TITLE : MAKING OF ECONOMICS, THE. 3RD ED.*

The goals of this book are many. I want to convey accurately where economics has been, where it is now, and how it got to be this way. I want to discuss current developments in economics, and where economics might go from here. I want to catch the new sense of excitement by setting my sails in the winds of change. I try to accomplish my goals in the following ways:

1. By describing the developnaent of economic organization from feudalism, to the market economy, to the complex mixed economy, to the present day.

2. By analyzing the ideas of those who formulated the basic principles upon which economics rests-Smith, Ricardo, Mill, Marshall, and Keynes-and those who have provided penetrating critiques of the mainstream economics of their day-Marx, Veblen, Galbraith, the monetarists, the new radicals (left and right, and the post-Keynesians.

3. By examining the social and intellectual influences that have shaped the thinking of the great economists. Perhaps the most incessant charge leveled against economics is that it lacks relevance. A major theme throughout this book is that economists of the recent past have tended to formulate economic laws as if they were immutable laws of nature, with the implication that economic phenomena can be analyzed in the same way as physical phenomena. I question this assumption throughout the book and attempt to show that economics must deal with people as well as with inanimate objects. Since the first edition, the recognition of the social and political nature of economics has grown among economists.

4. By weaving economic ideas out of the fabric of economic history. Any subject, even a mathematical natural science, cannot avoid humanity and thereby avoid becoming humane when it is studied as history.

5. By examining the current economic crises and how economic theory is responding. My first three goals are relevant here. When chaos prevails, we often look back at the past to see where we are going.

In convergence upon these objectives, an accelerating trend toward optimistism and a sense of direction about the nature of new economic ideas characterize the recent editions. The dogmatic position formerly held by many economists that economic science had achieved its final and permanent state has softened, a mutation appropriately considered. The end of dogmatism could be timely. The world is beset by economic problems, and many of the problems we face-such as stagnation, unemployment, national budget crises, global debt crises-apparently have no solutions to which reasonable people can agree. It is important for all of us to try to understand how and why these crises have occurred. Because the present is rooted in the past, we gain a good deal of understanding from the study of the ideas of the great economists who have formulated the basic principles on which modem economics rests.

Our analysis is not concerned only with economic thinking, however. We also look at the social and economic conditions to which these economists responded and consider the relationship between what economists think and why they think it. Like men and women in every walk of life, most economists reflect the values of their society and want to be accepted by their fellow citizens as responsible members of society. Their thinking, therefore, is a reflection of their social world, and vice versa.

Our detailed study of economists will begin with Adam Smith (1723-1790) and continue to the present day. Smith thought and wrote as the Industrial Revolution was getting under way in England. Business and manufacturing firms were still quite small, with many competitors in the same field. Smith's economic theories conformed with this business atmosphere of intense competition, and thus he wrote, in a sense, what most of the eighteenth-century traders and merchants wanted to read. But there was more to Smith than met eighteenth-century eyes, otherwise his ideas would not have endured so long. He revolutionized economic thought, and much of what he had to say forms the basis of economic theory today.

Smith was profoundly affected by the English scientist and mathematician Isaac Newton (164Z-1727), whose scientific work had caused great changes in the prevailing world view of most educated people. The universe pictured by Newton operated with the order and precision of a giant clock. Smith adapted Newtonian harmony to eighteenth century commercial activity, finding, for example, an almost perfect equilibrium between supply and demand in a business world of perfect (or nearly perfect) competition.

Economics today still works with many of Adam Smith's assumptions, such as the world of perfect competition, even though the most powerful elements in the modem economy bear little resemblance to the world of Adam Smith. Natural science has undergone several revolutions since Newton's time; economics has not. Until the late 1970s, many economists, in the face of giant unmet crises, seemed to be content with mechanistic refinements of thoughts forged in another world. One of our purposes throughout this book will be to try to discover why this happened. We will also envision a future economics that might alleviate some of these crises.

History tells us that major steps forward in economic theory have resulted from attention to the realities of hunger, depression, inflation, war, social discontent, and other maladies. A return to a concem with such problems-and we shall examine many that plague modern-day society-may lead to a transformation of economics.

Economic crises ars with us today because we have not yet resolved conflicts that have plagued humanity throughout 5,000 years of history. We are still quarreling over such fundamental issues as the degree of private ownership versus common ownership; individual freedom versus the common good; the virtue of private versus public monopolies; the advantages of rapid technological change versus the pastoral pleasures of an undisturbed natural world; and the gains of science versus its danger to human survival.

