Notes

Preface to the Revised Edition

1. Albrecht Glitz and Erik Meyersson, “Industrial Espionage and Productivity,” American Economic Review 110, no. 4 (April 2020), pp. 1055–1103.

2. Maxim Pinkovskiy and Xavier Sala-i-Martin, “Parametric Estimations of the World Distribution of Income,” National Bureau of Economic Research, Working Paper 15433 (2009), p. 57, fig. 32.

I. Introduction: The Plight of the Economist

1. William Manchester, The Last Lion: Winston Spencer Churchill (New York: Dell, 1983), p. 35.

2. T. S. Kuhn, The Structure of Scientific Revolutions, 2nd ed. (Chicago: University of Chicago Press, 1970).

3. With the rise of quantum physics and its corollaries such as Heisenberg’s principle, even the “hard” sciences are losing their muscle tone.

4. John Maynard Keynes, “Alfred Marshall,” in Essays in Biography, in the Collected Writings of John Maynard Keynes, vol. 10 (London and New York: Macmillan/St. Martin’s Press for the Royal Economic Society, 1972), p. 173.

5. See Todd G. Buchholz, “Biblical Laws and the Economic Growth of Ancient Israel,” Journal of Law and Religion 6, no. 2 (1988) 389–427.

6. For a fascinating history of the usury doctrine, see Benjamin Nelson, The Idea of Usury (Princeton, NJ: Princeton University Press, 1949).

7. Georges Duby, The Age of the Cathedral, trans. Eleanor Levieux and Barbara Thompson (Chicago: University of Chicago Press, 1981), p. 3.

II. The Second Coming of Adam Smith

1. Adam Smith, Lectures on Justice, Police, Revenue, and Arms, ed. Edwin Cannan (London: Oxford University Press, 1896), p. 179. These lectures are based on notes from students.

2. Adam Smith, Correspondence of Adam Smith, ed. Earnest Campbell Mossner and Ian Simpson Ross (Oxford: Clarendon Press, 1987), p. 275.

3. Smith, Correspondence, p. 1.

4. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. H. Campbell, A. S. Skinner, and W. B. Todd, 2 vols. (Oxford: Clarendon Press, 1976 [1776]), vol. 1, p. 284.

5. Smith, Lectures, pp. 172–173.

6. Smith, Wealth of Nations, vol. 1, p. 274.

7. Smith, Correspondence, p. 102.

8. Peter Gay, The Enlightenment: An Interpretation, 2 vols. (London: Weidenfeld and Nicolson, 1967), vol. 2, p. 348.

9. Gay, Enlightenment, vol. 2, p. 349.

10. David Hume, The Letters of David Hume, ed. J. Y. T. Greig, 2 vols. (Oxford: Oxford University Press, 1932), vol. 2, p. 205.

11. Smith, Wealth of Nations, vol. 2, p. 678.

12. Thomas Hobbes, “The Introduction,” in Leviathan (New York: Collier, 1962), p. 19.

13. Smith, Wealth of Nations, vol. 1, p. 341.

14. Smith, Wealth of Nations, vol. 1, p. 25.

15. Smith, Wealth of Nations, vol. 1, pp. 26–27.

16. Smith, Wealth of Nations, vol. 1, p. 456.

17. Recording Industry Association of America, “U.S. Sales Database,” https://www.riaa.com/u-s-sales-database/.

18. Smith, Wealth of Nations, vol. 1, p. 15.

19. Smith, Wealth of Nations, vol. 1, p. 20.

20. Both the preceding Hayek quotation and this Whitehead quotation appear in F. A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35 (September 1945), pp. 526–528.

21. Smith, Wealth of Nations, vol. 1, p. 456.

22. Friedman’s argument was based on an essay by Leonard E. Read called “I, Pencil: My Family Tree,” Foundation for Economic Education (December 1958).

23. James Ward, The Perfection of the Paper Clip (New York: Touchstone, 2015), p. 96.

24. Smith, Wealth of Nations, vol. 1, pp. 23–24.

25. See Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1967), p. 109.

26. Smith, Wealth of Nations, vol. 2, pp. 782–785.

27. Paul A. Samuelson, “A Modern Theorist’s Vindication of Adam Smith,” American Economic Review: Papers and Proceedings, vol. 67 (February 1977), pp. 43–44.

28. Smith, Wealth of Nations, p. 257.

29. Parmigiano Reggiano Consortium, “Specifications and Legislation,” https://www.parmigianoreggiano.com/consortium/rules_regulation_2/default.aspx; Cato Institute, “Reign of Terroir: How to Resist Europe’s Efforts to Control Common Food Names as Geographical Indications,” https://www.cato.org/publications/policy-analysis/reign-terroir-how-resist-europes-efforts-control-common-food-names#cite-11.

30. In 2012, these rules protected $72 billion worth of goods. Tanguy Chever et al., Value of Production of Agricultural Products and Foodstuffs, Wines, Aromatised Wines and Spirits, Protected by a Geographical Indication (GI), AGRI–2011–EVAL–042012, October 2012, report for the European Commission prepared by AND International, available at http://ec.europa.eu/agriculture/external-studies/value-gi_en.htm.

31. Smith, Wealth of Nations, vol. 1, p. 145.

32. Smith, Wealth of Nations, vol. 1, p. 137.

33. For a brief biography, see Todd G. Buchholz, New Ideas from Dead CEOs (New York: HarperCollins, 2007), pp. 241–259.

34. Steve Jobs, Stanford University commencement address, Stanford Report, June 12, 2005.

35. Sam Peltzman, “Industrial Concentration Under the Rule of Reason,” Journal of Law and Economics 57, no. 4 (2014), article 7, https://chicagounbound.uchicago.edu/jle/vol57/iss4/7.

36. Even MIT economist Lester Thurow, a fiery adversary of Friedman’s, argued against the government breakup of AT&T on these grounds. See “Antitrust Grows Unpopular,” Newsweek, January 12, 1981.

37. Smith, Wealth of Nations, vol. 1, p. 457.

38. Smith, Wealth of Nations, vol. 1, p. 471.

39. Bernie Sanders, “So-Called ‘Free Trade’ Policies Hurt US Workers Every Time We Pass Them,” Guardian, April 29, 2015, https://www.theguardian.com/commentisfree/2015/apr/29/so-called-free-trade-policies-hurt-us-workers-every-time-we-pass-them; Tessa Berenson, “Donald Trump Details Plan to Rewrite Global Trade Rules,” Time, June 28, 2016, http://time.com/4385989/donald-trump-trade-china-speech/.

40. W. Michael Cox and Richard Alm, “How Are We Doing?,” The American, July 3, 2008, https://www.aei.org/articles/how-are-we-doing/.

41. Mark Perry, “When It Comes to the Affordability of Common Household Goods, the Rich and the Poor Are Both Getting Richer,” American Enterprise Institute, October 3, 2013, https://www.aei.org/publication/when-it-comes-to-the-affordability-of-common-household-goods-the-rich-and-the-poor-are-both-getting-richer/.

42. Tom Jackson, Chilled: How Refrigeration Changed the World and Might Do So Again (London: Bloomsbury, 2015).

43. Felipe Garcia Ribeiro, Guilherme Stein, and Thomas Kang, “The Cuban Experiment: Measuring the Role of the 1959 Revolution on Economic Performance Using Synthetic Control,” working paper (May 21, 2013), https://onlinelibrary.wiley.com/doi/abs/10.1111/twec.12609

44. David Dollar and Aart Kraay, “Trade, Growth and Poverty,” World Bank, June 2001, p. 2.

45. Heather Long, “Trump’s Steel Tariffs Cost U.S. Consumers $900,000 for Every Job Created, Experts Say,” Washington Post, May 7, 2019, https://www.washingtonpost.com/business/2019/05/07/trumps-steel-tariffs-cost-us-consumers-every-job-created-experts-say.

46. Gary Clyde Hufbauer and Sean Lowry, US Tire Tariffs: Saving Few Jobs at High Cost, Peterson Institute for International Economics, https://piie.com/sites/default/files/publications/pb/pb12-9.pdf.

47. Smith, Wealth of Nations, vol. 1, p. 468.

48. Smith, Correspondence, pp. 245–246.

III. Malthus: Prophet of Doom and Population Boom

1. William Wordsworth, The Prelude: 1799 (New York: W. W. Norton, 1979), p. 396.

2. William Godwin, An Enquiry Concerning the Principles of Political Justice, and Its Influence on General Virtue and Happiness, 2 vols. (London: 1798), vol. 2, p. 504.

