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A review essay of Mark Skousen’s The Big Three in Economics: Adam Smith,
Karl Marx, and John Maynard Keynes. Armonk, NY: M. E. Sharpe, 2007.
xiþ243 pp. ISBN 0765616947.
Those who teach undergraduate courses on the history of economic thought
are on a constant and alert lookout for a suitable textbook—more so than
those who teach other courses. Such a book must introduce readers to the
chief dramatis personae in a full and accurate manner and—no less
important—have the sense to leave out the minor characters. Such a book
must describe clearly the breakthrough ideas—and their evolution over
time—and also have the confidence to sidestep the duds. It must be deep
enough to not trivialize the magnificence of the major works, and it must also
be able to hold the interest of the Nintendo generations in the classroom.
Professor Mark Skousen’s book has, simply by refusing to be a clone of
some existing textbook, significantly broadened the choices available to
today’s teachers. Skousen’s book should not be compared to typical college
textbooks such as, say, Brue and Grant (2006), Ekelund and Hebert (2004),
or Landreth and Colander (2002). It more closely resembles New ideas from
dead economists by Todd Buchholz (1989) and The worldly philosophers by
Robert Heilbroner (1999), two mass-market trade paperbacks that are
widely used in colleges. Skousen’s book is a very concise, non-technical, and
easy-to-read narrative of the history of economic ideas from the ancient
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A Research Annual
Research in the History of Economic Thought and Methodology, Volume 26-A, 109–116
Copyright r 2008 by Emerald Group Publishing Limited
All rights of reproduction in any form reserved
ISSN: 0743-4154
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Greeks to the present day—or, in terms of personalities, from Plato to
Stiglitz—with most of its attention going to the Big Three: Smith, Marx, and
Keynes.
Compared to Buchholz or Heilbroner, Skousen puts a stronger relative
emphasis on the life stories of the Big Three, and a weaker relative emphasis
on their economic theories. Another distinguishing feature of Skousen’s
book is his love for polemics. This leads to a stronger relative emphasis on
the policy prescriptions of various economists and, once again, to a weaker
relative emphasis on the theoretical ideas behind the policy prescriptions.
And Skousen’s evaluations of those policy prescriptions are based almost
entirely on whether they: (a) celebrate the free market unreservedly, and (b)
assert an optimistic future for all free-market economies. Any mulishness on
those two counts will get you an F from Prof. Skousen, as is the fate of
David Ricardo, T. Robert Malthus, John Stuart Mill, Paul Samuelson, Karl
Marx, and John Maynard Keynes in his book.
The use of generous helpings of biographical detail is a two-edged sword,
as is the raising of the ideological temperature. One the one hand, Skousen’s
approach livens things up: we all like gossip and we all like fights. On the
other hand, the life stories recounted by Skousen are mostly (though not
always) a distraction, and Skousen’s emphasis on policy debates can take
the spotlight away from the theoretical innovations that we need to
celebrate. Moreover, fights of the intellectual sort are no fun without some
resort to caricature, some redefinition of the participants into stick figures.
This can distract readers from the complexities and multi-dimensionalities
of the people they are reading about.
Skousen’s focus on policy at the expense of theory can occasionally be
frustrating. It is not enough to be told that Quesnay opposed mercantilism
(p. 42). Did his opposition have a theoretical basis? Condillac may have
supported free trade (p. 43), but what reasoning led him to do so? Yes, Hume
opposed mercantilism (p. 44), but with what arguments?1 Skousen states that
Smith rejected the quantity theory of money (p. 36), which is a crucial
component of classical economics, but has no further comment on this and no
explanation of Smith’s reasoning. Skousen notes that Smith favored the gold
standard, but shows no interest in explaining Smith’s underlying logic.
Instead of providing clear explanations of Ricardo’s seminal theory of
rent and his theory of comparative advantage and letting the reader draw his
or her own conclusions about the usefulness of Ricardo’s deductive method,
Skousen spends three pages criticizing Ricardo’s penchant for abstract
theory (pp. 54–56). As a result, the reader has nothing to relate Skousen’s
methodological objections to.
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The exposition of the theories discussed in Chapter 4 is especially unclear.
Key ideas of the marginalist revolution—such as, the equality of the real
wage and the marginal product of labor (p. 109)—are mentioned but not
explained to the uninitiated reader. The true heroes of the marginalist
revolution such as Cournot, Dupuit, Gossen, and von Thunen are
mentioned only in passing (p. 107) on the grounds that marginalist ideas
received acclaim only through the writings of Menger, Walras, and Jevons.
