any event, it is one we should understand. Even in times of considerable national economic prosperity, real differences of political and economic opinion still circulate. And, as we should know from the historical record, economic prosperity itself has always been a transitory condition; when it fades, debate over alternative economic policies often becomes heated.

    When that debate takes place, squabbling among economists policy alternatives can scarcely be hidden from the public, and disagreement can be downright unsettling. It often comes as a surprise to the person on the street, who, although paying due professional respect to economists, still sees the economist as a kind of mechanic. When one's car does not start, the car owner expects (at least hopes) the diagnosis of mechanical trouble given at one garage is exact same as what will be heard at any other. If there is one mechanical problem, there should be one mechanical solution. The moral of this comparison is that the study of economics is more than studying a manual, and economists are not mechanics.

The Role of Ideology

 How is such disagreement possible? Isn't economics a science? Economists' answers to that question vary. A common and reasonable enough response is simply that scientists disagree too. While there is much to such an answer, it really begs the question. Plainly, economics is not a science like physics. Whereas economists may sometimes talk the laws of supply and demand as if they were eternal verities like the law of gravity, there is abundant anthropological and historical evidence that many societies have behaved quite contrary to the laws of supply and demand.

 To be sure, economists employ (or at least should employ) the of scientific method and quantitative techniques in collecting data, testing hypotheses, and offering reasonable conclusions and predictions. However, economists deal with different "stuff' than their colleagues in the exact sciences. Their data involve human beings, and their laboratory is a world of behavior and perception that varies with time and place. On top of this, economists, like all social scientists, are called on to answer a question not asked of those in the pure sciences: "What ought to be?" Astronomers, for instance, are not asked what ought to be the gravitational relationships of our universe. That would be a nonsensical question. Economists, however, cannot evade making some determinations about optimal prices, optimal income distribution, and so forth. Their decisions, while perhaps based on a genuine effort at neutrality, detachment, and honest evaluation of the available evidence, finally must be a matter of interpretation, a value judgment based on their own particular world views. To put the point directly: Economics, as a study of human behavior, cannot avoid value judgments. Struggle as it may, economics as a discipline is never free from ideology.

   The early economists of the eighteenth and nineteenth centuries Adam Smith, David Ricardo, John Stuart Mill, and especially the heretic Karl Marx- perceived economics as merely part of a broader political economy context, but this view had largely been abandoned by the end of the nineteenth century. By the middle of the twentieth century, the economics profession generally approached ideology as if it were a dirty word, unprofessional or, at the very best, too troublesome to deal with. The emphasis was on theoretical tools, considered both universal and neutral. All this changed in the 1960s and 1970s when well-known American economists thrust themselves into the powerful debates then sweeping American society. Their views on the war in Vietnam, poverty, civil rights, the extent of government power, the environmental crisis, the oil embargo, the causes of stagflation, high technology versus smokestack industries, and much more could be heard regularly on television talk shows and miniseries or read in the columns of weekly news magazines. Often there was the pretension that this "talking out of church" had little impact on the body of professional theory and judgment, but the pretension was unconvincing. For good or ill, the genie was out of the bottle, and the economics profession had again become involved in politics and in recommending political courses of action to pursue economic objectives.

    Initially, through the 1960s and into the early 1970s, prevailing opinion among economic reasoners upheld a Liberal perspective on political economy, advocating an active interventionism by government to correct and improve the workings of the economy. However, during the late 1970s, this consensus began to break down as the national economy slipped into a long period of sagging growth, rising unemployment escalating inflation. In its place, a new consensus began to build on behalf of a Conservative, minimum-government approach to political and economic matters. As the Liberals' star fell and the Conservative rose, the intensity and bitterness of economic and political argument sharpened. Although the shrillness of the ideological debate calmed a bit during the Reagan years- no doubt a by- product of the long economic expansion that began in late 1982- the past four decades of shifting ideological perspectives have left their mark on the economic profession. To a considerable extent, the ordinary economics text illustrates this point. While economics texts continue to do what books have always done, namely, to introduce the reader to a generally agreed-on body of theoretical and analytical techniques and tool constitute the study of economics, most have also found it necessary identify and discuss the alternatives of Liberals, Conservatives sometimes, even Radicals in the practical extension of economic analysis to actual policy-making situations.

 The significance of all this should not be lost on the beginning student of economics. Though many economists may stress the value-free nature of their studies, and of economics in general, common sense, observation suggest that this is at best a vastly exaggerated claim. The content and application of economic reasoning are determined ultimately by the force of what economists believe, not by an independent neutral logic. But to say that economics is a matter of opinion is not to say that it is just a study of relatively different ideas: Here's this view and here's that one and each is of equal value. In fact, opinions are not of equal value. There are good opinions and there are bad ones. Different economic ideas have different consequences when adopted as policy. They have different effects- now and in the future. As we confront various policy solutions proposed to deal with the many crises now gnawing deep into our economy and society, we must make choices: this seems likely to produce desired outcomes, that one does not. No other situation is consistent with a free and reasoning society. Granted painful situation, since choice always raises doubts and uncertainty runs the risk of wrong judgment, but it cannot be evaded. This book is intended to focus on a limited number of the hard choices that we must make. Its basic premise is that economic judgment is fundamentally a matter of learning to choose the best policy solution among all possible solutions. The book further assumes that failure to make this choice is to underestimate the richness and importance of the economic ideas we learn and to be blind to the fact that ideas and analysis do indeed apply to the real world of our own lives.

