Race, Liberalism, and Economics

The Negro Science of Exchange: Classical Economics and Its Chicago Revival

The Negro Science of Exchange Classical Economics and Its Chicago Revival David M. Levy and Sandra}. Peart For analytical purposes, are economic agents-humans-the same or not? In this chapter, we argue that, historically, the debate between those who trusted in markets and those who did not followed logically from different answers to this question. Starting with Adam Smith, classical economists held that humans are the same in their capacity for language and trade. They concluded that since markets are useful for some agents, they are beneficial for all of us. But the supposition of homogeneous competence was widely questioned in the nineteenth century by those who held that significant differences exist among humans, only some of whom are capable of language or trade. This presumption of (hierarchical) difference led the critics of economics to argue against markets. In their stead, they offered two alternatives: slavery and, when slavery was no longer a possibility , paternalism. Thus, our contention in what follows is that, as a historical fact, the controversy over whether markets work or not occurs over the presumption of equal competence, or homogeneity. On the side of homogeneity, we locate all the great classical economists and, much later, the Chicago school of economics associated with George Stigler and Gary Becker. On the side of heterogeneity, we find many "progressives" (Thomas Carlyle, John Ruskin, Charles Dickens, and Charles Kingsley). We hold that the reputation for "progressiveness" of those on the side of heterogeneity is unwarranted. This chapter explains why. 56 The Negro Science of Exchange 57 The linchpin of the economists' opposition to both slavery and paternalism is their presumption of human homogeneity that disallows masters, whether they own, rule, or look after their inferiors in a kindly fashion. Supposing that the social world is composed of equally competent optimizers , there is no group that needs looking after and no group that can do the looking after. In economics, there are no victims with whom to empathize: trades are voluntary and, it is presumed, mutually beneficial. This world without victims is surely what gives economics its reputation for hard-heartedness. By contrast, the great charm of paternalistic accounts is doubtless the compassion they allow for the victims of voluntary transactions. But there is a potential dark side to paternalism. For any victim, it is tempting to find a class of victimizers. In the period we study, we find that paternalistic accounts ofmarket transactions focus attention on both sides of the transaction and suggest that the victimizers are evil and parasitic, feeding and thriving on the blood, sweat, and tears of their victims. Those who are supposedly so adept at using markets as to be in the position ofsystematically taking advantage of ill-equipped traders are called "harpies," "parasites ," "vampires," and "Jews." We conjecture that this aspect ofpaternalism explains the hatred of market relationships that is still all too obvious. Economists, such as John Stuart Mill, who have asked how agents become competent demonstrate that it is possible to address the substantive issue ofhuman development-how, in fact, we learn to optimize; how children learn to function as adults-without appeal to a class of victimizers (Peart and Levy 2001). Indeed, one might fairly point to paternalistic aspects of Mill's writing and remember that he nowhere supposes the existence of a class of parasites. Yet appeal to human parasites is the great temptation for those working within the paternalistic tradition. Those we have studied succumbed to it. We begin the following account with some important history. It is still too rarely appreciated! that economics became the "dismal science" in this period because of an avowedly bleak and unrealistic view of human nature that abstracted away from the possibility of racial difference. Earlyeconomists were committed to a fixed, race-neutral account of human nature, the hardest possible doctrine of analytical homogeneity, in which all observed outcomes are explained by incentives, luck, and history. As a consequence, they opposed racial slavery and paternalism, and they favored markets instead. Foes of homogeneity might well have called economics "dismal," bleak, or even black-the "Negro science" of trade. 58 RACE. LIBERALISM. AND ECONOMICS As we will show in this chapter, our view of history runs counter to the commonly held perception that economists earned the phrase dismal sci~ ence because of an avowedly bleak and unrealistic view of human nature that abstracted out the possibility of improving the human condition. Here...