But this justification is not good enough. True pioneers must be given their
due, especially when their achievements are ignored for no fault of theirs.
The monetary theories of Mises and Hayek are discussed at length
(pp. 128–130) but without rigor and precision. The discussion of ‘‘Hayekian
triangles’’ is especially frustrating.2
In his chapter on Keynes, Skousen refers to the IS-LM and AD-AS
representations of Keynes’s ideas and even provides the AD-AS diagram
(Table 1 of Chapter 10), but does not provide one word of explanation that
would make the diagram intelligible to readers, making one wonder who is
Skousen’s intended reader.3
Skousen’s chapter on Smith is exciting to read and his high regard for his
subject comes through loud and clear. But someone who has read other
textbook treatments in Blaug (1997) or Roncaglia (2005) or Screpanti and
Zamagni (2005) or in the books mentioned earlier will notice the thinness of
Skousen’s discussion. There is nothing on Smith’s theory (theories?) of
value, for instance. The origins of the invisible hand theorem in the writings
of Mandeville, Cantillon, and others is clumsily downplayed and relegated
to an appendix. Skousen notes that Murray Rothbard, whom Skousen
seems to hold in high regard, and other economic historians consider
Cantillon the true father of modern economics, but then fails to engage with
the notion. These pioneers should have been hailed for their insights in the
body of the chapter even at the risk of bringing Smith down a notch. More
controversially, Skousen notes that 1776 marks both the signing of
America’s Declaration of Independence and the publication of the Wealth
of nations and writes, ‘‘In that prophetic year, two vital freedoms were
proclaimed—political liberty and free enterprise—and the two worked
together to set in motion [italics added] the Industrial Revolution.’’ This is a
gross simplification of the origins of the Industrial Revolution, which are the
subject of debate even today (see Clark, 2007, and Wade, 2007).
Ricardo’s deductive use of abstract theory is criticized (p. 55) and yet the
first welfare theorem (of Arrow, Debreu, and others), which is in a sense the
mother of all abstractions, is deployed in support of Smith’s invisible hand
theorem (p. 20). The real reason for Skousen’s doubts about Ricardo’s
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method seems to be Skousen’s ideological dislike of Ricardo’s emphasis on
income distribution among the classes; he is comfortable with abstractions
as along as the policy prescriptions that follow from them are ideologically
correct.4
Nevertheless, Skousen’s criticisms of the empirical invalidity of the
Ricardian–Malthusian assumptions of the iron law of wages and of
diminishing returns to scarce land are strong and persuasive. Although
Smith preceded Malthus and Ricardo, it was Smith who understood the
economics of the industrial era that lay ahead, whereas Malthus and
Ricardo were busy discussing the economics of the pre-industrial era that
was already coming to an end. Smith was clearly ahead of his time.
Moreover, Smith was probably a lot more complex in his attitudes than is
commonly believed. As Skousen notes (p. 7), ‘‘His sympathies lay with the
average citizens.’’ Here are a few zingers from Smith (2005) that might
surprise Skousen’s readers:
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As soon as the land of any country has all become private property, the landlords, like
all other men, love to reap where they never sowed. (p. 56)
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Masters are always and every where in a sort of tacit, but in constant and uniform
combination, not to raise the wages of labor. (p. 76)
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Our merchants and master-manufacturers complain much of the bad effects of high
wages in raising the price y They say nothing concerning the bad effects of high profits.
They are silent with regard to the pernicious effects of their own gains. They complain
only of those of other people. (p. 113)
Civil government y is in reality instituted for the defence of the rich against the poor.
(p. 771)
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Wherever there is great property, there is great inequality. (p. 766)
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With the greater part of rich people, the chief enjoyment of riches consists in the parade
of riches, which in their eye is never so complete as when they appear to possess those
decisive marks of opulence which nobody could possess but themselves. (p. 198)
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Were the expence of war to be defrayed always by a revenue raised within the year, y wars
would in general be more speedily concluded, and less wantonly undertaken. (p. 1004)
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The penultimate quote could be mistaken as something from Veblen, of
whom Skousen is not an admirer (2007, p. 122). The final quote could have
come from Cindy Sheehan, the Iraq War protester.