On Sorting Out Ideologies

Assuming that we have been at least partially convincing in our argument that economic analysis is permeated by ideological judgment, we now turn to examine the varieties of ideology common to American economic thought.

    In general, we may characterize the ideological position of contemporary economics and economists as Conservative, Liberal, or Radical. These, the same handy categories that evening newscasters use to describe political positions, presumably have some meaning to people. The trouble with labels, though, is that they can mean a great deal and, at the same time, nothing at all. At a distance the various political colors of Conservative, Liberal, and Radical banners are vividly different. Close up, however, the distinctiveness blurs, and what seemed obvious differences are not so clear. For instance, there is probably not a strictly Liberal position on every economic issue, nor are all the economists who might be generally termed Liberal consistently in agreement. The same is true in the case of many Radical or Conservative positions as well. Unless we maintain a certain open-endedness in our categorizing of positions, the discussion of ideological differences will be overly simple and much too rigid. Therefore, the following generalizations and applications of ideological typologies will attempt to isolate and identify only representative positions. By doing this we can at least focus on the differences at the center rather than on the fuzziness at the fringes of these schools of thought.

    We are still left with a problem. How do you specify an ideological position? Can you define a Radical or a Liberal or a Conservative position? The answer here is simple. As the British economist Joan Robinson once observed, an ideology is like an elephant- you can't define an elephant, but you should know one when you see it. Moreover, you should know the difference between an elephant and a horse or a cow without having to resort to definitions.

 There is a general framework of thought within each of the three ideological schools by which we can recognize them. Thus we will not "define" the schools but merely describe the salient characteristic each. In all the following, the reader is urged to remember that there many varieties of elephants. Our specification of a particular ideological view on any issue is a representative model- a kind of average looking elephant (or horse or cow). Therefore, the Conservative offered on the problem of federal deficits, for instance, will probably not encompass all Conservative thought on this question. However, it should be sufficiently representative so that the basic Conservative paradigm, or worldview, can be distinguished from the Radical or Liberal argument. Where truly important divisions within an ideological paradigm exist, the divisions will be appropriately noted and discussed.

The Conservative Paradigm

What is usually labeled the Conservative position in economic theory and policy making was not always conservative. Conservative idea be traced to quite radical origins. The forebears of modern Conservative thought- among them England's Adam Smith (1723-1790)- were not interested in conserving the economic order they knew but in destroying it. In 1776, when Smith wrote his classic Wealth of Nations, England was organized under a more or less closed economic system of monopoly rights, trade restriction, and constant government interference with the marketplace and individuals' business and private affair system, known as mercantilism, had been dominant in England with slight variations, elsewhere on the Continent for over 250 years.

Adam Smith's Legacy

Smith's remedy was simple enough: Remove all restrictions on commercial and industrial activity and allow the market to work freely. The philosophical basis of Smith's argument rested on his beliefs that (1) all men had the natural right to obtain and protect their property; (2) all men were by nature materialistic; and (3) all men were rational and would seek, by their own reason, to maximize their material well-being.

   These individualistic tendencies in men would be tempered by competition in the marketplace. There, men would have to compromise one another to gain any individual satisfaction whatsoever. The overall effect of these compromises would ultimately lead to national as well as individual satisfaction. Competition and self-interest would keep prices down and production high and rising, as well as stimulate product improvement, invention, and steady economic progress. For this to happen, of course, there would have to be a minimum of interference with the free market- no big government, no powerful unions, and no conspiring in trade. Smith's position and that of his contemporaries and followers was known as "classical liberalism." The Conservative label now applied to these views seems to have been affixed much later, when Smith's heirs found themselves acting in the defense of a status quo rather than opposing an older order.

   Thus modern capitalist economic thought must trace its origins to Adam Smith. While this body of thought has been built on and modified over the past two hundred years, the hand of Adam Smith is evident in every conventional economics textbook. Common sense tells us, however, that a lot has changed since Smith's day. Today business is big. There are labor unions and big government to interfere with his balanced free market of equals . His optimistic view of a naturally growing and expanding system is now replaced by growth problems and by a frequent dose of pessimism in some glances toward the future. Nevertheless, modern Conservatives, among contemporary defenders of capitalism, still stand close to the ideals of Adam Smith.

  Modern Conservative thought is anchored in two basic philosophic ideas that distinguish it from Liberal and Radical positions. First, the market system and the spirit of competition are central to proper social organization. Second, individual rights and freedoms must be unlimited and uninfringed. Conservatives oppose any "unnatural" interference in the marketplace. In particular, the Conservative views the growth of big government in capitalist society as the greatest threat to economic progress. Milton Friedman, Nobel laureate and preeminent figure in the Conservative Chicago school, has argued that government has moved from being merely an instrumentality necessary to sustain the economic and social order to becoming an instrument of oppression. Friedman's prescription for what "ought to be" on the matter of government is clear:

A government which maintained law and order, defined property rights, served as a means whereby we could modify property rights and other rules of the economic game, adjudicated disputes about the interpretation of the rules, enforced contracts, promoted competition, provided a monetary framework, engaged in activities to counter technical monopoly and to overcome neighborhood effects widely regarded as sufficiently important to justify government intervention, and which supplemented private charity and the private family in protecting the irresponsible whether madman or child- such a government would clearly have important functions to perform. The consistent liberal is not an anarchist.*

* Milton Friedman, Capitalism and Freedom (Chicago: University of C Press, 1962), p. 34.

