A review of Grand Pursuit: The Story of Economic Genius, by Sylvia Nasar
@@@@ (4 out of 5)
It’s well known that Thomas Carlyle, a 19th century British historian, is credited with first calling economics “the dismal science.” What’s much less widely appreciated is that this derogatory label was well justified when he set the phrase down on paper in 1849.
Until well into the 19th century, as Sylvia Nasar shows so clearly in Grand Pursuit, economics was, indeed, dismal. The gloomy predictions of Thomas Malthus dominated discussions about the economy, and then Charles Dickens and other social reformers got into the act in mid-century, decrying the deplorable conditions of the poor and the heartless assumption that their lot could never improve. Karl Marx, writing in the same era, differed only in that he asserted their lives would be better only after a revolution because capitalism would never refrain from rank exploitation.
It was only in the 1880s that economics, gradually coming into its own as a field of study, came to view the economy not as static but as a dynamic process that evolved as the productivity of labor increased. An English economist named Alfred Marshall set out to understand the field in this new way but never succeeded in his quest. He “discovered that an ingenious mechanism of competition encouraged business owners to make constant, incremental improvements in productivity that accumulated over time and, simultaneously, compelled them to spread the gains in the form of higher wages or lower prices.” Marshall’s thinking held sway for many years. Then, in the following decade, there emerged a remarkable figure who moved the center of gravity in the discussion far to the left: a woman named Beatrice Webb.
Of all the brilliant men and women Nasar portrays in Grand Pursuit, Beatrice Webb is clearly her favorite. Born Beatrice Potter, one of nine sisters, she was brilliant, beautiful, and wealthy. She joined the Fabian Socialist circle whose stars were Sidney Webb and H.G. Wells, eventually marrying Sidney, a gnomish little man who seems to have taken his place in her shadow. Working from a Marxist perspective, Beatrice invented the concept of the welfare state, Marx’s own disdain for the idea notwithstanding. She “showed that destitution was preventable and that providing education, sanitation, food, medical, and other forms of in-kind assistance would increase private sector productivity and wages more than taxing would decrease it.” The Webbs and Wells also cofounded the London School of Economics.
The next major figure in Nasar’s account was Irving Fisher, an American economist who held forth at Yale for decades, lionized by his peers and the public alike. Fisher “was the first to realize how powerfully money affected the real economy and to make the case that government could increase economic stability by managing money better. By pinpointing a single common cause for the seemingly opposite ills of inflation and deflation, he identified a potential instrument — control of the money supply — that government could use to moderate or even avoid inflationary booms or deflationary depressions.” However, brilliant though Fisher undoubtedly was, it was he who famously proclaimed, just three days before the crash in October 1929, “Stock prices have reached what looks like a permanently high plateau.” Fisher lost a fortune he’d blithely invested on margin in stocks.
Nasar focuses next on the Austrian school, dwelling largely on the ups and downs of Joseph Schumpeter’s career. Friedrich Hayek, the darling of the Right, receives less attention. His views remained only briefly in vogue and have apparently been greatly misunderstood by the latter-day “conservatives” who profess to sit at his feet (and whom Hayek himself despised). Schumpeter was more influential, serving for a time as Minister of Finance in the post-World War I Austrian government and occupying key academic positions in Great Britain and the United States. He “focused on the human element. For him, development depended primarily on entrepreneurship . . . In contrast to Marx’s automaton capitalist . . ., the entrepreneur distinguished himself by a willingness to ‘destroy old patterns of thought and action’ and redeploy existing resources in new ways.” Echoes of Schumpeter’s thinking continue to feature prominently in contemporary economic discussions.
Nasar devotes considerable attention to John Maynard Keynes, who was by all accounts the dominant figure in world economics for decades. She dismisses the notion that Keynes’ contribution was to advnace the concept of deficit spending. “Beatrice Webb, Winston Churchill, and Herbert Hoover had all embraced deficit spending before Keynes,” she writes. In fact, the principal reason why his General Theory of Economics represented such a major advance for the field “was Keynes’ proof that it was possible for a free market economy to settle into states in which workers and machines remained idle for prolonged periods of time — that there were depressions that, unlike the garden-variety ones, were not brief and didn’t end of their own accord as a result of falling prices and interest rates.” Keynes argued that monetary policy — increasing or decreasing the money supply — wasn’t sufficient. Fiscal policy changes were required: “cutting taxes and letting bsinesses and individuals keep more of their income so that they could spend it. Or, better yet, having the government spend more money directly, since that would guarantee that 100 percent of it would be spent rather than saved.”
More recent economic icons such as Joan Robinson (Keynes’ Communist protege) and Milton Friedman figure in Nasar’s account of developments in the field after Keynes. However, she reserves her most respectful treatment for the brilliant Indian economic thinker, Amartya Sen. Born in Dhaka in 1933 in what is today Bangladesh, Sen holds an endowed chair at Harvard. Much of his work — and a major reason why he won the Nobel in economics in 1998 — concerns the technical concept of “social choice,” which I find abstract, confusing, and purely of academic interest. But Sen’s widely quoted studies of the causes of famine are anything but abstract, and his concern for the poor distinguishes his ethical approach to economics. Of all those described at length in Grand Pursuit, Sen is the only one still living.
Sylvia Nasar, an econ0mist herself, previously wrote A Beautiful Mind, a biography of the extraordinary mathematician John Nash. Grand Pusuit is a worthy successor to A Beautiful Mind, as it is to Robert Heilbroner’s similar effort, The Worldly Philosophers, now a classic which I recall reading as a teenager.
