Dan Klein’s comments on Robert Solow’s review of What Do Economists Contribute?

July 2000

Robert Solow’s review (Eastern Economic Journal Fall 1999 pp. 481-83) of the anthology I edited What Do Economists Contribute? (Macmillan/NYU Press, 1999) repeatedly misrepresents the book. The book addresses economists who believe that elemental (yet not necessarily hard and fast) truths of political economy generally recommend libertarian reform. The book asks such economists, How do we contribute to society?

According to Solow the book says: "All that fancy stuff [i.e., model building and statistical significance] is a waste of time." I submit that Solow would not be able to provide any evidence for that characterization. In the book’s Introduction I write:

Although Graham, Hutt, Coase, Kirzner, and Hayek express appreciation for the fruits of paradigm, most of the authors feel that the paradigmatic spirit is too strong, and that the findings of mainstream research are too often not worth transmitting to the Everyman. The objection is not categorical; it is an issue of whether economists are too far down the paradigmatic end of the production frontier. (p. 13)

The book maintains that, if you will, our marginal rate of transformation is suboptimal; Solow pretends the book goes so far as to advocate a corner solution.

According to Solow the book says: "The real contribution that economists can make is to pronounce in a convincing way the few important, simple truths they know: government is bad; property rights are good; regulation is bad; laissez-faire is good." Yet in the Introduction I write:

Although the authors mainly concur on policy reform, it is doubtful that they would agree fully on the ‘simple truths’ of the discipline. Perhaps all would cite economic principles as taught in introductory courses: mutual gains, the division of labor, opportunity costs, marginal utility, incentives, competition, comparative advantage, transaction costs, and so one. Surely all would favor stories of human wants creating, within a property rights system, opportunities for people to gain by satisfying those wants. Surely all would favor stories of decentralized coordination of economic activities. Writers in the Austrian tradition, including Hayek, Hutt, and Kirzner might also include discovery of opportunity, entrepreneurship, and the diffuseness of knowledge. Tullock and others may be keen to include, among the elements of political economy, analysis of incentives in government. McCloskey might emphasize the role of speech in economic activities. Schelling emphasizes the importance of accounting identities for the economic system. Thus, even where opinions concur on how policy should be reformed, minds differ as to which elemental ideas should be stressed as the arguments in support of those policy reforms. (p. 4)

Thus, where the book argues, following Ronald Coase, that economists can contribute much to society by explaining elemental truths, those truths constitute the justifications for policy recommendations, not the policy recommendations themselves (as Solow’s caricature would have it).

Solow’s treatment of the valiant reading by W.H. Hutt is distressingly unfair. Solow writes:

The essay by W.H. Hutt is one of those jeremiads about the excess of pure theory and the "swamping of economic treatises with mathematics." The punch line is that this was written in 1936, the horrible example in question is Joan Robinson’s Imperfect Competition, and the concept Hutt finds so difficult and unnecessary is marginal revenue!

In fact, Hutt quarrels, not with Robinson’s model at all, but with her attitude, expressed in the opening pages of her book, that economists do not have genuine knowledge until they have put ideas into equilibrium models and that economists have only recently begun to make real progress and still have so little to say. Hutt’s reference to marginal revenue (p. 60) is purely inconsequential and in no way suggests that the concept is, in Solow’s words, "so difficult and unnecessary." Written in 1936, Hutt’s claim that Joan Robinson had no sound understanding of the character and elements of political economy was later proved sure enough: Robinson evolved into a strong proponent of the Cultural Revolution (see her The Cultural Revolution in China, 1969).

Solow affirms establishment economics. He agrees that "a lot of recondite theory and econometrics is simply busywork," but "is the price we pay for the good stuff."

Would Solow deny that Americans would be better off if more economists explained to the public the badness of the FDA, occupational licensing, the postal monopoly, the socialist school system, restrictions on foreign sugar, and a thousand other foolish policies?

When those such as Solow committed to establishment economics (shall we call them "ideologues"?) assert that the profession is functioning satisfactorily, where is the model? The data? Any sustained argument whatsoever?

Yet the machine grinds on . . .