Any new vision must recognize the existence of conflict. We will see that the scientific system of Adam Smith has failed to resolve society's long-standing problems of scarcity, equitable power, equitable income distribution, work satisfaction, and poverty-not because of scientific imprecision but because of the assumptions underlying the system. Borrowing its assumptions from the Scientific Revolution that closed the Middle Ages, too much of modem economics supposes that people behave like inanimate particles. This obvious distortion of human values can continue to influence economics only if we continue to regard the science as an end in itself. To meet the crises of the postindustrial age, we must supplant naive eighteenth-century natural science with a concem for the survival of the human race.

My reviewers and I are practical. We know that a question always arises about the potential audience for a particular book. The only prerequisite for The Making of Economics is an inquiring mind. The book can be read easily by a beginning reader in economics, as I do not presuppose any prior study of economics. I think that The Making of Economics will provide the beginning reader with meaningful insights, and I also think that the book will prove interesting and valuable to those who possess a sophisticated understanding of economic theory and history.

I wish to thank the many people who over the years have assisted in making this so. Among my many helpful readers were Ujagar S. Bawa, Bloomsburg State College; Thomas W. Bonsor, Eastem Washington State College; Don C. Bridenstine, San Diego State University; Les Carson, Augustana College; Gordon Galbraith, Portland Community College; James H. Homer, Cameron University; John W. Isbister, University of Califomia at Santa Cruz; Thomas Iwand, University of Nebraska; Robert Keller, Colorado State University; Odin Knudsen, San Jose State University; Floyd B. McFarland, Oregon State University; James W. Nordyke, New Mexico State University; Don V. Plantz, Arizona State University; and Herbert D. Wemer, University of Missouri. For the current edition I must add James Angressano, Hampden-Sydney College; Richard Ballman, Augustana College; James Homer and Robert Keller were called back into the game from the bench; Andrew Larkin, Saint Cloud State University; and Stewart Long, Califonia State University.

I also have been fortunate in having inspirational friends and associates. John Q. Adams of the University of Maryland, John Boomman of the IMF, John Hotson of the University of Waterloo, H. Peter Gray of Rutgers University, Sam Skogstad of USAID, and Clifton Grubbs of the University of Texas (Austin) continue to serve as valuable and witty critics. For a few precious years at Florida State University, I had the instructive pleasure of engaging in some remarkable dialogue with the late Abba P. Lemer. I also thank Irvin Sobel, David Rasmussen, Edgar Fresen, William Laird, and Philip Sorenson for some enlightening discussions. I greatly appreciate the careful and critical reading of all portions of the manuscript that contained references to natural science by a leading physical scientist, Michael Kasha, then Director of the Institute of Molecular Biophysics at Florida State University.

John Kenneth Galbraith graciously read parts of the manuscript and, as always, was a source of kindly encouragement. The late Joan Robinson, Cambridge University, read the sections on the ideas of her friend John Maynard Keynes and provided essential insights and corrections. My dearly missed friend, the late Sidney Weintraub of the University of Pennsylvania, provided thoughtful and meticulous comments on the Keynesians and post-Keynesians. Still another friend, Mancur Olson of the University of Maryland, provided valued reactions to my interpretation of his Rise and Decline of Nations. Hyman Minsky of Washington University also devoted considerable thought to and several suggestions for my discussions of finance and investment. Finally, Gerhard Mensch of Case-Westem Reserve University provided insightful comments on Chapters 15-17. I exonerate all of the readers from the responsibility for any errors.

Kathey Freeman and June Nolan were indispensable research assistants for the original edition. Kathey, now at the University of Denver, who read several drafts of the manuscript, was also a valuable critic. Brad Hobbs served a similar function on the third edition. Lyn Boone at Oberlin College and Susan Williams have provided valuable editing assistance. I wish to thank M. E. Sharp, Inc., and the Journal of Post Keynesian Economics for permission to use excerpts from my articles that appeared in the Spring 1973 and Fall 1984 issues.

Meanwhile, at Wadsworth, Stephanie Surfus has been my premier cheerleader, and Andrea Cava's production and editing skills have kept me sane. I hope-no, I believe-that, when you have closed the final page, you will agree that our goals have been met.

E. Ray Canterbery