I wanted to share some of the research I'm doing into the origins of government/bureaucratic economic research and statistics. One thing I've discovered is that it all began with an encounter between academic economists, which only really became a thing after 1880, bourgeois philanthropy groups/business interests, and the bourgeois state during moments of crisis. The creation of the NBER after businesses discovered the utility of price statistics in WW1 is a good example, so was the creation of the Fed, partisan economic research outfits such as Brookings and AEI, and then the post-war expansion of economic research.
Some resources that have been particularly useful:
Political Arithmetic: Simon Kuznets and the Empirical Tradition in Economics (nber.org)
A History of the Federal Reserve, Vol. 1: 1913-1951 Allen Meltzer
A history of the Federal Reserve volume ii, book one, 1951–1969 Allen Meltzer
The Harvard Department of Economics from the Beginning to World War II on JSTOR
History of the Eighties - Chapter 1 (fdic.gov)
Constructing Economic Science: The Invention of a Discipline 1850-1950 Keith Tribe
Here's some scattered notes I've been taking, I'd appreciate any thoughts you guys might have:
History of Economics as a state apparatus
- Prior to 1900 the most important schools in economics were Johns Hopkins and Columbia
- However no major economists were produced by American institutions prior to this point, with Henry Carey and Henry George being the man men, and existing outside of it
- Most of the development of economic thought was occurring in Britain, and to a lesser extent in continental Europe.
- The main center was Oxford, which produced Alfred Marshal and John Keynes and formed the basis of what we know as economics distinct from political economy
- Political economy, in contrast, had its founding in a more diverse grouping
- Adam Smith was Scottish, and while he attended both the university of glasgow and the University of oxford, he found the environment at Oxford to be stifling
- “In the university of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching.”
- Wealth of Nations — Bk 5 Chpt 01 (Part III) (marxists.org)
- Ricardo was a businessman
- Malthus was a member of the clergy
- Marx was a journalist and ultimate outsider
- Adam Smith’s relationship to babbage and the beginnings of the industrial revolution
- Ricardo’s practical experience in finance and business
- Marx’s relationship with social classes in their political capacity, and then worked backwards to discover the historical and economic realities which made them
- Adam Smith was Scottish, and while he attended both the university of glasgow and the University of oxford, he found the environment at Oxford to be stifling
- Political economy, in contrast, had its founding in a more diverse grouping
- The main center was Oxford, which produced Alfred Marshal and John Keynes and formed the basis of what we know as economics distinct from political economy
- Most of the development of economic thought was occurring in Britain, and to a lesser extent in continental Europe.
- Prior to economics, political economy was taught as a part of moral philosophy, which is also how adam smith began his inquiry
- Francis Bowman, a harvard professor of History and Moral Philosophy, was the first American academic to begin to differentiate american academic economics from Britain’s
- Published in 1859 a textbook which was less free trade oriented, and slightly softer on the gold standard than orthodoxy at the time.
- In response, hard money interests in Boston created a fund to support pro-gold standard lecturers at Harvard, which would continue to exist for at least 100 years.
- This issue, of gold, silver and greenbacks was the biggest controversy in economics at the time, aside from tariffs.
- Published in 1859 a textbook which was less free trade oriented, and slightly softer on the gold standard than orthodoxy at the time.
- Up until the end of the 19th century, in both Britain and the US, academics in political economy were still largely self taught, even if they largely took their lead from certain canonical texts from Smith, Ricardo, and later, Mill.