The Top 10 Books on the Economics of Poverty
Back in January, I posted “Third World development: A reading list.” Today, the celebrated rural development specialist and author, Paul Polak, called my attention to a similar list that was published at about the same time in the Stanford Social Innovation Review, an outstanding journal that has run a few of my articles and reviews. Only three titles appear on both lists, so I’m reproducing the SSIR article in its entirety here.
The Top 10 Books on the Economics of Poverty
A suggested reading list to provide a foundation for understanding development, aid, and poverty
By Amy Lockwood
The growing community of students and professionals who are turning their attention to social endeavors as careers is inspiring. As someone who made the career switch from strategy consulting to international development work, I remember all too well the anxiety of trying to understand the different theories, familiarize myself with the players, and become fluent in the languages of this community.
In addition to listening more than speaking, cultivating curiosity, and abandoning the fear of looking stupid when asking, “What does [fill in the blank] mean?”—in my first years in this new space, I asked for recommendations of books that would provide a foundation for my understanding of development, aid, and poverty. I recently revisited these recommendations as a member of the Opportunity Collaboration, and the following is a suggested reading list to provide a foundation for your adventures.
The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (2006), by William Easterly
Easterly, a celebrated economist, presents one side in what has become an ongoing debate with fellow star-economist Jeffrey Sachs about the role of international aid in global poverty. Easterly argues that existing aid strategies have not and will not reduce poverty, because they don’t seriously take into account feedback from those who need the aid and because they perpetuate western colonial tendencies.
The End of Poverty: Economic Possibilities for Our Time (2006), by Jeffrey Sachs
Taking an almost entirely diametrical approach than Easterly, Sachs outlines a detailed plan to help the poorest of the poor reach the first rung on the ladder of economic development. By increasing aid significantly to provide the basic infrastructure and human capital for markets to work effectively, Sachs argues such investment is not only economically sound but a moral imperative.
The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (2007), by Paul Collier
Economist and Africa expert Collier analyzes why a group of 50 nations, home to the poorest one billion people, are failing. Considering issues such as civil war, dependence on extractive industries, and bad governance, he argues that the strongest industrialized countries must enact a plan to help with international policies and standards.
The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (2009), by C.K. Prahalad
Prahalad, a business strategy professor, was among the first to argue that the fastest growing market in the world was made up of the world’s poorest people. He details the purchasing power of this segment, and advocates that big businesses should learn how to understand this population’s needs in order to develop products that address both economic mobility and corporate growth and profit.
Creating a World Without Poverty: Social Business and the Future of Capitalism (2009), by Muhammad Yunus
Yunus, an economist and Nobel Prize Winner, was among the first to describe a social business as one that is modestly profitable but designed primarily to address a social objective. Using this approach, he argues that modern-day capitalism is too narrowly defined, particularly in its emphasis on profit maximization. By including social benefits in the equation, he believes that markets and the poor themselves can alleviate poverty.
Out of Poverty: What Works When Traditional Approaches Fail (2009), by Paul Polak
Polak, a psychiatrist, has applied a behavioral and anthropological approach to alleviating poverty, developed by studying people in their natural surroundings. He argues that there are three mythic solutions to poverty eradication: donations, national economic growth, and big businesses. Instead, he advocates helping the poor earn money through their own efforts of developing low-cost tools that are effective and profitable.
Dead Aid: Why Aid is Not Working and How There Is a Better Way for Africa (2009), by Dambisa Moyo
Moyo, a Zambia-born economist, asserts that aid is not only ineffective—it’s harmful. Her argument packs a strong punch because she was born and raised in Africa. Moyo believes aid money promotes the corruption of governments and the dependence of citizens, and advocates that an investment approach will do more to help reduce poverty than aid ever could.
Poor Economics A Radical Rethinking of the Way to Fight Global Poverty (2011), by Abhijit Banerjee & Esther Duflo
Using the framework of randomized control trials, which allow for large-scale data collection to evaluate the effectiveness of an intervention, these two development economists assess the impact of a wide range of development programs in alleviating poverty. They have found that most programs have not been designed with a rigorous understanding of the behaviors and needs of the poor or how aid effects them, they advocate that for programs to be successful they must be designed with evidence gathered from direct interaction with those who they are meant to benefit.
Development As Freedom (2000), by Amartya Sen
A Nobel Prize winning economist, Sen examines the essential role that elementary freedoms, social and political, have in improving the prosperity of the society at large. Although his focus on human welfare as a central aspect of economic thought is not universally accepted among economists, this approach inserts elements of ethics into a field from which it is often not emphasized. Although this is a difficult read, the concepts included are important to the dialogue about the causes and remedies to the economics of poverty.
Good to Great and the Social Sectors (2005), by Jim Collins
Meant to accompany the seminal business book Good to Great that examined why companies succeed or fail and found nine key aspects, including: leadership, simplicity, discipline and innovation, this work focuses on applying these lessons to the nonprofit sector. While more focused on management of organizations than macroeconomic issues, this short and easy to read monograph suggests a roadmap of how those interested in addressing issues of poverty should pursue these efforts.
Amy Lockwood is the Deputy Director of the Center for Innovation in Global Health at Stanford’s School of Medicine, where she works on research, education, and innovation programs focused on issues of global health. With a background spanning the business, nonprofit and academic sectors, she has deep experience developing strategies, managing, and evaluating development projects and organizations throughout Africa, Asia, and Latin America.
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Tagged as Africa, Amartya Sen, business, economic development, economics, foreign aid, India, Jeffrey Sachs, Nonfiction, overseas development aid, Paul Polak, poverty, William Easterly