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Meet Gonçalo Fonseca, creator of the history of economic thought website

Every so often, we highlight one of the senior scholars that has supported the Young Scholars Initiative as a mentor. We share their perspective on the discipline, their past experiences as a young scholar and their thoughts on New Economic Thinking. This time, we talk to Gonçalo Fonseca, Research Fellow at INET and creator of the ever-expanding History of Economic Thought Website. His research is on the intersection of the history of economic thought and economic theory.

Were you always interested in economics, even at a young age?

Not really; I did read a lot as a kid, but not necessarily economics. I grew up in Zambia, where people hardly had anything. But then at 18, I moved to New York, to attend the New School. I actually started off as an Africanist, doing African studies; mostly politics, history. There actually wasn’t much economics offered at the undergraduate level, but one way or another, African studies inevitably leads to questions of development. So when Gunseli Berik allowed me to sit in on her graduate-level economic development class, it blew my mind; she opened the door, and from then on, I was in. I delved deeper into economics, Alice Amsden and Tom Palley being perhaps the strongest influences among many great professors I have had. I continued my graduate studies at Johns Hopkins, studying under M. Ali Khan, then returned to the New School to finish my Ph.D. with Duncan Foley.

Was it tough being a young scholar?

In the early days, I did experience a lot of the same challenges that young scholars today express; economics is a restrictive discipline, and I felt that too. Young people tend to be very anxious, particularly about choices that might affect their careers. They tend to see their futures too narrowly, thinking that there is only one path, or that they have to do things one way, or everything will go wrong. But I managed to do my own thing. I ended up giving myself a lot of leeway; perhaps more so than other people. I let myself chase shiny objects; I let myself pursue my interests. Partly because nobody told me what the path was, or was supposed to be! So I just did what made sense to me. I allowed myself to get immersed in things. And I developed myself broadly by combining my New School education, where the teaching was more unconventional, with my training at Johns Hopkins.

What is your advice to young scholars?

Chase the shiny objects! By which I mean pursue things that really interest you, or that really irritate you, that you’re really furious about, or dissatisfied with. Really pursue them, so that they can become yours. As strange as it sounds, if you can find one small thing that’s really yours, you will always be the reference for it. Don’t be the nth person working on a generic problem. Be the point person working on the thing that really interests you, and become the expert in that. Economics may seem unforgiving, but it’s not. There is leeway! Even in conventional departments. It’s valued when someone is really knowledgeable about something that they care about. It takes a little courage to get there. But it’s worthwhile.

My experience with students is that they are very curious and engaged with the world. And it takes years to beat that out of them. So the key is to retain that curiosity and to follow it. Don’t let publications be the only metric that matters to you. Don’t make the publication the goal. Make the goal that you contribute to the field.

But don’t get mistaken. It’s chasing shiny objects, and it’s fun, but it’s hard work. I’m really trying to understand something. What people are trying to say. How they fit with others. All that is work; lots of not sleeping, and pain. It’s like building anything else.

A lot of it is going to corners you didn’t expect to. Topics you didn’t think you were interested in. Stuff you didn’t imagine you cared about. Realizing hold on, there’s something here. And poking at it, and then getting lost, overwhelmed, start bringing your own narrative on it; you make it yours. And there’s really something to learn from everyone.

As a general strategy, in order to understand something, you have to be able to explain in plain English. To reach that, you really have to go deep and try to get a perspective and understand how it fits in its context. It’s work, but it’s very pleasurable. Once you get a grip on it, you get the “ah..” But before that, you may be frustrated. I’ve made myself learn obscure math just to be able to understand something, in order to understand something related to that. And once you have it, you’ve made it yours. It’s an armament.

Your point touches on the importance of being able to explain something to others, on teaching!

Yes, I’ve been teaching economics as long as I’ve been learning economics. Once you’re teaching something, you can start to really understand it. Already in undergrad, we’d organize with classmates to teach each other. Then we TA’d, and taught entire courses. At that point, it is harder to cut corners. You can, but you’re not doing yourself any favors. Especially once you start teaching people who don’t have a background in the subject, it forces you to think about it systematically. And the more you work on that, the more it becomes yours. This is why teaching is vital.