The antigovernmental position of Conservatives in fact goes further than merely pointing out the dangers to individual freedom. To Conservatives the growth of big government itself causes or worsens economic problems. For instance, the growth of elaborate government policies to improve the conditions of labor, such as minimum-wage laws and Social Security protection, are seen as actually harming labor in general. A wage higher than that determined by the market will provide greater income for some workers, but, the Conservative argument runs, it reduce the total demand for labor, and thus dump many workers unemployment. As this example indicates, the Conservative assault big government is seen not simply as a moral or ethical question but also in terms of alleged economic effects.

    Another unifying feature of the representative Conservative argument is its emphasis on individualism and individual freedom. To be there are those in the Conservative tradition who pay only lip service this view, but for true Conservatives it is the centerpiece of their logic. As Friedman has expressed it:

We take freedom of the individual ... as the ultimate goal in judging arrangements.... In a society freedom has nothing to say about what an individual does with his freedom; it is not an all-embracing ethic. Indeed, major aim of the liberal [here meaning Conservative as we use the term ] is to leave the ethical problem for the individual to wrestle with.**

** "Ibid., p. 12.

    Modern Conservatives as a group exhibit a wide range of special biases. Not all are as articulate or logically consistent as Friedman’s Chicago school. Many are identified more readily by what they oppose than by what they seem to be for. Big government, in both its microeconomic interferences and its macroeconomic policy making, is the most obvious common enemy, but virtually any institutionalized interference with individual choice is at least ceremonially opposed.

      Some critics of the Conservative position are quick to point out that most modern-day Conservatives are not quite consistent on the question of individual freedom when they focus on big business. In fact, until comparatively recently, Conservatives usually did demand the end of business concentration. Like all concentrations of power, it was viewed as an infringement on individual rights. The Conservative Austrian economist Joseph Schumpeter argued that "Big Business is a half-way house on the road to Socialism." The American Conservative Henry C. Simons observed in the depressed 1930s that "the great enemy to democracy is monopoly." Accounting for the change to a more accommodating position on big business is not easy. Conservatives offer two basic reasons. First, big business and the so-called monopoly problem have been watched for a long period of time, and the threat of their power subverting freedom is seen as vastly overstated. Second, by far the larger problem is the rise of big government, which is cited as the greatest cause of business inefficiency and monopoly abuse. Another factor that seems implied in Conservative writing is the fear of communism and socialism. To direct an assault on the American business system, even if existing business concentration were a slight impediment to freedom, would lay that system open to direct Radical attack. How serious this supposed contradiction in Conservative logic really is remains a matter of debate among its critics.

The Recent Resurgence of Conservative Economic Ideas

In the United States, until the drab years of the Great Depression, what we now call "Conservative economics" was economics, period. Except for an occasional voice challenging the dominant wisdom, usually to little effect, few economists, political leaders, or members of the public at large disagreed greatly with Adam Smith's emphasis on individual freedom and on a free market economic condition.

    The Depression years, however, brought a strong reaction to this kind of political and economic thinking. Many- perhaps most- of the millions of Americans who were out of work in the 1930s and the millions more who hung on to their jobs by their teeth came to believe that a "free" economy was simply one in free fall. While most staunch Conservatives complained bitterly about the abandonment of market economics and the "creeping socialism" of Franklin Roosevelt's New Deal, they had few listeners. For thirty-two of the next forty-eight years after FDR's election in 1932, the White House, and usually the Congress was in Liberal Democratic hands. For Conservatives, however, perhaps the greater losses were in the universities, where the old free market of Adam Smith and his disciples quickly fell out of style. In their generation of professors espoused the virtues of the "New Economics” of John Maynard Keynes and the view that a capitalist economy requires government intervention to keep it from destroying itself.

Driven to the margins of academic and political influence by the 1970s, the Conservatives seemed in danger of joining the dinosaur and the dodo bird as an extinct species. However, by the late 1970s, in the aftermath of Vietnam and the Watergate scandal and in a period when nothing government did seemed able to control domestic inflation and unemployment problems, there developed a growing popular reaction against government in general. As more and more Americans came to believe that government economic and social interventions were the cause of the maladies, the Conservative ideology took off again under its own power.

 In 1980, the Conservative economic and political paradigm succeeded in recapturing the White House. Ronald Reagan became the first president since Herbert Hoover to come to office after a private sector career. There was no doubting Reagan's philosophical commitment to the principles of a free enterprise economy.

 As might be expected, Conservatives found themselves facing difficult situation. Implementing a free market policy was, of course easier to accomplish in theory than in the real world- especially world vastly more complex than that envisioned by Adam Smith. Reaganomics, the popular catchword for the new brand of Conservative economics, was quickly and sorely tested as the economy slipped into a deep recession in late 1981. To both friendly and hostile critics, Conservatives responded that quick solutions were not possible since economic debris of a half century needed to be swept aside before economy could be reconstructed. Despite the fact that Reaganonomics, proved to be somewhat less than an unqualified success (indeed, a good many Conservatives would now call it a failure), the Reagan years were a time of moderate but sustained economic boom- the longest time boom in American history. Despite some dark clouds- the near tripling of the federal debt, a worsening international trade situation, and a precipitous stock market collapse in 1987- the Reagan-Bush 1980s remained, in economic terms, a comparatively bright period in American economic history. Meanwhile, the collapse of communism in Eastern Europe and the Soviet Union and the Soviet bloc's shift toward a more open economic and political system in the last years of the decade could only be counted as frosting on Conservatives' ideological cake. As America approached the end of the century, Conservatives basked in the sunlight of success. Important for our study is the fact that a wide range of Conservative economic ideas and political perspectives that had been shunned in serious academic debates for over forty years have again made their way back into economics textbooks.