Skousen notes Smith’s endorsement of universal public education (p. 34)
but does not speculate about what this endorsement might or might not tell
us about how Smith would have responded to some of the prominent
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features of the European welfare state of today. Heilbroner has argued that
Smith was primarily opposed to governments of the mercantile era that were
meddlesome and monopoly-coddling instruments of oppression of the
common people by the aristocrats. What Smith would have said about a
helpful and caring government that is accountable to the people is perhaps
still open to debate. The third paragraph of the passage from Smith that
Skousen quotes suggests that Smith was against government spending that
pays for ‘‘the people who compose a numerous and splendid court, a great
ecclesiastical establishment, great fleets and armies’’ or, in other words, the
most egregious forms of waste, fraud, and abuse (p. 35).
Skousen’s chapter on Marx is written in a fluid and brisk style and is both
enjoyable and informative. But the story of Marx’s life takes up a
surprisingly large amount of space. Skousen leaves nothing out, not even
some pretty personal and lurid details that have only a tenuous link, if any,
to Marx’s intellectual life.
Skousen’s discussion of the massive failure of Marx’s predictions is right
on the money. But capitalism has changed a lot since the nineteenth century.
In many countries, workers nowadays belong to strong and powerful labor
unions, working conditions and work safety are monitored by alert legal
authorities, and workers are insured against job loss. In many countries,
government-funded healthcare, higher education, and pensions are available
to all. Can we not say that Marx’s writings have been a significant force
behind this transformation of capitalism? In his narration of an anecdote
about a student of his (p. 66), Skousen makes those who are fascinated by
Marx’s ideas look delusional. Could it not be that the ‘‘abundance and
variety of goods’’ provided by capitalism are not enough for many of us?
Could it not be that we also hanker for equality, dignity, and freedom from
humiliation at the hands of the rich and powerful? Could it not be that Marx
was able to tap into this hurt within many of us?
Keynes and his followers get two very readable and interesting chapters in
the book. But once again Skousen cannot resist recounting some
unflattering (and largely irrelevant) details from Keynes’s life, perhaps with
the intention of priming the reader for the weightier intellectual criticisms to
come.
Skousen begins his attack by enlisting the real-balance effect of Pigou and
Patinkin against the Keynesian model (pp. 177–178). But here is Patinkin
(1987) himself on this issue:
In any event, no one has ever advocated dealing with the problem of unemployment by
waiting for wages and prices to decline and thereby generate a positive real-balance effect
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that will increase aggregate demand. In particular, Pigou himself concluded his 1947
article with the statement that such a proposal has ‘very little chance of ever being posed
on the chequer board of actual life.’ Thus the significance of the real-balance effect is in
the realm of macroeconomic theory and not policy.
Correspondingly, recognition of the real-balance effect in no way controverts the
central message of Keynes’s General theory.
Skousen then brings up the unquestioned long-run importance of saving
to attack Keynes’s paradox of saving, even though the latter is entirely a
short-run result (pp. 178–179). Even more absurdly, Skousen then attacks
Keynes’s use of independent saving and investment functions, as in the
familiar Keynesian Cross diagram that has become a fixture of introductory
textbooks:
y saving and investment do not involve two separate schedules at all. y Thus there is
no intersection of S and I at a single point and therefore no determination of macro
equilibrium. The Keynesian cross crumbles under its own weight. (p. 186)
Before we rush to re-write all macro textbooks, we should see that
Skousen is again attacking Keynes’s short-run analysis with concepts that
are appropriate in long-run analysis. For example, the Solow model of longrun growth assumes that all saving is automatically invested; it has no
independent investment function. Only the proponents of the real business
cycle theory of macroeconomic fluctuations may claim that Solow’s model is
an appropriate basis for short-run analysis.
Skousen seems to endorse a theory of short-run recessions that he
attributes to J.-B. Say (p. 185). In that theory, producers overestimate
demand and, as a result, overproduce. Unsold goods pile up and,
consequently, workers get fired. Skousen does not discuss whether this
theory has any falsifiable predictions or whether it has been empirically
tested by anyone.
In his concluding chapter, Skousen gives a detailed policy-centric account
of the ‘‘counter-revolution’’ led by Milton Friedman and discusses
miscellaneous other facets of the slow but sure triumph of the ideas
championed by Adam Smith over those proposed by Marx and Keynes.