And it doesn’t even matter what the topic is. I have taught everything from econometrics to philosophy, and every time, I am happy, because I get to learn something; there’s something to learn from everything.

Who is the best teacher you’ve ever had?

Ali Khan, at Johns Hopkins. He taught mathematical economics, which is something people can easily get lost in. And he was very systematic. So I took a lot of tips from how he teaches. And what I always keep in mind is that my students are not there for me; I’m there for them. A lot of them have made sacrifices to be able to study, and they deserve the best. You can make a big difference if you manage to inspire those who are taking their first economics course. Even if they do not end up being economists, their understanding of the economy, civically, is very important. Similarly, I love being a mentor to young scholars in YSI.

How did the History of Economic Thought Website come to be?

It was actually a favor…! Heilbroner was teaching a course at the New School, while I was at Johns Hopkins. He was assigning a lot of reading, much of which was actually available online; it was just that nobody had put anything together. These were the early days of the web.. 1997. So one of his students, who was a friend of mine, asked me if I could gather these readings in one place online. She knew nothing about coding and I didn’t either. But she asked me if I could figure it out, and I did! And then it grew. From excitement, and because once you’ve covered this person, you know you should also cover that person, and then you just keep going. It became a lot bigger than I thought.

It was pre-Wikipedia, so it was a new thing to let one piece link to another and then another. Which is fantastic, because it means things don’t have to be linear like a book. The purpose is for it to be non-linear, so that you can roam, see what thoughts connect with what theories, what mentors connect with what students, what approaches there are between various groups.

What makes the History of Economic Thought such a powerful field, for you?

Many reasons. For one, it’s beautiful. But more importantly, it really helps you understand the theory. It can help you understand why a theory developed one way or another. It can allow you to see things more clearly, and help you understand the reasons why it’s structured the way that is. Because economics is not leveled or settled. And it’s not just models! At the end of the day, economics is constructed by people. It’s driven by people, and the questions they have. Their interests, the relationships they have, whether those are relationships of mentorship or rivalry.

Sometimes, the math in economics obscures this. But math in economics is like the notes on the page for music. Music is what you hear from a violin. The notes on the page are not the music. So some people condemn mathematics. And they shouldn’t. You can’t get mad at the mathematics in economics, just like you can’t be mad at sheet music. You can only be mad at whether the tune sounds good or not. By studying the History of Economic Thought, you get to see the full picture. You hear the full tune; and then you can decide for yourself.

Take a look at Gonçalo’s History of Economic Thought website! If there is another new economic thinker that you’d like to see featured here, let us know! Share your thoughts in the comments below, or email us at contact@economicquestions.org

The Neoliberal Tale

“The tide of Totalitarianism which we have to counter is an international phenomenon and the liberal renaissance which is needed to meet it and of which first signs can be discerned here and there will have little chance of success unless its forces can join and succeed in making the people of all the countries of the Western World aware of what is at stake.” (Friedrich Hayek)

In the past year we’ve seen a number of mentions to the maladies that neoliberalism and globalization have brought upon Western societies (e.g., see here, here, and here). It is well known that during the past decades the levels of inequality and wealth concentration have continued to increase in capitalist economies, leading to the arrival of “outsiders” to the established political powers such as Trump in the US and Macron in France, a turn to the right all over Latin America, and Brexit.

Neoliberalism, one of the main elements to blame, is better known for the policies that defined the world economy since the 1970s. Faithful devotees like Ronald Reagan and Margaret Thatcher, in the US and UK respectively, exported a number of their neoliberal policies to low and middle income countries through the Washington Consensus under the pretense that it would bring about development.

Neoliberal policies did not exactly turn out the way their creators envisioned. They wanted to reformulate the old liberal ideas of the 19^th century in a deeper and coherent social philosophy – something that was actually never accomplished. This article will review some of the origins of neoliberalism.

The first time the term “neoliberalism” appeared, according to Horn and Mirowski (2009), was at the Colloque Walter Lippmann in Paris, in 1938. The Colloque was organized to debate the ideas presented in Lippmann’s recent book The Good Society in which he proposed an outline for government intervention in the economy, establishing the boundaries between laissez-faire – a mark of the old liberalism – and state interventionism.