3. Godwin, Enquiry, p. 528.

4. Nico Voigtländer and Hans-Joachim Voth, “How the West ‘Invented’ Fertility Restriction,” American Economic Review 103 (2013), 2227–2264.

5. The formula for the future value (FV) of a principal amount of money (P) held for (N) years at (R) percent compound interest is FV = P × (1 + R)^N. A helpful rule of thumb is the rule of 72, which states that the number of years it takes for a number to double, when growing at a constant rate, equals 72 divided by that number. For instance, if the economy expands at 4 percent per year, in eighteen years the economy would double.

6. Thomas R. Malthus, An Essay on the Principle of Population, 1st ed. (London: Macmillan, reprint, 1909), pp. 139–140.

7. Malthus, Principle of Population, pp. 6–7, 92.

8. James Bonar, Malthus and His Work (London: Macmillan, 1885), p. 127.

9. Thomas R. Malthus, An Essay on the Principle of Population, 2nd ed. (London: Everyman Library, 1914), vol. 2, p. 168.

10. Quoted in Patricia James, Population Malthus (London: Routledge and Kegan Paul, 1979), pp. 110–111.

11. Charles Darwin, The Autobiography of Charles Darwin (New York: Barnes and Noble, 2005 [1867]), p. 45; Alfred Russel Wallace, My Life (London: Chapman and Hall, 1905), vol. 2, p. 232.

12. See Paul Bairoch, “Agriculture and the Industrial Revolution,” trans. M. Grindrod, in The Industrial Revolution, ed. C. M. Cipolla (Sussex: Harvester Press, 1976), pp. 452–501.

13. André Armengaud, “Population in Europe 1700–1914,” in Cipolla, Industrial Revolution, p. 48.

14. Thomas R. Malthus, Principles of Political Economy (Boston: Wells and Lilly, 1821), pp. 4–5.

15. See Todd G. Buchholz, The Price of Prosperity (New York: HarperCollins, 2016), pp. 28–37.

16. Aristotle, Politics, bk. 2, http://www.perseus.tufts.edu/hopper/text?doc=Perseus:abo:tlg,0086,035:2.

17. “Family Planning,” Walt Disney Productions for the Population Council, 1968, https://www.youtube.com/watch?v=t2DkiceqmzU.

18. See Dennis Meadows et al., The Limits to Growth (New York: Universe Books, 1972); Jay Forrester, World Dynamics (Cambridge: Wright-Allen Press, 1971); and Robert Heilbroner, An Inquiry into the Human Prospect (New York: W. W. Norton, 1974).

19. Gerald O. Barney, ed., The Global 2000 Report to the President (Washington, D.C.: U.S. Government Printing Office, 1981).

20. Wassily Leontief, The Future of the World Economy (New York: Oxford University Press, 1977), p. 6.

21. Ashok Gulati, “Can India Solve Its Food Paradox?,” interview by Knowledge at Wharton, March 28, 2019, https://knowledge.wharton.upenn.edu/article/can-india-solve-its-food-paradox/.

22. World Bank, World Development Report (Washington, D.C.: World Bank, 1984). See Allen C. Kelley, “Economic Consequences of Population Change in the Third World,” Journal of Economic Literature, vol. 25 (December 1988), pp. 1685–1728.

23. Stephen Buckley, “Africa’s Agricultural Rebirth,” Washington Post, May 25, 1998, p. A18.

24. Charles Kenny, “Is Anywhere Stuck in the Malthusian Trap?,” Kyklos 63, no. 2, pp. 199–202.

25. Thomas R. Malthus, An Essay on the Principles of Population, 2nd ed. (London: J. Johnson, 1803), p. 393.

26. Riham Alkousaa, “Violent Crime Rises in Germany and Is Attributed to Refugees,” Reuters, January 3, 2018, https://www.reuters.com/article/us-europe-migrants-germany-crime/violent-crime-rises-in-germany-and-is-attributed-to-refugees-idUSKBN1ES16J.

27. William G. Powderly, “How Infection Shaped History: Lessons from the Irish Famine,” Transactions of the American Clinical and Climatological Association 130 (2019), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6735970/.

28. Noel Ignatiev, How the Irish Became White (New York: Routledge, 1995).

29. Ignatiev, How the Irish Became White, p. 37.

30. See Andres Villareal and Christopher R. Tamborini, “Immigrants’ Economic Assimilation: Evidence from Longitudinal Earnings Records,” American Sociological Review, August 2018; and George J. Borjas, “The Economics of Immigrants,” Journal of Economic Literature, December 1994. Also see Rachel M. Friedberg and Jennifer Hunt, “The Impact of Immigrants on Host Country Wages, Employment and Growth,” Journal of Economic Perspectives, Spring 1995, pp. 26–27.

31. See Todd G. Buchholz, Market Shock (New York: HarperCollins, 2000), pp. 237–256.

32. See Spencer R. Weart, “The Discovery of the Risk of Global Warming,” Physics Today, January 1997, p. 34. For the latest IPCC report, see R. T. Watson, M. C. Zinyowera, and R. H. Moss, eds., Climate Change 1995: The Impacts, Adaptation, and Mitigation of Climate Change (New York: Cambridge University Press, 1996).

33. Robert Mendelsohn, William D. Nordhaus, and Daigee Shaw, “The Impact of Global Warming on Agriculture: A Ricardian Analysis,” American Economic Review 83, no. 4 (September 1994), pp. 753–755. For a skeptical (and technical) view of warming, see R. S. Stone, “Variations in Western Arctic Temperatures in Response to Cloud Radiative and Synoptic-Scale Influence,” Journal of Geophysical Research 102 (1997), pp. 21, 769–770, 776. Easier reading would be Matt O’Keefe, “Solar Waxing,” Harvard Magazine, May–June 1998.

34. Matthew E. Kahn, The Review of Economics and Statistics 87, no. 2 (May 2005), p. 271.

35. Sylvanus Urban, Gentleman’s Magazine and Historical Chronicle, vol. 94 (London: J. Nichols and Son, 1824), p. 356.

IV. David Ricardo and the Cry for Free Trade

1. David Ricardo, letter to Thomas Malthus, Letters of David Ricardo, ed. James Bonar (Oxford: Clarendon Press, 1887), p. 16.

2. David Weatherall, David Ricardo (The Hague: Martinus Nijhoff, 1976), p. 2.

3. British History Online, “The Royal Exchange,” https://www.british-history.ac.uk/old-new-london/vol1/pp494-513.

4. David Ricardo, The Works and Correspondence, ed. Pierro Sraffa (Cambridge: Cambridge University Press, 1951–1955), vol. 6, p. 231.

5. Quoted in Robert Lekachman, A History of Economic Ideas (New York: Harper and Row, 1959), p. 143.

6. If the opportunity costs are equal, there are no possible gains from trade. They might as well be self-sufficient. The model works less persuasively if resources cannot be reallocated and prices are extremely “sticky.” More complex approaches such as the Heckscher-Ohlin-Samuelson model examine what determines opportunity costs and comparative advantages besides labor hours.

7. David Davies, The Case of the Labourers in Husbandry Stated and Considered (London, 1795); Frederick Morton Eden, The State of the Poor: A History of the Labouring Classes in England, with Parochial Reports, ed. A. G. L. Rogers (London, 1928); Gregory Clark, A Farewell to Alms (Princeton, NJ: Princeton University Press, 2007), table 3.6, p. 30; Joel Mokyr, “Is There Still Life in the Pessimist Case? Consumption During the Industrial Revolution, 1790–1850,” Journal of Economic History 48, no. 1 (1988), pp. 69–92; Malthus, An Essay on the Principle of Population (1798), ch. 1, p. 25.

8. Quoted in Harry Anderson, Rich Thomas, and James C. Jones, “Carving Up the Car Buyer,” Newsweek, March 5, 1984, p. 72.

9. If Britons dump their dollars, the value of the dollar (the exchange rate) will fall. Thus, trade deficits generally lead to depreciating currencies. But with a cheaper dollar, American exporters find it easier to sell to foreigners, and foreign producers have more trouble selling their goods in the United States. This process eventually reduces the trade deficit. Foreigners may also use their U.S. dollars to buy American assets such as property and factories if they think that the U.S. economy is healthy and will yield returns higher than investments in their own countries.

