AEA: Born in Sin

The American Economic Association, which publishes perhaps the world’s most prestigious and staid economics journal, generally omits all heterodox representation from its renowned mid-winter meetings, and prides itself on a political neutrality that disallows all but the most anodyne public positions, was in fact, founded by ardent state socialists. I found a 1955 essay by Joseph Dorfman published in the American Economic Review that reproduced the AEA’s 1885 founding statement of principles; they are astounding, especially when measured against the organization’s current incarnation:

1. We regard the state as an agency whose positive assistance is one of the indispensable conditions of human progress.
2. We believe that political economy as a science is still in an early state of its development. While we appreciate the work of former economists, we look not as much to speculation as to the historical and statistical study of actual conditions of economic life.
3. We hold that the conflict of labor and capital has brought into prominence a vast number of social problems, whose solution requires the united effort, each in its own sphere, of the church, of the state and of science
4. In the study of the industrial and commercial policy of governments we take no partisan attitude. We believe in a progressive development of economic conditions, which must be met by a corresponding development of legislative policy.

These principles didn’t emerge from thin air. The emphasis on the developmental state, on induction and history, and on class relations, can all be traced to late 19th century Germany, when there were close ties between American and German universities, particularly American Institutionalist economists and members of the German Historical School. The founding members of AEA were all German-trained economists, and the AEA itself was modeled after the Verein für Sozialpolitik, an institution originally run by members of the German Historical School which was intended to serve as an organ for social and economic reform and labor activism.

The German tradition is unmistakable in the writings of the American Institutionalists, though on the whole, the Americans were less hyper-nationalist (think: Schmoller, late Sombart), less radical (think: early Sombart) and by and large more sensitive to the category of the individual than their German counterparts (Schmoller famously deemed the state the “highest ethical power that controlled individual existence,” and the military “a school for the nation”). Perhaps the most provocative of the American lot was Richard T. Ely. He reiterated the credo and program of the AEA in 1887:

We hold that the doctrine of laissez-faire is unsafe in politics and unsound in morals, and that it suggests an inadequate explanation of the relations between the state and the citizens. In other words we believe in the existence of a system of social ethics; we do not believe that any man lives for himself alone, nor yet do we believe social classes are devoid of mutual obligations corresponding to their infinitely varied inter-relations. All have duties as well as rights, and, as Emerson said several years ago, it is time we heard more about duties and less about rights. We who have resolved to form an American Economic Association hope to do something towards the development of a system of social ethics.

Unfortunately, the influence of the German Historical School on American economic thought quickly dissipated, at least in mainstream publications like the AER. The statement of principles was dropped a few years after it was issued. John Bates Clark—another eminent German-trained founder of the AEA—and others eagerly adopted Stanley Jevons’ theory of marginal utility, after which they shifted their focus away from histories, institutions and statistics, and toward axiomatic systems designed to scrutinize the imaginary and infinitesimal increments of economic distinction between, say, eggs and tea. Ely was bitterly dismissed from Johns Hopkins University in 1892. His termination was orchestrated by Simon Newcomb, Ely’s conservative colleague. (Newcomb’s assault was essentially an angry repetition of that classic tenet, so deeply embedded in the history of economic methodology from J.S. Mill to Milton Friedman, regarding the proper scope of economics: Ely, Newcomb insisted, belabored questions concerning “what ought to be,” rather than limiting himself to the study of “things as they are.”) Afterwards, Newcomb helped transform the AEA into the professional organization it is today. Ely still has a distinguished lecture named after him that is given annually to the AEA, but the fiery normative agenda he defended was rubbished not long before he was put on trial for allegedly indoctrinating students with “socialistic” ideas.

Perhaps that’s what this blog does—its point seems to remain unclear. It can be a place to pick through the rubble of our social science ancestry and poke at the corpses. We’ll see.