 Indeed, the rise and refurbishing of market-based economic theory and not simply in the United States- in the last decade or two of the twentieth century is one of the most important recent developments in economics. For today's young reader, who probably believes that market-based doctrine is economics, it may be difficult to believe that Conservative thinking in both economic theory and policy making was, not so many years ago, without much influence in the economics profession. That fact is a good one to keep in mind. It illustrates something that is often overlooked: The prevailing ideological mood, what we might call the conventional wisdom, is ever subject to change and reevaluation.

The Liberal Paradigm

According to a national poll, Americans tend to associate the term Liberal with big government, Franklin Roosevelt, labor unions, and welfare. Time was, not too long ago, when Liberal stood not just as a proud appellation but seemed to characterize the natural drift of the whole country. At the height of his popularity and before the Vietnam War toppled his administration, Lyndon Johnson, speaking of the new Liberal consensus, observed:

After years of ideological controversy, we have grown used to the new relationship between government, households, business, labor and agriculture. The tired slogans that made constructive discourse difficult have lost their meaning for most Americans. It has become abundantly clear that our society wants neither to turn backward the clock of history nor to discuss the present problems in a doctrinaire or partisan spirit.*

*The Economic Report of the President, 1965 (Washington, DC: U.S. Government Printing Office, 1965), p. 39.

     Although what we will identify as the Liberal position in American economic thought probably still is alive and well in the teaching practice of economic reasoning (as we shall see, even some Conservatives have adopted elements of the Liberal analysis), the Liberal argument is undergoing considerable changes. These changes, however more cosmetic than basic, and the central contours of Liberal belief are still visible.

The Interventionist Faith

Whereas Conservatives and Radicals are comparatively easily identified by a representative position, Liberals are more difficult to identify. In terms of public policy positions, the Liberal spectrum ranges all way from those favoring a very moderate level of government intervention to those advocating broad government planning of the economy.

    Despite the great distance between the defining poles of Liberal thought, several basic points can be stated as unique to the Liberal paradigm. Like their Conservative counterparts, Liberals are defender the principle of private property and the business system. These, however, are not categorical rights, as we observed in the Conservative case. Individual claims to property or the ability to act freely in the market place are subject to the second Liberal principle- that social welfare and the maintenance of the entire economy supersede individual interest. In a vicious condemnation of what we would presently call the Conservative position, John Maynard Keynes directly assaulted philosophy that set the individual over society. Keynes argued:

It is not true that individuals possess a proscriptive "natural liberty” their economic activities. There is no "compact" conferring perpetual rights on those who Have or on those who Acquire. The world is not governed from above that private and social interest always coincidence. It is not a correct deduction from the Principles of Economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately.*

*John M. Keynes, -The End of Laissez Faire," in Essays in Persuasion (I York: Norton, 1963), p. 68.

    To the Liberal, then, government intervention in, and occasional direct regulation of, aspects of the national economy is neither a violation of principle nor an abridgement of "natural economic law." The benefits to the whole society from intervention simply outweigh any "natural right" claims. The forms of intervention may vary, but their pragmatic purpose is obvious- to tinker and manipulate in order to produce greater social benefits.

     Government intervention in the economy dates from the very beginings of the nation, but the Progressives of the early twentieth century were the first to successfully urge an extensive and systematic elaboration of governmental economic powers. In response to the excesses of giant enterprises in the era of the robber barons, the Progressives followed a number of paths in the period from 1900 to 1920. One was the regulation of monopoly power, to be accomplished either through antitrust prosecutions to restore competition or through the use of independent regulatory commissions in cases where a "break them up" policy was undesirable (for instance, railroads and other firms possessing public utility characteristics). A second was indirect business regulation, effected by such Progressive developments as legalization of unions, the passage of social legislation at both the federal and state levels, tax reforms, and controls over production (for example, laws against food adulteration)- all of which circumvented the power of business and subjected it to the public interest.

    Although the legislation and leadership of the administrations of Theodore Roosevelt, William Howard Taft, and Woodrow Wilson went a long way in moderating the old laissez-faire ideology of the previous era, actual interference in business affairs remained slight until the Great Depression. By 1933 perhaps as many as one out of every three Americans was out of work (the official figures said 25 percent), business failures were common, and the specter of total financial and industrial collapse hung heavy over the whole country. In the bread lines and shanty towns known as "Hoovervilles" as well as on Main Street, there were serious mutterings that the American business system had failed. Business leaders, who had always enjoyed hero status in the history books and even among ordinary citizens, had become pariahs. Enter at this point Franklin Roosevelt, the New Deal, and the modern formulation of Liberal government-business policies. Despite violent attacks on him from the Conservative media, FDR pragmatically abandoned his own conservative roots and, in a bewildering series of legislative enactments and presidential decrees, laid the foundation of public interest criteria for government regulation of the marketplace. Whatever might work was tried. The National Recovery Administration (NRA) encouraged industry cartels and price setting. The Tennessee Valley Authority (TVA) was an attempt at publicly owned enterprise. At the Justice Department, Attorney General Thurman Arnold initiated more antitrust actions than all of his predecessors combined. And a mass of "alphabet agencies” was created to deal with this or that aspect of the Depression.