While an “invasion” of foreign purchasers could give foreigners a larger political voice in the United States, so far the proportion of foreign ownership is still small enough that the political effects remain slight. In the meantime, Americans benefit through more jobs; more tax revenues to towns, states, and Washington; and a transfer of foreign skills and technology to the United States.

10. See Murray Weidenbaum and Michael Munger, “Protectionism at Any Price?,” Regulation, July–August 1983, pp. 14–22, cited in Benjamin M. Friedman, Day of Reckoning (New York: Random House, 1988), pp. 58–60.

11. “Economic Impacts of the Canadian Softwood Lumber Dispute on U.S. Industries,” U.S. Senate, Committee on Commerce, Science and Transportation, Hearing Archives (February 14, 2006), pp. 1–53.

12. Frédéric Bastiat, Economic Sophisms (Princeton, NJ: D. Van Nostrand, 1964), pp. 56–57. Bastiat also sarcastically suggested that France double its need for jobs by chopping off everyone’s right hand.

13. Emily Glassberg Sands and Vinod Bakhavachalam, “Ranking Countries and Industries by Tech, Data, and Business Skills,” Harvard Business Review, March 27, 2019.

14. World Health Organization, Global Status Report on Road Safety 2018, https://www.who.int/violence_injury_prevention/road_safety_status/2018/en/.

15. Todd G. Buchholz, “Burgers, Fries, and Lawyers,” Policy Review, February–March 2004, no. 123, p. 54.

16. Paul Krugman, “Ricardo’s Difficult Idea,” MIT, http://web.mit.edu/krugman/www/ricardo.htm.

17. Ricardo, Works and Correspondence, vol. 5, p. 55; vol. 1, p. 265. Also see Mark Blaug, Ricardian Economics (New Haven, CT: Yale University Press, 1958), p. 33. The German Historical School would later reject Ricardo’s approach and apply an organic model to nations. Wilhelm Roscher and Gustav Schmöller argued that nations are born, raised, and ultimately buried. Policies and principles that work well at one stage in a nation’s life may work badly at another.

18. Ricardo, Works and Correspondence, vol. 1, p. 97.

19. Ricardo, Works and Correspondence, vol. 1, p. 70.

20. Ricardo, Works and Correspondence, vol. 1, p. 35.

21. Ricardo, Works and Correspondence, vol. 1, p. 120.

22. Ricardo, Works and Correspondence, vol. 8, p. 208; also see Ricardo writing in the 1820 Encyclopedia Britannica, vol. 8, p. 179.

23. Henry George, Progress and Poverty (New York: Schalkenbach Foundation, 1929), p. 545.

24. “Taxing Commercial Properties: Economic Impact Report,” Office of the Controller, City and County of San Francisco, Item 19005 (November 11, 2019), p. 4.

25. Eve Baty, “A Castro Restaurant’s NIMBY Play to Thwart Competitor Has Failed,” San Francisco Eater, October 28, 2019, https://sf.eater.com/2019/10/28/20936988/castro-mediterranean-new-falafel-nimby.

26. Malthus, Principles of Political Economy, p. 186.

27. Smith, Wealth of Nations, pp. 337–338.

28. Malthus, Principles of Political Economy, p. 395.

29. John Maynard Keynes, “Thomas R. Malthus,” in Essays in Biography, in Collected Writings of John Maynard Keynes, vol. 10 (London: Macmillan, 1972), p. 100.

30. Ricardo, Works and Correspondence, vol. 8, p. 184.

31. Robert Torrens, Essay on the External Corn Trade (London: J. Hatchard, 1815), pp. viii–ix.

32. Mark Blaug, Economic Theory in Retrospect, 3d ed. (Cambridge: Cambridge University Press, 1978), p. 140.

V. The Stormy Mind of John Stuart Mill

1. John Stuart Mill, Autobiography (London: Longmans, Green, Reader, and Dyer, 1873), p. 28. Michael St. John Packe takes a more lenient view of James Mill in The Life of John Stuart Mill (New York: Macmillan, 1954).

2. Mill, Autobiography, pp. 28, 30.

3. W. L. Courtney, Life of John Stuart Mill (London: Walter Scott, 1889), p. 40.

4. Mill, Autobiography, pp. 66–67.

5. Mill, Autobiography, pp. 98–100.

6. Jeremy Bentham, Introduction to the Principles of Morals and Legislation (New York: Haffner, 1948), p. 1.

7. Bentham, Principles of Morals and Legislation, pp. 30–31.

8. Quotation from Bentham, “Defence of a Maximum,” in Jeremy Bentham’s Economic Writings, vol. 3, ed. W. Stark (London: George Allen and Unwin, 1954 [1801]), pp. 247–302. See Todd G. Buchholz, “Punishing Humans,” Thought 59 (September 1984), for a critique of Benthamite justice.

9. Mill, Autobiography, pp. 40–41.

10. Beckles Willson, Ledger and Sword, vol. 2 (London: Longmans, Green, 1903), p. 429.

11. Willson, Ledger and Sword, p. 109.

12. Willson, Ledger and Sword, pp. 132–134.

13. Willson, Ledger and Sword, p. 49.

14. John Stuart Mill, The Early Draft of John Stuart Mill’s Autobiography, ed. J. Stillinger (Urbana: University of Illinois Press, 1961), p. 184. See also A. W. Levi, “The Mental Crisis of John Stuart Mill,” Psychoanalytic Review 32 (January 1945), pp. 86–101.

15. Lionel Robbins, The Evolution of Modern Economic Theory (London: Macmillan, 1970), p. 109.

16. John Stuart Mill, “Bentham,” in Essays on Politics and Culture, ed. G. Himmelfarb (Garden City, NY: Doubleday, 1962 [1838]), pp. 85–131; “Coleridge,” in Essays (1840), pp. 132–186.

17. Mill, “Bentham,” pp. xix–xx.

18. Richard Garnett, The Life of W. J. Fox (London: John Lane, 1910), p. 98.

19. Mill, Autobiography, pp. 186–187.

20. John Stuart Mill, On Logic (1840), p. 617.

21. John Stuart Mill, Principles of Political Economy, ed. W. J. Ashley (New York: A. M. Kelly, 1965 [1848]), pp. 199–200.

22. George J. Stigler, “The Nature and Role of Originality in Scientific Progress,” Economica 22 (November 1955), pp. 293–302.

23. Mill, Principles of Political Economy, p. 808.

24. Mill, Principles of Political Economy, p. 808.

25. Marcus Eliason and H. Ohlsson, “Timing of Death and the Repeal of the Swedish Inheritance Tax,” Journal of Socio-Economics 45 (August 2013), pp. 113–123.

26. Joseph Stiglitz, “Notes of Estate Taxes, Redistribution, and the Concept of Balanced Growth Path Dependence,” Journal of Political Economy 86, no. 2, pt. 2 (1978), pp. S137–S150.

27. Stiglitz, “Notes of Estate Taxes,” p. 869.

28. Mary Daly and Joyce Kwok, “Did Welfare Reform Work for Everyone: A Look at Young Single Mothers,” Federal Reserve Bank of San Francisco Economic Letter, August 3, 2009.

29. Mill, Principles of Political Economy, p. 759.

30. Mill, Principles of Political Economy, p. 950.

31. Mill, Principles of Political Economy, p. 799.

32. Mill, Principles of Political Economy, p. 748.

33. Mill, Principles of Political Economy, p. 748.

34. Mill, Principles of Political Economy, p. 757.

35. Quoted in Gertrude Himmelfarb, “Introduction,” in Mill, On Liberty (London: Penguin Books, 1986), p. 10.

36. Mill, Autobiography, p. 199.

37. Henry Fawcett, “His Influence at Universities,” Popular Science 3 (July 1873).

38. Edmund Burke, Reflections on the Revolution in France (1790), in The Works of the Right Honorable Edmund Burke (London: F. C. and J. Rivington, 1808), vol. 5, p. 149.

VI. The Angry Oracle Called Karl Marx

1. David McLellan, Karl Marx: His Life and Thought (New York: Harper and Row, 1973), p. 4. See Karl Marx, “On the Jewish Question,” in The Marx-Engels Reader, ed. Robert C. Tucker (New York: W. W. Norton, 1978), pp. 26–52; Gertrude Himmelfarb, “The Real Marx,” Commentary, April 1985, pp. 37–43; and “Letters,” August 1985.

