The Revival of Laissez-Faire in American
A Case Study of the Pioneers
by Sherryl Davis Kasper
Cheltanham, UK: Edward Elgar, 2002. viii + 177 pp.
The title phrase laissez-faire is pressed into service as the
common denominator for this close-up look at the "pioneers" who have given
shape to this country's market-oriented macroeconomics. In a chapter-per-pioneer
format, Kasper presents the ideas of Frank Knight, Henry Simons, Friedrich
Hayek, Milton Friedman, James Buchanan, and Robert Lucas. Each chapter
provides a brief personal history, identifies a "pre-analytic vision,"
and presents the case for laissez-faire. The reader soon realizes
that this common rally cry of classical liberalism serves only loosely
as a common denominator. Laissez faire appears variously throughout
the book as a presumption, a principle, a policy recommendation, a standard,
an ideal, and a modeling technique.
Kasper, who takes her own orientation from the institutionalist school,
doesn't play favorites among the pioneers. As announced in the short introductory
chapter, her primary concern is with the basis for the advocacy of laissez-faire:
(1) Are there strong ideological influences? (2) Does the theoretical resolution
to some contemporary economic problem add to the case for less rather than
more government involvement? (3) Do new tools and methods help to reveal
the merits of unhampered markets?
Kasper's ultimate verdict
is not easily summarized, but the careful reader will see that it emerges
as an evolving pattern of answers to the questions about the basis for
the advocacy of laissez faire.
A passing reference (p.
149) to the "taint of ideological commitment to laissez-faire" supposedly
associated with the early pioneers hints that the later pioneers labored
under a taint by association. Kasper seems to take for granted that ideological
commitments lie somewhere below the surface of the arguments actually made—just
how far below being the only live issue. She acknowledges that there were
genuine efforts in the 1960s and 1970s to understand the problems of inflation
and stagflation—problems that were inadequately addressed by the Keynesian
orthodoxy. And she makes the judgment that Friedman's monetarism and Buchanan's
public choice theory had more appeal than could be accounted for in terms
of the implicit ideology. But while monetarism and public-choice theory
were born of ideology-cum-resolution-to-contemporary- problem, Lucas's
new classicism was born of resolution-to- contemporary-problem-cum-new-tools-and-methods.
Only in this most recent reincarnation was market- oriented macroeconomics
able to dominate the field.
But was it the rigor of
new classical methods or the adherence to laissez-faire—or possibly
something else—that won professional acceptance? Kasper's answer to this
question seems to hinge on the nature of the arguments of the early and
the late pioneers. The early pioneers made negative arguments. Because
of unquantifiable uncertainties (Knight), the fragmentation of knowledge
(Hayek), the lack of timely data (Simons and Friedman), and/or the lack
of suitable motivation (Buchanan), we cannot expect policymakers to engineer
results that are superior to those that emerge spontaneously in a competitive
market economy. With such negative arguments, it was difficult to attract
adherents in large numbers. Survival rather than revival was the order
of the day, and to that end the Mont Pélerin Society—suggested by
Simons before his untimely death in 1946 and organized by Hayek in 1947—became
Lucas, by contrast, offered
a positive argument. He brought laissez-faire into play up front
as a modeling technique rather than save it as a possible policy recommendation.
As a consequence, the macroeconomic modeler of the late 1970s and early
1980s could make full use of the mathematical techniques already in the
economist's tool box, could learn some new modeling techniques that were
part and parcel with new classicism, and could possibly develop still more
techniques to push the envelope of this new mode of theorizing. Devising
so-called fully articulated artificial economies, calibrating the models
on the basis of actual movements in real-world macroeconomic magnitudes,
subjecting the model economies to hypothetical shocks, and making predictions
on this basis occupied many practitioners. And it was all heady business,
despite—or possibly because of—the tenuous link between theory and reality.
Kasper mentions—but almost as an aside—that during the heyday of new classicism,
the revival may have been driven by the opportunity to employ sophisticated
techniques in the pursuit of professional advancement.
In the final page-and-a-half
of the book, Kasper notes that the supremacy of laissez-faire in
new classical dress was short-lived and argues that in any case Lucas's
contribution was not free of the ideological taint. Beginning in the early
1980s, his Friedman-friendly version of new classicism gave way to real
business cycle theory, which accorded no significant role to money, and
to new Keynesianism, whose sticky wages and menu costs warned against leaving
matters to the market. Further, an ideological taint attaches to Lucas's
new classicism, in Kasper's reckoning, because the tools that Lucas borrowed
from Friedman were themselves influenced by Friedman's ideological commitment
to laissez-faire. The reader gets the idea that the issue of ideology
has special significance for our understanding of market-oriented macroeconomics.
But that special significance is never put into a more general context.
No where in the book is there a discussion or even a mention of the ideological
underpinnings of Marxism, Keynesianism, or Institutionalism.
Nor does Kasper offer a
comparison of new classicism with old classicism. The old classical economists
favored a system of natural liberty partly on grounds of moral philosophy
and partly because of their understanding of the economic order. Laissez-faire
was a presumption, a default-mode policy. It assigned the burden of proof
to anyone (including themselves) who proposed to interfere with the natural
order. Would Kasper see the classical commitment to laissez-faire
as ideologically tainted? Presumably she would, since the arguments offered
by Adam Smith were the same in this respect as those offered almost two
centuries later by Hayek, Friedman, and Buchanan.
Beyond the issues of ideological
taint, readers will find interesting material in Kasper's book. Her survey
of the pioneers demonstrates, for instance, just how broadly the
label is applied. Henry Simons, who is well known for wanting to use the
tax system to redistribute income, also favored a tax on advertising, the
revenues to be used for consumer education and the establishment of uniform
commodity standards (p. 43). Milton Friedman, heavily influenced by Simons,
reread his work in later years and was astounded to realize that these
ideas were was once thought to have a pro-market orientation (p. 100).
Roger W. Garrison