    Intervention to protect labor and extensions of social welfare provisions were not enough to end the Depression. It was the massive spending for World War II that finally restored prosperity. With this prospect came the steady influence of Keynes, who had argued in the 1930s that only through government fiscal and monetary efforts to keep up the demand for goods and services could prosperity be reached and maintained. Keynes's arguments for government policies to maintain high levels of investment and hence employment and consumer demand became; Liberal dogma. To be a Liberal was to be a Keynesian, and vice versa.

    Alvin Hansen, Keynes's first and one of his foremost proponents in the United States, could scarcely hide his glee in 1957 as he described the wedding of Liberal Keynesian policies with the older government interventionist position this way:

Within the last few decades the role of the economist has profoundly changed. And why? The reason is that economics has become operational. It has become operational because we have at long last developed a mixed public-private economy. This society is committed to the welfare state and full employment. This government is firmly in the driver’s seat. In such a world, practical policy problems became grist for the of economic analysis. Keynes, more than any other economist of our time, has helped to rescue economics from the negative position to which it had fallen to become once again a science of the Wealth of Nations and the art of Political Economy.*

*Alvin H. Hansen, The American Economy (New York: McGraw-Hill, 1957), p. 175.

     Despite the Liberal propensity for tinkering- either through selected market intervention or through macro policy action most Liberals, like Conservatives, still rely on traditional supply and demand analysis to explain prices and market performance. Their differences with Conservatives on the functioning of the markets, determination of output, pricing, and so forth lie not so much in describing what is happening as in evaluating how to respond to what is happening. For instance, there is little theoretical difference between Conservatives and Liberals on how prices are determined under monopolistic conditions. However, to the Conservative, the market itself is the best regulator and preventive of monopoly abuse. To the Liberal, monopoly demands government intervention.

Varieties of Liberal Belief

As noted before, the Liberal dogma covers a wide spectrum of opinion. Moreover, the Liberal position has shifted somewhat in response to the economic disappointments of the Reagan years.

    On the extreme left wing of the Liberal spectrum, economists such as Robert Heilbroner and John Kenneth Galbraith have long argued that capitalism as the self-regulating system analyzed in conventional economic theory simply does not exist. Heilbroner contends:

 "The persistent breakdowns of the capitalist economy, whatever their immediate precipitating factors, can all be traced to a single underlying cause. This is the anarchic or planless character of capitalist production."*

*Robert Heilbroner, The Limits of American Capitalism (New York: Harper and Row, 1966), p. 88.

    For a time, this critical defect led Heilbroner to flirt with central planning as the only possible cure. However, he has recently backed away from this position, holding instead that capitalism plus government regulation to provide periodic corrections has proved to be more durable than central planning efforts.
   To the left-leaning and always iconoclastic John Kenneth Galbraith, who sees problems of technology rather than profit dominating the giant corporation, a more rational atmosphere for decision making must be created. In brief, the modern firm demands a high order of internal and external planning of output, prices, and capital. The interests of the firm and state become fused in this planning process, and the expanded role of Liberal government in the whole economy and society becomes obvious. While Galbraith has in the past maintained that he was a socialist, the Liberal outcome of his program is obvious in that he (1) never explicitly takes up the expropriation of private property and (2) still accepts a precarious social balance between public and private interest.

    Although Galbraith's Liberalism leads to an economy heavily reliant on planning, most Liberals stop well before this point. Having rejected the logic of self-regulating markets and accepted the real giant business enterprise, Liberals unashamedly admit to begin pragmatic tinkerers - ever adjusting and interfering with business decisions making in an effort to assert the changing public interest. Yet must be done while still respecting basic property rights and due process. Under these arrangements, business regulation amounts protection of business itself as well as the equal protection of other groups in pluralist American society.

 In the not-too-distant past, business Itself adapted to and embraced this position. Whereas certain government actions might be opposed, the philosophy of government intervention in the economy was not necessarily seen as antibusiness. The frequent Conservative depiction of most Liberals as being opposed to the business system does not withstand the empirical test. For instance, in 1964 Henry Ford II organized highly successful committee of business leaders for the Liberal Johnson, while Conservative Barry Goldwater, with Friedman as his adviser, gained little or no support from big business. However, extent of government regulation soon reached a level that was wholly acceptable to the private sector. In the late 1960s and early 1970s, a blizzard of environmental, job safety, consumer protection, energy regulations blew out of Washington. Added to what was already ground, the new legislative snowfall seemed to many observers at the end of the 1970s about to bring American business to a standstill who a decade before frankly feared the economic freedom of the conservative vision now embraced that position.

