When some 13,000 members of the American Economic Association (AEA) gathered for their annual convention in San Francisco during the first week of January, few of them may have been aware that their organization turned 131 this year. Fewer still would probably have ever read the organization’s 1885 “platform.” The original draft of that founding document stated the group’s objectives as the encouragement of economic research and of “perfect freedom in all economic discussion.” Then it went on:
We regard the state as an educational and ethical agency whose positive aid is an indispensable condition of human progress. While we recognize the necessity of individual initiative in industrial life, we hold that the doctrine of laissez-faire is unsafe in politics and unsound in morals; and that it suggests an inadequate explanation of the relations between the state and the citizens.
We do not accept the final statements which characterized the political economy of a past generation. . . . We hold that the conflict of labor and capital has brought to the front a vast number of social problems whose solution is impossible without the united efforts of Church, state, and science.
This undisguised manifesto of rebellion against the economic orthodoxy of the Gilded Age raised eyebrows among the established preachers of “political economy.” The state as an “ethical agency” whose aid was “indispensable”? The “conflict of labor and capital”? Even after the denunciation of laissez-faire as “unsafe in politics and unsound in morals” was removed from the final document, lest it appear that the new association had any motives beyond scientific advancement, the AEA was still understood as a challenge to the status quo.
Indeed, the AEA was founded both to conduct scientific research and to agitate for reform, both inside academia and in the public sphere. At its start, the two missions were inextricably linked. The old economics claimed to have discovered immutable laws governing the distribution of wealth, derived from a theoretical construction of an abstract, idealized economy. The founders of the AEA, on the other hand, looked first to study economic outcomes as they found them. Treating income, wealth, work, wages, depressions, trade, and so on as contingent realities as opposed to abstract truths naturally led to the conclusion that they could be altered by policy. That implication clashed with the political bulwark against so-called “class legislation,” namely any attempt to alter the social hierarchy through collective action or public policy. At all levels, therefore, this approach defied the intellectual foundations of classical economics.
The leader of this group of young Turks was Richard Ely, a 31-year-old professor at Johns Hopkins University. Ely was a committed evangelical and a believer in the “social gospel” movement, which preached the application of Christian ethics to the creation of a just social order. But he was also an ambitious, modernizing professional academic. This combination of traditional and modern values drove him into the area of public persuasion, where he felt called to present economics as a friend to the common man rather than an apologist for his employer.
Ely’s attempted dual revolution—in the fundamental premises of what was then called “political economy,” and in its application to the struggles of ordinary people in an increasingly stratified American society—was bound to produce convoluted alliances and bitter feuds in the close-knit economics profession. They were all the more convoluted and bitter given the milieu in which the new discipline grew—at universities endowed by private wealth, or funded by state legislatures sensitive to its wishes.
In the end, Ely and his allies won the academic battle to install the new institutional and historical study of economic behavior as acceptable within the profession, but not without some dramatic struggles against the entrenched hierarchy of the Gilded Age. Their victory was highly conditional: They abandoned the original reform impulse behind the AEA, which moved steadily toward the respectability of “pure” scholarship untainted by advocacy. And the doctrine of laissez-faire survived their challenge and, later, thrived, not through its empirical success but thanks to its greater amenability to the powers that be.
Given the inequality eating at the heart of democracy today, enabled by the prestige and respectability of “free market” orthodoxy, it’s vital to trace this story to its conclusion: Did the eclipse of Ely’s economic views and his beliefs about what constituted proper scholarship—namely, advocacy on behalf of workers—have a lasting impact on the economics profession? And, in a larger sense, does a neutral scholarly pose act to silence challenges to the status quo in higher education—challenges that those who enforce and benefit from that status quo would prefer be left unheard?
The Beginnings of the AEA
The AEA’s dual mission grew from an unusual moment in American intellectual history: on the one hand, the advent of detached academic research pioneered at German universities and then imported by American expatriate graduate students and visionary university founders; and on the other, the foundering of the optimistic “free labor” ideology that emerged from the Union’s triumph in the Civil War. That ideology envisioned a self-governing nation of independent farmers and entrepreneurs, who through thrift and hard work could rise to become employers of others. That vision had vanished in the smoke of the industrialized, increasingly unequal, and rigidly stratified social hierarchy of the Gilded Age.
