Titlepage book Economics

Economics: an introduction to traditional and radical views --- The bible for radical economists

Publication: Harper and Row, Publishers. Inc. (1978, Newe York)

First insertion on Heterodoxe Gazet Sam de Wolff: 26 july 2012

E.A. Bakkum is professionally active in the Sociaal Consultatiekantoor, where he holds the position of solicitor.

When E.K. Hunt and Howard J. Sherman completed Economics: an introduction to traditional and radical views in 1978, a book of an impressive 600 pages, they realized the dream of many economics students. For ages the new generation had doubts, whether the visions of their own teachers were any good. At last now an introduction became available, which treats the traditional and radical approaches on a more or less equal footing. The two authors have tried to write a book about political economy, and this actually resulted in a good number of chapters about social questions. The book addresses the new generation, who wants to do her own thinking. Of course the advantage of two authors is, that there is a mutual stimulation and correction, which improves the balanced treatment of the matter. In this way the student can make up his mind, en at the same time gets acquainted with the arguments of his political opponents1.

Does it make sense to write a review about a book, which was published 35 years ago? That depends. Is he unique? Is he available? Here the book is a classic work, with a content that remains interesting, and sometimes even obtains a new relevance. On the other hand some paragraphs are outdated, like the ones about the plan economies. So sometimes the historical necessities demand their toll. An important argument in favour of the review is, that right now second-hand copies become abundantly available on web shops like Amazon, for a few euros. The rebellious generation of 1968 retires, or worse.

Although Hunt cum suis try to give a fairly complete account of their subjects, they do have personal convictions. That is immediately clear. First, they sympathise with theories of radical economists2. Their rejection of the ruling power is so vehement, that they almost seem to crave for a revolution. For another thing (and somewhat related to the first point), both men like to use explanations from the institutional school of economics. The institutionalists attach great value to the non-economic institutions, like sociological interpretations of norms and values. To what extent does society depend on culture, or on natural regularities?3 They explain the developments for instance from power blocks, like the military-industrial complex. Yet some of the most renowned economists belong to this institutional school4.

The preference of the authors for the institutionalism ever incites them to employ lengthy historical surveys of the various economic systems and theories. Here they follow the Historical-Ethical School5 and, at least in its outline, the theory of the historic materialism, which has been propagated by Karl Marx. The structure of the society is determined by the ruling class, which imposes her norms and values on the others in the form of ideologies. The onset of capitalism is located in the sixteenth century, simultaneous with the decay of feudalism and the rise of the mercantilism. The emphasis is on the anglosaxon countries, and rightly so, in view of the prosperity of first the United Kingdom (UK) and then the United States of America (USA). There begins the exploitation of the wagework on a massive scale.

Hunt and Sherman attach value to an appealing way of teaching. This implies an optimal accessibility, or perhaps in more terse wordings, readability. Certain parts, like the desription of the American robber barons at the end of the nineteenth century, can be called outright exciting. Hereafter it became clear, that only the active intervention by the state can guarantee the economic stability. Oligopolies and monopolies started to regulate more and more branches. At the same time the imperialist competition intensified. The raging concentration of power becomes omnipresent to such an extent, that the spirit of the time may be called revolutionary. From this point the two authors distinguish between three currents: conservatives (supporters of the unlimited free market), liberals (mixed economy), and radicals (socialists in various forms). The two first-mentioned rely firmly on the laws of the neoclassical theory. That should be clear by now!6

The historic overview changes in a seamless way into an explanation of the theory of Keynes. In his wake the management theory gains ground, which predicts a rising power for the managers, at the costs of the capital owners, and with this de facto the change to a collective property. Also here the authors adhere to their historical analysis. They are distrustful, and make an incitement for counter-pressure. They date the end of the New Left in the USA around 1977. In this light they have just missed the bus.

Meanwhile the book goes on with a clear explanation of the question of distribution and the role of the markets7. Also the profit and the capital interest and their justification get ample attention. In the paragraph about the factor labour the heroic but tragic history of the American trade unions is described. The organization of the workers is opposed by a growing concentration and centralization of the enterprises. The American economy is dominated by the oligopolies. Hunt and Sherman defend the standpoint, that oligopolies actually behave like monopolies. They give an extensive discussion of the monopolist price formation, based on the marginal costs and revenues. Both authors show by means of statistical data, that this kind of monopolies actually cash surplus profits, at the cost of the more competitive branches. Not all capitalists are equal, they argue.

Hunt and Sherman are undeniably critical of society. They point out that the American politics and the trade and industry are interwoven. Acccording to them, during the twentieth century the American inequality of incomes has not diminished. The reason is among others the many loopholes in the tax laws. On the other hand, racism divides the workers, and by that the wage struggle is weakened. It is said that the official unemployment data are reduced artificially. Many unemployed are spirited off by backdoor techniques8.

