I first discovered Robert Heilbroner’s “The Worldly Philosophers” (1953) when I was an undergraduate majoring in economics in the mid-1990s. I was captivated by its unique blend of history, biography, and economic theory. I wasn’t alone in my fascination. “The Worldly Philosophers” is the second most successful economic book in history behind only Paul Samuelson’s landmark textbook of 1948. Heilbroner’s group biography has gone through seven editions and has sold nearly four million copies. It is one of my all-time favorite reads and one of the few books I’ve gone back to and reread several times.
Sylvia Nasar is best known for “A Beautiful Mind” (1998), her best-selling biography of game theorist John Nash. She clearly saw a juicy commercial target when she essentially endeavored to update and refresh Heilbroner’s masterpiece. The end result is “Grand Pursuit: The Story of the People Who Made Modern Economics” (2012), a book that is not terribly different from “The Worldly Philosophers.” To the extent there is any material difference, Heilbroner focuses more energy on the theories themselves whereas Nasar devotes more time to the personal lives of the economists that created them. Also, Nasar’s overall tone about capitalism and its future are considerably more upbeat than Heilbroner’s.
For roughly the first hundred years after Adam Smith published the Wealth of Nations in 1776 economist sought to explain how the economy worked. It wasn’t until about 1870 that they sought ways to “put mankind in the saddle,” as late nineteenth century economist Alfred Marshall put it. Nasar stitches together a collection of punchy biographical vignettes to form a chronological narrative of the field of economics.
She begins her story with Karl Marx (1818-1883) and Friedrich Engels (1820-1895) and it almost reads like comic relief. Marx is portrayed as a bumbling ne’er do well in constant need of Engels’s money and intellectual direction. Most of all, Nasar chastises Marx for myopia, both regarding his economic theories and his own personal life. At one point Nasar chuckles, “One might think that his family’s climb from renters of rooms over a store to rate-paying owners of a London townhouse would have made Marx uneasy about his theory.” Remarkably, Marx never once visited a British factory in the thirty-four years he lived in London.
Next, Nasar turns to Alfred Marshall (1842-1924), “the father of modern economics,” the creator of the supply and demand curves we all know from Econ 101. Unlike Marx and many other early economists, Marshall admired the entrepreneur and the worker. He did everything he could to better understand their world from inside the factory walls. He toured extensively across the United Kingdom and United States. “For Dickens and Marx,” Nasar writes, “firms existed to control or exploit the worker. For [John Stewart] Mill they existed solely to enrich their owners. For Marshall, the business firm was not a prison. Management wasn’t just about keeping the prisoners in line. Competing for customers (or workers) required more than mindless repetition. Marshall’s business enterprises were forced to evolve in order to survive.”
Marshall’s focus on the implications of intense economic competition led to his most important insight: the importance of economic growth, defined as the combination of expanding output and increasing efficiency. Marshall discovered that competition drove incremental improvements in productivity, which raised wages and lowered prices, and ultimately led to an overall increase in living standards. He published his magnum opus, “Principles of Economics,” in 1890. According to Nasar, it “embraced private property and competition, and optimism about the improvability of man and his circumstances.” His work would inspire a new generation of pro-business economists, John Maynard Keynes foremost among them.
Nasar then turns to Beatrice Webb (1858-1943), the precocious youngest of nine daughters of wealthy British industrialist Richard Potter. Webb would go on to found the London School of Economics, help to create the modern notion of the welfare state, and pioneer the establishment of the think tank. Webb, along with her husband and fellow economist Sidney, played a pivotal role in the Fabian Society, which took its name from the Roman general Quintus Fabius Maximus, the commander who famously pursued an indirect approach against the legendary Carthaginian captain Hannibal. The Fabians sought to avoid revolution and instead, according to Sidney Webb, lead Great Britain towards Socialism slowly and indirectly by gradually “impregnating all the existence of forces of society with Collectivist ideals and Collectivist principles.” In short, they wanted Socialism, but with property, capitalists, and Parliament, and without Marx or class warfare. Perhaps most of all, she sought to replace the classic nineteenth century laissez-faire free-for-all with orderly planning from top to bottom. In most respects, Nasar says, she was successful. “Making radical change seem evolutionary was Beatrice’s genius.”
“American economics of the Progressive Era is typically described as utterly divorced from the British evolution toward collectivism and the welfare state,” Nasar writes. Indeed, in reading “The Grand Pursuit” it appears that few Americans made much of a lasting contribution to economic theory until at least the early twentieth century. The most prominent was Irving Fisher (1867-1947), the teetotaling Yale economist who set out to construct a mathematical model of an entire economy, calculating how markets set prices, which in turn generated supply and demand. Harvard’s Paul Samuelson once called Fisher’s 1890 doctoral dissertation “the greatest doctoral dissertation in economics even written.” Nasar credits Fisher’s work with capturing economic reality in a new way with all of its interdependence and mutual causation.
Fisher emerged as a leading public voice on the economy after the Panic of 1893, which led to the worst depression in American history up to that point and pushed monetary policy to the forefront of the presidential campaign of 1896. According to Nasar, money has historically been seen “as powerful, desirable, very likely evil, and mysterious, like natural calamities and epidemics.” Americans, with their longstanding suspicion of federal power, were more obsessed than Europeans with the so-called “money question.” Fisher emerged as one of the nation’s leading authorities on monetary policy while still in his mid-20s. He would remain so for decades until his rosy prognostications about the stock market in 1929 and predictions of quick recover in the early years of the Great Depression irreparably damaged his reputation, not to mention his personal fortune. These failures asides, Nasar says that Fisher’s impact was enormous: “Irving Fisher was the first to realize how powerfully money affected the real economy,” she says, “and to make the case that government could increase economic stability by managing money better.”
