Great Turnabouts in Economics
Three Prominent Economists Have Changed Their Thinking
NOVEMBER 01, 1997 by MARK SKOUSEN
Dr. Skousen is an economist at Rollins College, Department of Economics, Winter Park, Florida 32789, and editor of Forecasts & Strategies, one of the largest investment newsletters in the country.
Editor’s Note: Congratulations to Mark Skousen on his debut as a columnist for Forbes magazine. (See the September 22, 1997 issue.) Mark will continue to write his monthly column for The Freeman.
“There is no harm in being sometimes wrong—especially if one is promptly found out.”
—John Maynard Keynes
The gradual transformation of Paul Samuelson from Keynesian to classical economics (see my column in the September 1997 Freeman) is a major chapter in famous cases of economists changing their minds.
Nobody likes to admit he’s wrong. You can probably count on your fingers the number of times scholars have renounced their theories and switched positions. Most academics have a tendency to cling to old dogmas, especially if they have built a reputation on a particular doctrine. We can only admire the scholar who is willing to change when he is convinced by the facts or a new theory. It takes a strong dose of courage and honesty to go against one’s vested interest, especially after publishing books and articles on the subject.
Three prominent economists have admitted error and changed their thinking, and we can learn much from their experience.
George Stigler and Antitrust
George Stigler, the towering Chicago professor and Nobel Laureate, was a firm defender of antitrust laws in the 1940s and 1950s. He was influenced by Henry Simon, a leading spokesman for the Chicago School. Simon taught that big business posed a serious problem in the United States and advocated the nationalization of railroads, utilities, and all other “uncompetitive” industries—all in a book ironically entitled Economic Policy for a Free Society (University of Chicago, 1948). Stigler moved in a different direction, advocating the breakup of “concentrated” big businesses and punishment of companies engaged in collusion. He appeared before Congress in 1950 and proposed that U.S. Steel Corporation be broken up.
By the early 1970s, however, Stigler had changed his mind. Influenced by the work of Aaron Director and Joseph Schumpeter and a new theory of oligopoly, he found himself shifting his views. “What is still more embarrassing is that I no longer believe the economics I was preaching,” he declared. Concluding that concentration did not necessarily lead to monopolistic pricing, Stigler switched positions and actively opposed most antitrust legislation.
Robert Heilbroner and Socialist Planning
For most of his life, Robert Heilbroner, author of The Worldly Philosophers, a best-selling history of economics, was a socialist. Under the influence of Adolph Lowe and the New School of Social Research, he became enamored with Marxism. When the Polish economist Oskar Lange assailed Ludwig von Mises’s attack on socialist central planning in the 1930s, Heilbroner joined the rest of the profession and concluded that Mises was wrong and socialism could work.
By the end of the 1980s, however, Heilbroner dramatically altered his views. In a stunning series of articles in The New Yorker, he wrote that the long-standing debate between capitalism and socialism was over, and “capitalism has won.” In a follow-up article after the demise of the Eastern Bloc, he was even more explicit: “Socialism has been a great tragedy this century. . . . But collapse! No one expected collapse. . . . There is no doubt that the collapse marks its end as a model of economic clarity.” Furthermore, the debate between Lange and Mises had to be re-examined in light of contemporary events. “It turns out, of course, that Mises was right,” declared Heilbroner. Needless to say, Heilbroner’s change of heart did little to endear him to the socialist camp.
Lionel Robbins and Austrian Economics
Not every event is positive for free-market economics. The most notorious example of switching sides occurred when Lionel Robbins, a major proponent of the “Austrian” school of free-market economics, converted to Keynesianism in the late 1930s and early 1940s. In the United States, several prominent classical economists had already changed views, especially Harvard’s Alvin Hansen. But Robbins’s conversion was infamous because, as chairman of the economics department at the London School of Economics, he had brought Friedrich Hayek from Austria to England, and had been instrumental in translating and publishing Hayek’s and Mises’s works. He also wrote extensively about Austrian economics, including the illuminating The Great Depression (Macmillan, 1934).
However, he fell under the trance of John Maynard Keynes during World War II. In his autobiography, he repudiated the Austrian connection: “I shall always regard this aspect of my dispute with Keynes as the greatest mistake of my professional career, and the book, The Great Depression, which I subsequently wrote, partly in justification of this attitude, as something which I would willingly see forgotten.”
I should hope that if Lionel Robbins were alive today he would reconsider his views and see the Keynesian episode more of a “diversion” from sound classical economics (to use a term created by Leland Yeager) than as a “general” economic theory.
- George J. Stigler, Memoirs of an Unregulated Economist (Basic Books, 1988), p. 99.
- Robert Heilbroner, “The Triumph of Capitalism,” The New Yorker, January 23, 1989, p. 98. Note he wrote this article before the collapse of the Berlin Wall and the Soviet Union.
- Heilbroner, “Reflections After Communism,” The New Yorker, September 10, 1990, pp. 91-2.
- Lionel Robbins, Autobiography of an Economist (Macmillan, 1971), p. 154.