But Is this Elevation of GMU a Compliment?: An Open Letter to a Correspondent

by Don Boudreaux on March 3, 2011

in Books, Civil Society, Complexity & Emergence, Myths and Fallacies, The Economy, Trade

3 March 2011

Mr./Ms. Proud American Protectionist

Dear Mr./Ms. Protectionist:

A self-described “fan of Ian Fletcher’s brilliant works,” you assail me today by e-mail with several wild accusations.  The most coherent of your accusations – offered in response to what you correctly interpret as my position that nations are not relevant economic entities – is this one: “The trouble with ivy-league economists like you is that your theories make you blind to plain facts everybody else sees.”

Here’s a multiple-choice quiz for you: who wrote the following?

However, in the face of so many nasty surprises, arising in so many different circumstances and under so many differing regimes, we must be suspicious that some basic assumption or other is in error, most likely an assumption so much taken for granted that it escapes identification and skepticism.

Macro-economic theory does contain such an assumption. It is the idea that national economies are useful and salient entities for understanding how economic life works and what its structure may be: that national economies and not some other entity provide the fundamental data for macro-economic analysis.  This assumption is about four centuries old, coming down to us from the early mercantilist economists who happened to be preoccupied with the rivalries of European powers for trade and treasure during the period when Portuguese, Spanish, French, English, and Dutch were exploring and conquering the New World and the lands and seas that lay along the trade routes around Africa to the Indies and beyond. The early mercantilists assumed that the national rivalries unfolding before them were the very keys to understanding what wealth itself is and how it arises, how it is maintained, how lost.  According to the theory they propounded, wealth consists of gold, and gold is amassed as a nation manages to sell more goods than it buys….  Nations are political and military entities, and so are blocs of nations.  But it doesn’t necessarily follow from this that they are also the basic, salient entities of economic life or that they are particularly useful for probing the mysteries of economic structure, the reasons for the rise and decline of wealth.

A.    Economist Adam Smith
B.    Economist David Ricardo
C.    Economist Milton Friedman
D.    Non-economist Jane Jacobs

The correct answer is “D.”*

Sincerely,
Donald J. Boudreaux

* Jane Jacobs, Cities and the Wealth of Nations (New York: Vintage, 1984), pp. 29-31.

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