Ely and the band of dissidents who founded the AEA were acutely aware that the old economic orthodoxy was inadequate to the “present crisis.” That orthodoxy was embodied in the American Social Science Association (ASSA), founded in 1865 by a wide-ranging intellectual elite. The Nation spoke for the more politically minded of the ASSA’s membership, largely “Liberal Republicans” in the political parlance of the day, when it denounced the corrupting influence of money in politics as fervently as do today’s campaign finance reformers. And of course the magazine was staunchly anti-slavery. But on economics, editor E.L. Godkin’s liberalism was of the “classical” variety. His editorials deplored that the populist economic policies adopted during the crisis of the Civil War—especially paper money and the income tax, as well as Southern Reconstruction—were not being abandoned quickly enough by the Grant Administration. And any resemblance to today’s “liberalism” vanished when it came to addressing the needs of the poor. Godkin, like other ASSA members drawn from the ranks of “the best people,” was convinced that any attempt to lift the fortunes of the poor heedlessly immiserated them by inculcating dependence and laziness.
The academic members of the ASSA were not professionally trained social scientists in the modern sense. Among them were William Graham Sumner, Yale’s first professor of sociology and the country’s leading Social Darwinist, and the naval mathematician and astronomer Simon Newcomb, who occupied a professorship in astronomy at Johns Hopkins but frequently published orthodox economics tracts in the popular press. The art historian Charles Eliot Norton probably captured the attitude of the ASSA’s founding members best when he wrote, “The Nation & Harvard & Yale College seem to me almost the only solid barriers against the invasion of modern barbarism & vulgarity.”
Nowhere was the ASSA line more definitively codified than in an undergraduate economics textbook of the time, Political Economy for Beginners by Millicent Garrett Fawcett. It defined economics as “the science which investigates the nature of wealth, and the laws which govern its production, exchange, and distribution.” This was precisely the definition that repelled Ely while studying Fawcett’s book as an undergraduate at Columbia. As he later recalled:
Man is not mentioned in this definition; it was implied that man is simply an instrument by which wealth is created and not the end for which it exists. In this volume, free competition plays the part of the deus ex machina, which, if left well alone, will regulate and bring into harmony all the relations that arise among men in their efforts to make a living. Even charitable relief given to the unemployed is condemned as an obstruction to the operation of natural economic laws.
At Columbia, Ely won a fellowship to pursue graduate studies in philosophy in Germany, where the university system was geared toward training professional academic researchers. He set sail in 1877 and was taken with the very different climate in academic economics there than he had experienced in the United States, and he eventually switched to that field. He migrated to the University of Heidelberg, where he studied under Karl Knies, one of the leading lights of the German “historical school.” The school opposed deductive reasoning from supposedly universal economic laws and instead favored detailed study of the actual workings of institutions in particular historical contexts.
Then came a lucky, career-launching break for the young graduate student. Andrew White, the founding president of Cornell University, was temporarily acting as U.S. envoy to the recently formed German Empire. He asked Ely to write a report on a Prussian state initiative to purchase private railroads, and it impressed him enough to arrange for its publication in the United States. That led to Ely’s appointment to a junior position at the new Johns Hopkins University after he returned home.
Johns Hopkins opened its doors in 1876 with an endowment of $3.5 million from the founder of the Baltimore and Ohio Railroad—the largest philanthropic gift in American history up to that point. It was to be administered by an independent board of trustees, which consulted leading reformers in American higher education, including White. The board hired as its first president Daniel Coit Gilman, who had been president of the University of California, likewise recently established. After frustrating clashes with the California legislature, Gilman was enticed to Baltimore by a mandate to devote Johns Hopkins to graduate and professional research. In his autobiography, Ely wrote, “For the first time in an American university, the graduate and professional schools constituted the center of activities, and the undergraduate school was but an appendage.”