All interesting macroeconomic subjects are addressed: the definitions of the gross national product, the economy of money, banking and the theory of inflation. Of course the theory of Keynes is studied in detail. Following up this point they present in an impressive 60 pages an instructive semi-empirical model of economic business cycles, better known as the conjuncture9. Radicals have always been fascinated by the instabilities in the existing order. Here they differ from the liberals, who believe that the markets are one magnificent well-balanced whole. Monopolist branches display the best resistance against crises. In this way they turn out to be the unexpected beacons of welfare and prosperity. Thus the authors do not really reject the monopolies, but they do demand their democratic control.

Of course there is a discussion of the monetary-fiscal policies, that can attenuate the conjuncture. The Central Bank (meant is the Federal Reserve) keeps watch over the money creation by the banks. The reader should realize, that modern banks are not like that. Recently in the monetary pillar a revolution of bankers has occurred, with the unpleasant consequence that this paragraph is completely outdated. In the USA the fiscal pillar, the conjunctural expenses by the state, has mostly a military character. Hunt and Sherman believe that this is a system error. The duo states that the Soviet Union has equalled the production of the USA in 1975. Who could foresee that two decades later the Soviet Union would be gone? The position of the USA weakens, also with respect to Europe and Japan. Harping on this argument, the two explain the advantages of international trade. The third world is not capable in making up arrears. The reader is again invited to reflect on this exposition.

In the end the alternatives for capitalism are addressed. These final 35 pages are truly stirring. With full knowledge the plan economies of Russia and China are analysed. The authors are horrified by the regime of Stalin, with some justice. Yet they keep hope that reforms will eventually create a more democratic system. They explain the operation of the plan system. Also the Yugoslav system of the popular state under Tito is appropriately addressed. The advances in China (then the Great Leap Forward and the like) are described with mixed feelings. The institutionalism knows, that not every revolution is a blessing.

Economics is clearly a book of the seventies. It provides a critical examination of the existing order, and entertains huge expectations with regard to social rebellion, which in retrospect looks a bit naïeve. And yet, is this not back-biting? If one accepts it, or feels softened, then the book remains an excellent introduction. And thanks to the many political analyses, product of two institutional thinkers, the reader gets acquainted with many dimensions. It is more than a collection of economic rules and laws. And the only requirement of knowledge is a fair command of the English language.

  1. Incidentally, Hunt and Sherman do make a selection. For instance they ignore the production function, because they do not see her scientific value. An amateur of the political economy should be familiar with this concept, but Hunt and Sherman believe that in an introduction subjects like environmental pollution, the third world, the Leninist plan economies and social questions (racism, feminism, etcetera) are more important. They want to shield the student from common but erroneous, ideologically manipulated, theories. (back)
  2. Apparently they have continued their preferences up to the present day. They are clearly more colour-proof than the cover of their book. This can not be said from many others, who after a rebellious youth conform themselves to the economic mainstream in an opportunist way. Just for that reason E.K. Hunt and Howard J. Sherman are already intriguing. By the way, it is mysterious that Sherman uses his full forename. There must be a logical explanation, but what?. (back)
  3. Your reviewer strays here. The view dominates the economic science since Adam Smith. One recalls his arguments about the natural or normal price, that goes with the equilibrium state. Incidentally, the Frenchman Richard Cantillon proposed this idea even sooner, around 1730. (back)
  4. Worth mentioning are Thorstein B. Veblen and John. K. Galbraith. (back)
  5. There is an undeniable relation between the institutionalism and the Historical-Ethical School, that became leading in Germany from 1830. Its protagonists (Schönberg, Bücher, etcetera) are sometimes scornfully called the catheder socialists, notably by the Manchester-men. She denies the existence of the homo-economicus, and even of general economic laws. On p.90 Hunt and Sherman cite, not by chance, Schmoller, though briefly, and of course in English. (back)
  6. Hopefully the reader forgives the reviewer his badinage. What else can be expected, when the remunaration is just a bagatelle? (back)
  7. Here they are more critical of the market than is usual. The market only satisfies the demand with purchasing power, while on the other hand a plan economy can distribute in a fair and just manner. (back)
  8. Your reviewer thinks that both authors run on a bit. One chooses a certain method, and thereafter should stick to it. (back)
  9. Probably Sherman has contributed most to this part, His career is characterized by a fascination for business cycles. Here he uses the scientific methode, that has been developped by the American Wesley Mitchell during the first decade of the twentieth century. In this approach the cycles have an institutional origin, that is to say, they are determined by the specific form of capitalism. Sherman has published his findings in the book The business cycle (1991, Princeton University Press). This is another classic work, but for a small target-group. (back)