This chapter focuses on two attributes that are necessary for any economic ideology to gain widespread acceptance. First, the prevalent economic ideology must be relevant to lived economic experience, and two, there must be an identifiable central focus to the economic thought of that period. This focus lies not so much in the analytical framework its authors employs, but in the "vision" from which they start.
Sometimes this "vision" is incorporated in a seminal synthetic presentation, such as Mill's "Principles of Political Economy" and Marshall's "Economics". For Keynesian economics, the consensual center that emerges with Samualson's "Principles of Economics". These attributes existed only up to the Post-Keynesian period, whereas the mark of economics today is its extraordinary indifference to reality.
The definition of "vision" in this book is as follows: political hopes and fears, social stereotypes, and value judgements that infuse all social thought. The greatest concern of the authors' is the widespread belief that economic analysis can exist as some kind of socially disembodied study. Modern economic thought assumes that forces located within the "individual" constitute the conceptual core of economics, a core that is itself immune to further deconstruction. In other words, "What most economists would classify as non-economic problems are precisely those problems incapable of being analyzed with the marginalist paradigm. More than an analytical device, it is an important part of the dominant vision, a part that performs a conceptual operation Procrustes would have envied.
The recognition of the inextricably social roots of all behavior leads to the view that macro-foundations must precede micro-behavior, not the other way around, as modern economic thought perceives the issue. According to the author's, unless the social setting of economic behavior is openly recognized, economics will become the irrelevant scholasticism.
The once unchallenged centrality of Keynesian thought has given way to warring camps which include the following: Monetarism, Rational Expectations, Post Keynesian, New classical, New Institutional, New Keynesian economics. The cause of this long-lasting impasse in modern economic thought lies in its pre- theoretical vision rather than its post-visionary theory.
According to Schumpeter in "History of Economic Analysis", a classical situation is the achievement of substantial agreement after a long struggle and controversy-the consolidation of the fresh and original work which went before. There have been three such periods of a classical situation in economics. They are, 1. belonging to the late eighteenth century, 2. John Stuart Mill, and 3. Jevons, Menger, Walras, and Marshall.
According to Schumpeter, classical situations are not in themselves high points of analytical achievement, but are moments of "repose". Periods when its evolution has reached a point of stasis and consolidation marked by widespread agreement as to the kinds of questions to which the doctrine addresses itself. Classical situations attain their importance not because that can lay claim to some objective truth, but because, for reasons that may be very difficult to defend on "scientific" grounds, they command universal consent, i.e. they contain the basis for judgmental agreement with respect to the justice and reasonableness of the social order.
According to Schumpeter, "Analytic work begins with material provided by our vision of things, and this vision is ideological almost by definition. According to the authors', modern economists may have analytical reasoning behind their rejection of government efficacy, but there also exists a pre-analytical orientation of an ideological kind.
Economic historians have developed two distinct narratives of how macroeconomics evolved. In the rational reconstruction, macroeconomics progressed through a succession of analytical advances, each resolving a weakness in the previous dominant view. (The assumption of progress) The other narrative of the history of macroeconomics views Post-Keynesian economics as a series of misplaced efforts to reestablish neoclassical thought. Since the demise of Keynesian Economics, American economists have been unsuccessful in moving economics toward a resolution.
The dynamics of the rise and fall of economic ideology will be of two kinds. One must be the internal problems associated with the analytical exploration of a given depiction of a socioeconomic order. Thus the history of the first classical situation is affected by analytical problems emerging from its general construal of late 18th and early 19 century society. Primary among them was the internal consistency of the idea of value as the classical canon passed from Smithian to Ricardian hands-an issue that ultimately played a decisive role in the displacement of Smithian Classical economics by Ricardian. Other such analytical problems-for example, the long retention o an unsatisfactory formulation for, and the reluctance to surrender the concept of a wage fund-affected the durability of Millian classical situation.
Analytical problems also played a large role in explaining the decline to the Marshallian mode of analysis and the rise of Keynesian economics. The authors' see the classical situations as divisible into two segments, the first classical, exemplified by Ricardo and ill; the second post-classical, exemplified by Marshall and Keynes. Which can be described respectively as political economy and economics. Political economy is identified by a vision of the social order as comprised of three classes- laborers, landlords, and capitalists-with a corresponding analytical focus on the prospects for each.