Lippmann set the foundations for a renovation of the liberal philosophy and the Colloque was a first opportunity to discuss the classical liberal ideas and to first draw a line in what the new liberal movement would or should differ from the old liberalism. It was a landmark that, in subsequent years, sparked several attempts to establish institutions that would reshape liberalism, such as the Free Market Study at the University of Chicago and Friedrich Hayek’s Mont Pelerin Society (MPS).

This event announced major difficulties among the peers of liberalism. Reservations and disagreements among free market advocates were not uncommon. A notable mention is Henry Simons, of the Chicago School, whose position against monopolies and how they should be addressed was a point of disagreement with fellow libertarians such as Hayek, Lionel Robbins – both at the London School of Economics (LSE) at the time – and Ludwig von Mises.

Simons’s view that the government should nationalize and dismantle monopolies would nowadays be viewed as a leftist attack on corporations but it fits perfectly under the classical liberal basis that Simons and Frank Knight, also from the University of Chicago, were following. Under their interpretation, any concentration of power that undermines the price system and therefore threatens market – and political, individual – freedoms should be countered, even if it meant using the government for that purpose.

It becomes clear that the reformulation of liberal ideas into what we know today as neoliberalism was not a smooth and certain project. In fact, market advocates struggled to make themselves heard in a world guarded by state interventionism that dominated the Great Depression and post-war period. Keynes’s publication of The General Theory in 1936 and the wake of the Keynesian revolution, swiped economic departments all over and further undermined the libertarian view.

By the end of the 1930s and of Lippmann’s Colloque, however, the perception that neoliberalism would only thrive if there were a concerted collective effort by its representatives changed Hayek’s perception over his engagement in the normative discourse. In 1946-47, the establishment of the Chicago School and the MPS, were both results of a transnational effort to shape public policy and fit liberal ideas under a broader social philosophy. The main protagonists beyond Hayek were Simons, Aaron Director, and the liberal-conservative Harold Luhnow, then director of the William Volker Fund and responsible for devoting funds to the projects.

The condition for success, as remarked in the epigraph, was to “join and succeed in making the people of all the countries of the Western World aware of what is at stake.” What was at stake? Social and political freedom. Hayek and many early neoliberals understood that any social philosophy or praxis crippling market mechanisms would invariably lead to a “slippery slope” towards totalitarianism.

It is important to note, though, that the causation runs from market to social and political freedom and not the other way around. As Burgin (2012) indicates, while market freedom is a precondition to a free democratic society, the latter may threaten market freedom. Free market should not be subjected to popular vote, it should not be ruled over by any “populist” government (a common swear-word today), and there needs to exist mechanisms to protect that from happening.

Once we have that in mind, it is not so bugging the association that Hayek, Milton Friedman, and the Chicago School once had with authoritarian governments such as Pinochet’s in Chile, one of the most violent dictatorships in Latin American history.

Several liberal economists that occupied important public positions in the Chilean dictatorship had been trained at the Chicago School. The famously known “Chicago Boys” first experimented in Chile what later would be applied in the US and UK and then exported to the rest of the developing world through the Washington Consensus.

In brief, the adoption of some form of authoritarian control over popular sovereignty was deemed acceptable in order to guarantee market sovereignty.

Nevertheless, in the discussions within the early neoliberal groups the boundaries of disciplinary economics were trespassed, and the formulation of neoliberalism – and the Chicago School and MPS – was not grounded on any scientific analytical basis but simply on political affiliation.

The multidisciplinary character, dispersion, and incertitude are some of the reasons why it is hard to give a straightforward definition of what the term “neoliberalism” really means. In order to understand it, we have to mind the set of “dualisms” (capitalism vs. socialism; Keynesianism vs. liberalism; freedom vs. collectivism, and so on) that marked the period. Its defenders (academics, entrepreneurs, journalists, etc.) did not know what their own agenda was – they only knew what they were supposed to oppose. Neoliberalism was born out of a “negative” effort.