   The distress of economic stagflation in the 1970s (lower growth, rising unemployment, and price inflation), for which the Liberals to have no programmatic cures, along with a growing popular sentient against big government in general, drove Liberals from positions of political influence. Even within universities, the Liberal consensus began to collapse, with some former Liberal theorists deserting to the Conservative camp and most others adopting a lower profile in their teaching, writing, and research. Yet by the end of the 1980s, most of the analytical and policy positions associated with Liberal economic reasoning still survived a bit subdued from the high-flying days of Kennedy's New Frontier and Johnson's Great Society but distinguishable nonetheless. Among the more reform-minded Liberal reasoners, the old economic agenda items- income distribution, discrimination, the environment, consumer protection, monopoly abuse, labor unions, structural shifts in the economy and their resulting dislocations- remained vital concerns in any policy-making effort. However, Liberal hopes for a fairly swift and sweeping resolution of these problems had diminished greatly from the expectations of the 1960s and early 1970s. The new realities of a slow-growth economy, massive federal deficits, reduced American competitiveness in world markets, and costly entitlement programs put serious constraints on even a visionary reformer's dedication to interventionism. But this commitment had not been extinguished. When the Eastern European communist states toppled like dominoes and the long-time cold war confrontation with the Soviet Union seemed to move steadily toward a peaceful end, there was brave talk among Liberals of the prospects for a "peace dividend." The ending of the cold war was envisioned as freeing up vast sums for favored social agenda items that had long been shelved.

   Meanwhile, in the business community, the old propensity to enlist government on the side of improving the stability of domestic markets was given new life in the face of rising foreign competition, the decline of certain basic industries, and the double frights provided by Black Monday (the sudden collapse of the stock market on October 19, 1987) and the savings-and-loan industry crisis. In particular, the last two events seemed to show that too much market freedom might not be as desirable as it sounded.

  The present-day ambivalence of Liberals on the degree and type of intervention will be evident in our survey of economic issues in this book; nevertheless, this tendency should not be misunderstood. Specific Liberal approaches to problem solving may be debatable, but the essence of Liberal economics remains unchanged: The capitalist economy simply requires pragmatic adjustment from time to time to maintain overall balance and to protect particular elements in the society.

The Radical Paradigm

For most readers, specification of a Radical paradigm will seem to be a difficult and unfamiliar exercise. The identifications of Right and Left, or Conservative and Liberal, are used nightly on the television news and talk shows, and presumably these labels have self-evident political meaning to most viewers. The Radical label is not so well known, nor is it used very much by the media. For the most part, Americans are generally uninformed about the content and objectives of a Radical social outlook. Yet in a variation on the old cliche, about familiarity breeding contempt, we find also that ignorance breeds contempt, at least with regard to ideological matters. Quite simply, most Americans- even if they know little about a Radical ideological outlook- believe it to be essentially wrongheaded and, at bottom, un-American. Nevertheless, there is a Radical tradition in American economic thought, and it needs to be understood.

    The principal litmus test for accepting the Radical position requires the rejection of production-for-profit capitalism as an economic system- both the free market capitalism of Conservatives and the regulated capitalism of Liberals. Such a minimum membership standard needless to say, leads to the lumping of a large number of very different anticapitalist critiques into the Radical category. Nonetheless, there is an important shared outlook among true Radicals. The essence of this perspective is nicely illustrated by a comment made some years ago by Tony Berm, a political and ideological leader of the British Labour Party Queried by an interviewer in 1992 as to what was going to happen to socialists around the world now that the Marxist-socialist regime in th Soviet Union had collapsed, Berm offered a pregnant response. "The real struggle," Berm observed, "was never between capitalism and socialism. It was and is between capitalism and democracy."

     In Berm's remark lies the common core of contemporary Radical thought: Radicals espouse a social and economic order in which institutions are expected to respond to people's needs and people are to b empowered politically and economically so as to ensure democratic outcomes.

  At such a general level of articulation, Radical ideology may appear, deceptively benign. Who, after all, can be opposed to "empowerment of people"? However, the economic and political empowerment of people quickly takes on a more serious and, to some, more threatening meaning when the Radical analysis is examined in greater detail. As the Radical tradition understands the economic and social dynamic of societies power is intricately connected to the ownership of property: Whoever owns or controls the use of a society's things invariably possesses political and economic power commensurate with such ownership or control. In capitalism, ownership of things, particularly the things (capital) that produce other things, is disproportionately held in the hands of a comparative few. These owners of the means of production are seen by Radicals as exercising excessive influence for their own personal (or class) gain in the society's decisions about what will be produced, how that output will be produced, and who will share in this output. In our Radical paradigm, empowerment necessarily leads to limiting private and individual economic power and to increasing the social ownership and control of the things within a society. For most readers, a word should spring to mind: socialism.

    Socialism as a political, social, even religious outlook probably predates the rise of capitalism. And the term socialism is an umbrella that can cover a multitude of ideological tendencies. Utopian communitarians, Christian socialists, anarchists, Marxists, syndicalists, communists, guild socialists, and many other ideological variants can crowd under the socialist umbrella. The common thread to membership in any socialist tradition is acceptance of the advocacy for the social or community ownership of all, or most, of the means of production and for a societally determined standard for the distribution of the output of the society.

    While it is pretty clear that all socialists would qualify as Radicals, it is by no means true that all Radicals see themselves as socialists. Partly this is the case because socialism has long been and certainly remains a dirty word among most Americans- an ideological outlook that directly challenges the nation's historical proclivity to explain social and economic life in largely individualist terms. Partly, it reflects the fact that the term socialism is simply too big an umbrella and therefore includes a lot of ideological outlooks that, once you get past a few basic theoretical similarities, don't agree on important issues of specific programs and goals.

