The New School for Social Research at 100: A view from the Econ. Dept.

From a late 1990s catalogue; Lance Taylor (center), and also in no particular order

and from what I can remember (Ellen Houston, Adalmir Marquetti, myself (with goaty

on the left side), Margaret Duncan, Josh Bivens and Carlos Bastos (Orozco Room)

The New School for Social Research was founded 100 years ago by a group of academics dissatisfied with the direction of American higher education. Economics was central to the early history of the New School, and my brief, very incomplete, and certainly idiosyncratic historical account emphasizes the Economics Department of what used to be called the Graduate Faculty.

Thorstein Veblen, one of the founders, had written his famous Higher Learning in America, which in a sense is the original critique of the corporate university. The idea was to put learning at the center, and avoid the conventional trappings of universities, with no degrees provided to students. The foundations of the critical perspectives provided at the New School came from institutionalists (like Veblen), pragmatists, represented by another prominent founder, namely John Dewey, and revisionism in history, with Charles Beard as its main voice at the new institution. Many came from Columbia University and were dissatisfied with both institutions of higher education and the direction the country had taken, in particular with World War I. These were mostly anti-war, progressive social scientists.

Perhaps the key person at the inception of the New School was Alvin Johnson, a somewhat difficult to classify economist (Gonçalo Fonseca at the HET website suggests that he might be seen as Austrian), that has been almost completely forgotten. Johnson was the editor of the massive Encyclopaedia of the Social Sciences, later substituted by the International Encyclopedia of the Social Sciences (last edition under Sandy Darity, and I have two entries on Export Promotion and James Mill), which put him in contact with several economists around the world, many in Germany.

A group of scholars that he met as the editor of the encyclopedia was the basis for the so-called University in Exile, which eventually was the basis for the Graduate Faculty, the division that now still is called the New School for Social Research (while the whole is just The New School, if I do understand the naming changes at my alma mater). The most important and cohesive group of economists that arrived at the New School in 1933, and the following years, escaping persecution in Nazi Germany, were the ones related to the Kiel School, including Gerhard Colm (on Colm I co-authored this paper with Luca Fiorito), Adolph Lowe, Jacob Marschak, and Hans Neisser. In that group, Lowe, the mentor to Robert Heilbroner, was to be the more consequential for the New School.

The New School was not orthodox in its economic teaching, but the 1930s were a period of flux in the profession. The Keynesian Revolution was in course, and Keynes was acquainted with Johnson and the New School, as it can be seen in the letter he gave to H. G. Bab (see below; click to amplify). In that sense, while it is true that the place was somewhat unorthodox, given its origins and the historical period in question, that should not be exaggerated. Note that Marschak went on to be the head of the Cowles Commission, and a leading mainstream economist. While at the New School he supervised Franco Modigliani's doctoral thesis, which was the basis for his famous neoclassical synthesis paper of an ISLM model with rigid wages and for his Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

The New School, more enjoyable and compatible people than at Columbia, for sure (click to enlarge)

I say this because there is a tendency to think of the New School as being always heterodox, and taking that term to have more or less a contemporary meaning (for what I mean about that go here; for a great and more in depth discussion see this post by Ingrid Kvangraven and Carolina Alves). Many others taught at the New School in this period, perhaps, worth mentioning is the case of Abba Lerner, the main author of the functional finance school (something that is at the core of Modern Money Theory, but is more restrictive and specific than MMT).

The Kiel School was what one could term eclectic. They certainly had roots on elements of the German Historical School, and readings of marginalist and non-marginalist authors, including Marxists. Gonçalo puts Tugan-Baranovsky as one of the influences on the Kiel School. Tugan, a "semi-critic of Marx" according to Schumpeter, argued that a disproportion between the investment and consumption goods sectors would lead to recurrent industrial crises, and that notion of structural imbalances was central for Kiel authors. Leontief was also connected to the Kiel School.

While many in the Kiel School were open to and used marginalist concepts, as in the case of institutionalists, not all were neoclassical, and Lowe's views arguably were the most clearly connected to the works of the old classical political economists. Ed Nell, in the appendix to Lowe's book The Path of Economic Growth compares it with Leontief, Von Neumann, and Sraffa, as being classically inspired. One can think of Ed's Transformational Growth research program as building on that tradition.