Economics is characterized by a vision is the economy as the locus of interaction of disparate actors-individuals or enterprises-with analytical concentration on forces that determine the incomes of these actors, individually or collectively.
There are two underlying reasons for the change from political economy to economics. One reason is the displacement of the aristocratic political views by an increasingly democratic outlook. The other reason is the rapid rise in the prestige of natural science during the late 1900's
In this chapter, the authors first look at marginalism, the precursor to Keynesian economics, in order to determine the underlying factors for the demise of Keynesian economics as a classical situation. Marginalism per se is a theory of decision- making, in which costs and benefits are weighed precisely, and no certain net benefits is ever foregone. But in practice marginalism has become an amalgam of two approaches to economic theory: approaches that conceal beneath their shared antipathy t Millian economics sharply differing construals of what a marginalist vision means.
One approach, central to the work of Walras, has stressed the inter-connectedness of markets, leading to the vision of general equilibrium as the core concept of economic analysis. The other, central to the Marshallian framework, has concerned itself with the process of price formation discoverable in all competitive markets.
From these two foci eventually emerged two very different visions of the new classical situation. The Walresian conception retreated from the concern with real life attributes of specific markets. Marshallian marginalism in contrast emphasized the difference in market outcomes brought about by the institutional and historical constraints.
Today, general equilibrium has come to dominate the marginalist approach to economic analysis. The victory of marginalism was less complete than it appeared. The inner tension between Walresian and Marshallian thought surfaced in the "General Theory" between its Marshallian treatment of markets for labour and money capital, an its Walresian treatment of an equality between aggregate supply and demand in all markets. In Chapter IV of Marshall's Book "Principles", Marshall speaks of the transformation of the meaning of income from the "coming in" of a pre-monetized family to the revenues of a modern community. He differentiates income from capital.
According to Marshall, social income can be estimated by adding together the incomes of the individuals in a society. National income should be seen as a stream versus a fund. In his book, he fails to expound upon the strategic importance of the distinction between consumption and investment goods with respect to their respective demanders-a distinction that would immediately illuminate the importance of the concept of social income. The reason for this is because the forces that determine the size of social income is irrelevant in Marshallian economics, which is devoted to the exploration of the problem with price. In this problem, the forces of supply and demand play the same roles, and offer the same explanation for both capital and consumption goods.
Thus, Keynes main focus being how to explain the forces that determine the size of social income is irrelevant to Marshallian economics. According to the Marshallian viewpoint, the forces that impart momentum and progress to the economy gain their effects as part of the workings of a social order in which economic activity is the locus of utility-maximizing exchange that brings moral as well as material betterment. As such, these moral forces continuously exert a tendency for upward movement of economic life, save when occasional mismatches temporarily paralyze the confidence necessary for expansion, whereas with Keynes, investment demand has a multiplier effect on consumption and economic demand is determined by the level of demand. The long-term economic instability after WWI redirected attention from price determination toward the business cycle, a problematic totally absent from Marshall's text.
This change in focus, however, was not sufficiently great enough to suggest the appearance of a new classical situation, because the effects of the business cycle were perceived as fundamentally transient and benign. The ideas that booms might depend on essentially non-rational expectations; that massive employment could be both "involuntary" and compatible with an equilibrium of savings and investments; and that a liquidity barrier could prevent the interest rate from clearing the market for money capital were totally foreign to Marshallian self- correction.
The central break between Marshallian and Keynesian economics is the displacement of price determination as the essential task of economics by the previously nonexistent task of determining the level of aggregate demand. Keynesian economics tacitly accepts as a necessary condition for income determination that there exists a satisfactory mechanism for the determination of prices and acquiesces to the Marshallian analysis of price is the basis of that order bestowing process.
Focusing on income determination introduces the analytical problem of how to make determinations of the level of "effective" demand. This requires changing the focus of analysis from the interaction of marginal utilities and costs, which together determine prices in individual markets, to the interaction of flows of national saving and investment that determine the level of national output and employment.
Keynesian economics changed the motivation in two ways-as a shift from an individual centered to a group centered conception of behavior, and a margin of uncertainty as an eradicable aspect of the social process. The extent of the market, i.e. the aggregate demand for commodities, becomes the driving force, and aggregate demand is less amenable to exact theoretical representation. Market failure had previously been limited to externalities and public goods. Keynes expanded this to include insufficient effective demand.