It wasn’t until many years later that the division between normative and positive economics came to surface with Friedman and his book Capitalism and Freedom, published in 1962. The increasing participation of economists in the MPS, and a more active public policy advocacy by Milton Friedman brought an end to Hayek’s intention to construct a new multidisciplinary social philosophy.

Economically, Friedman embraced laissez-faire; methodologically, he embraced empirical analysis and positive policy recommendations, getting ever further away from abstract notions of value and moral discussions that his earlier MPS fellows, such as Hayek, were worried about. Neoliberalism lost its path on the way to its triumph; it became a “science” that offered legitimacy to a new credo, a new “illusion”.

As the shadows of neoliberalism became more intertwined with the current neoclassical economics and Friedman’s monetarism, it not only lost its name but also gave birth to a corporate type of laissez-faire; one in which social relations are downgraded to market mechanisms; politics, education, health, employment, it all could fit under the market process in which individuals maximize their own utility. There’s nothing that the government can do that the market cannot do better and more efficiently. Monopolies, if anything, are to be blamed on government actions, while labor unions are disruptive to the economy’s wellbeing. Neoliberalism became a set of policies to be followed: privatization, deregulation, trade liberalization, tax cuts, etc. on a crusade to commoditize every single essential service – or every aspect of life itself.

Hayek believed that these ideas could spread and change the world. And they certainly did. What is worth noting is that there is no fatalistic understanding that neoliberalism was unavoidably a result of historical factors.

The rise of neoliberalism was not spontaneous but rather orchestrated and planned; it was a collective transnational movement to counteract the mainstream of the time; it was originated out of delusion in a period marked by wars, authoritarianism and economic crisis; it was grounded on political affiliations and supported by the dominant ruling class that funded its endeavors and transformed public opinion. These are the roots of what is now the mainstream economic thought.

The Borrowed Science of Neoclassical Economics

Another “Econ 101” story we hear in microeconomics classes is that, as consumers, individuals are always involved in a rational, hedonistic competition trying to maximize their own utility. The utility principle was brought to the forefront of the economics profession with the Marginal Revolution of the 1870s. The Marginal Revolution, the story goes, was a response to the rise in prominence of the theories of Karl Marx. While this might be true, it is only part of the story. The rest has been conveniently left out of the intro courses because it reveals that the foundations of neoclassical economics were essentially plagiarized from the natural sciences.

Modern orthodox economists frequently theorize and propose their models wrapped in algebraic expressions and econometrics symbols that make their theories incomprehensible to anyone without a significant training in mathematics. These complicated mathematical models rely on sets of assumptions about human behavior, institutional frameworks, and the way society works as whole; i.e. theoretical underpinnings developed through history. Yet, more frequently than not, their assumptions go to such great lengths that the models turn out utterly detached from reality.

This approach was promoted during the 1870s, in an effort to emulate the success of the natural sciences in explaining the world around us, and so transform Political Economy into the “exact” science of Economics. The new discipline, born with a scientific aura, would provide a legitimate doctrine to rationalize the existing system and state of affairs as universal, natural, and harmonious. It is understandable that economists wanted their field to be more like the natural sciences. At the time, great advances in physics, biology, chemistry, and astronomy had unraveled many mysteries of the universe. Those discoveries had yielded rapid development around the world. The Second Industrial Revolution was well underway, causing a transition from rudimentary techniques of production to the extensive uses of machines. Physics and mathematics were validated to a great extent with the construction of large bridges, transcontinental railroads, and the telephone.There exists extensive evidence to establish that this success of the natural sciences and the scientific method had a big influence on the mathematization of what had been the field of Political Economy. Early neoclassical theorists misappropriated the mathematical formalism of physics, boldly copied their models, and mostly admitted so. Particularly guilty of this method were W.S. Jevons and Léon Walras; credited with having arrived at the principle of marginal utility independently.

Jevons’ Theory of Political Economy shows this very clearly. He explicitly says he wants to “treat Economy as a Calculus of Pleasure and Pain, the form which the science, as it seems to, must ultimately take.” Here Jevons has abandoned the term “Political Economy,” and instead he is talking about the science of “Economy;” a science that would become “as exact as many of the physical sciences; as exact, for instance, as Meteorology is likely to be for a very long time to come.” Moreover, the concern of this new exact science would be limited to “the mode of employing their [referring to the population] labour which will maximise [sic] the utility of the produce,” and taking as “given” institutions like the property of land.