    Moreover, many American Radicals are not political activists at all. For them, commitment to a Radical perspective is mostly an intellectual and analytical exercise aimed at attacking and revealing the deficiencies of conventional Conservative and Liberal thought. Their purpose is not to build an alternative political party, such as socialism has tended to become, but to supply an alternative critical analysis that Americans might act upon within the constraints of the existing political order. In any case, in specifying a Radical paradigm, it is wise to remember that membership includes many different marchers not necessarily listening to the same drummer, or at least not hearing the same beat even if there is a single drummer. But then again, the same can be said for Conservative and Liberal paradigms.

   However, as a practical matter, an extended explanation of the Radical paradigm must be assigned an ideological starting point. And most, but surely not all, American Radicals would admit their intellectual debt to Karl Marx and his nineteenth-century critique of capitalism.

The Marxist Heritage

Since the Marxist critique is likely to be less familiar to many readers than the basic arguments of Conservatives or Liberals, it is necessary to be somewhat more detailed in specifying the Radical position. As will be quickly apparent, the Radical worldview rests on greatly different assumptions about the economic and social order than those of the Conservatives and Liberals.

 According to Marx's view, the value of a commodity reflects the real labor time necessary to produce it. However, under capitalism workers lack control of their labor, selling it as they must to capitalists. The workers receive only a fraction of the value they create- according to Marx, only an amount sufficient in the long run to permit subsistence. The rest of the value- what Marx calls surplus value- is retained by capitalists as the source of their profits and for the accumulation of capital that will increase both future production and future profit. As the appropriation of surplus value proceeds, with the steady transference of living labor into capital (what Marx called dead labor), capitalists face an emerging crisis. With more and more of their production costs reflecting their growing dependence on capital (machines) and with surplus labor value their only source of profit, capitalists are confronted with the reality of not being able to expand surplus appropriation. Unless they are able to increase their exploitation of labor- getting more output for the same, or less, wages paid- they face a falling rate of profit on their growing capital investment. Worse still, with workers' relatively falling wages and capitalists' relatively increasing capacity to produce, there is a growing tendency for the entire capitalist system to produce more goods than it can in fact sell.

    These trends set certain systemic tendencies in motion. Out of the chaos of capitalist competitive struggles for profits in a limited market there develops a drive toward concentration and centralization. In other words, the size of businesses grows and the number of enterprises shrinks. However, the problems of the failing rate of profit and chronic overproduction create violent fluctuations in the business cycle. Each depression points ever more clearly toward capitalist economic collapse. Meanwhile, among the increasingly impoverished workers, there is a steady growth of a reserve army of the unemployed- workers who are now unemployable as production decreases. Simultaneously, increasing misery generates class consciousness and revolutionary activity among the working class. As the economic disintegration of capitalist institutions worsens, the subjective consciousness of workers grows to the point where they successfully overthrow the capitalist system. In the new society, the workers themselves take control of the production process, and accumulation for the interest of a narrow capitalist class ceases.

The Modern Restatement of Marx

Of necessity, the modern Radical's view of the world must lack the finality of Marx's predictions. Quite simply, the capitalist system has not self-destructed and, in fact, in a good many respects is stronger and more aggressive than it was in Marx's day. Although the present-day Radical may still agree with Marx's long-run predictions about the ultimate self destructiveness of the capitalist order, the fact is that Radicals must deal with the world as it is. While the broad categories of Marx's analysis are retained generally, Radical thought must focus on real-world, current conditions of capitalist society and present an analysis that goes beyond merely asserting the Marxist scenario for capitalist collapse. Useful economic analysis must be offered in examining contemporary problems.

  The beginning point for modern Radical critiques, as it was also for Marx over a hundred years ago, is the unquenchable capitalist thirst for profits. This central organizing objective of all capitalist systems determines everything else within those systems. The Radical analysis begins with a simple proposition about how capitalists understand market activity:

Total sales = total cost of materials and machinery used up in production + total wages and salaries paid + (-in the case of losses) total profits

     Such a general view of sales, costs, and profits is, thus far, perfectly consistent with traditional accounting concepts acceptable to any Conservative or Liberal. However, the Radical's analytic mission becomes clearer when the proposition is reformulated:

Total profits = total sales - total cost of materials and machinery used up in production - total wages and salaries paid

   It now becomes evident that increasing profits depends on three general conditions: (1) that sales rise,ceteris paribus (all things being equal); (2) that production costs (composed of wage costs and material and machinery costs) decline, ceteris paribus; or (3) that sales increases at least exceed production cost increases. The capitalist, according to the Radical argument, is not simply interested in total profits but also in the rate of profit, or the ratio of profits to the amount of capital the capitalist has invested.

  With capitalist eyes focused on raising profits or raising profit rates, it becomes clear to Radicals which individual economic policies and strategies will be advanced by capitalists: Every effort will be made to keep costs low, such as reducing wage rates, speeding up the production line, introducing so-called labor-saving machines, seeking cheaper (often foreign) sources of labor and materials, and minimizing outlays for waste treatment and environmental maintenance. At the same time, efforts will be made to keep prices high, especially through the development of monopolistic price-making power on both a national and international scale. In all these activities, capitalists will make every effort to use government economic intervention to their own advantage- both in domestic markets and in expanding capitalist hegemony into the world.