The division of economics into macro and micro entities came about because Keynes's economics is not easily able to offer a single theoretical framework that embraces both price determination within individual markets and income determination over the nation as a whole. No matter how wide on opens the Marshallian lens, the problem of establishing the volume of aggregate output remains out of focus; and no matter how the focus of Keynes's lens is narrowed, price determination in individual markets never comes into clear view.
Marshallian economics doesn't reveal such output-determining elements as the multiplier interactions, or expectational influences, or nonrational liquidity preferences, nor does it allow for the possibility that an adding up of individual markets, may overlook interactions that take place in a market system but not in any individual market.
According to the authors', there were two corrections necessary before Keynesian economics could become a classical situation. One was the idea of inescapable uncertainty that could find no quantitative outlet, and the other was the absence of an analytical connection between the older Marshallian universe and the newer Keynesian one, which was solved with Hick's IS/LM diagram. Another problem was Keynes explanation that investment and savings were brought into equilibrium via changes in the level of income, which conflicted with the definition of saving and investment being equal at all levels of income.
This problem was ultimately overcome by Roy Harrod, who introduces as the central problematic issue the determination of equilibrium rates of growth of output instead of levels of output.
Harrodian analysis placed rates of changes in output at the center of analysis, with the result that changes in the savings rate, technology, education, and human capital became target variables for policy.
This chapter looks at the decline of Keynesianism. After WWII, U.S. unemployment was expected to be high, Churchill was defeated in Great Britain, France voted in a left-wing government. The capitalistic successes of Europe, Taiwan, Singapore and South Korea brought about a global surge of popularity in capitalism.
At this time, America displayed laggard tendencies in its rate of growth and technical advance. AT this time, inflation become more apparent than high unemployment, and Kaynesian doctrine had no coherent theory of inflation. This gap was filled by the work of A.W. Phillips (the Phillips curve-the inverse relationship between unemployment and the wage rate.)
In regard to the Phillips curve, the critics argued that the level of unemployment would not reflect the nominal but the real wage, and would therefore tend, after a period of "money illusion", toward an unchanging unemployment-inflation relationship. Friedman maintained that the Phillips curve would always extend vertically from the "Natural" rate of unemployment.
Another reason for the unraveling of the Keynesian classical situation was its failure to include a concept of stagflation- simultaneous recession and rising inflation. There no longer appeared to be an inverse relationship between inflation and unemployment. Keynesian theory can be considered a success insofar as it can be altered to include stagflation within its framework, taking the form of allowance for increased bargaining power of labour, due to an increase in unemployment insurance and informal labour contracts. This is assuming that stagflation should be attributed to institutional events. Another reason for the decline of Keynesianism was the Keynesian view of money and monetary policy.
In the Keynesian system, inflation is ultimately a monetary symptom of a nonmonetary condition- the over-utilization of existing productive capacity. In Monetarist theory, inflation is always a problem of an oversupply of money. The issue here was how to fuse a coherent view of the function of money wit the static approach of the IS/LM equilibrium.
According to some Monetarists, the Keynesians simply overstated the interest elasticity of money demand and understated the interest elasticity of expenditures. By pointing this out, the monetarist appear to be denying that there is an analytical error in the Keynesian formulation. Thus, the "problem" posed by the Keynesian approach to money did not lie in its analytical inadequacies, but in its pre-analytical view of the economy as a social mechanism subject to a chronic dysfunction for which more powerful medicine than monetary policy was necessary. The interest rate was not a real variable bringing investment and saving into balance. In Keynesian analysis, as in Friedman's, money matters, but in different ways and to different degrees because the properties of the social order in which it exerts its effects are differently conceived.
In Keynesian economics, unlike Marshallian economics, collective determinations often take precedence over individual behavior by strongly influencing it. We owe a sharp distinction between individual and collective analysis to Paul Samualson's "Foundation of Economic Analysis" which framed the issue as "micro" or "Macro". According to Alan Blinder, if macroeconomics is to be based on micro maximizing behavior (as it is), than Keynesian Macroeconomics will never be seen on parity with microeconomics but will find itself "an infidel in the neoclassical temple".
There appears to be no means of overcoming this analytical problem. Keynesian behavioral premises do not derive from, and cannot be reduced to those of pre-keynesian analysis. In conclusion, the fall of Keynesian theory cannot be explained by its absence of a clear-cut microeconomic basis, but is due to sociological and ideological changes in society.