- The kind of regimented classes we know today, where we go through the intricacies of the marshallian cross on the micro and then macro levels, did not yet exist
- Marginalism did not firmly take hold in academic economics in the english speaking world until Marshall’s textbook, Principles of Economics, in 1890
- Economics as a study didn’t really mature in the US until the turn of the century, Harvard did not have a political economy department until 1897
- First PHD graduated in 1875, a student of Harvard named Stuart Wood who independently discovered marginal productivity theory
- University of Chicago was founded in 1892
- In the 1870s, the only place with a systemic education in economics was found in Germany, and professed the historical school of economics that emphasized institutions and inclined to strong state intervention
- Strong Hegelian elements, of the state as an instructive and ethical entity
- Many american students went to Germany for education in economics
- Founded in 1885, the American Economic Association was one of the earliest civil society groups founded for the economics professions and was initially dominated by the German Historical School
- It’s founders were progressives and left leaning reformers
- It was moderated over time, with members rejecting the view that economics was an “ethical science” as one of its founders, Richard T Ely suggested
- This turn, from political economy to economics, was not just a rejection of economics of the labor theory of value as a scientific theory, but the roots of moral philosophy which colored Smith up through Mill and Marx, even as they all strived to combine this broader understanding with scientific objectivity
- The rejection of this broader understanding did not make economics more objective, but made it more perfect as a state ideology
- Thomas Nixon Carver, austrians and the rise of marginalism as a moral philosophy, which was only possible after discarding political economy
- Reinterpreting the whole world and its welfare through these methods, assuming it to be a scientific and non-ideological position
- First scholarly economic journal was founded with a gift from a harvard alumn and heir to a banking fortune, John Thayer
- Journals in France and England created by academics quickly followed
- Much of the practical controversy in american economics centered around banking and the debates about reforming the national banking system due to its history of dramatic failures
- J P Morgan, the individual, was called upon twice to save the financial system
- Organized a response with other bankers and the federal government
- Bailed out crucial companies that would have otherwise caused a cascading failure, much like Lehman Bros did in 2008
- A former economics professor from Washington and Lee university who was the advisor to the House Banking and Finance Committee was one of the architects of the federal reserve act
- J P Morgan, the individual, was called upon twice to save the financial system
- After the turn of the century, academic economists became more and more integrated with the state
- In 1909 Taft appointed Harvard economics Professor Abram Piatt Andrew to be the Director of the Mint
- Spraque, a student of Dunbar, would be an aid to the NY Fed governor in the 20s
- Edwin Francis Gay
- Harvard Professor in 1902, first dean of Harvard Graduate Business School in 1908
- Brought in Frederick Taylor, of Taylorist scientific management fame
- After WW1 he left harvard and eventually was instrumental to founding the National Bureau of Economic Research, which was instrumental in creating the first statistics on national accounts in the US and providing official dating for the beginning and end of recessions
- Officially a nonprofit, after WW2 it was closely integrated with the Council of Economic Advisors which handles empirical economic research for the White House
- Was approached by the head of the Rockefeller Foundation, which up to then mostly sponsored medical research
- Political Arithmetic: Simon Kuznets and the Empirical Tradition in Economics (nber.org)
- Project was postponed due to WW1, and in the interim, and instead the Rockafellers hired a different Harvard economist to openly perform apologetics for their preferred labor policies
- This failed miserably, as both the economist and the Rockafellers were censured by congress
- Afterwards, the John D Rockafeller jr was convinced by advisors that funding the social sciences would improve their image
- Unlike later influential economic think tanks, the NBER was founded with a focus on empirical research and intentionally reached out and included both radical and conservative economists
- One of the founding group was a translator of Karl Marx’s Contribution to the Critique of Political Economy
- US Entrance into WW1 and the establishment of the national defense act allowed the US government to directly purchase material from suppliers and commandeer factories
- Created quasi-governmental organizations responsible for estimating the industrial capacity of the US in order to meet the demands of the war, involved a number of statisticians and economists as well as leaders of industry
- Economists in academia more generally often left for government roles due to the mobilization
- Previous to WW1 service branches competed against each other as customers on the open market, but this would have created a vast amount of wasted military hardware caught up in bottlenecks of production
- Economic statistics began to be used by policy makers
- During the war studies were created that created statistics of wholesale prices
- After the war, businesses, academics asked to continue the price stats for planning purposes, but Prez Wilson refused saying it’d be improper role for government
- Establishment of NBER and it’s first major studies boosted by Rockafeller and Carnegie foundation donations
- Interest groups which were totally captured by a particular factional interest weren’t very effective
- Previous scandal with the rockefeller’s explicit buying of an economist
- The effected their future funding for economics, which they said had to be only Empirical research
- BAE’s slant shut down by Hoover
- BAE was one of the most advanced govt economics research outfits, focusing on agriculture
- First to experiment with regression analysis and correlation studies
- But narrowly represented agricultural capitalist interests, advocating government intervention to reduce agriculture output which would have boosted ag prices and profits
- BAE was one of the most advanced govt economics research outfits, focusing on agriculture
- Previous scandal with the rockefeller’s explicit buying of an economist
- The other alternative was partisan research
- Brookings one of the first main examples, which historically produced policy-centric research for the democratic party
- Republic party research outfits would come later, AEI, Heritage
- Relationship to the Mont Pelerin Society?