The global economy was on a tear in the Gilded Age and Progressive Era. The economy grew three times as fast between 1870 and 1913 than it did compared to the previous forty years. The population surged, yet real per capita incomes doubled. The wealthy nations of the west, which had been roughly three times wealthier than the poorer nations of Asia and Africa in 1820, had grown to eight times as wealthy by 1910. In 1897 Mark Twain quipped, “the world has moved further ahead since the Queen [Victoria] was born [1819] than it moved in all the rest of the two thousand put together.” For the first time, people began to recognize that it wasn’t just what a nation had that matter (land, resource, population), but what you did with it.
But this breakneck growth was often messy. Enterprises rose and fell with alarming rapidity. The system was constantly growing bigger, but also evolving; the workers were growing more productive, the industries more focused, the financial systems more specialized. Austrian economist Joseph Schumpeter (1883-1950) argued forcefully that this bumpy process was a blessing in disguise. It led to innovative leaps that were dramatic, disruptive, and discontinuous, a process he famously referred to in 1911 as “the perennial gale of creative destruction.” According to Schumpeter, “the pattern of boom and bust is the form economic development takes in the era of capitalism.” Constant change was a requirement for economic stability, just as motion is needed to keep a bicycle upright.
Unlike previous economists, Schumpeter also emphasized the role of the visionary entrepreneur in generating the productive gains necessary for increased standards of living across society. “It was,” Nasar writes, “a beguiling, romantic, even heroic narrative.” Hardly the stuffy economist, Schumpeter’s libertine lifestyle often mirrored the chaotic economy he studied. “He was as careless of his reputation as he was of his money,” Nasar writes.
World War I nearly destroyed capitalism. Private property, free markets, and democracy had all lost legitimacy. Victors and vanquished alike were crippled by colossal debt and runaway inflation. Anarchy and communist takeover loomed. At age 35, and in the midst of an unprecedented political and economic crisis, Joseph Schumpeter became Austria’s youngest ever finance minister. During his short and tumultuous tenure he was just barely able to keep the shattered Austrian economy afloat. “I held the minister-ship in a time of revolution,” he later wrote, “and it was no pleasure, I may assure you.”
The most dominant personality in “Grand Pursuit” is the legendary British economist John Maynard Keynes (1883-1946). Perhaps a third of the book is dedicated to the life and theories of Keynes. Most of what Nasar writes comes directly from Robert Skidelsky’s massive and magisterial biography on the great economist. A core member of the Bloomsbury Set, Keynes was famously brilliant and arrogant. He rose to prominence as an outspoken critic of the Versailles Treaty. Hardliners in London and Paris wanted Germany to pay $40 billion in reparations, roughly a third of total Allied war expenditures. Keynes argued that $15 billion was the most that Germany could possibly afford, which was less than what Britain and France owed the United States. Keynes warned that no peace settlement based on such shaky economic foundations could possibly last. He believed that the primary threat to capitalism was instability, not inequality. Keynes eschewed radical socialist arguments; he was too much of an elitist to subscribe to the politics of class war, Nasar says.
After a decade of 4% growth, the economy in 1929 was 40% larger than in had been in 1921. Per capita incomes had grown by 20%. More patents had been filed in the previous decade than the previous century. Both Keynes and Irving Fisher believed in the economy and had made personal fortunes by investing in it. They would both see their fortunes evaporate. At first they believed that monetary policy alone could fix the problem. Eventually they conceded that more needed to be done. Aggregate demand needed to be increased. The conventional wisdom was that saving was what was required, not spending. Keynes countered: “Were the Seven Wonders of the world built by thrift? I doubt it.” The government needed to act as the spender of last resort, just as the central bank acted as the lender of last resort.
In an embarrassing and unnecessary concession to diversity and inclusion, Nasar includes Joan Robinson (1903-1983) in “Grand Pursuit.” An academic disciple of Keynes at Cambridge University, Robinson in no way belongs in this group of esteemed economists. Her early and only notable research was on monopolistic competition. She slowly slid into the Communist orbit. She was utterly “infatuated” with Josef Stalin, eventually supported Mao’s Cultural Revolution, and even wrote glowingly about “The Korean Miracle” after touring Kim Il-Sung’s North Korea in 1964. Communist dictators of the world considered Robinson something of a “Trophy Intellectual.” According to Nasar, “she relished her celebrity, her junkets, the VIP treatment, and her Bully Pulpits.” All in all, Robinson comes across as a mediocre economist and a silly dupe of the Communist Bloc. I’d be genuinely curious to learn how and why Robinson was added to Nasar’s line-up of heavyweight economic thinkers, a fraternity to which she most obviously does not belong.
Nasar quickly touches on several other twentieth century economists more deserving than Robinson. One is the Austrian Friedrich Hayek (1899-1992), who is best known today for warning against the threat of personal liberty from the government control of the economy. His anti-statist treatise “The Road to Serfdom” (1944) remains popular with conservatives to this day. Germany’s remarkable rise from post-war prostration was a vindication of Hayek’s belief in free market, free trade, and sound money. By the latter half of the twentieth century, Hayek remained one of the few substantive counter-weights to Keynesian economics in academia and policy circles.
Amartya Sen (born 1933) is the only person of color in “Grand Pursuit.” He is perhaps best known for integrating economists’ traditional focus on growth and well-being with political philosophers’ traditional concern with individual rights and justice. Specifically, Sen has argued that freedom is the true measure of a good society, a primary end as well as a principle means of economic development. A notable outcome of his work is the UN’s Human Development Index. Robert Solow has called Sen “the conscience of our profession.”
“Grand Pursuit” was one of those books that I enjoyed reading much more than reviewing. Each vignette is fun and readable. However, I think Heilbroner did a better job of articulating their theories and timeless contributions.
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