But it would be a stretch to suggest that Bob Heilbroner, Lowe's main disciple at the New School, and the next key person in the history of the Economics Department at the Graduate Faculty, was a follower of classical political economy. A cursory reading of his classic, The Worldly Philosophers, shows that his reading of Smith is perfectly compatible modern mainstream readings, which imply that Smith was a precursor of supply and demand theories. The chapter on Smith discusses the law of markets, but the labor theory of value only makes an appearance in the chapter on Marx, and to suggest that it was a deviation from Smith and Ricardo. The degree to which Heilbroner conflates classical and marginalist or neoclassical theory is clear in that he argues that the Walrasian circular-flow in Schumpeter's theory resembles Ricardo's stationary state. And in the discussion of Schumpeter's notion of profit he suggests, regarding the labor theory of value, that "everyone knew to be wrong and therefore did not have to be reckoned with."*

Further, his views on economic growth, as evidenced in his book on the economics history of the Unites States, were essentially that growth was supply-side constrained and dependent on technological innovation, in ways that seem to be closer to his Harvard undergraduate teacher, Joseph Schumpeter, than classical political economy authors (Smith had, arguably, a demand driven view of growth, at least for some, while Ricardo most certainly didn't, and Marx is open to many different views; I'll keep that to another post). I emphasize this to show that even if he was unorthodox in many ways, Bob was not necessarily what we would term heterodox in the modern sense of the word (even if taken loosely as not being neoclassical).** In my view, no clear heterodox bias existed up to the 1960s, in a department that had basically been under the shadow of three economists, Johnson, Lowe and Heilbroner. Note that this somewhat eclectic persistence of different approaches was more or less common in many departments at that time.

But the Johnson-Lowe-Heilbroner nexus provided the basis for the changes that shaped the department with the arrival of Ed Nell in the late 1960s. Ed had worked with Hicks at Oxford, and he was from early on critical of methodological individualism, something that is clear from his critique of the concept of the rational economic man. More importantly he was concerned with growth, and that led to a discussion of the theories of value and distribution (perhaps influenced by Hicks' Capital and Growth, which remains an important book), and was influenced by Sraffa's revival of classical political economy. It was after Ed arrived that a series of new hires, among them Stephen Hymer, Anwar Shaikh, and David Gordon, changed the department. Note that the late 1960s and early 1970s too is the period in which the economics profession segregates the heterodox groups, makes it harder for radicals to get tenure in conventional and prestigious departments (e.g. Sam Bowles at Harvard), and publishing requires the foundation of new journals (e.g Journal of Post Keynesian Economics, and the Cambridge Journal of Economics).

In my view, it is no coincidence that this is also when the change in the notion of equilibrium, as discussed by Garegnani, takes place (some discussion of that here). The point is that the capital debates had shown the limits of marginalist (neoclassical) economics, and the profession embraced what I have referred to as vulgar economics after that. The hiring of heterodox economists, critical of the mainstream in this period, and the sociology of academia, locked in heterodox hegemony at the Econ. Dept. of the Graduate Faculty.

Many other heterodox economists taught at the New School's Econ. Dept. from that point onwards. I might note Paul Sweezy, which if I'm not wrong was instrumental in making Bob Pollin choose the New School for his PhD, was among the teachers in the 1970s. And also many Sraffians like Piero Garegnani, John Eatwell, taught on a recurring basis, while many were visitors for shorter periods. Again, somewhat idiosyncratically, in my view it is the arrival of Lance Taylor in 1993 and a few years later of Duncan Foley that consolidated the persistence of the heterodoxy, and the type of heterodox department (with a mix of structural Keynesianism and Marxism), that the New School has today.

Perhaps, it is important to emphasize how limited this story is. There is a missing story about the role of David Gordon, who was also a key player in the department for many decades, and of Anwar Shaikh, that I always saw as somewhat of an influential outsider (maybe I'm wrong), even by the New School standards. And also the many other wonderful and creative heterodox economists that passed through the New School over the years. There is a question about the gender imbalances at the New School, and within heterodoxy itself, that I do not address. I'll explicitly avoid saying any additional names, since in this way I cannot be accused of forgetting someone (I'm leaving out a ton, including the many alumni that went on to remarkable careers). Hopefully this provides a window on how the New School became heterodox and why it remains so.