Ely was 27 in 1881 when he joined the faculty at Johns Hopkins, where he worked alongside the historian (and co-founder of the American Historical Association) Herbert Baxter Adams. One graduate student he and Adams shared was Frederick Jackson Turner, who formulated what became known as the “frontier thesis.” It held that American democracy succeeded thanks to the unlimited supply of cheap land, which acted as a safety valve to relieve social pressure in the settled East. Eventually published after the 1890 census declared the frontier “closed,” Turner’s theory says something about the intellectual climate at Johns Hopkins around Ely: It reinforced a perception, felt as early as the mid-1880s, that the social mobility once characteristic of a meritocratic nation of small property holders, untroubled by clashes between haves and have-nots, was in decline in the industrial era of multigenerational inequality and downward mobility for the shrinking middle class. That this posed a grave threat to economic and social stability preoccupied Ely and his colleagues and persuaded them that their new analytical tools should be deployed to confront the issue.
Encouraged by Gilman and Adams, Ely and his fellow prodigal sons fresh from Heidelberg, Halle, and Berlin launched the AEA in 1885 with the general purpose of setting standards for and publishing the findings of the new science. It would hold meetings to hear papers, publish peer-reviewed books and original studies, establish a “bureau of information” to aid in the collection of statistics useful to research, and institute “perfect freedom” in economic discussions.
Ely won initial support for the AEA by claiming the middle ground and withholding judgment on certain policy flashpoints like free trade, the gold standard, and public ownership of utilities. Moreover, the first meeting of the AEA was purposefully held in conjunction with the ASSA, and Ely and his colleagues wrote to many of the latter’s members to entice them to join the new organization, arguing that there was no inconsistency in joint membership. But few if any of them did initially, and throughout the AEA’s first year, Ely and his colleagues fought for the new professional association to be taken seriously by those who weren’t already convinced.
The historical moment created its own counterpressures. The first 12 months of the AEA’s existence coincided with the period of greatest class polarization in American society to date. In 1885 and 1886, two new and competing national labor organizations, the Knights of Labor and the American Federation of Labor (AFL), were recruiting members by the hundreds of thousands. Neither was anti-capitalist. The Knights, with a free-entry policy, favored a cooperative economy uniting all loosely defined “producers,” while the AFL embraced “pure and simple trade unionism,” in which independent unions of skilled workers would press for a larger slice of the pie baked by the new industrial order. Both made defenders of the status quo nervous.
The Case for Labor
Then, on May 4, 1886, came the Haymarket affair. During a mass meeting in Chicago in support of workers striking for an eight-hour day, a bomb was thrown at the police, and several policemen and spectators were killed in the ensuing gunfire. Suspicion fastened immediately on a group of local anarchists, mostly recent German immigrants, some of whom openly called for annihilating the ruling class with dynamite.
Eight such known anarchists, none of whom could be shown to have been at the meeting, were rounded up, hustled through a trial in a feverishly hostile atmosphere, and convicted. Four were hanged. History has found none of them to be guilty, and the real perpetrators have never been identified. Haymarket was a galvanizing moment that threw the nation into one of its periodic Red Scares. The worst fear of the establishment was at hand: class war, complete with bomb throwers and assassins. And it was in this torrid atmosphere, just three months after Haymarket, that Ely’s book The Labor Movement in America was published.
In the book, Ely argued that absent unions to ensure the proper and humane functioning of the labor market, economic growth benefited only the rich. Although the book doesn’t affiliate Ely with either the Knights or the AFL, his point of view is quite similar to that of the AFL. He saw “free labor” and the social-mobility-through-wealth-accumulation it implied as obsolete. Instead, the aim of the labor movement should be to secure the best possible settlement for workers as workers through cooperative movements and collective bargaining, extending to industrial action—meaning strikes and boycotts—when employer intransigence went too far.
The Labor Movement in America succeeded in its primary aim, which was to popularize social science as the ally of workers, rather than the elite preserve of Ely’s intellectual opponents. Some of his colleagues were embarrassed, in part due to the overt Christianity and moralizing in an ostensibly scholarly and data-driven text, and in part because its appeal to popular opinion as a source of legitimacy was antithetical to the professionalizing tendencies taking hold in the field. But notwithstanding its controversial reception, the book offered valuable insights.