It cannot be denied that our trust in the effectiveness and relevance of
countercyclical fiscal policy has been shaken and that free-market ideas have
achieved a very prominent and pre-eminent place in the toolbox we use to
make sense of the world around us. But some nagging doubts remain.
Skousen himself seems to acknowledge that our environmental problems
may require a coordinated effort by governments to organize some global
market in tradable pollution permits. Also, who will pay for fundamental
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scientific research if not the government? Who will stand by those of us who
were not lucky enough to be born with talent, ability, and luck? When
financial markets periodically go on the fritz, who will steer them to sanity if
not the government?
Yes, socialism has been routed. But it is not totally clear that it was the
laws of economics that did it. The use of American military might have been
a big part of the story. Even democratically elected socialist governments in
several Third World countries were violently overthrown by agencies of the
U.S. government and not allowed to evolve on their own (see Kinzer, 2004,
2007).
Finally, what is to be done when economic freedom and political freedom
are in conflict? What if the rich can pay for the best lawyers and in effect
purchase legal immunity for their crimes?5 What if public offices are
monopolized by the rich who can finance their own election campaigns?
Skousen deplores the power of special interests in public life. But would he
support the public financing of all election campaigns?
To sum up, Prof. Mark Skousen has written a concise and exciting
account of the history of economic ideas. But not every reader will like his
heavy reliance on biographical tidbits. And not everybody will be satisfied
with the clarity of his theoretical exposition.
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UNCITED REFERENCE
Smith (2000).
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NOTES
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1. Hume’s specie-flow mechanism is mentioned but not explained.
2. For a fuller treatment, see Garrison and Kirzner (1987).
3. The Introduction says nothing about his target readership. There is no Preface.
4. Although Smith’s invisible hand theorem and the first welfare theorem have a
superficial similarity, they are actually two very different arguments. In the words of
Blaug (1997, p. 60), ‘‘[T]he effort in modern textbooks to enlist Adam Smith in
support of what is now known as the ‘fundamental theorems of welfare economics’ is
a historical travesty of major proportions.’’
5. We still remember the O. J. Simpson murder trial and its outcome. In a more
recent echo of that episode, the actor Robert Blake, after being declared not guilty of
the murder of his wife, reportedly said of the American system of justice, ‘‘You are
innocent until proven broke.’’
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REFERENCES
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Blaug, M. (1997). Economic theory in retrospect. Cambridge, UK: Cambridge University Press.
Brue, S., & Grant, R. (2006). The evolution of economic thought. Mason, OH: Thomson
Southwestern.
Buchholz, T. G. (1989). New ideas from dead economists: An introduction to modern economic
thought. New York, NY: Penguin Books.
Clark, G. (2007). A farewell to alms: A brief economic history of the world. Princeton, NJ:
Princeton University Press.
Ekelund, R. B., & Hebert, R. F. (2004). A history of economic theory and method. Long Grove,
IL: Waveland Press.
Garrison, R. W., & Kirzner, I. M. (1987). Friedrich August von Hayek. In: J. Eatwell,
M. Milgate & P. Newman (Eds), The new Palgrave: A dictionary of economics (Vol. 2,
pp. 609–614). New York, NY: The Stockton Press.
Heilbroner, R. L. (1999). The worldly philosophers: The lives, times, and ideas of the great
economic thinkers. New York, NY: Simon and Schuster.
Kinzer, S. (2004). All the Shah’s men: An American coup and the roots of Middle East terror.
New York, NY: Wiley.
Kinzer, S. (2007). Overthrow: America’s century of regime change from Hawaii to Iraq.
New York, NY: Times Books.
Landreth, H., & Colander, D. C. (2002). History of economic thought (4th ed.). Boston, MA:
Houghton Mifflin.
Patinkin, D. (1987). Real balances. In: J. Eatwell, M. Milgate & P. Newman (Eds), The new
Palgrave: A dictionary of economics (Vol. 4, pp. 98–101). New York, NY: Stockton
Press.
Roncaglia, A. (2005). The wealth of ideas: A history of economic thought. Cambridge, UK:
Cambridge University Press.
Screpanti, E., & Zamagni, S. (2005). An outline of the history of economic thought. New York,
NY: Oxford University Press.
Smith, A. (2000). The wealth of nations. New York, NY: Modern Library.
Wade, N. (2007). In dusty archives, a theory of affluence. The New York Times, August 7.
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