By the late 1960's, Keynesianism became a model in general disrepute. Gregory Mankiw begins with an intriguing aspect of its downfall: The disregard to which Keynesian doctrine was increasingly subjected was almost entirely confined to theoretically oriented academic circles-for policy makers it was largely unchallenged. The reason is that the emerging criticisms were impossible to translate into operational models capable of illuminating economic problems or performing more successfully than the Keynesian macro models.
The goal of this chapter is to determine the pre-analytical basis in which the analytical criticisms arose. As was earlier stated, the only decisive role of money-driven behavior was the creation of a zone of monetary impotence. As we have also seen, these monetary shortcomings could be remedied wit the introduction of expectations-augmented Phillips curve and a natural rate of unemployment within the IS/LM model. This being the case, we can see that there was no irreconcilable distance separating the Keynesian macro system from the concerns of the monetarist school. This near-compatibility of monetarism and Keynesianism would make one assume that monetarism would be the only natural successor to Keynesianism, which did not happen. A likely reason for this was the increasingly unreliable relationship between the money supply and the level of prices, income and unemployment.
In 1981 and 1982, Money demand was wildly over-estimated, radically dis-confirming the monetarist transmission mechanism and resulting in the Volcker crisis. Also at this time, Friedman was very vocal about the need for a constant 3% increase of the money supply, regardless of the state of the economy, which is admittedly very radical. Another problem found in Monetarist theory is its lack of rational-choice microfoundations, this being at a time when the rational-choice approach to economics was becoming increasingly popular.
Though Monetarism failed to become the new classical situation, most macroeconomic theory since the 1970's has had a distinctly monetarist bent, including even the "New Keynesian" theory of the 1980's and 1990's. Though the monetarist doctrine went well with the increasingly conservative sociopolitical views of this time, the axiom of rational expectations was found to be analytically less vulnerable and more congenial to the conservative temper of the times. Unlike the expectations of Friedman's model, which were "adaptive", or formed by extrapolating past expectations into the future, rational expectations were wholly based on currently formed estimates of the future.
It was the conclusion, inextricably implied by the tautological character of rational expectations, that policy was incapable of altering the course of spontaneous market behavior: Actor's expectations, taken in their totality, will accurately predict market outcomes because these expectations will, by their translation into action, determine how the market in fact behaves. No representative or non-market observer can beat the market. Thus, the government becomes an agent that can neither foresee or influence the course of the markets movement. The New Keynesian school has shown that government policy can influence market outcomes, despite rational expectations, when wages are sticky.
The inevitable conclusion of rational expectations was the impotence of either monetary or fiscal policy once they become anticipated by market participants. With rational expectations, human behavior becomes totally predictable, and institutional effects are totally disregarded-economics becomes a natural science in which social science has no place. At some subterranean level, rational expectations failed by itself to replace Keynesian economics, not because it was not potentially useful, but because as an existential metaphor, it was not acceptable.
New Classical economics has been called the "equilibrium approach to macroeconomics". Its proponents accept the rational expectations hypothesis and assume efficiency in all markets. This approach begins with the mathematical specification of an individual agent's objective function, which is considered representative for all individuals or firms. Macroeconomic outcomes can then be thought of as the aggregation of all such events.
The goal of the New Classical's was to root macroeconomics in mathematically rigorous microfoundations with given preferences and technology-to construct models whose structures were immune to changes in policy. A Key contribution of New Classical theory lies in its reintroduction of the business cycle as the focal point of analysis, which departs from 19th century classical analysis of trajectories of long-term growth, but reintroduces variations in the rate of employment and output that had been excluded from the theory of rational expectations. By assuming instantaneous market clearing, they had to introduce the key assumption of large random fluctuations in the rate of technological change. These in turn lead to fluctuations in the relative price of goods, to which individuals rationally adjust the consumption and labour supply response.
This inter-temporal labour substitution creates cycles of output, but all fluctuations represent efficient responses to the exogenous changes in technological capabilities. The focus of analytical critiques have centered on the role, or even existence, of intertemporal labour substitution and regular technological shocks. To hold the New Classical view, one must assume that all fiscal and monetary incentives and dis-incentives have absolutely no bearing on individual action.
