I enjoy and learn much from Anton Howes’s newsletter on economic history. Here’s the January 29th, 2020, posting.
So, why did Alchian have to recapture such a basic point of common economics knowledge that had been recognized from Adam Smith onward? My conjecture is that Alchian was necessary because knowledge that was once firmly embedded in the training of economists was lost during the Keynesian revolution in economic thought and the Samuelsonian reconstruction of economics after WWII. In the preoccupation with macroeconomics, the development of microeconomic arguments under Samuelson tended to focus on market structure and the inefficiencies that emerged in the technical presentation when there was a deviation from the idealized model due to monopoly power, externalities, public goods, and inequality. The institutional framework, which was so critical to the classical political economists, went from being treated as given to being forgotten. And with that, any hope of critical analysis of the impact of alternative institutional arrangements on the pursuit of productive specialization and peaceful social cooperation through exchange was lost in the professional literature. The increasing distance between the mainstream literature of 1950-1975 and the earlier presentations of the competitive market process and the liberal political and legal structure within which the economy was embedded is an indicator of just how far economic theory had become derailed.
In the almost inconceivable event that a President Sanders were able to enact his full economic agenda, the result would surely be much worse than anything that’s likely to happen under Trump. In an analysis published last October, Brian Riedl, a scholar at the conservative Manhattan Institute, calculated that the Sanders proposals would cost as much as $97.5 trillion over a decade, would more than double the size of the federal government, and would turn approximately half of U.S. workers into federal employees.