Shaking the Invisible Hand

Browsing at a used book store in Vancouver, I picked up some classics on the cheap. Someone must have dumped their economics books, thinking them passe. I’m keen to revisit those classics – the more I learn, the more I get out of them.

So I got a 1964 edition of Keynes’s General Theory of Employment, Interest and Money, Robert Heilbroner’s The Essential Adam Smith, and Jane Jacobs’s The Economy of Cities for $5, $8 and $4.50 respectively. Keynes and Smith are available on the web, but being as large as they are, a bound version is so much nicer.
The Heilbroner book is interesting as it is both a biography and exposition on Smith’s works, but with large sections of reprinted original text, including some early essays and lectures, but mostly the Theory of Moral Sentiments and The Wealth of Nations. The book begins:

No economist’s name is more frequently invoked than that of Adam Smith, and no economist’s works are less frequently read. An aura surrounds Smith, endowing his name with an authority not enjoyed by any other worldly philosopher except Marx.

…

Human nature, history, social psychology are the bedrocks on which his architecture of ideas was raised; and although his conclusions about mankind are profoundly conservative, we shall soon discover that his enormous authority resides, in the end, in the same property that we discover in Marx: not in any ideology, but in an effort to see to the bottom of things. In both cases, their greatness rests on an unflinching confrontation with the human condition as they could best make out.

I’d say the same is true of Keynes. Before I jump on that train, it is worth showing a few glimpses of the Smith that we do not often hear about. Heilbroner goes on:

We come to Smith correctly expecting to find a great social thinker in the conservative tradition, but we are not likely to anticipate finding in him that “Laws and government may be considered … as a combination of the rich to oppress the poor”, or to read that merchants and manufacturers are “an order of men, whose interest is never exactly the same with that of the public, who generally have an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both decieved and oppressed it.”

I also learned that at age four, Smith was abducted by a band of passing gypsies!

If reacquainting oneself with Smith is a good salve for a case of market fundamentalism, Keynes is the cure. Seventy years on, the General Theory is still very readable and relevant to today’s economy. Keynes shook up an economics profession that had become complacent with its own elegant mathematics build on suspicious assumptions. He begins:

I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

Keynes sought to understand how capitalist economies really work, and like Smith before him, draws a lot on his observations about what motivates behaviour, and only then gets into the math. It is a shame that the history of economic thought is given short shrift in most economics departments these days, in favour of more courses heavily anchored in neoclassical theory.

As for Jacobs, I do not have much to say. I look forward to reading her book, as I have been engaged a great deal in urban planning issues for the Vancouver City Planning Commission the past couple years. Jacobs is revered by new urbanists like Larry Beasley, outgoing Co-Director of Planning for the City of Vancouver. She has a theory of import-substitution as it relates to cities that I find interesting and novel relative to my economics training.