2. McLellan, Karl Marx, pp. 6–7.

3. McLellan, Karl Marx, p. 33.

4. Robert Payne, Karl Marx (New York: Simon and Schuster, 1968), p. 77.

5. McLellan, Karl Marx, p. 53.

6. Saul K. Padover, Karl Marx: An Intimate Biography (New York: McGraw-Hill, 1978), p. 179.

7. McLellan, Karl Marx, p. 99.

8. Karl Marx and Friedrich Engels, Collected Works (New York: International Publishers, 1982), vol. 38, p. 115.

9. Karl Marx, “Introduction to A Critique of Hegel’s Philosophy of Right,” in K. Marx, The Early Texts, ed. D. McLellan (Oxford: Oxford University Press, 1971), p. 116.

10. Karl Marx, The German Ideology, in Tucker, Marx-Engels Reader, pp. 155–156.

11. Karl Marx, A Contribution to the Critique of Political Economy, trans. N. I. Stone (Chicago: Charles Kerr, 1904), preface.

12. Karl Marx, The Eighteenth Brumaire of Louis Bonaparte, in Tucker, Marx-Engels Reader, p. 595.

13. Karl Marx and Friedrich Engels, The Communist Manifesto, ed. Samuel Beer (Arlington Heights, IL: Harlan Davidson, 1955), p. 9.

14. Marx, Critique of Political Economy, preface.

15. Karl Marx, Capital, vol. 1 (Chicago: Charles Kerr, 1906), p. 13.

16. Marx and Engels, Communist Manifesto, pp. 13–14.

17. Marx and Engels, Communist Manifesto, pp. 13–14.

18. McLellan, Karl Marx, p. 98.

19. Padover, Karl Marx, pp. 291–293.

20. Payne, Karl Marx, p. 295.

21. McLellan, Karl Marx, pp. 264, 357.

22. McLellan, Karl Marx, p. 284.

23. Marx, Capital, vol. 1, pp. 649, 652.

24. Marx, Capital, vol. 1, p. 687.

25. Marx, Capital, vol. 1, p. 836.

26. Marx, Capital, vol. 1, p. 837.

27. Marx and Engels, Communist Manifesto, p. 46.

28. Marx, Capital, vol. 1, p. 21.

29. Marx and Engels, Communist Manifesto, pp. 31–32.

30. Marx, Capital, vol. 1, p. 637.

31. Payne, Karl Marx, p. 143.

32. Marx and Engels, Communist Manifesto, p. 22; Thomas Sowell, Marxism: Philosophy and Economics (New York: William Morrow, 1985), p. 138.

33. The question of relative poverty is extremely difficult to assess. First, since there is an income gap between rich and poor, even if the poor gain at a faster rate, the gap in absolute dollars may enlarge. Compare person A, who starts with $10,000 and enjoys a 10 percent raise each year, with person B, who starts at $100,000 and enjoys only a 5 percent raise each year. In about seven years, A is earning about $20,000, while B is earning more than $140,000. Second, in the United States, over the course of a generation there is considerable upward and downward mobility. One major study revealed that about one-third of the children of the most affluent parents in the country received income below the national average. Furthermore, about one-third of the children of the poorest parents climbed up and above the national average. See Christopher Jencks et al., Inequality: A Reassessment of the Effect of Family and Schooling in America (New York: Basic Books, 1972), pp. 209–216. For an international approach to mobility, see W. W. Rostow, Why the Poor Get Richer and the Rich Slow Down (Austin: University of Texas Press, 1980). We can confidently say that during most of the twentieth century, all classes in the United States have enjoyed sustained absolute progress. Nonetheless, during the stagflation from 1974 to 1982, all income classes lost ground. The poor especially suffered for economic as well as sociological reasons, as the number of female-headed households jumped by about 40 percent. During the middle and late 1980s the 1973 plateau was reached again and surpassed.

34. John Rawls, A Theory of Justice (Cambridge, MA: Harvard University Press, 1971).

35. John Maynard Keynes, The Collected Writings of John Maynard Keynes, vol. 28 (London and New York: Macmillan/St. Martin’s Press, 1973), pp. 38, 42.

36. See Stephen A. Marglin, “Radical Macroeconomics,” Discussion Paper No. 902, Harvard Institute of Economic Research, 1982, pp. 1–26.

37. See Robert Conquest, The Harvest of Sorrow (New York: Oxford University Press, 1987).

38. David Masci, “In Russia, Nostalgia for Soviet Union and Positive Feelings About Stalin,” Fact Tank, Pew Research Center, June 29, 2017, https://www.pewresearch.org/fact-tank/2017/06/29/in-russia-nostalgia-for-soviet-union-and-positive-feelings-about-stalin/.

39. David S. G. Goodman, Deng Xiaoping and the Chinese Revolution: A Political Biography (London: Routledge, 1994), p. 3.

40. John Steinbeck, The Grapes of Wrath (New York: Penguin Books, 1986 [1939]), p. 537.

VII. Alfred Marshall and the Marginalist Mind

1. We assume that the backpacker cannot return to Italy for more pleasure. Also, the cost of stepping forward includes the opportunity cost—the pleasure derivable from staying home, for instance.

2. Peter Groenewegen, A Soaring Eagle (Aldershot, UK: Elgar, 1995), p. 477.

3. Charles Dickens, Oliver Twist, ch. 50 (New York: Dover, 2002 [1839]), p. 318.

4. Peter D. Groenewegen, Alfred Marshall: Critical Responses, vol. 1 (London: Routledge, 1998), p. 38.

5. John Maynard Keynes, “Alfred Marshall,” in Essays in Biography (London: Macmillan/St. Martin’s Press for the Royal Economic Society, 1972), p. 164. Though majestic, Keynes’s essay contains some factual errors uncovered in Ronald H. Coase, “Alfred Marshall’s Mother and Father,” History of Political Economy 16 (Winter 1984), pp. 519–527.

6. Keynes, “Alfred Marshall,” p. 171.

7. “Economic Journal 125th Anniversary Special Issue,” Economic Journal 125 (March 2015), p. 203.

8. A. C. Pigou, “In Memoriam: Alfred Marshall,” in Memorials of Alfred Marshall, ed. A. C. Pigou (London: Macmillan, 1925), p. 89.

9. Keynes, “Alfred Marshall,” p. 175.

10. Alfred Marshall: The Correspondence of Alfred Marshall, Economist, vol. 1, ed. John K. Whittaker (Cambridge: Cambridge University Press, 1996), pp. 21, 48.

11. C. R. Fay, “Reminiscences,” in Pigou, Memorials of Alfred Marshall, pp. 74–75.

12. C. M. Guillebaud, “Some Personal Reminiscences of Alfred Marshall,” in Alfred Marshall: Critical Assessments, vol. 1, ed. John Cunningham Wood (London: Routledge, 1993), p. 93.

13. J. M. Keynes, “Alfred Marshall, 1842–1924,” Economic Journal 24, no. 135 (September 1924), p. 346.

14. Alfred Marshall, Principles of Economics, 9th ed., ed. C. W. Guillebaud (London: Macmillan, 1961 [1920]), vol. 1, pp. 7–9.

15. Marshall, Principles of Economics, p. xv.

16. Marshall, Principles of Economics, p. 461.

17. Alfred Marshall, “Letter to Bowley,” in Pigou, Memorials of Alfred Marshall, p. 427.

18. Keynes, “Alfred Marshall,” p. 196.

19. John Neville Keynes, The Scope and Method of Political Economy (London: Macmillan, 1891), p. 217n.

20. Marshall, Principles, p. xiv.

21. Marshall, Principles, p. 366.

22. Marshall, Principles, p. 271.

23. Marshall, Principles, p. 316. Schumpeter argued that dominant firms and monopolists could help the economy, because their excess profits enabled them to invest heavily in research and development. Schumpeter’s position remains controversial.

24. For a profile of the fascinating Sarnoff, see Todd G. Buchholz, New Ideas from Dead CEOs (New York: HarperCollins, 2007).

25. John A. Byrne, “Is Your Company Too Big?,” BusinessWeek, March 27, 1989, pp. 84–94.

26. Marshall, Principles, p. 348.

27. Mill, Principles of Political Economy, p. 99.

28. Mill, Principles of Political Economy, p. 118.

29. Ryan McPhee, “Grosses Analysis: Bruce Springsteen Ends Broadway Residency on High Note,” Playbill, December 17, 2018, http://www.playbill.com/article/grosses-analysis-bruce-springsteen-ends-broadway-residency-on-high-note.

