Summary and Analysis Chapter 11



The concluding chapter addresses the achievement of economists as a whole. How useful have their writings been in interpreting actual events? Has prediction been the economist's aim? Is this undertaking a worthy endeavor? Among the economists described in the book, John Stuart Mill came closest to functioning as an economic prognosticator.

Unlike Mill, most theorists narrowed their perspectives, offering little more than a single option for the future. In comparison to the rest, Thomas Malthus' Essay on Population is the most limited and dogmatic in its prediction of doom from overpopulation. Conversely, Karl Marx, the "Great Predicter," remained cautious about carving his predictions in stone.

The reason that economic prediction remains nebulous and hazy is that economics differs from more scientific studies, such as astronomy or physics. Because society exists in a state of flux, its behavior is less predictable than the motions of the planets or the status of atoms in a molecule. Therefore, economists are willing to forecast only a generalized picture of future trends rather than particular details. These economic generalizations, or laws, exist in a kind of historic vacuum, without recourse to inevitable changes in background situations. Thus, the savvy student of economics expects some ambiguity in predictions and knows to apply common sense to any grand schematic design. In its normal state, prognostication is possible only on two conditions:

  1. Behavioral regularities must govern the lives of individuals. These "givens" allow the economist to create "if . . . then" statements, such as Thomas Malthus' surmise that if workers continue to expand their families during boom times, then world population will soon outstrip necessary resources to feed the multitudes. In similar fashion, Karl Marx believed that if capitalists continued oppressing the working classes, their actions would lead to a class war and the inevitable collapse of capitalism.
  2. The outcome of the economy will influence society as a whole. Economists as a group share the common belief that how people spend their money affects the "overall shape of things to come." Because money is an integral part of the totality of society, it cannot be overlooked in any analysis of civilization as a whole.

These two conditions clarify how Schumpeter arrived at the conclusion that capitalists would evolve into hidebound bureaucrats. He believed that a change would occur in human nature. Significantly, however, he was the first economist to declare that economics was less crucial to human history than politics or sociology. In summary, it is remarkable that economics, apart from other social sciences, is able to predicate laws of any kind, especially definitive laws which describe how buyers and sellers will react in the marketplace.

In assessing how well the laws of economics describe actual behavior, the student will notice immediately the limitations of time. Economists like Adam Smith were unable to foresee how factory systems would change following revolutionary discoveries, such as the steel-making process, which replaced the lowly pin factory. Likewise, David Ricardo did not envision improvements in nineteenth-century agricultural productivity; nor did John Stuart Mill or Karl Marx clearly predict innovative changes in the political control of economics. In more recent times, even Keynes' and Schumpeter's theories have already suffered major setbacks as events have moved in directions neither man could foresee.

Most significant to the trouncing of economic prediction is the fact that economists as a group have not been able to predict three trends:

  1. The growth of technology. Adam Smith was unable to guess that mass production would vastly alter the factory system. Moreover, David Ricardo had no inkling how drastically steam power would alter production. In general, these market seers failed to understand how machines could displace labor. Only Karl Marx surmised that machines might replace workers and even he would be astounded at modern computer-driven machinery, particularly the sophisticated robotics that bolsters the automotive industry.
  2. Changes in society's attitudes and behavior. Adam Smith assumed that workers would remain complacent when, in fact, they became more militant. Karl Marx, assuming that human outlook would remain static, failed to see that workers could resolve their differences with capitalists within the confines of a democratic society
  3. .
  4. More profound than the other two trends is the fact that regularities of economics are no longer regular. Adolph Lowe, who questions how the random behaviors of individuals in the marketplace manage to provide for the entire community, reveals that people establish economic order because of their singleminded acquisitiveness. However, the will to maximize personal finances is waning as capitalism develops. Human lives are so well furnished that modern capitalism resorts to advertising to convince the public that it needs the new products which factories are turning out. Thus, one of the dependable "givens" of the economic equation is no longer a sure thing.

In short, economic vision has been bounded by turns and twists in the historical path. Each economic theory has reached only so far as the prevailing technology and lifestyle of the times allowed it. These aforementioned alterations in capitalism are therefore producing a less predictable market behavior.

In a demonstrative break with his predecessors, Lowe contends that economics can no longer be governed from within. In order to maintain a balance, the economy requires active interference, such as tax inducements. Thus, the new function of economics is not to predict but to control. The old philosophical system, now completely out of date, must give way to an upgraded version — political economics.

At this point, one quality of economic prognostication seems more pertinent than at any other time — Schumpeter's "preanalytic" grasp, which enables the economist to recognize coming trends, such as Schumpeter's cadre of entrepreneurial elite or Mill's vision of human improvement. Even though these projections derive from the personalities and backgrounds of the economists themselves, they must not be dismissed as whimsical or unimportant. Rather, they merit distinction for being penetrating, courageous, and intellectual acts.

In summary, economics, because it is rooted in human behavior, cannot be reduced to a list of mathematical formulae. Economic exchange functions as a single building block of the total social picture. While economics is a thrilling study of one aspect of what it means to be human, it is still only one view of a complex and ever-changing world picture.


The role of economics in society has never seemed more crucial than it does today. There are tens of thousands of practicing economists who influence decisions in banks, corporations, and government. However, the field of vision among today's economists is greatly reduced. Lacking the scope of an Adam Smith, a Thorstein Veblen, or a John Maynard Keynes, these professionals concentrate on smaller spheres of interest, such as Paul Samuelson's work in mathematical economics, for which he won a Nobel prize.

Breaking with earlier traditions, modern economics lauds such figures as Milton Friedman, spokesperson for the free market, and John Kenneth Galbraith, whose philosophy runs counter to Friedman. Whatever the area of interest, economists at present suffer no lack of problems to solve, whether depression or inflation. Under the stimulus of massive change — globalization of the marketplace, third world starvation in an era of affluence, and threats to the industrial order as Japan faces off against the American giant — economists look out on a host of possibilities. What mixed blessing will technology bring? Will the earth survive the pollutants produced by industry? Has ecology gone too far toward destruction to be rescued? Will the depletion of fossil fuels spell the end of the factory system? Is a global depression possible? Will technology extend into outer space?

In none of the above troubling situations will economics bear the final resolution. The citizen of tomorrow will find the role of politics encroaching more heavily on economic growth. Never again will the market chug along on its own steam, as it appeared to do in Adam Smith's day. Consequently, the day of the worldly philosophers appears to have ended. Yet, their role in teaching humanity how to assess a major cog of civilization has brought about a worthwhile reaction — a better understanding of itself.


Behavioral Regularities Predictable aspects of the marketplace, such as competition and demand.

Preanalytic Creative; predicting change.