One of those insights is that the labor market has certain characteristics that make the “free market” a poor model. Foremost among those is simply that the abstraction “labor” describes actual people, and people can be exploited. Since workers need jobs to feed their families, they cannot withhold their labor from the market when demand is scarce in order to sustain high wages. That forces them to bear the brunt of recurrent, severe recessions by suffering wage cuts.
Ely recognized wage stickiness as well. In most cases, downward pressure on wages is not shared equally by all workers’ taking a moderate wage cut. For many reasons, overt wage cuts are relatively rare (though they were more common in Ely’s day than now). Instead, recessions create involuntary unemployment: one population desperate to find work and many employed workers who are lucky to have a job, and who can therefore be exploited by their employers. For that reason, workers don’t share in the prosperity of booms until the unemployed find work once again—a powerful tool by which to discipline wage demands.
Since workers have to be located somewhere, Ely further noted, and frequently have reason to remain where they are rather than migrate to the best possible job opportunities, whole regions can face prolonged underemployment. And since workers cannot agree collectively to lower their birthrate or exert much political control over a seemingly endless supply of immigrants, they cannot create a scarcity of their services in the absence of collective bargaining. By contrast, a recession reduces demand for labor by definition, which contributes to the power imbalance favoring employers inherent to the labor market. All of these observations are as true today as they were in the 1880s.
Ely excoriated three further strategies of exploitation: the company store, company town, and company-provided credit that could keep workers in perpetual debt; the blacklisting of union members and other “trouble-makers”; and the iron-clad oath against union membership as a part of labor contracts. All are formally illegal now, though close cousins like payday lending, non-compete clauses prohibiting employees from accepting outside job offers, mandatory employer-friendly arbitration for settling employment disputes, and overt anti-unionization campaigns are evidence that the emblems of exploitation increasingly characterize the U.S. labor market.
Ely offered several solutions to the problems of labor. First and foremost was unionization. He thought that unions were necessary both to protect workers from destitution during recessions through collective bargaining and to ensure that workers shared in economic booms through wage gains. Second, he suggested cooperatives, so workers could supply themselves with goods, housing, and credit rather than be subject to exploitation in the “truck system,” as the company store was then known. Third, he proposed public bureaus of labor statistics to gather accurate information about the state of the labor market and the conditions of various jobs, and to inform workers of where job opportunities might be found. Finally, Ely called for an insurance system to protect workers and their families from unemployment, workplace injury, long-term disability, and premature death. He argued that insurance should be administered by unions rather than the government, and that a realistic conception of industrialized labor as a permanent state rather than a station on the route to property ownership was integral to making such a system of mutual aid work, since it would create a sense of solidarity among those asked to pay into a common system from which they might not benefit for a long time.
Throughout the book, Ely is at pains to demonstrate that trade unionism is not socialism, and that it in fact represents the surest antidote to nascent American radicalism by allowing workers to share in the fruits of an industrialized economy, short of overthrowing the owners of capital.
It’s worth taking a moment to address Ely’s controversial and retrograde views on immigration and eugenics, hinted at in The Labor Movement in America and elaborated on in later publications. The recent book Illiberal Reformers by Thomas C. Leonard argues that these views are central to, and thus taint, his scholarship and those of his academic disciples. But Ely’s views were by no means unique among many intellectuals of his time, including those, like Godkin, who were his staunchest opponents, and those views certainly don’t invalidate the rest of his thinking. Above all, he considered himself an advocate for workers against exploitation by economic elites. Certainly, the set of people for whom he advocated is much narrower than would be the case among self-described progressives today. In those days, just as now, the interests of workers in developed countries were often pitted against those even more unfortunate than themselves, and consequently, many workers and their advocates supported what were in effect restrictions on labor supply in order to reduce their competition. The chief target of Ely’s scholarship and advocacy was the hegemony of free-market economics, against which he offered a vision of contending interests vying for shares of the pie, a contest in which bargaining power determined all. (For extended thoughts on this issue, see our companion essay.)
The Nation published a vicious unsigned review of The Labor Movement in America, stating of the author: “[H]is worst defect is an intensity of bias, and a bitterness toward all classes of society except one, to which it would be hard to find a parallel elsewhere than in the ravings of an Anarchist or the dreams of a Socialist.” It added that he was “seriously out of place in a university chair.” The review was widely known to have been written by Ely’s senior Johns Hopkins colleague Simon Newcomb.