* It should be noted that Bob's book was published in 1953, a few years before the labor theory of value was rehabilitated by Sraffa's Production of Commodities.

** On a personal note, I remember talking to Bob on an interval of a conference organized by Ed Nell on functional finance, in 1997, I think, in which he argued that the Maastricht limits (3 per cent for deficits, and 60 per cent for debt) were reasonable measures to constrain the size of government. He was a liberal in an older sense of the word, perhaps.

Robert Skidelsky on Hayek, Keynes and Common Sense

Robert Skidelsky at a Liberty Fund event, not too long ago. Note that in the opening remarks he says: "I'm going to talk about the conditions of liberty, which seems a good topic of conversation for a Liberty Fund event. Owing to the hazards of the weather, I find myself the sole representative of common sense this afternoon." Not sure what the weather conditions had to do with it, but I must agree, given the venue.

The whole thing here. My only major disagreement is that I really do not think that Hayek is the great rival of Keynes, or even one of the major economists of the 20th century, given his contributions. On the neoclassical front, Hicks, Modigliani, by bringing neoclassical results in the long run, but opening space for Keynesian policies in the short run, associated to rigidities an imperfections, and even Friedman, with the return of the concept of the natural rate, were more relevant than Hayek.

Who was Keynes great rival? While he was alive his debates were with his Cambridge peers, Pigou and Robertson, more than with Robbins, Hayek and the LSE economists. In fact, a good chunk of the younger LSE economists became, in different degrees, Keynesian (e.g. Hicks, Kaldor, Lerner, and even Shackle). But if I had to say, his great rival was himself, which would probably fit his very elevated sense of self-worth. In particular, his inability of getting rid of marginalist (neoclassical) elements of his theory is what ultimately opened the door for the Neoclassical Synthesis.

Krugman on Friedman, Austrians, and Paradise Lost

I was a bit busy this week and did not weigh in on Krugman's latest incursion (and here too) on the history of economic ideas. He correctly dismisses Conservative economists in pre-Keynesian times, and particularly Hayek (and Austrians), who suggested that recessions and depressions were useful, as not relevant. And also, notes Friedman was more sophisticated. He also notes correctly (as was pointed out here before), that Friedman used when he was forced to present a complete model and ISLM with a Phillips Curve, that was not very different from the more Keynesian versions of the model done by the Neoclassical Synthesis authors.

He is more positive about Friedman because:

"He [Friedman] was willing to give a little ground, and admit that government action was indeed necessary to prevent depressions. But the required government action, he insisted, was of a very narrow kind: all you needed was an appropriately active Federal Reserve... [But Krugman does not ] want to put Friedman on a pedestal... [since] the experience of the past 15 years, first in Japan and now across the Western world, shows that Keynes was right and Friedman was wrong about the ability of unaided monetary policy to fight depressions."

Note that Krugman also notes Friedman's critique of Austrian business cycle theory (see here), which shows that in spite of being marginalist and part of the mainstream, still the extreme laissez faire view makes them part of the fringes  of the profession. In other words, Austrians stand for the mainstream as the Tea Party stands for the more moderate right wing.

Perhaps the most important point in Krugman's reflection on the state of the profession is his confession that he used to consider himself "a free-market Keynesian — basically, a believer in Samuelson’s synthesis. But [he is] far less sure of that position than [he] used to be." Good enough. Note, however, that what he means by a 'free market' Keynesian is a peculiar mix.

The Neoclassical Synthesis, was based on Hicks ISLM and Modigliani's fixed wages. The fundamental idea is that with wage flexibility the system would lead to full employment, a proposition that Keynes denied in the General Theory. In addition, the capital debates have shown, and Samuelson admitted in 1966, two years before Friedman re-introduced the Wicksellian notion of a natural rate, that the neoclassical parable in which substitution led to full employment of factors of production does not hold.

So, beyond the ideological stance (which made more sense at the time of the Old Neoclassical Synthesis, during the Cold War) Free Market Keynesianism was always kind of a misnomer. Remember that Keynes in 1926 suggested that Liberalism (in the traditional European sense of Laissez Faire) was dead.