- NBER’s real scientific contribution was arriving at somewhat accurate estimates of national income
- Creation of the national accounts stats
- Federal reserve was at first only concerned with stats on banking and money
- Collected data on money supply and debits at it’s member banks
- Most govt stats early on were merely compilations of private data, trade journals ect, original info gathering wasn’t really happening
- Some economists were hopeful that with greater information about the economy, the business cycle could be contained
- Rockafeller’s also helped establish the Social Science Research Council (SSRC)
- Relied on other philanthropic sources as well, Russel Sage Foundation, Ford Foundation, Carnegie
- Russel Sage foundation, founded by wife of a railroad executive
- Initial focused on progressive movement causes
- Pittsburg survey of working class helped end 12 hour workdays
- After WW2 became increasingly involved in social sciences as a method for improving public policy
- Quality of life indicators
- After the 1980s became a big funder for behavioral econ
- Rockafeller and Carnegie corp earlier funders for eugenics research, including stuff that would inspire Nazis
- Relied on other philanthropic sources as well, Russel Sage Foundation, Ford Foundation, Carnegie
- First SSRC project was to improve govt statistics
- Outcome of philanthropic funding and the SSRC was the establishment of the Social Science Research Building at the Univeristy of Chicago
- FDR worked with SSRC, Rockefeller foundation to implement social security
- After WW2 became a proponent of modernization theory
- Committee on Recent Economic Changes
- Conviened by Hoover
- Seen as the private version of the national planning board that existed in WW1
- Extension on the previous conference on employment, but unlike the conference on employment it was organized by the federal government
- Milton Friedman began working for the NBER in the 30s, and would contribute to its research for several decades
- He was always one of the more empirically minded members of the austrian school
- In the 1930s, the discipline converged around a common doctrine, framework internationally
- Economic knowledge became institutionalized
- Key developments in the institutional structure of universities happened in the US, and were moved abroad in the turn of the century
- Marshall was key in making the discipline, but Keynes also gained an institutional foothold in the 20s
- Marshall was chair of political economy at Cambridge
- Before that he was teaching political economy to colonial indian civil service
- London School of Economics became hub of reproducing economic knowledge in the UK
- LSE was more focused on making economics into a science
- Economics discipline first had it’s center in cambridge, then moved to london school of economics
- This was the first british phase, center of economics discipline eventually moved to the US
- Establishment of chairs for political economy in cambridge and oxford linked to academic politics
- In the case of cambridge to the townsend prize, where Townsend, a wealthy benefactor attempted to set up a prize for an essay on trade and commerce in 1755
- Lasted two years before being shut down
- The chairs in political economy would not be established until the 1820s, 70 years later
- In the case of cambridge to the townsend prize, where Townsend, a wealthy benefactor attempted to set up a prize for an essay on trade and commerce in 1755
- Economics, as it’s developed into a proper social science, has done so via increasingly arcane and complex concepts and language that allow experts in the field to differentiate themselves from broader public discourse and understanding
- Mastery of techniques endows economic experts to pass on authority to the state, makes its policies as particular expression of scientific knowledge
- Also linked to a whigish history that portrays economic science as progressively more sophisticated and correct
- The process of turning political economy into the science of economics was a process of making it uniform
- Modern university originating in Germany/continental Europe
- Huntington and the need for liberal education for bureaucracy/military officer corps
- Primarily taught lawyers, teachers, doctors and priests
- Thus were expected to teach law, medicine, theology and philosophy
- Initially only taught my lecture and independent study, until the seminar which included discussions between teachers and students was developed in the early 1800s
- More technical scientific research
- Scottish universities were more modeled after continental Europe, while in England, there were only two universities, Oxford and Cambridge, both deeply integrated into the Anglican church
- Despite Marshall’s efforts at Cambridge, University College, London/ University of London became the center of economics as a science in Britain
- Founded in 1828, no religious tests and open to men and women
- More in the vein of scottish and german universities
- Role of electives in transforming universities
- Began on american campuses in the 1860s
- Favored specialized knowledge and more specialized professors
- Moved away from universities as means to transfer established knowledge
- Eventually this specialization allowed the development of a division of labor between expert professors with tenure who handle research and more precarious conditions for those employed teaching undergraduates for the masses
- Role of department as the organizing units of the universities
- Crystalized in University of Chicago
- Founded by Rockafeller
- Crystalized in University of Chicago
- In 1900 Association of American universities was founded to standardize quality of degrees
- Rockafeller and Carnegie foundations were instrumental in this standardization
- Issuing contingent grants based on certain metrics such as professors on staff
- Issued money to scholars for particular projects
- The now secular state and high bourgeoisie as the organizers of the university system