In its assertion that a work of scholarship with an ideological view disqualified its author from university employment, Newcomb’s attack was double-edged. It pushed some scholars who had thus far avoided the AEA to join. Frank Taussig, a junior professor at Harvard who had also trained in Germany, wrote to Ely to express solidarity and ask to become a member. It was a bold move because Taussig’s Harvard chairman, Charles Dunbar, was a leading traditionalist. Taussig by no means agreed with Ely, but he viewed Newcomb’s attack as a threat to professional scholarship by politically and ethically compromised amateurs or even, like Newcomb, experts in other disciplines.
Yet at the same time, Newcomb’s review seemed to threaten that any member of the AEA would be tarred as a socialist by association with Ely, and not all of its members were as willing as Taussig to take that risk. The issue of academic freedom was pushing its way to center stage.
Inequality and Academic Freedom
The story of Henry Carter Adams, another AEA founder, proved that the fear was well-founded. Like Ely, he had gone to Germany for graduate study, imbued with the desire to transform economics into an agency on behalf of workers. On his return to the United States, he secured complementary part-time appointments at the University of Michigan and at Cornell, whence he enunciated the view that workers held a property right to bargaining power—a more radical position than anything Ely espoused, although it nodded toward tradition by proposing to give laborers “property,” the hallmark of middle-class status.
Though Adams was a popular and productive junior professor, in the 1886 post-Haymarket summer of fear and loathing, the president of the University of Michigan, James B. Angell, asked him to state his views on labor rights and the taxation of income and inheritance formally in writing. When Adams gave his honest, favorable opinion, Angell pointedly delayed an approaching decision on tenure, wary of his conservative board of trustees.
Adams imprudently barged ahead, speaking on the Cornell campus in favor of free speech for anarchists and even accusing industrialists of stirring up xenophobic hatred in order to safeguard profitable exploitation. It was a costly mistake: He failed to recognize the presence in the audience of the upstate New York lumber king and Cornell benefactor Henry Sage. Sage marched to the Cornell president’s office, demanding, “This man must go; he is sapping the foundations of our society.” Without informing even Adams himself, Cornell’s board simply resolved not to renew his teaching contract when it expired.
Adams got wind of his fate in the press and made a quick decision against professional suicide. He renewed his bid for tenure at Michigan and assured its trustees, through Angell, that his opinions on labor had evolved and that he believed that reform must proceed at a less-than-revolutionary pace. With that retraction in hand, Angell granted tenure and a relieved Adams spent the rest of his career in Ann Arbor.
Adams’s forced capitulation coincided with moderating tendencies taking hold throughout the field that set the tone for the future of the AEA. The old guard began to face up to the basic critique offered by the AEA’s generation: that economics derived from “universal laws of wealth” could not claim to be an empirical science. Ely and his AEA confederates had pushed empiricism by introducing a publication for new research, simply called Publications of the American Economic Association (the precursor to the American Economic Review, still the leading journal in the field), and making peer review the requirement for being taken seriously. Another such journal, the Quarterly Journal of Economics (QJE), emerged from Harvard in 1886, but its purpose was to break Ely’s hold over academic economics publishing. In the opening article of the QJE, Dunbar, the Harvard chairman, upheld the principle of induction—reasoning from facts to theory rather than the other way around—but disapproved of research reflecting any moral commitment or advocacy, which was a direct shot at Ely. To make matters worse from Ely’s perspective, the executive council of the AEA invited Dunbar to join in 1887, which he did. Ely’s associates in the AEA had gladly shared in the victory of empiricism that he inspired, but they were starting to be wary of the social gospel ideas that he had hoped would drive the work of the organization of which he had been the principal creator.
