William Breit

The Wages Fund Controversy Revisited

“The wages fund theory is the crowning instance of an untrue abstraction … and it has probably done more injury to the reputation of economic theory than any other generalization ever received into economics textbooks and then expunged from them.” These words, by James Bonar, fairly well express the view that has dominated economic thought on the wages fund doctrine for the past century. Writing forty years after Bonar, Paul Samuelson claims he has been impressed by the “falseness and emptiness of the wage fund doctrine,” stating that the controversy it inspired “constitutes one of the most sterile chapters in that dreary gap between the classical age and the revolutionary neoclassical discoveries of that last third of the nineteenth century.”

Economics as Detective Fiction

Abstract Almost all good economic analysis is structured like classical detective fiction. This relationship goes well beyond the obvious fact that both detective fiction and economic analysis involve puzzles. The economists epistemology, presented in the form of scientific narratives, runs parallel to the puzzle-solving processes of the mastermind sleuth presented in the form of fictional narratives. The family resemblance between economic analysis and the classic whodunit becomes even more transparent by noticing another important characteristic they share: the concept of equilibrium. Examples chosen from recent economic literature bring the argument into sharper focus. In each instance, the solution to the puzzles that lie at the heart of their respective domains must be ingenious and surprising in order to be persuasive.

Discrimination and diversity: Market and non-market settings

This paper analyzes discrimination in light of two possibilities (1) that variety has a positive marginal value and (2) that it is less costly to deal with more homogeneous inputs. In market settings it explains the anomaly that firms practicing discrimination in hiring may survive in a competitive environment. In non-market settings it explains the minority separatism practiced under the name of “multiculturalism” on college campuses. Curriculum reforms in the direction of more ethnic, racial and religious “exclusivity” may be understood as attempts to change the constraints within which individuals of diverse cultural backgrounds, brought together into intimate contact, may maximize their utilities.

Institutional Economics as an Ideological Movement

In the 1920s, when it was in its ascendancy as a movement that seriously challenged the hegemony of neo-classical economics, institutional eco-nomics could boast of having some of the most distinguished economists in America in its ranks. Thorstein Vehlen was the most famous, if not the most respectable, member of the group. His students and disciples held posts at some of the country’s most distinguished universities: men like Wesley C. Mitchell, J. M. Clark, Walton Hamilton, and Morris Copeland. All of these were highly acclaimed economists whose publications appeared frequently in the leading professional journals. Indeed, in 1928, when Paul Homan published his well-known book summarizing the main positions of contemporary economists, he included five major figures to represent the leading viewpoints of the time. Two of them (Veblen and Mitchell) were American institutionalists, and one (J. A. Hobson) was an English cousin of institutionalism. Only J. B. Clark and Alfred Marshall could be counted among the representatives of orthodoxy and by 1928 they had already passed from the scene, (Homan, 1928).

Starving the Leviathan: Balanced Budget Prescriptions before Keynes

In his magisterial account of medicine in the ancient world, pathologist Guido Majno concluded that many nostrums and remedies for wounds prescribed by our primitive ancestors seemed to work although they did so for reasons that are not apparent on the surface. In many other aspects of their behavior, seemingly irrational practices are only later discovered to have had silent merit. One inscrutable activity was that of burning the skeleton of animals, treating the resulting configurations made in the charred remains as a map, and renewing the hunt the next day according to the patterns on the shoulder bone. Our ancestors believed that the gods showed them where to hunt through magic. But the real merit of this nonsense was that over-hunting in any single part of the territory was prevented. Their method randomized the hunt in a way that could not be improved upon by the modern computer. Thus they achieved long-run practical results that from their vantage point seemed magical.1