My theme is of a Rise and a Fall.

Down to 1848 the new field of political economy was gradually coming to understand the system of market-tested betterment (lamentably called by its enemies “capitalism”).  After 1848, however, more and more of the economists, as they increasingly called themselves, came gradually to misunderstand it.  Indeed, the left and the middle came to treat it with angry contempt, such as Thorstein Veblen’s blast against English economics, with its allegedly necessary assumption of the “hedonistic conception of man . . . of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli.” “Imperfections” in the market took center stage in economics, and the understanding developed during the Rise was at best forgotten, or at worst condemned as “capitalist” propaganda.

The trouble we have had with the Fall after 1848 is that never, not once, have the alleged imperfections in market-tested betterment been subject to measurement.  That is my main point: that the Fall has not been justified scientifically.  Surprisingly, not at all.  From the point of view of sciences that depend on measurement, such as geology or history, the history of economic science is strange indeed.

The crux in the sad story of a sneering retreat from understanding after 1848 was an ill-chosen piece of rhetoric, the locution “perfect competition.”  “Perfect” competition came to be seen by the left and then by the center as a unicorn.  Economists found more and more theoretical reasons, they thought, to doubt that such a beast existed, even approximately.  The history of economics can therefore be divided into two parts.  Before 1848 was the education, stretching slowly back to Aristotle.  After 1848 was the re-education (or some would say, as I would, the “de-education”).

Joseph Persky’s fine new book on Mill, The Political Economy of Progress: John Stuart Mill and Modern Radicalism (2016) details the turning point.  Persky argues that Mill embodies the triumph of laissez faire and also the beginning of theoretical criticisms of it.  Persky celebrates the criticisms, whereas I think most of them have been mistaken factually.  Like another colleague of mine at the University of Illinois at Chicago who studies such matters, the philosopher Samuel Fleischacker writing on the Blessed Smith, Persky writing on the Amiable Mill claims his man for the left.  The claim is correct.  That is, Mill was simultaneously the apotheosis of laissez faire and the beginning of its long Fall.