30. Keynes, “Alfred Marshall,” p. 205.

31. Marshall, Principles, pp. 587–588.

32. Sharon Terlep, “Clorox Sales Fall as Glad Price Hike Backfires,” Marketwatch, February 4, 2020, https://www.marketwatch.com/story/clorox-sales-fall-as-glad-price-hike-backfires-2020-02-04.

33. Matthew Boyle, “‘Restricted Living’ Sparks Online Ramen Frenzy for Walmart,” Bloomberg, April 3, 2020, https://www.bloomberg.com/news/articles/2020-04-03/-restricted-living-sparks-online-ramen-frenzy-for-walmart.

34. This is a highly complex issue. See Ellen E. Meade, “Exchange Rates, Adjustment, and the J-Curve,” in Federal Reserve Bulletin 74 (October 1988), pp. 633–644.

35. Alfred Marshall, Money, Credit and Commerce (London: Macmillan, 1923), p. 247.

36. F. Y. Edgeworth, “Reminiscences,” in Pigou, Memorials of Alfred Marshall, p. 70.

37. Alfred Marshall, Lectures to Women [1873], ed. Rafaelli Tiziano, Rita MacWilliams Tullberg, and Eugenio Biagini (Aldershot, UK: Elgar 1995), p. 106.

38. Alfred Marshall, Letter to Lord Reay, in Pigou, Memorials of Alfred Marshall, p. 462; Marshall, Principles, p. 713.

39. Marshall, Principles, p. 3.

40. Keynes, p. 173.

VIII. Old and New Institutionalists

1. Auguste Comte gave the same advice to Mill. The neoclassicalists didn’t listen. Instead, they derided the even limper “soft” sciences. Ironically, the new institutionalists today meet on the same turf as other social scientists, partly because they bullied themselves into anthropology, criminology, and sociology.

2. Joseph Dorfman, Thorstein Veblen and His America (New York: Viking, 1934), p. 79.

3. Thorstein Veblen, “Why Economics Is Not an Evolutionary Science,” Quarterly Journal of Economics 12 (July 1898), p. 389.

4. Thorstein Veblen, The Theory of the Leisure Class (New York: Modern Library, 1934), pp. 42–43.

5. Harvey Leibenstein, “Bandwagon, Snob, and Veblen Effects in the Theory of Consumer Demand,” Quarterly Journal of Economics 62 (May 1950), pp. 183–207.

6. Jonathan D. Glater and Alan Finder, “U.S. Universities Raise Tuition, and Applicants Follow,” International Herald Tribune, December 12, 2006.

7. Although he eschewed Marx’s approach to exploitation, Veblen accepted Marx’s charge that the institution of private property hurts society. Nonetheless, his antipathy toward private property did not stop him from defending his secluded mountain cabin from a trespasser by attacking the intruder with a hatchet.

8. See Todd G. Buchholz, New Ideas from Dead CEOs (New York: HarperCollins, 2007).

9. Thorstein Veblen, The Theory of Business Enterprise (New York: Scribner’s, 1904), p. 309.

10. Veblen, Theory of Business Enterprise, p. 286.

11. Thorstein Veblen, The Engineers and the Price System (New York: Viking, 1921), pp. 18–19.

12. Thorstein Veblen, The Vested Interests and the Common Man (New York: Capricorn Books, 1969), p. 165.

13. Veblen, Engineers and the Price System, p. 58.

14. T. Pare and Wilton Woods, “The World’s Top 50 Industrial CEO’s,” in Fortune 116 (August 3, 1987), p. 23.

15. Wesley C. Mitchell, What Veblen Taught (New York: Viking, 1936), p. xviii; Joseph Dorfman, “Background of Veblen’s Thought,” in Thorstein Veblen, ed. Carlton C. Qualey (New York: Columbia University Press, 1968), p. 129.

16. John Kenneth Galbraith, The Scotch (Boston: Houghton Mifflin, 1964), p. 26.

17. John Kenneth Galbraith, The Affluent Society (Boston: Houghton Mifflin, 1976), p. 149. Given his forceful critique, it is ironic that Galbraith agreed to write a hardcover book (for Whittle Communications) containing advertisements!

18. Friedrich A. Hayek, “The Non Sequitur of the ‘Dependence Effect,’” in Southern Economic Journal 27 (April 1961), pp. 346–348.

19. Bernie Sanders, “Bernie Sanders on His Plan for Journalism,” Columbia Journalism Review (August 26, 2019), https://www.cjr.org/opinion/bernie-sanders-media-silicon-valley.php.

20. Lee Benham, “The Effect of Advertising on the Price of Eyeglasses,” Journal of Law and Economics 15 (October 1972), pp. 337–352.

21. Joseph Pereira, “Pricey Sneakers Worn in Inner City Help Set Nation’s Fashion Trend,” Wall Street Journal (December 1, 1988), pp. A1–A10.

22. Robert Skidelsky, John Maynard Keynes, vol. 2 (London: Penguin, 1992), p. 449.

23. Marjorie S. Turner, Joan Robinson and the Americans (London: Routledge, 2015), p. 90.

24. Todd G. Buchholz, Rush (New York: Penguin, 2011), ch. 7, “How Time and Interest Rates Bring Us Closer”; Barbara A. Hanawalt, Crime and Conflict in English Communities, 1300–1348 (Cambridge, MA: Harvard University Press, 1979).

25. Richard A. Swedberg, Joseph A. Schumpeter (Cambridge: Polity Press, 1991) p. 68.

26. Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 896.

27. Joseph A. Schumpeter, The Theory of Economic Development, trans. R. Opie (New Brunswick, NJ: Transaction, 2008 [1934]), p. 93.

28. Louis Brandeis, “The Living Law,” Illinois Law Review 10 (1916).

29. United States v. Carroll Towing Co., 159 F.2d 169 (2d Cir. 1947).

30. Ronald Coase, “The Problem of Social Cost,” Journal of Law and Economics 3 (October 1960), pp. 1–44.

31. George J. Stigler, Memoirs of an Unregulated Economist (New York: Basic Books, 1978), p. 76.

32. See Werner Z. Hirsch, Habitability Laws and the Welfare of Indigent Tenants (Los Angeles: University of California Press, 1978).

33. Maddy Savage, “The City with 20-Year Waiting Lists for Rental Homes,” BBC, May 16, 2017, https://www.bbc.com/worklife/article/20160517-this-is-one-city-where-youll-never-find-a-home.

34. Marc Beauchamp, “Bankrupt Landlords in Wonderland,” Forbes (March 20, 1989), pp. 105–106. Rent control is another issue that unites economists regardless of liberal or conservative politics. See Alan Blinder’s lucid Hard Heads, Soft Hearts: Tough-Minded Economics for a Just Society (Reading, MA: Addison-Wesley, 1987), pp. 194–195.

35. See Gary Becker, “Crime and Punishment: An Economic Approach,” Journal of Political Economy 78 (March–April 1968), pp. 169–217; I. Ehrlich, “Participation in Illegitimate Activities: A Theoretical and Empirical Investigation,” Journal of Political Economy 81 (May–June 1973), pp. 521–565; D. L. Sjoquist, “Property, Crime and Economic Behavior,” American Economic Review 63 (June 1973), pp. 439–446.

36. See Todd G. Buchholz, “Revolution, Reputation Effects, and Time Horizons,” Cato Journal 8 (Spring–Summer 1988), pp. 185–197.

37. Richard A. Posner, Economic Analysis of Law, 2nd ed. (Boston: Little, Brown, 1977), p. 22; 3rd ed. (Boston: Little, Brown, 1986), pp. 25–26. See also Todd G. Buchholz, “Punishing Humans,” Thought 59 (September 1984), p. 290.

38. A. A. Berle and G. C. Means, The Modern Corporation and Private Property (New York: Macmillan, 1932).

39. For example, see Lucian Bebchuk and Jesse Fried, “Executive Compensation at Fannie Mae: A Case Study in Perverse Incentives, Nonperformance Pay and Camouflage,” Journal of Corporation Law 30, no. 4 (2005), pp. 807–822.

