The New Economics à la Carte

Tomorrow Capitalism: The Economics of Economic Freedom, by Henri Lepage, translated by Sheilagh C. Ogilvie, La Salle, Ill., and London: Open Court Publishing, 1982, 254 pp., $14.95.

Is a society in which individuals are free to pursue their own goals by whatever means they deem best a libertine or a libertarian society? The answer people give to that question will largely turn on their grasp of economic theory. Self-interested behavior obviously has to be constrained in some fashion if it's to be compatible with the existence of human societies. Economic theory offers the most comprehensive and persuasive arguments for the view that the pursuit of self-interest generates its own social constraints. Those who understand economic theory generally recognize that, under a wide range of conditions commonly encountered, freedom is largely self-regulating. Those who don't understand economic theory, on the other hand, usually dismiss such claims as absurd and ideological and consequently read libertarian arguments for a free society as a defense of libertinism.

The attacks that have been mounted against "orthodox" economic theory in the past two decades indirectly confirm this analysis. Those who want to improve society by interposing collective vetoes at a continually expanding number of points in the network of social interaction have discovered that economic theory generates persistent objections to their proposals. They therefore recognize the importance of discrediting economic theory.

This is not to suggest that people decide they are "opposed to freedom" and then seek out arguments to buttress their sinister commitments. What French economic journalist Henri Lepage calls "economophobia" is almost certainly grounded in the honest conviction that orthodox economic theory is a powerful illusion. The critics of economic theory are "enemies of freedom" because they have found economic theory unpersuasive. Having found it unpersuasive themselves, they are prepared to believe that those who derive "conservative" policy conclusions from economic theory are basically ideologues.

The question consequently arises: Why do so many people who encounter economics find it at best irrelevant and at worst a positive hindrance to the effective discussion of public policy? Why do even professional economists sometimes find little more in their discipline than a set of procedures for solving imaginary problems, rather than a framework for understanding the societies in which they live? Is it a defect in the learners or in the teachers that accounts for the "invincible ignorance" of so many intellectuals on matters of fundamental economic theory?

Whatever the explanation, Lepage maintains in Tomorrow, Capitalism that contemporary despisers of economics have rejected a straw man. Economics has made significant advances in recent years that have vastly expanded its explanatory and predictive power. As a result, Lepage argues, "those who left school more than fifteen or twenty years ago (as most of those responsible for the Western democracies' economic policies did) find themselves equipped with a thoroughly obsolete fund of knowledge." Their notions of how Western economies developed historically, of their current functioning, and of the capacity of governments to create or correct problems within them have not benefited from the "major intellectual and scientific renaissance" brought about in recent years by economic research.

Lepage sets himself the formidable task in this book of bringing the nonspecialist up to date on what has been occurring in the "new economics." His hope is that a more adequate understanding of what contemporary economics is and what it reveals will reverse the spread both of "economophobia" and of the political policies with which it is associated.

This is an ambitious undertaking. The degree to which Lepage has succeeded in producing an adequate, intelligible, and coherent account of research in the "new economics" is impressive, especially in light of the fact that the author is French by birth and education, while most of the research on which he reports was undertaken and published in the United States. The reader who wants a glowing testimonial to the result can consult the dust jacket on the fluent English translation, where Milton Friedman calls the book "an exposition of new developments in economics that is at once comprehensive, accurate, and yet accessible to the general public." In the foreword to this edition James Buchanan stresses the book's significance and warmly commends it. Tomorrow, Capitalism will not fail, therefore, through want of attention from distinguished reviewers. That gives me the reluctant courage to offer a less enthusiastic appraisal.

Every economist will be able to find fault, of course, with portions of Lepage's account. Some will object that the new economics is not as Chicago-linked as Lepage contends; others will protest that the author has chosen to include too exclusively what has emerged from the Chicago connection; and a few, noticing the absence of any reference to Robert Lucas, might complain that important Chicago work has been neglected. Economists will also disagree sharply about the significance of some of the research that Lepage describes. And a substantial number will probably wish that the author had distinguished more carefully between hypotheses consistent with observation and hypotheses that yield quantifiable predictions.

The book's most serious flaw, however, may be Lepage's insistent linking of the new economics to libertarian political thought. This is a flaw that could prove fatal if the author's goal is, as he says, to overcome the indifference and hostility of intellectuals toward contemporary economics. Many of the developments that Lepage describes just aren't going to seem that impressive to a critical reader coming from outside of economics.

Much of the work done by Gary Becker, for example, is already known, at least superficially, by educated "economophobes," who vacillate between the belief that it is tautological and the suspicion that it is ideological. From a tactical standpoint, therefore, it's unfortunate that Lepage starts out with Becker's work in his chapter one survey, "The New Economists." Not until page 170 does he point out that these analyses have been called reductionist by some economists and have not yet gained general acceptance. By that time, however, the damage may have been done, especially since Lepage subtitles his first chapter, "A Scientific and Ideological Revolution" (emphasis added).

Moreover, after surveying the research areas of human capital, property rights, and public choice and mentioning the more familiar work that has been done in the area of monetarism, Lepage devotes several pages of his preliminary synopsis to "The Libertarians." Why? What purpose does this serve? Including the libertarian movement in the survey chapter gives Lepage an opportunity to mention REASON magazine and three of its editors, which is surely a commendable objective. But for many readers it will only confirm the suspicion, as will the other explicitly libertarian arguments interspersed throughout the book, that the new economics is really more ideology than science.

It would be ironic indeed if Lepage ended up strengthening the very prejudice he set out to overcome, but this, it seems to me, is a very real possibility. I fear that Tomorrow, Capitalism will be read and celebrated by those who already see the viability of freedom and the potency of economics and be dismissed by those whom the author principally wanted to reach.

Lepage might have been able to retain the preaching at a low cost in sacrificed credibility if he had been more selective in choosing the research results he describes. Weak arguments do not always add to the cogency of strong ones. When our prejudices are under attack, we are all inclined to judge guilt by association and to mistrust a powerful argument because its proponent has shored it up or surrounded it with weak ones.

Lepage's treatment of research in the human capital area exemplifies the problem. Although human capital theory has given us a much-improved understanding of the way markets work, numerous extensions of the theory are currently little more than provocative suggestions. Moreover, what they provoke is sometimes economophobia itself.

Lepage's discussion of the property-rights school wanders so widely, both in time and place, that the power of the paradigm gets obscured in its illustrations. The central contribution of public-choice theory—that government actions can and should be analyzed as outcomes of economizing choices—emerges more clearly and forcefully. Even here, however, one sometimes wishes that the author had either explained a topic more fully or omitted it. I doubt that anyone will understand the Tideman-Tullock demand-revealing process from Lepage's summary, which means that the unfamiliar reader is going to see it as a bit of bewildering technique. An economophobe, it should be noted, is sometimes just a student of economics who has been traumatized by technique.

We should nonetheless be grateful to Henri Lepage both for what he has attempted and what he has managed to achieve. If ideas and not merely interests shape the development of public policy, then the prospects for economic freedom will depend heavily on the public's appreciation of economic research. Lepage has certainly contributed toward the bridging of the gulf between what "everyone knows" and what economists are discovering.

Paul Heyne is an economics professor at the University of Washington in Seattle and the author of the textbook The Economic Way of Thinking.