- Major sources of funding, thus gave them great influence, and still do today
- These philanthropic funds organized by the high bourgeoisie also sent money abroad, with Rockefeller foundation sending money to Cambridge and other english schools
- History of economics/political economy began in Europe with various associations discussing agriculture and the best policies to promote it
- Physiocrats
- Economic ideas were generated in other parts of the world in a similair way
- Advice to rulers to expand agriculture, which would allow them to sustain larger populations, and thus larger armies
- Earliest forms of economic knowledge where part of a public discussion
- Smith was a part of this tendency
- Malthus and Ricardo’s exchange of letters
- Marx’s Capital to be read by the proleteriat at large
- The last culmination of political economy as a public discussion
- In contrast, Marshall’s Principles of Economics was meant as a textbook for a classroom
- What came first was the supply of expert economists and the systemic training to create them, and then came their employment by the state, which was found to be useful and expanded
- This is an evolutionary framework, how the state evolved the social sciences and economics in particular as an ideological apparatus
- Initially these societies for political economy were supressed in the late 18th century in Britain due to fears about sedition, and this supression was mantained until the 1830s
- Mechanics society educated working men through lectures, acess to library and facilities
- This kind of societies proliferated in the earliy 1800s
- Regionalization of universities linked to movements for emancipation of women
- Alfred Marshall one of the supporters
- Women’s education
- Marshall’s Principles meant somewhat as a refutation of the abridgement of Mill, who was the main pseudo-textbook at the time
- Mill’s book also popular among the public
- Early 1800s, attempts to break the hold of patronage networks/aristocratic right in education/bureaucratic positions in Britain and Germany through standardized examinations/liberal arts education
- In Britain, the need was explicitly to train civil servants for colonial administration, especially in India
- In Germany, it was primarily for military officers
- 1800s also saw the establishment of journals, mostly geared towards a public, non-academic audience, particuarly focused on business audience like The Economist or related to civil society clubs
- By the mid 1800s, Germany began producing academic journals for Political Economy
- In Germany 1872 created their own society
- 1890, Marshall sets out to found British Economic Association modeled after the american one
- American Economic association was founded 5 years earlier in 1885
- Would become the Royal Economic Society
- So first came Germans, then American ( many american economists went to study in Germany given the lack of higher education programs in the US), then britain
- These networks helped coordinate appointments to universities and government institutions
- Germany, despite being the beginning of many trends in economics education, would become detached from international developments after the turn of the century
- By the mid 1800s, Germany began producing academic journals for Political Economy
- Marshall presented his ideas as a move away from mechanistic truths, to a method of reasoning to arrive at truths
- Similar to the scientific method
- Focus on history was mistaken, because no two situations were the same
- Similar to critique made by Mises and austrians
- Though he admits the importance of historical facts for study, if only to elucidate what forces migh be going into a given interaction
- Marshallian cross as a way of thinking about the world, an ideological framework, rather than a scientific prediction
- Principles of Economics wasn’t designed as a textbook, but as a framing for this approach
- Maintained economics connections with metaphysics, methodological individualism shared with the austrians, and which is still maintained by behavioral economics
- Separating it from political science/philosophy/logic/psychology in teaching/the university ect was his big success
- Replaced it with a set of “training” skills that were supposed to set graduates apart
- Especially mathematics, which was Marshall’s own training
- A way of viewing all actually existing economic relations
- Initially demand for economics degrees was weak
- Only began to boom after WW1
- As academic programs bloomed, the audience for economic writing changed, and so did the style encouraged by that audience
- Obscurantism, interest in originality/differentiation, mathematics
- Rockafeller report criticized the intellectual environment as too individualistic, introverted, focused on creating personalities/skills/rhetorically ability, rather than insight into research itself
- Federal reserve began publishing statistical releases in 1913, first sporadically and then in regular bulletins
- Predecessor to the national accounts
- Federal Reserve Board Statistical Releases: a Publications History
- Mostly focused on bank and monetary stats before WW1
- The 1921 recession turned the Fed from a reactive institution to a proactive one, hoping to snuff out economic crisis before they started
- It’s mission originated from stamping out seasonal cycles in credit access which up till then had been the main causes of recession (and which also significantly caused bank failures leading up to the great depression)
- In order to make decisions before a crisis hit they needed research and statistical data
- Realized they couldn’t simply rely on gold reserves as the rest of the world moved away from a gold backed currency
- Research began in the New York Fed and then later at the Board
- Created indexes of industrial production, prices, interest rates
- At the start there was only one economist on the Board, Adolph Miller
- Between 1922 to 1925 also introduced statistical data on factory payrolls, retails inventories, wholesale trade, agriculture ect