40. Adam Grant and Jitendra Singh, “The Problem with Financial Incentives—and What to Do About It,” Knowledge at Wharton, March 30, 2011, https://knowledge.wharton.upenn.edu/article/the-problem-with-financial-incentives-and-what-to-do-about-it/.

41. See Dale Arthur Oesterle and John R. Norberg, “Management Buyouts: Creating or Appropriating Shareholder Wealth?,” Vanderbilt Law Review 41 (March 1988), pp. 207–260; Michael C. Jensen, “Takeovers: Their Causes and Consequences,” Journal of Economic Perspectives 2 (Spring 1988), p. 21; Benjamin J. Stein, “Loss of Values: Did Amsted LBO Shortchange Shareholders?,” Barron’s (February 16, 1987), p. 8.

42. Bruno S. Frey and Heinz Buhofer, “Prisoners and Property Rights,” Journal of Law and Economics 31 (April 1988), pp. 19–46.

43. For a theoretical model and an examination of South Vietnam in 1975, see Todd G. Buchholz, “Revolution, Reputation Effects, and Time Horizons,” Cato Journal 8 (Spring–Summer 1988), pp. 185–197.

IX. Keynes: Bon Vivant as Savior

1. Bertrand Russell, Autobiography (London: Unwin Paperbacks, 1975), p. 69.

2. Robert Skidelsky, John Maynard Keynes, vol. 1 (London: Macmillan, 1983), p. 180.

3. Milton Friedman, Dollars and Deficits (Englewood Cliffs, NJ: Prentice-Hall, 1968), p. 15.

4. Justin Fox, “Bob Lucas on the Comeback on Keynsianism,” Time, October 28, 2008, https://business.time.com/2008/10/28/bob-lucas-on-the-comeback-of-keynesianism/.

5. Robert Skidelsky, John Maynard Keynes, vol. 1 (New York: Penguin, 1983) p. 53.

6. R. F. Harrod, The Life of John Maynard Keynes (London: Macmillan, 1951), p. 50.

7. “Professor Keynes Is Optimistic,” British Movietone, https://www.youtube.com/watch?v=0PYSFqCSsGU.

8. Skidelsky, John Maynard Keynes, vol. 1, p. 118.

9. Dadie Rylands in John Davenport-Hines, Universal Man: The Lives of John Maynard Keynes (New York: Basic Books, 2015), p. 293.

10. Harrod, Life of John Maynard Keynes, p. 101.

11. Skidelsky, John Maynard Keynes, vol. 1, pp. 165–166.

12. Skidelsky, John Maynard Keynes, vol. 1, pp. 173, 175.

13. Skidelsky, John Maynard Keynes, vol. 1, p. 177.

14. Joseph A. Schumpeter, Ten Great Economists (London: George Allen and Unwin, 1952), p. 265.

15. Andrew Sinclair, The Red and the Blue (London: Weidenfeld and Nicolson, 1986), p. 17; Michael Holroyd, Lytton Strachey: A Critical Biography, vol. 2 (New York: Holt, Rinehart and Winston, 1968), p. 17.

16. John Maynard Keynes, Economic Consequences of the Peace (New York: Harcourt Brace, 1919), p. 20.

17. Davenport-Hines, Universal Man, p. 91.

18. John Maynard Keynes, The Collected Writings of John Maynard Keynes (London: Macmillan/St. Martin’s Press for the Royal Economic Society, 1973), vol. 10, pp. 413–415.

19. John Maynard Keynes, The Economic Consequences of the Peace (London: MacMillan, 1919), pp. 19, 24–25, 128.

20. Keynes, Collected Writings, vol. 17, p. 16.

21. See Milo Keynes, Lydia Lopokova (New York: St. Martin’s, 1983).

22. Skidelsky, John Maynard Keynes, vol. 2, p. 208.

23. David Chambers and Elroy Dimson, “John Maynard Keynes, Investment Innovator,” Journal of Economic Perspectives 27, no. 3 (2013), pp. 213–228.

24. Davenport-Hines, Universal Man, pp. 266–267.

25. For different views on the causes of the Great Depression, see Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963); Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: Norton, 1976); and Karl Brunner, ed., The Great Depression Revisited (Boston: Martinus Nijhoff, 1981).

26. Leo Rosten interviews Friedrich A. Hayek, part 2, November 15, 1978, Hayek Interviews, http://hayek.ufm.edu/index.php?title=Leo_Rosten_Part_II.

27. Gene Epstein, “Mr. Market,” Barron’s, August 24, 1998, https://www.barrons.com/articles/SB903738915698011000.

28. Lawrence H. White, “Did Hayek and Robbins Deepen the Great Depression?,” Journal of Money, Credit and Banking 40, no. 4 (2008), 763.

29. F. A. Hayek, The Denationalization of Money (London: Institute of Economic Affairs, 1976).

30. Paul Samuelson, “Lord Keynes and the General Theory,” Econometrica 14 (1946), p. 190.

31. Keynes, General Theory, in Collected Writings, vol. 7, p. 183.

32. Elizabeth S. Johnson and Harry G. Johnson, The Shadow of Keynes (London: Basil Blackwell, 1978), p. 102.

33. Keynes, Collected Writings, vol. 21, pp. 134, 144.

34. Keynes, General Theory, in Collected Writings, vol. 7, p. 128. For more elaborate proofs and explanations on why the tax-cut multiplier is smaller than the government and investment multiplier, see any introductory economics textbook.

35. Keynes, Collected Writings, vol. 21, p. 296.

36. Keynes, General Theory, in Collected Writings, vol. 7, pp. 380–381.

37. Keynes, General Theory, in Collected Writings, vol. 7, p. 129.

38. Samuelson, “Lord Keynes and the General Theory,” p. 187.

39. Keynes, General Theory, in Collected Writings, vol. 7, p. 154.

40. Keynes, General Theory, in Collected Writings, vol. 7, p. 156.

41. Keynes, Collected Writings, vol. 12, p. 57.

42. Keynes, Collected Writings, vol. 12, pp. 162–163.

43. Keynes, Collected Writings, vol. 12, pp. 383–384.

44. Keynes, Collected Writings, vol. 9, pp. 321–332.

X. Milton Friedman and the Monetarist Battle Against Keynes

1. Valentina Sanchez, “Venezuela Hyperinflation Hits 10 Million Percent,” CNBC.com, August 3, 2019, https://www.cnbc.com/2019/08/02/venezuela-inflation-at-10-million-percent-its-time-for-shock-therapy.html.

2. A. C. Pigou, ed., Memorials of Alfred Marshall (London: Macmillan, 1925), p. 25.

3. John Maynard Keynes, The Collected Writings of John Maynard Keynes (London: Macmillan/St. Martin’s Press for the Royal Economic Society, 1973), vol. 11, p. 294.

4. Milton Friedman, “Money: Quantity Theory,” in International Encyclopedia of the Social Sciences (New York: Macmillan and Free Press, 1968), p. 438.

5. Milton Friedman, “Discussion of the Inflationary Gap,” American Economic Review 32 (June 1942), pp. 314–320, reprinted in Essays in Positive Economics (Chicago: University of Chicago Press, 1953), p. 253.

6. John Kenneth Galbraith, Economics in Perspective (Boston: Houghton Mifflin, 1987), pp. 270–271. For more on Friedman’s life and career, see his memoirs in Milton Friedman and Rose D. Friedman, Two Lucky People: Memoirs (Chicago: University of Chicago Press, 1998).

7. In the green room before the NPR radio show, Stiglitz asked what topics we would be discussing. I explained that because he represented President Clinton’s push for the North American Free Trade Agreement, listeners would call the program to complain that he was risking American jobs going to Mexico. Stiglitz looked at me and asked, “What do you say?”

8. Milton Friedman and Simon Kuznets, Income from Independent Professional Practice (New York: National Bureau of Economic Research, 1945); Todd G. Buchholz, The Price of Prosperity (New York: HarperCollins 2016), pp. 119–121.

9. Milton Friedman, Studies in the Quantity Theory of Money (Chicago: University of Chicago Press, 1956).

10. Milton Friedman, A Theory of the Consumption Function (Princeton, NJ: Princeton University Press, 1957).

11. A. Ando and F. Modigliani, “Tests of the Life Cycle Hypothesis of Savings: Comments and Suggestions,” Bulletin of the Oxford University Institute of Statistics 19 (1957).

12. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963). For a critical view, see Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: Norton, 1976); and Karl Brunner, ed., The Great Depression Revisited (Boston: Martinus Nijhoff, 1981).

13. Valerie A. Ramey, “Ten Years After the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research?,” Journal of Economic Perspectives 33, no. 2 (2019), pp. 89–114.

14. Gary Fromm and Lawrence R. Klein, “A Comparison of Eleven Econometric Models of the United States,” American Economic Review 63 (May 1973), pp. 385–393.

15. Milton Friedman, “The Role of Monetary Policy,” American Economic Review 58, no. 1 (1968), pp. 1–17.

16. Lawrence H. Summers, “The Great Liberator,” New York Times (November 19, 2006), p. 13.

17. Economic Report of the President (Washington, D.C.: U.S. Government Printing Office, 1962), p. 68.

18. Paul A. Samuelson and William D. Nordhaus, Economics (New York: McGraw-Hill, 1985), p. 331.

19. Economic Report of the President, p. 55.

20. John B. Taylor, “Discretion Versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy 39 (1993), p. 202; Ben S. Bernanke, “The Taylor Rule: A Benchmark for Monetary Policy?,” Brookings, April 28, 2015, https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-taylor-rule-a-benchmark-for-monetary-policy/.

21. Ben S. Bernanke, “On Milton Friedman’s Ninetieth Birthday,” Federal Reserve Board, November 8, 2002, https://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/.

22. Marketplace staff, “It’s Time to Ask What Pigou Would Do,” December 26, 2008, https://www.marketplace.org/2008/12/26/its-time-ask-what-pigou-would-do/.

23. D. G. Champernowne, “Arthur Cecil Pigou (1877–1959),” Royal Statistical Society 122, no. 2 (1959), p. 264.

24. Karen Lovejoy Knight, A. C. Pigou and the Marshallian Thought Style (London: Palgrave MacMillan, 2018), p. 44.

25. Nahid Aslanbeigui and Guy Oakes, Arthur Cecil Pigou (New York: Palgrave/MacMillan, 2015), p. 257.

26. Nahid Aslanbeigui and Guy Oakes, “The Great War and the Genesis of Pigou’s A Study in Public Finance,” OEconomia 6, no. 4 (2016), pp. 487–488, https://journals.openedition.org/oeconomia/2471.

27. A. C. Pigou, “Mr. J. M. Keynes’ General Theory of Employment, Interest and Money,” Economica 3, no. 10 (1936), p. 115. When Pigou tried to rebut Keynes in print, Keynes stated that “it is no use whistling a new tune to an organ grinder” (Collected Writings, vol. 14, September 1936, p. 87).

28. See A. C. Pigou, Employment and Equilibrium (London: Macmillan, 1941), p. 126.

29. “Gazumping Returns to London Property Market,” Telegraph, February 6, 2009, https://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/4535006/Gazumping-returns-to-London-property-market.html.

30. A good primer on the matter is Martin S. Feldstein, ed., Taxes and Capital Formation (Chicago: University of Chicago Press, 1987). The book contains articles by Summers, President Clinton’s deputy treasury secretary, as well as articles by Boskin, Feldstein, and Lawrence Lindsey, key advisers to the Reagan and Bush administrations.

31. Royah Nikkhah, “Sir Michael Caine Warns Further Tax Rises Will Force Him to Move Abroad,” Telegraph, April 25, 2009, https://www.telegraph.co.uk/finance/budget/5219642/Sir-Michael-Caine-warns-further-tax-rises-will-force-him-to-move-abroad.html.

32. Edward C. Prescott, “The Transformation of Macroeconomic Policy and Research,” in Federal Reserve Bank of Minneapolis 2004 Annual Report, pp. 19–20.

33. Jason Furman, “Business Tax Reform and Economic Growth,” September 22, 2014, p. 8, https://obamawhitehouse.archives.gov/sites/default/files/docs/business_tax_reform_and_economic_growth_jf.pdf.

34. Austan D. Goolsbee and Peter J. Klenow, “Internet Rising, Prices Falling: Measuring Inflation in a World of E-Commerce,” National Bureau of Economic Research, Working Paper 24649 (May 2018), https://www.nber.org/papers/w24649.

35. Friedman and Friedman, Two Lucky People, p. 380.

XI. The Public Choice School: Politics as a Business

1. James M. Buchanan, Economics from the Outside In (College Station: Texas A&M, 2007), pp. 49, 55.

2. David Vesey, “Personality Spotlight: James Buchanan; Nobel Prize Winner for Economics,” United Press International, October 16, 1986.

3. Mancur Olson, The Rise and Decline of Nations (New Haven, CT: Yale University Press, 1982).

4. Mancur Olson quoted in “The Political Economy of Interest Groups,” Manhattan Report on Economic Policy 4 (1984), p. 4.

5. Benjamin Franklin, The Works of Benjamin Franklin, vol. 10, ed. John Bigelow (New York: G. P. Putnam, 1904 [1783]), p. 72.

6. Todd G. Buchholz, The Price of Prosperity (New York: HarperCollins, 2016), pp. 116–117.

7. George J. Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics and Management Science 2 (Spring 1971), pp. 3–21.

8. James M. Buchanan, The Consequences of Mr. Keynes (London: Institute of Economic Affairs, 1978), pp. 20–21.

9. Joseph P. Newhouse, Free for All: Lessons from the RAND Health Insurance Experiment (Cambridge, MA: Harvard University Press, 1993); Matthew J. Eichner, “The Demand for Medical Care: What People Pay Does Matter,” American Economic Review 88 (May 1988); Jonathan Skinner and John E. Weinberg, “How Much Is Enough? Efficiency and Medical Spending in the Last Six Months of Life,” National Bureau of Economic Research, Working Paper 6513 (April 1998).

10. Burton A. Abrams, “How Richard Nixon Pressured Arthur Burns: Evidence from the Nixon Tapes,” Journal of Economic Perspectives 20, no. 4 (June 2006), pp. 181, 187.

11. Mark M. Spiegel, “British Central Bank Independence and Inflation Expectations,” FRBSF Economic Letter, November 28, 1997, https://www.frbsf.org/economic-research/publications/economic-letter/1997/november/british-central-bank-independence-and-inflation-expectations/.

12. John Maynard Keynes, “The End of Laissez-Faire,” in Essays in Persuasion, in The Collected Writings of John Maynard Keynes, vol. 7 (London: Macmillan/St. Martin’s Press for the Royal Economic Society, 1973), p. 379.

13. Paul M. Sweezy, “John Maynard Keynes,” Science and Society 10 (1946), reprinted in R. Lekachman, ed., Keynes’ General Theory: Report on Three Decades (London: Macmillan, 1964), p. 303.

14. Keynes, “Am I a Liberal?,” in Essays in Persuasion, Collected Writings, vol. 9, pp. 301–302.

15. Keynes, Collected Writings, vol. 27, p. 387.

16. Keynes, “My Early Beliefs,” in Essays in Biography, Collected Writings, vol. 10, pp. 436, 437, 446.

17. Robert Skidelsky, John Maynard Keynes, vol. 1 (London: Macmillan, 1983), p. xviii.

18. Max Weber, “Politics as a Vocation,” in From Max Weber, trans. and ed. H. H. Gerth and C. W. Mills (London: Routledge and Kegan Paul, 1948), p. 95.

19. Keynes, Collected Writings, vol. 7, p. 384.

20. Keynes, “Can Lloyd George Do It?,” in Collected Writings, vol. 9, p. 125.

21. Keynes, “Can Lloyd George Do It?,” p. 125.

22. Keynes, Collected Writings, vol. 10, pp. 440, 448.

23. Keynes, Collected Writings, vol. 19, p. 750. See also Collected Writings, vol. 2, p. 92; vol. 9, p. 212; vol. 21, p. 201; and Geoff Hodgson, “Persuasion, Exceptions and the Limits to Keynes,” Keynes’ Economics, ed. Tony Lawson and Hashem Pesaran (London: Croom Helm, 1985), p. 23.

24. Quoted in Robert Skidelsky, “The Revolt Against the Victorians,” in The End of the Keynesian Era, ed. R. Skidelsky (London: Macmillan, 1977), p. 7.

25. Quoted in Charles H. Hession, John Maynard Keynes (New York: Macmillan, 1984), p. 258. See also D. E. Moggridge, Keynes (London: Fontana, 1976), pp. 38–39.