Thereafter, the erosion of Ely’s influence within the AEA proceeded in stages. In December 1887, the executive council, including Adams, agreed to drop the platform approved in 1885 in its entirety, on the grounds that any platform impaired free inquiry. In 1890, a publications committee was appointed to judge articles for the association’s publications, superseding Ely. The final straw came when Ely tried to reassert control by proposing in 1892 to hold the association’s annual conference at Chautauqua, the venue for popular, religiously inspired lectures where Ely was planning to teach adult education classes that summer. That alienated the other members of the executive council, who were determined to maintain a scrupulously scholarly image. A compromise was engineered in which the conference was held at Chautauqua, but Ely agreed to step down. Dunbar acceded to the presidency, and Ely’s student Edward A. Ross, then teaching at Cornell, to the secretaryship.
What is notable about this maneuvering is that Ely’s marginalization was driven by his peers, not (directly) by their superiors in university administration, boards, or outside academia. Ambitious professionals had determined how the balance of interests lay with respect to the prestige and influence of their own discipline, especially if they could forge a workable ideological consensus among the credentialed. Thenceforward, the AEA would not be what Ely had hoped at its formation: It was neither a unified ideological force against laissez-faire, nor a de facto economists’ guild mandating professional standards and potentially withholding its approval from universities that threatened its members.
In 1892, after fending off more attacks from Newcomb and still lacking tenure at Johns Hopkins, Ely accepted the chairmanship of a joint economics and history program at the University of Wisconsin in Madison. In 1894, in the midst of a severe depression, a strike by Chicago Pullman train crews was broken by federal troops. The ruling class once again feared the country was threatened by revolution, and pedagogues like Ely came under scrutiny. The Nation published an editorial that declared:
As the world now stands, we hold it to be the solemn duty of all writers, preachers, and professors, who are engaged in the work of reform, to refrain from denunciations of the existing society and social arrangements. . . . The common practice among Christian and other socialists of abusing . . . the existing constitution of society as an engine of fraud and oppression, has undoubtedly done much to produce the “militant anarchist” and give[n] a sort of moral justification to his attacks on life and property.
Oliver E. Wells, a member of the Wisconsin Board of Regents, read the editorial and understood which professor its authors had in mind. He denounced Ely in The Nation for advocating socialism to his students under the guise of sympathy for the oppressed. Specific accusations sank to a remarkable level of triviality: Ely had played host to a union organizer visiting Madison; he had tried to force a “union shop” on a printer with whom he had business; he had said that it was “better to hire a dirty, dissipated, unmarried, unskilled union man than an industrious, skillful, trustworthy non-union man who is head of a family.”
The Board of Regents decided at a meeting that the specific charges brought by Wells against Ely should be investigated. Ely and his friends feared the worst: that he was being targeted by a hostile inquisition intent on hounding him from the university and the state. But the committee found no proof of Wells’s assertions, and witness after witness testified to Ely’s moral character, good judgment, and non-inflammatory teaching. Wells angrily stopped attending the proceedings, ostentatiously outraged that he’d been prevented from airing his wide-ranging attack on Ely’s entire published output.
The ultimate outcome was a complete and total vindication. But Ely’s case had not turned on a blanket appeal to the general principle of a professor’s freedom to express any contested views whatever. Nor did he try to commit the AEA to his defense. And his victory did not end the war on economists deemed unfriendly to the establishment. The next summer Ely’s student Edward Bemis was ousted from the Rockefeller-supported University of Chicago, in part for having advocated a public takeover of the city’s streetcars. Before the 1890s were out, Ely’s student John R. Commons was fired from both Indiana and Syracuse Universities before finding a place in Ely’s own department at Wisconsin, where he published a highly influential history of the labor movement and became the leading academic exponent of the Wisconsin Idea: the notion that the state’s university ought to serve its public administration by training competent professionals and publishing research to inform policymaking. In 1900, Edward A. Ross was dismissed from Stanford at the behest of its sole trustee, Leland Stanford’s widow, for advocating the exclusion of Japanese and Chinese laborers—who had done critical work as cheap labor and ad hoc security for her husband’s Central Pacific Railroad. The university survived the resulting AEA boycott, and Ross, too, survived to complete a long career at Wisconsin. In the same year, Ely himself, his views somewhat softened, returned to the AEA, invited to become its president by fellow economists who now saw him as a rather useful popularizer who might restore some of the organization’s youthful vigor.
