The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas

Article excerpt

The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas by Steven G. Medema Princeton University Press * 2009 * 248 pages * $35.00

The focus of this book," according to its author, "is the interplay of self-interest, market, and the state in economic analysis from the mid-nineteenth century up through the latter stages of the twentieth."

Much of this well-written study, however, is devoted to describing the intellectual origins of the approach to political economy known today as "Public Choice" - the economics of politics. Nevertheless, its subject is the history of the analysis of nonmarket activity generally.

Modern economics offers two separate grounds for inter ve ntionism. One traces its origins to John Maynard Keynes, the other to Arthur Cecil Pigou. Both were students of Alfred Marshall; both were fellows of King's College, Cambridge, in the 1930s; and both proposed theories of "market failure." Pigou was probably the first to examine so-called "market failure" within a Marshallian, micro economic framework, pointing out how self-interest can produce systematic inefficiencies. His intellectual descendants often use the framework he created to conduct "welfare analyses" of positive and negative externalities, as well as of the taxes, subsidies, and other measures that are supposed to fix them.

Steven G. Medema deals with the Pigouvian legacy in this fascinating intellectual history. But Pigou lies somewhere in the middle of the story Professor Medema tells.

The book presumes familiarity with economic theory and contemporary ideas in political economy, so I would not recommend this book for the general reader. But anyone who has taken an introductory course in microeconomics should be reasonably comfortable with the discussion. The book opens with a short overview of Adam Smith's explanation of how selfinterest promotes the general welfare via the "invisible hand," contrasting that view with the more statist approaches of the earlier French Physiocrats and English Mercantilists. In the hands of Smith, self-interest "had finally found legitimacy." But this is not the Smith of laissez-faire caricature. Medema offers an impressive list of interventions Smith advocated, from regulating public hygiene to taxes on liquor. For Medema, Smith's great achievement, however, was to make laissez-faire capitalism the "default mode" of government policy.

The next two chapters trace the swing from widespread support for laissez faire among British intellectuals back to a more interventionist proclivity in the latter nineteenth century in the writings of Jeremy Bentham, J. R. McCulloch,J. E. Cairnes, and especially John Stuart Mill and Henry Sidgwick. However, despite important reservations, the default remained laissez faire capitalism, more or less. …