New Classicism is a denial of the sociality of all economic agents and the markets in which they interact. By placing the individual at the center of the analysis, all aspects of behavior that are social, such as power, commitment, and values, are eliminated. Much of the search for a new classical situation has been to remedy the Keynesian inability to link human action such as "animal spirits", "liquidity preference", and "uncertainty" to individual action. From a sociological view, "micro" and "macro" merge, in the micro-behavior cannot be understood without taking cognizance of its social origins, and social forces remain empty abstractions unless they enter into the motivational concreteness of one or more individuals. Individual action is revealed as an ambiguous rather than sharply delineated entity, and the line of demarcation between "individual" and "social" is revealed as a blurred interface rather than a razor-sharp division.
The intention of the authors is the recognition that both micro and macro perspectives have legitimacy, and reliance on only one alone leads to a weaker framework for social explanation. The achievement of Copernicus cannot be used as an exclusive metaphor for understandings that also require the conceptual perspectives of Plato, Marx, Freud and other shapers of social understanding. (Social sciences unite! :-))
New Keynesian economics does not reduce government to impotence, nor does it assume the markets always clear, due to sticky prices and wages. What makes New Keynesian models "new" is that they are built on the explicit basis of behavior based on rational expectations and guided by the realization off all existing opportunities to maximize individual welfare. The explicit attention to market behavior adds to New Keynesian theory a previously absent degree of concern with institutional rigidities that prevent market clearing. New Keynesian's also insist that the proper scope of macroeconomics is limited to the supply side. In the complete reversal of the traditional Keynesian perspective, demand factors are considered of secondary importance. Such a view leads to the abandonment of Keyne's insight that a monetary economy will be prone to unemployment due to insufficient effective demand. Having attributed involuntary unemployment to coordination failures and market imperfections rather than the failure of aggregate demand, policy has a much smaller role than it does for traditional Keynesian's.
In conclusion, both New Keynesians and New Classicals agree that macroeconomics must be rooted in the rational-choice microfoundations of all agents, and both share a skepticism with respect to the effectiveness of demand management as a means of overcoming inflation and unemployment. The problem is not that of internal disagreement, but of failure and confusion at the level of vision. Economics has become increasingly nothing more than fancy mathematical acrobatics that give us no explanation, just something "pretty" and symmetrical to look at.
In the absence of a new commanding vision from without, academic economic thought turned within. This inward movement took the form of an enlargement of the role of analysis to the point where it not only obscured the absence of a new commanding vision, but served to a large degree, as a substitute for it.
The ultimately indigestible aspect of Keynes work may not have been on its emphasis on large-scale malfunction, but his ascription of malfunction to social rather than mechanistic causes. The final demise of Keynesian hegemony was signaled by the resurgence of natural law conceptions of economic inquiry. This focus of natural law has brought to economics the deterministic clarity it sought and the status associated with the most prestigious branch of human inquiry- the natural sciences. Only if markets are viewed not simply as resource allocation machines, but as social constructs that serve a social function, will the role of organizational structure, technological innovations, and cultural norms and habits be integrated more centrally into economic analysis.
Three institutional characteristics -one sociopolitical (the drive for capital accumulation), one organizational (the market), and one administrative (the coexistence of public and private realms)- set capitalism apart from all other social formations to date. There is a recognizable form of "capitalist" socioeconomic organization throughout history that can be identified.
According to Heilbroner, economics is a form of social inquiry peculiar to capitalist societies, and the crisis of vision in economics is the failure even to acknowledge, much less explore, this inextricable link. To use representative agent rational choice as the organizing principle for thinking about modern organized capitalism, skews it in a direction that is incapable of providing a compelling explanation of our experience. The universal grammar of economics, categories such as scarcity, cost, preference, opportunities, etc., does not communicate a message of any economic significance unless applied to a society that possesses the institutional and cultural elements inherent in capitalism.
Economics gives us a conceptual vocabulary and an analytical repertoire that would be unavailable without the science of economics, a discipline that devotes itself to the self-generated tendencies that we find only in capitalism. The other social sciences do not include unemployment and uneven growth in their conceptual or analytical concerns. In other words, there are aspects of a capitalistic order that cannot be explained without economics; or to turn the matter around, it is to say that economics cannot be learned or used without speaking of capitalism.
The only schools of economics that openly declare the intimate relationship between capitalism are Marxian, institutional, and other "left" approaches; and Hayekian, von Misean, and related libertarian "right" approaches. Heilbroner believes this failure to connect theory and historical contingency as lying at the heart of the inability of contemporary theory to constitute a new classical situation. The failure of economics to recognize the insistent presence of this underlying social order, with its class structure, its socially determined imperatives, it technologies and organizations, and its privileges and rights, derives from its pre-conceptual basis in a natural rather than a social construal of economic society.