     However, taking the system as a whole, the effort of individual capitalists- either on their own or aided by government- to expand profit produces a crisis in obtaining profits. For instance, the capitalist goals of keeping wages low and prices high must lead to situations where workers as consumers simply cannot clear the market of available goods. Accordingly, the aggregate economy deteriorates into periodic recession or depression, with rising unemployment among workers and falling profits for capitalists. With capitalist support, a variety of government monetary and fiscal efforts may be employed to offset these ups and downs in the capitalist business cycle- in particular to improve the profit and profit rate of capitalist enterprises. However, so-called mixed capitalism (a mixture of private sector and government planning of the economy) cannot overcome the fundamental contradictions of a dominantly private, production-for-profit economy. And, of course, with the expansion of capitalism throughout most of the world, the capitalist crisis takes on international proportions. Quite as Marx predicted, the general economic crises deepen and occur more frequently. The search for profit becomes more frantic and more destructive to the lives of ever greater numbers of people living under capitalist hegemony throughout the world.

    From the Radical point of view, periodic crisis in capitalism is not the result of excessive tinkering with the market system, as Conservatives claim; nor will the tendency toward crisis be contained by Liberal interventionism. Periodic and deepening crisis is capitalism.

     Radical analysis is, of course, more penetrating than this short resume can indicate. One further point that should be examined briefly is Marx's view of the relationship between a society's organization for production and its social relations. To Marx, capitalism was more than an economic system. Private values, religion, the family, the educational system, and political structures were all shaped by capitalist class domination and by the goal of production for private profit. It is important to recognize this tenet in any discussion of how Marxists-or Radicals with a Marxist orientation-approach contemporary social and economic problems. Marxists do not separate economics from politics or private belief. For instance, racism cannot be abstracted to the level of an ethical question. Its roots are seen in the capitalist production process. Nor is the state ever viewed as a neutrality able to act without class bias. Bourgeois democracy as we know it is seen simply as a mask for class domination.
Marx, in his early writings before his great work, Capital, had emphasized the "qualitative" exploitation of capitalism. Modem Radicals have revitalized this early Marx in their "quality of life" assaults on the present order. In these they emphasize the problems of worker alienation, commodity fetishism, and the wasteful and useless production of modem capitalism. The human or social problems of modem life are seen as rooted in the way the whole society is geared to produce more and more profits.

  In addition to their Marxist heritage, modern Radicals derive much of their impulse from what they see as the apparent failure of Liberalism. Liberal promises to pursue policies of general social improvement are perceived as actions to protect only some interest groups. In general, those benefiting under Liberal arrangements are those who have always gained. The corporation is not controlled. It is more powerful than ever.

      Rule by elites has not ended, nor have the elites changed. Moreover national goals of the Liberal ethic- to improve our overall national well being- stimulated the exploitation of poor nations, continued the war, and increased the militarization of the economy.

The Question of Relevance 

Quite obviously, the Marxist prediction of capitalism's final collapse has not yet come to pass. In fact, Radicals- particularly those very closely associated with the Marxist tradition- are increasingly obliged to account for what many non-Radicals see as a historical turning away all collectivist political economic alternatives with the rise of market, economies in previously socialist states. These trends, along with certain internal analytical problems of Marxist analysis, are quite sufficient for most non-Radicals to consign the whole Radical paradigm the garbage heap of worthless, worn-out ideas.

     A thoughtful observer may question whether this is an entirely enlightened conclusion to reach. First, the tendency to lump Marxism and real-world communist systems together as one and the same, while long a habit in the noncommunist as well as the communist world, on a grossly inaccurate understanding of Marx's philosophy. Second, Marxism- at least as American Radical scholars have developed used it- is more a way of looking at how our economy works than a prophecy of things to come. It is the technique of analysis rather the truth of Marx's specific analysis that counts.

     A third point might also be worth considering. Freed of the Soviet millstone, Radical critiques, which were easily evaded during the war epoch, might take on more meaning and appeal. Radicals no longer have to explain away the Soviet errors of authoritarian politics, decrepit bureaucracies, and failed planning before putting forth their own critique of contemporary capitalism and their own democratic-social programs. Moreover, and of increasing importance to the relevant Radical arguments, the post-Soviet world economy has yet to show the robustness that the victors of the cold war might have expected. Standing unchallenged in the world, capitalism and variants of capitalism may loom as larger targets for Radical attack than is generally appreciated. Consequently, it may be just a bit early to count out the Radical paradigm, as non-Radicals are presently inclined to do.

   As noted before, not all Radicals subscribe to all Marxist doctrine but Marxism in one form or another remains the central element of the Radical challenge. Marx's fundamental contention that the system of private production must be changed remains the badge of membership in the Radical ranks. This sets Radicals apart from mainstream Conservative and Liberal economists.

  Critics of the Radical position usually point out that Radical analyses are hopelessly negativistic. Radicals, they say, describe the problems of capitalism without offering a solution other than the end of the whole system. While there is much truth to this charge, we shall see in the following sections that indeed some solutions are offered. But even if their program is vague, Radicals would argue that their greatest contribution is in revealing the truth of the capitalist system.

     Despite lessened political influence, modern Radical economic thought still looms as a logically important alternative to the more broadly supported Conservative and Liberal paradigms. The force of an idea is not dependent on the number of true believers. Were that the case, Conservative economic doctrine would have disappeared thirty years ago.

Applying the Analysis to the Issues ..............................

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Source: Robert B. Carson, Wade L. Thomas, and Jason Hecht, "Economic Issues Today: Alternative Approaches", Seventh Edition, (New York, M.E. Sharpe, 2002) p.5-30.