The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years
By Lawrence H. White
Cambridge University Press; 1st edition (April 9, 2012)
438 pages, $39.77
“I’m rather good at it”, said a young John Maynard Keynes to a friend shortly after starting the only economics course he would take in his life; a course that would turn a mathematician by training into the most influential economist of the twentieth century (with Milton Friedman’s permission).
This is one of the many anecdotes one can find in Larry White’s fascinating book The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years. In the 428 pages of the book, the author disentangles the main economic debates that marked the twentieth century, dedicating the last chapter to discuss some early twenty-first century events.
The Clash of Economic Ideas is divided into fifteen chapters, each of which deals with a relevant policy debate. White starts by debunking a widespread idea among outsiders to the field of economic history (including myself), namely: Keynes was the first one to challenge the laissez-faire orthodoxy. As early as in 1895, a group of critics of the doctrine of laissez-faire founded the very influential American Economic Association, which continues to this day.
But that is not all. Some of the leading economists of the early twentieth century weren’t laissez-faire dogmatists. For instance, Arthur Pigou, disciple of Alfred Marshall and mentioned several times in Keynes’s General Theory as the main exponent of the neoclassical orthodoxy, has gone down in history of economic thought for proposing a tax on negative externalities. Similarly, Irving Fisher, who introduced the distinction between nominal and real interest rates, argued that “we cannot let any dogma of laissez faire prevent us from checking suicidal ignorance”. He also favored progressive income taxes on utilitarian grounds.
Another interesting episode discussed by White in The Clash of Economic Ideas is the socialist calculation debate involving economists Ludwig von Mises and Oskar Lange. In a 1920 article, Mises pointed out that the lack of a price system in socialist economies prevented central planners from making informed decisions about how to allocate the scarce resources in an economy. This article triggered the response of economist and future Poland’s ambassador to the United States Oskar Lange. Lange agreed with Mises that prices are essential to make economic decisions about what, how and when to produce. Yet he argued that planning authorities could set those prices without the need of market mechanisms.
As expected, the chapters the author feels most comfortable with are those related to monetary economics. After all, Larry White is one of the leading monetary economists of our days. For instance, his analysis of the Classical Gold Standard, the Bretton Woods deal and the post-1971 monetary regime is excellent. Something similar could be said about the chapter where he discusses the fall into disgrace of Keynesian macroeconomics and the rise of monetarism in the 1970s.
On a negative note, and as pointed out by Institute for New Economic Thinking fellow Perry Mehrling in a 2012 review of the book, White tends to present the debates in a Manichean way: capitalism vs. socialism or laissez-faire vs. state-interventionism. Yet, as long as the reader is aware of this bias, this shouldn’t be a problem since White’s account is faithful to the historical facts.
Overall, The Clash of Economic Ideas is an enjoyable journey throughout the history of economic ideas. White adequately combines history, economic thought and economic theory to present the intellectual debates that shaped the twentieth century.