26. F. A. Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas (London: Routledge and Kegan Paul, 1978), p. 287.

27. Keynes, Collected Writings, vol. 10, p. 448.

28. See Leo Strauss, What Is Political Philosophy? (Westport, CT: Greenwood Press, 1973), p. 40; Douglas Sturm, “Process Thought and Political Theory,” Review of Politics 41 (1979), pp. 383–384.

29. Keynes, Collected Writings, vol. 2, pp. 22–23. Keynes deleted his more cutting remarks on Lloyd George from Economic Consequences of the Peace. They appeared fourteen years later in Essays in Biography. See Collected Writings, vol. 10, pp. 22–26, and vol. 17, p. 41.

30. See Arrow’s “Impossibility Theorem,” in Kenneth Arrow, Social Choice and Individual Values (New York: Wiley, 1951).

31. Keynes, Collected Writings, vol. 9, p. 295.

32. R. F. Harrod, The Life of John Maynard Keynes (London: Macmillan, 1951), p. 103.

XII. The Wild World of Rational Expectations and Behavioral Economics

1. Ike Brannon, “Remembering the Man Behind Rational Expectations,” Regulation, Spring 2006, p. 18.

2. John F. Muth, “Rational Expectations and the Theory of Price Movements,” Econometrica 29 (1961), pp. 315–335; Dermot J. Hayes and Andrew Schmitz, “Hog Cycles and Countercyclical Production Response,” American Journal of Agricultural Economics 69, no. 4 (November 1987), pp. 762–770.

3. See P. H. Cootner, ed., The Random Character of Stock Market Prices (Cambridge, MA: MIT Press, 1964); Eugene Fama, “Efficient Capital Markets II,” Journal of Finance, vol. 46, no. 5 (1991), pp. 1575–1617; Paul A. Samuelson, “Challenge to Judgment,” Journal of Portfolio Management 1 (Fall 1974), p. 17.

4. Chiarella v. United States, 445 U.S. 222 (1980); quoted in Wall Street Journal, December 16, 1987, p. 29.

5. Markowitz’s seminal paper was “Portfolio Selection,” Journal of Finance 7, no. 1 (March 1952), pp. 77–91. He expounded on the idea in a book: Harry M. Markowitz, Portfolio Selection: Efficient Diversification of Investments (New York: Wiley, 1959). The quotations come from Peter L. Bernstein’s Capital Ideas (New York: Free Press, 1992), p. 60. An aside: In 1990 the Free Press asked me whether I would be interested in writing a book on financial economists. Since it would have violated the White House rules, I declined. Instead, Peter Bernstein wrote this excellent book for that publishing house.

6. Franco Modigliani and Merton Miller, “The Cost of Capital, Corporate Finance, and the Theory of Investment,” American Economic Review 48 (June 1958), pp. 261–297. The “MM” model had to be revised to take account of corporate tax laws, which encourage firms to issue bonds by making interest payments deductible.

7. Quoted in David Warsh, “Nobel-est in Economics: Three Americans Share Prize for Corporate Finance Theories,” Boston Globe, October 17, 1990.

8. Robert E. Lucas Jr., “Understanding Business Cycles,” in Stabilization of the Domestic and International Economy, ed. Karl Brunner and Allan Meltzer, Carnegie-Rochester Conference Series, vol. 5.

9. Robert E. Hall, “Stochastic Implications of the Life-Cycle-Permanent Income Hypothesis: Theory and Evidence,” Journal of Political Economy 86 (December 1978), pp. 971–987.

10. Robert J. Barro, “Are Government Bonds Net Wealth?,” Journal of Political Economy 82 (December 1974), pp. 1095–1117.

11. Urban Bäckström, “What Lessons Can Be Learned from Recent Financial Crises: The Swedish Experience,” Kansas City Federal Reserve Board Symposium, 1997, pp. 1–12.

12. Financial Times, July 5, 1994, p. 20.

13. Milton Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1966).

14. Arjo Klamer, Conversations with Economists: New Classical Economists and Opponents Speak Out on Current Controversy in Macroeconomics (Totowa, NJ: Rowman, 1984), pp. 159, 162.

15. David Shariatmadari, “Daniel Kahneman: What Would I Eliminate if I Had a Magic Wand? Overconfidence,” Guardian, July 18, 2015, https://www.theguardian.com/books/2015/jul/18/daniel-kahneman-books-interview.

16. Daniel Kahneman and Jackson Beatty, “Pupil Diameter and Load on Memory,” Science 154, no. 3756 (December 23, 1966), pp. 1583–1585.

17. For an example of their work, see Daniel Kahneman and Amos Tversky, “Choices, Values, and Frames,” American Psychologist 39, no. 6, pp. 341–350. Peter Bernstein’s Against the Gods: The Remarkable Story of Risk (New York: Wiley, 1996), pp. 270–278, presents their theses clearly.

18. David Genesove and Christopher Mayer, “Loss Aversion and Seller Behavior: Evidence from the Housing Market,” National Bureau of Economic Research, Working Paper 8143 (2001).

19. Joshua B. Miller and Adam Sanjuro, “Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers,” Econometrica 86, no. 6 (2018), pp. 2019–2047.

20. Daniel Kahneman, “Daniel Kahneman: Biographical,” Sverges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 2002, https://www.nobelprize.org/prizes/economic-sciences/2002/kahneman/biographical/.

21. Quoted in Craig Lambert, “The Marketplace of Perceptions,” Harvard Magazine, March–April 2006, p. 53.

22. Joseph Schumpeter, Theory of Economic Development (New York: Routledge, 2017 [1934]) p. 80.

23. John A. List, “Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace,” Econometrica 72 (March 2004), pp. 615–625.

24. Daniel Kahneman open letter, in “Kahneman on the Storm of Doubts Surrounding Social Priming Research,” Decision Science News, http://www.decisionsciencenews.com/2012/10/05/kahneman-on-the-storm-of-doubts-surrounding-social-priming-research/.

25. “Open Letter Urges Labs to Replicate Results to Avoid a Looming ‘Train Wreck,’” Decision Science News, https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0172636.

26. Chris Mooney, “Why Obamacare Could Produce More Atheists,” Mother Jones, December 20, 2013, https://www.motherjones.com/politics/2013/12/why-do-atheists-exist/.

27. See John Taylor, “Staggered Wage Setting in a Macro Model,” American Economic Review 63 (May 1979), pp. 108–113.

28. See Mark H. Willes, “‘Rational Expectations’ as a Counterrevolution,” Public Interest, special issue 1980, p. 92.

29. In a 1997 decision, the Supreme Court revisited the insider-trading doctrine and tightened it up, based on change in the Securities and Exchange Commission rules. A financial printer is no longer free to misappropriate inside information. United States v. O’Hagan 97 C.D.O.S. 4931 (1997).

XIII. Dark Clouds, Silver Linings

1. John Maynard Keynes, “Alfred Marshall,” in Essays in Biography, in The Collected Writings of John Maynard Keynes (London: Macmillan/St. Martin’s Press for the Royal Economic Society, 1972), vol. 10, p. 173.

2. See Richard A. Easterlin, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence,” in Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz, ed. Paul A. David and Melvin W. Reder (New York: Academic Press, 1974), pp. 89–125.

3. “Math Arrow to Replace Number Line?,” Mathematical Association of America, https://www.maa.org/news/math-news/math-arrow-to-replace-number-line/.

4. Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper and Row, 1976), p. 61. Paul Romer’s “idea gap” discussion appears in his “Idea Gaps and Object Gaps in Economic Development,” Journal of Monetary Economics 32, no. 3 (1993), pp. 543–573.

5. John Tagliabue, “Yugoslavia’s Capitalist Tilt Becomes a Headlong Plunge,” New York Times, August 14, 1988, p. E2; James Brooke, “Adam Smith Crowds Marx in Angola,” New York Times, December 29, 1987, p. A6; Larry Rohter, “A Radical Diagnosis of Latin America’s Economic Malaise,” New York Times, September 27, 1987, p. E3.

6. Steven Greenhouse, “The Global March to Free Markets,” New York Times, July 19, 1987, sec. 3, p. 1.

Acknowledgments

1. Rich Barbieri, “Martin Feldstein, One of the Most Influential Economists of His Generation, Has Died,” CNN, June 12, 2019, https://www.cnn.com/2019/06/11/economy/martin-feldstein-obituary/index.html.