History of Political Economy 35.2 (2003) 348-350
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A Perilous Progress: Economists and Public Purpose in Twentieth-Century America. By Michael A. Bernstein. Princeton: Princeton University Press, 2001. 358 pp. $39.50.
Bernstein's subject is the professionalization of American economics in the early twentieth century and the subsequent development of its policy influence, which in Bernstein's view peaked with the Kennedy Council of Economic Advisors (CEA) and then eroded in the wake of the great inflation of the 1970s and 1980s.
He begins with the ambitions of the founders of the American Economic Association on behalf of their subject, and continues with the “new era” economics of the 1920s, associated with Wesley C. Mitchell and the NBER, the crisis that the Great Depression created for the discipline (as for many other American institutions), and its recovery of authority with the New Deal. Then he turns to the wartime deployment of economic analysis, particularly linear programming, and shows that the continued rise of economics after the war owed much to the applicability of these [End Page 348] ideas, and of game theory, to military problems. This, and the parallel development of macroeconomics, ensured a privileged position for economics in policy circles during the 1960s, which it subsequently lost.
As the book's subtitle hints, its focus is an authentically home-grown institutionalism, which displayed a remarkable capacity to adapt ideas from other traditions and apply them to its own conception of the public purpose. Bernstein leaves no doubt that he admires this strand in American economics and deeply regrets its decay, and this broad theme is carefully sustained throughout the book, ensuring its coherence and readability.
There are many points of detail to provoke and interest the reader too. For example, Bernstein deals frankly with the influence of postwar anti-Communism on the profession, noting that overt charges of political disloyalty quickly gave way to much harder to meet accusations of professional incompetence that persisted long after Senator McCarthy and his ilk had passed into history. This account provides considerable insight into the unfortunate marginalization of socialist economists in America, although Bernstein might also have noted that similar tactics have been used to marginalize dissenters on the right too, sometimes to some effect, as with exponents of Ludwig von Mises's brand of “Austrian economics,” but sometimes backfiring with a vengeance, as with the condescending treatment meted out to Milton Friedman in the 1950s and 1960s.
Bernstein's account of the onset of the great inflation begins with the Johnson administration's attempts to cope with the problems of financing a war in Vietnam and another on poverty, without disturbing the electorate, by deceptions that blindsided even the CEA, and it continues into the 1970s with supply-side shocks and the activities of OPEC. In this story, the activist economics represented by the CEA was a victim of circumstances, losing its influence to the ideas of right-wing opportunists through no fault of its own. In Bernstein's tale, Arthur Laffer (whose photograph is immediately preceded by portraits of Walter Heller, James Tobin, and Arthur Okun) is the paradigm of the influential economist of the era in which, with fiscal policy hobbled by supply-side ideas, power shifted from the CEA to the Fed, and “the dream of an unchallenged repository of economic skills in the executive branch had been outflanked, its highly visible professionalism and the prestige that went with it replaced by in camera proceedings of a faceless gathering of bankers. Economic statecraft had abandoned the limelight of the public arena for the proverbial smoke filled room” (190).
The rhetoric is worthy of Bernstein's hero, Thorstein Veblen, but there is another way of telling the story. Perhaps the economists who served Presidents Johnson and Nixon caused their own downfall by underestimating the role of monetary factors, overestimating the power of direct guidelines and controls over wages and prices, and recommending ineffective policies that let inflation get out of hand. This story could have a different ending too: rather than...