Though the earlier economists wove elements of a natural order into their visions, these forces were intimately connected with the social realities of a clearly perceived sociohistorical kind.
Smith dealt at length with the institutional and motivational properties of capitalism; Ricardo largely ignored, but never denied the social realities of the capitalist scenario; Marx worked to expose the social causalities behind seemingly natural events; Mill strongly believed that society could morally reorder its material framework; Marshall was a believer in the possibility of economic "chivalry"; Smith's work was undeniably interwoven with a moral context; and Keynes monetary production economy was firmly connected with the depression era.
In conclusion, economics must become aware of the importance of distinguishing economic inquiry from natural science and, in particular, of the disciplines integral connection with capitalist order.
In this chapter, Heilbroner attempts to determine the nature of the vision and the properties of the analysis most likely to give rise to a new classical Situation. What is needed is the recognition of the necessity for a widening degree and deepening penetration of public guidance into the workings of capitalism itself.
It is the legitimacy of the public sector within capitalism that lies at the core of the contemporary crisis of vision. According to Heilbroner, the assurance that our system of capitalism basically allocates our resources efficiently can no longer be assumed. The reasons he gives are one, an increasing automation that is resulting in a higher unemployment, second, entitlements that exist for all levels of society, and third, a globalization of production, which creates a lowering of social, environmental, and labour standards through the forces of market competition. The recent internationalization of finance seriously limits the ability of advanced nations to carry out domestic fiscal and monetary policies. On an even larger front, population growth raises the specter of large immigration pressures, with serious consequences whether the flows are accepted or denied.
As with earlier classical situations, today's vision must incorporate the sociopolitical essence of the historical setting in its choice of the fundamental who will set into motion the economic drama itself. Having ruled out the tripartite class structure of Political Economy and the individual-centered Economics of the second, a two-sector structure should be incorporated into the new vision.
The drama itself will then reflect a setting in which government policy plays a dynamic, determinative role reserved mainly for the actions of the capitalist class or the decisions of individual entrepreneurs. The present overall view of government in regard to its legitimacy is no longer affordable. Government expenditures cannot be totally treated as consumption, capital budgeting is essential for the public sector, and the same cost-benefit scrutiny must be accorded to private as well as public economic activity. A fruitful economic exploration in our times requires a recognition of the increasing defensive position in which capitalism finds itself.
Classical situations depend on analysis as well as vision, and any change in vision is likely to put the process of analysis in different light. The enhanced legitimacy of the public sector requires not only a change in the nature of economic analysis but also a transformation of the status of analysis in economic inquiry. This new analytical function in economics loses some of its "scientific" ability to rely on underlying behavioral regularities, and takes on aspects of social and political judgement absent in the tradition application of behavior guided by simple maximizing.
Economics must come to regard itself as a discipline more closely allied with the imprecise knowledge of political, psychological, and anthropological insights than with the precise knowledge of the physical sciences. Indeed, the challenge may in fact require that economics comes to recognize itself as a discipline that follows in the wake of sociology and politics rather than proudly leading the way for them. In response to the argument that government smothers self-realization, there is no denying that economic life in much of the underdeveloped world and too much of the united states offers little that promises even the most modest self-realization.
Similarly, it is equally short-sighted to extol uncritically the apolitical character or the disinterested motives of economics, insofar as our discipline, as we have seen, is intrinsically embedded in capitalism and thereby becomes its self-justifying voice, even when it is quite oblivious of serving that purpose.
To assert that economics, by virtue of its subservience to a clear-cut motivational direction and an affinity for a political climate of self-interest, takes precedence over politics is only to assert that a certain kind of politics, congenial with economic concepts and values, becomes the dominant value system of a capitalist order. It follows that if economics becomes an instrument for the attainment of politically chosen goals, it has not been displaced by politics, but has rather openly recognized itself for what it has always been, the indispensable servant of the sociopolitical order to which it ministers.
In conclusion I will restate the two central elements that Heilbroner finds necessary for economics to move toward a stable classical situation. One, is the need to abandon the natural law conception of economics and replace this with the understanding that there exists an inextricable connection between economics and its underlying social order. Two, the need to reorient the form of economic theory from prediction to policy guidance, a reorientation that emerges from the diagnosis of capitalism as essentially on the defensive before forces of its making, but not under its immediate control.
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