- Idea for the industrial production index began with American Economic Association meetings in dec 1920
- In 1926 research was centralized under the board and moved away from regional Fed banks
- Walter Stewart, who was a member of the committee on Price Section of the War Industries board in 1918 and later, from 1922-26 head of the Fed’s Division of Research and Statistics
- Brought economists deeper into the fold of policy makers, making the two more integrated
- From the 30s to 1950 he was on the board of trustees for the Rockafeller Foundation
- Was close friends with JM Keynes, as they worked together in the bank of england in the late 20s
- He was transplanted to the bank of england from the Fed in order to replicate the same kind of statistical services
- Created a price study of iron for the war board that was extremely detailed and likely became inspiration for later statistical work
- Institutionalist who opposed monetarist notions of all price fluctuations coming from changes in monetary supply
- After WW2, the Fed and most in the economic bureaucracy advocated for maintaining price controls and rationing until economic output had increased to meet demand
- In the UK, such measures continued until the 1950s
- Congress overruled them
- White house staff and govt agencies also supported a right to full employment, though this legislation was watered down in Congress as well
- The Federal Reserve was also supportive of the original bill, though the main features for reaching full employment didn’t involve the Fed
- It was the dominant position of the time, from the start of the Fed to the end of WW2, that monetary policy did not have a big impact on economic output
- One reason for the disastrous Fed policy in the great depression
- They also considered the deflation as a necessary consequence of the speculative fueled inflation, and were too anxious about future inflation to effectively loosen monetary conditions
- Part of the Real Bills doctrine
- Supposed to tie monetary supply to nominal output
- Part of the Real Bills doctrine
- Memo with Empirical research justified Fed’s minimal rate-reduction at the start of the crisis
- Fear of Gold-outflows led a 200 basis point hike in 1931
- It was the dominant position of the time, from the start of the Fed to the end of WW2, that monetary policy did not have a big impact on economic output
- The bill ended up also creating the council of economic advisors for the president, which would become integrated with the NBER
- The Federal Reserve was also supportive of the original bill, though the main features for reaching full employment didn’t involve the Fed
- Paul Volcker began his work in the research department at the Federal Reserve in 1952
- Then went to work on the trading desk, monitoring markets
- Much of domestic research at the time was focused on projections
- Looking at historical trends, inventory levels, modeling in spreadsheets
- 1 year in advance
- Rober Roosa, a friend of his, suggested that the government should attempt to do longer term forecasting, up to ten years
- Wanted to do this within the treasury department
- Government was resistant
- More partisan institutions like Brookings and AEI have also been integrated into the state with various administrations
- Roosevelt asked Brookings to come up with the causes for the depression though they later opposed some of his policies
- Brookings instrumental in carrying out the Marshall Plan
- Initially started with funding from Carnegie Foundation, then Rockafeller and Ford
- AEI effectively staffing the Bush administration
- AEI founded by variety of smaller business interests in the 30s
- Milton Friedman following in Marshall and Keynes footsteps
- Involvement with Division of War Research during WW2 at Columbia University
- Did empirical research that suggested failures in Keynesian framework, including philip’s curve
- By 1981 there was a Fed working paper acknowledging the Philip’s curve as previously conceived had been wrong, citing Friedman
- The new ideological paradigm after the collapse of Keynsianism in the inflation of the 70s was a new pro-market ideology
- Hints of the problems with it were already available in the 1980s Savings and Loans crisis
- History of the Eighties - Chapter 1 (fdic.gov)
- Deregulation of deposit interest rates at the exact same time that the big decline happened in interest rates, exposing newly deregulated small banks, thrifts and S&Ls to high volatility
- Deregulation also allowed them to engage in high risk taking behavior
- This trend of deregulation would go on to contribute to the GFC in 08 as it made banking more concentrated, opaque and risky
- Hints of the problems with it were already available in the 1980s Savings and Loans crisis
- DSGE modeling popular before and during the GFC
- After 2010, there were only 2, and one severely critical of DSGE’s
- From 80s on Fed consistently started producing working papers that were accessible to the public
- After WW2, the Fed greatly increased its Research capacity
- The Richmond and St Louis Feds were useful in changing policy by challenging accepted wisdom with their research
- The Minneapolis Fed became a leader in developing rational expectations models
- The Board began to develop big econometric models of the whole economy
- But these models were largely ignored by policymakers as not useful
- Thus began a pivot from govt research developing operational knowledge mostly to producing social science as an ideology
Interesting. Plenty of material for videos and whatnot. I knew already that "economics" emerges via Marshall as a way to steer attention away from the conclusions drawn by political economists, notably Marx.
Interesting. Plenty of material for videos and whatnot. I knew already that "economics" emerges via Marshall as a way to steer attention away from the conclusions drawn by political economists, notably Marx.
I should have a more detailed article coming out related to this in a few weeks, hopefully combing it with the social evolution theory of the state I've been developing based off Marx's writings on France.