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Saturday, December 24, 2011

The Seat of Adam Smith Vs. Economic Alchemy

Imagine sitting in a chemistry class when a student in the class raises her hand to ask, “But what about the other side? Why aren’t you presenting the views of alchemy?” Most likely the classroom would burst into laughter, possibly even the professor. The professor would then explain that alchemy has been completely discarded and with good reason and thus is not worth explaining in a positive science class. The point is we would not, and should not expect the chemistry professor to seriously entertain the student’s question.

In the realm of economics, however, the economist is often expected to present the other side. This phrase, “We believe in presenting both sides,” is the cliché of Socialism number 22. Hughston McBain explains that those who claim we need to be fair and balanced and present both sides, “even if we ourselves don’t believe in it,” are actually not completely convinced themselves. He shows that many if asked if we should present the argument for coin clipping will likely say no but will still want to see the arguments for monetizing the debt. This is because they, despite the similarities with coin clipping, are not convinced monetizing the debt is wrong. And the same goes for wanting to hear the arguments for socialism.

Of course the issue is more complex for economics than the natural sciences, such as chemistry. While both are positive sciences, meaning they are value free, economics is a positive science that can have implications for normative discussions. The analytical work of economists has policy implications, which will require, at least at some level, a value judgment.

The desire of the public, college students, etc. to hear the other side of the arguments may be necessary in certain cases. Walking through the economic analysis of different policies, meaning showing if this, then this will occur can be very useful. But in most cases, however, it is utterly a failure of economists to understand the lessons of its own discipline’s history. The problem comes really from those economists who depart from the seat of Adam Smith, i.e. those that challenge the core arguments of economists from the beginning of the discipline and for all economists for their failure to convince the public of these ideas. As economist James M. Buchanan put it,

In part this is the inevitable result of public failure to understand the simple principle of laissez-faire, the principle that results which emerge from the interactions of persons left alone may be, and often are, superior to those results that emerge from overt political interference. There has been a loss of wisdom in this respect, a loss from eighteenth-century levels, and the message of Adam Smith requires reiteration with each generation. Modern economics must stand condemned in its failure to accomplish this simple task, the performance of which is, at base, the discipline’s primary reason for claiming public support.

We should be fair and balanced but not at the expense of the knowledge economics has taught us. Until economist’s can convince not only the public but also themselves we will continue to make the same mistakes over and over again. Economics is after all a science and not an ideology.

Download the Cliché of Socialism Number 22 here. 

  • Nicholas Snow is a Visiting Assistant Professor at Kenyon College in the Department of Economics, and previously a Senior Lecturer at The Ohio State University Economics Department. His research focuses on the political economy of prohibition.