Masters of Economics

Mark Wendell |

By Mark Wendell

President Harry Truman once said that he wanted to find a one-armed economist, because the other always answered his questions with, “on one hand… but on the other hand.” “If all economists were laid end to end, they would not reach a conclusion,” said George Bernard Shaw. President Ronald Reagan joked that if the game Trivial Pursuit were designed for economists, it would have 100 questions and 3,000 answers.

Economists as a group are often mocked for giving conflicting advice when we expect, this late in human history, for their studies to approach the certainties of modern mathematics and science. But the complexities of finance are driven, ultimately, by the passions, aspirations, and contradictions of infinitely complex human nature. And after all, economics is categorized as a ‘social science’, a study of human behavior. Brilliant economists are humans themselves, and the insights of even the most objective economists are, to some extent, based on vastly different and deeply rooted political or moral convictions. So are our own reasons for believing one economist’s findings and disbelieving another’s.

Alfred Marshall (1842 – 1924) “Economics is a study of mankind in the ordinary business of life,” wrote one of the founders of the science of economics, in his 1890 book Principles of Economics. Even in an age of supercomputers and the amazing realities of quantum physics, the undeniable wisdom of Marshall’s writings reminds us how little our natural drive to somehow out-guess markets has changed since buggy-whips were a major industry. In his instruction to a colleague about the proper method of preparing a paper on economics, Marshall emphasized one essential step before formulating a conclusion: “Burn the mathematics.”

Ludwig von Mises (1881 – 1973) will be remembered not only for his keen intellectual analysis of complex economic principles, but also for his passion and fortitude, bordering on fanaticism, in speaking out against central planning. Mises’ writings inspired, among many others, Ayn Rand, and he was a contributor and editorial advisor to the journal of the John Birch Society. Milton Friedman recalled a meeting of economists Mises had organized: “We were discussing the distribution of income, and whether you should have progressive income taxes. Some of the people there were expressing the view that there could be a justification for it… He got up and said, ‘You’re all a bunch of socialists!’” He is well known for his beliefs that government intervention, in addition to hampering and crippling the market would prove counter-productive and cumulative, leading inevitably to socialism. He believed that the expansion of free markets, the division of labor, and private capital investment is the only possible path to the prosperity and flourishing of the human race.

John Maynard Keynes’ (1883 – 1946) General Theory of Employment, Interest and Money, appearing in the midst of the Great Depression, revolutionized the way economists think about how government policies affect economies. It was trail-blazing because it dared suggest that government spending of money it didn’t have and government regulation of the business cycle through fiscal policy could possibly be beneficial — heresy to the type of person who lives and dies by financial statements, including Treasury Secretaries. Deficit spending and higher taxes was put to the test, unavoidably if not intentionally, with some controversial economic outcomes during the Depression, the Second World War, and the European postwar recovery, and Keynesianism continues to be ingrained policy in much of the industrialized world. Even so, Keynes’ critics are growing in number and influence, perhaps because history and human nature tells us there is something deeply nonsensical and disturbing about living indefinitely on borrowed illusory money and expecting higher taxes to be the answer. If experience is our guide, we need look no further than certain European Union countries to see the inevitable outcome of this Keynesian practice. And today, in a system where about 47% of voters pay no income taxes and 42% of working-age American households receive benefits from at least one federal welfare-entitlement program, the long term Keynesian approach to economic management may be in serious question.

Friedrich Hayek (1899 – 1992), another Nobel Laureate, is best known for his defense of “classical” liberalism and free-market capitalism against a resurgence of socialist and collectivist academic theory following World War II. His The Road to Serfdom in 1944 warned his fellow British subjects against the lure of welfare-state socialism, arguing that it required central economic planning, which ultimately leads to totalitarianism. An economy is inherently decentralized, Hayek argued, and would have to be forcibly distorted into something it’s not. He posited that, among other deficiencies, Keynesian policies would inevitably cause wild inflation. Hayek’s sensible analysis influenced many of the leaders of the “velvet revolutions” that dismantled the planned economies of Soviet satellite nations following the collapse of communism. Former US President Ronald Reagan welcomed Hayek to the White House as a special guest.

Milton Friedman (1912 – 2006), described by The Economist as “the most influential economist of the second half of the 20th century… possibly of all of it”, was an advisor to Presidents Nixon and Reagan and was a Fellow at the Hoover Institute at Stanford University. In the early 1960’s, Mr. Friedman wrote Capitalism and Freedom, where he makes a case for economic freedom as a precondition for political freedom. A fierce opponent of government interference with free markets, Friedman was noted for using common-sense witticisms to underline his conclusions. He’ll be long remembered for saying, “Nothing is so permanent as a temporary government program” and “Only government can take perfectly good paper, cover it with perfectly good ink, and make the combination worthless” and “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand” and “Most of the energy of political work is devoted to correcting the effects of mismanagement of government” and “The greatest
advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.”

The force of Friedman’s convictions in this last comment may not have taken into account: Egypt of the Pharaohs and structures, the long lived Roman Empire and structures, Washington’s government structures, the USA interstate road system, NASA’s accomplishments and Mt. Rushmore, all of which might fall under some peoples’ definitions of “central government” creations. While ‘efficient government’ is a bit of an oxymoron, it was Winston Churchill who said, “It has been said that democracy is the worst form of government except all the others that have been tried.” Great economists are human and just as capable of being misled with their own biases, by what they would like to be true, as the rest of us.

However, Friedman’s awareness of human nature as a factor in arcane economic theory was acute. He argued for a volunteer army, education vouchers and a flat income tax. In keeping with his severe criticism of Keynesian approaches to economics, his research demonstrated that the rise in government expenditures make an economy less stable, and generates roughly an equal rise in GDP, sharply contrasting the Keynesian multiplier theory. It was Ronald Reagan who spoke of causes of an anemic economy and of rights being eroded by government, “It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from the unnecessary and excess growth of our government.”

Individuals entrusted with responsibility for the economic security of a nation, a corporation, or a family must of course have a deep appreciation of what two centuries of economic research has to tell us about the complex nature of today’s intertwined global economic forces. But it’s also important to remember that money management is not an abstraction, reducible to equations and unaffected by the feuds, fads, and follies of human nature. Significantly, money management is intimately involved with the social science of economics.

(Sources: Principles of Economics by N. Gregory Mankiw; internet sources:;;