The economy has slowly evolved since 1776, but current proponents of outdated theories are still out there selling their stuff. It would be as if some astronomers still believed that the sun revolved around the earth or that the entire universe was the Milky Way.
The older school were mercantilists, economists who didn’t know that trade was mutually beneficial. Trade contracts are still negotiated on the assumption that such “economists” are right. In Latin America, the defender’s name was Raul Prebisch (19011986). This is what both Luiz Inácio Lula da Silva (PT) and Jair Bolsonaro (PL) and most people on the street believe in.
The hero of my youth, Karl Marx, and the hero of my old age, Adam Smith, replaced mercantilism with a stage theory. They viewed value as the amount of labor that went into, say, a pound of coffee or a clean house. The amount was a “structure” that remains a favorite word for Marxists who don’t understand what came next:
The hero of my 20s, Paul Samuelson (19152009; Nobel Prize 1970), said: “No. Goods have different recipes. So if you know the cookbook, you can predict the future through planning.” Here’s how to plan your grocery shopping. Simply. Which means most economists still don’t understand what came next:
“No,” said Milton Friedman (19122006; Nobel Prize 1976), the hero of my 30yearold: “Economy does not work by a known formula, but by trial and error. It has a name: freedom.” At the Chicago School, cynical realism is the divine concept I taught the “Chicago Boys” Frank Knight (18851972) and James Buchanan (19192013; Nobel Prize 1986) in the 1970s . “Knowledge is the problem. As they say in Hollywood, nobody knows anything. The trick is to find a constitution of freedom.” Freedom as its divine concept, but imposed from above.
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“No,” say I (b. 1942) and some other economists, such as the political scientist Elinor Ostrom (19332012; Nobel Prize winner 2009), the Dutchman Arjo Klamer (b. 1953) and the experimental economist Bart Wilson (b. 1969) . “People are people. Ideas, ideology, conversation, discussion, ethics, creativity are important to them.” And they should be. The divine concept can be, and in my case it is, that God answers the question, “So what?” We call it humanism.
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