Walras showed many of the same intentions, claiming that “pure theory of economics is a science which resembles the physic-mathematical sciences in every respect.” Walras wanted that the pure theory of economics would deal with the relation between men and things (what he called “industry”) in a scientific way, while relations among men (termed, “institutions”) would be the object of study of social economics employing non-scientific techniques. This way, Walras removed property rights and class conflicts from the set of issues with which economics should be concerned. He abstracted the pure Economics theory from reality, and created an imaginary, utopian world: “an ideal market . . . [with] ideal prices which stand in an exact relation to an ideal demand and supply.”

American economist Irving Fisher furthered the work of Jevons and Walras in even less subtle ways. By the end of the 19th century, Fisher was openly copying physics models, term by term and symbol by symbol! Fisher’s Mathematical Investigations shows how he takes physics concepts and translates them to economics jargon:

Figure 1. Correspondence between the terms taken from mechanics and their economics counterpart in Mathematical Investigations

Source: Fisher, I. Mathematical investigations in the theory of value and prices, and appreciation and interest (p. 85).

Of course, none of this would be problematic if the adapted physics theories could be applied as Jevons and Walras proposed. But humans are not particles! In order for their scientific approach to work, Jevons and Walras had to assume a utility theory of value, which implied that people’s individual preferences were perfectly quantifiable, and that the amount of pleasure they obtained from the consumption of a certain good could always be measured. With these tools, Jevons and Walras assumed people to make rational decisions with the intention to maximize their utility.

This way, the Marginal Revolution transformed Political Economy into the pure science of Economics. Their methods, however, reveal that this formalization was more of a scam than an actual process of discoveries through scientific methods. Those who followed, however, took it to be a solid foundation. The founders of neoclassical economics used it to build theories that portray the existing order as rational, natural, and just. The social setting of the individual, institutions, and social relations of production continued to be exempt from examination, in the name of impartiality and objectivity. Economic “laws” continued to be devised—not discovered. The economy came to be portrayed as a system that operates autonomously and independently of human will, and comes to harmonious fruition under a free-market capitalist system of production. These conclusions, however, are built into the assumptions.

The urgency with which these theories were invented can be understood against the backdrop of Marx’s rise in popularity. Marx explained capitalism in the way a mechanic would open the hood of a car and explain the function of each part. His theories talked of conflicts of classes and exploitation as the inevitable consequence of private property, and the reduction of labor to another factor of production. With the intention to develop a counterargument, neoclassical thinkers decided to exempt those exact elements from their examination, and their models would show a capitalist society where there exists no exploitation, but rather a harmony of interests among classes and where the income created is divided according to the marginal productivity of each factor of production. No wonder neoclassical economists, like Robert Lucas, consider issues of distribution as “harmful” and “poisonous” to the economics profession; even in the face of staggering inequality. Maybe Piero Sraffa was right when he suggested that we should toss out these faulty theories.

Written by Oscar Valdes-Viera
Illustration by Heske van Doornen

Economics: An Illustrated Timeline

Do you keep getting confused about the different schools of thought in economics? Do you always forget what Walras was about, and when Marx was around?

This timeline has your back. It provides an overview of historic events, schools of thought, and the people involved.

About the author: Heske van Doornen holds an MSc in Economic Theory and Policy from the Levy Economics Institute and a BA in Economics from Bard College.

Sources: The Economics Book, Economie!, www.preceden.com, www.econlib.org, www.whistlinginthewind.org, www.hetwebsite.net

The History of Money: Not What You Think

Most of us have an idea of how money came to be. It goes something like this: People wanted to exchange goods for other goods, but it was difficult to coordinate. So they started exchanging goods for money, and money for goods. This tells us that money is a medium of exchange. It’s a nice and simple story. The problem is that it may not be true. We may be understanding money entirely wrong. Continue reading “The History of Money: Not What You Think”