A Radical Moment in Economics?
Ross’s dismissal from Stanford and Ely’s return to the AEA could be said to mark the end of radicalism within the economics profession. What took its place was not a total reaction, but rather a progressive synthesis. Economists would not expressly advocate unionization, any kind of working-class militancy, or government takeover of private firms or industries. But they did involve themselves in matters of contentious public debate by offering what they considered to be—and expected that non-economists would consider to be—expert advice. In practice, the rule for what could be advocated by professional economists was simply that which was not far outside the political mainstream or threatening to incumbent wealth and power.
What was lost in the eclipse of radicalism? For one thing, as Ely was publishing The Labor Movement in America, his erstwhile colleagues, in particular John Bates Clark, were working out the theory that became the so-called “Marginal Revolution,” based on the work of European economists like Leon Walras, Alfred Marshall, and William S. Jevons. Eventually, that theory was ensconced at the center of academic economics in the form of “competitive equilibrium”—essentially mathematizing the classical doctrines of Fawcett’s textbook, in which the economy naturally adjusts to any change, to universal benefit, provided no outside force like the state is unwise enough to interfere. Ely’s insights about how the labor market departs from that theory would have to wait until the 1990s—and especially following the Great Recession and its long, inadequate recovery—to gain a hearing once again.
That reevaluation of classical economics has been proceeding in recent years, especially with the publication of Thomas Piketty’s Capital in the Twenty-First Century, which has many harsh things to say about the field’s methodological narrow-mindedness and self-absorption and their cost: the absence of a convincing theory of rising inequality, downward social mobility, and resulting pathologies—and, in the absence of such a theory, a foot-stomping insistence that these phenomena either don’t exist or don’t matter.
Piketty’s book is only the most controversial publication of the recent movement in economics away from the confining strictures and received wisdom of theory in general and competitive equilibrium in particular. The more general intellectual trend in the field is toward empirics, with convincing causal inference the sine qua non of good original research. This so-called data revolution (or, as two of its best-known adherents, Joshua D. Angrist and Jörn-Steffen Pischke, refer to it, “credibility revolution”) is facilitated by sophisticated computation and data availability. But it is also motivated by increasing distrust in the old way of doing things: starting from competitive equilibrium and searching reality to find just-so stories to serve as evidence of that theory’s benign operation. Instead, economics researchers search out natural experiments as tests of one theory against another, or conduct their own.
Notable instances of this new way include the new minimum wage research casting doubt on the old consensus that wage floors reduce employment, and careful considerations of changes to tax policy to estimate their impact on economic output, labor supply, or capital formation and investment. In many ways, the data revolution repeats the intellectual challenge that the AEA’s German-trained generation brought to deductive economics as it had been practiced. New data-based tools and approaches cast doubt on old ways. The very fact that a similar epistemological revolution is underway now is itself evidence that the interregnum was a retrogression; furthermore, it challenges most economists’ self-conception that the field has been one upward march of progress.
And, as it was in the 1880s with The Labor Movement in America, the most confrontational publications in this vein, which partly seek to recruit a popular, inexpert audience to resolve an academic dispute, provoke extreme reactions, which may well drown out important insights about how the world works. In that context, the issue of academic freedom raised during the AEA’s early years is once more in the foreground—in fact, in the very same state of Wisconsin, where Governor Scott Walker’s handpicked regents recently stripped professors in the university system of statutory tenure and briefly proposed dropping mention of the Wisconsin Idea from the system’s mission. Concurrently, Walker’s allies in the legislature repealed a groundbreaking 1913 living-wage law written by John Commons as part of the Wisconsin Idea. The increasing concentration of wealth and power raises not only the same economic issues as in the first Gilded Age, but also the same questions about the role of academia in a society where its purse strings are held by the few.
When economic problems are manifest and the credentialed experts trained to identify and treat them see their competence and honesty questioned in public, there’s a tendency to turn to the inexpert for alternative theories and treatments. For example, Henry George’s 1879 bestseller, Progress and Poverty, brilliantly sounded the alarm about rising inequality alongside economic development, but it offered a simplistic nostrum as its “cure”: the “single tax” on the value of undeveloped land. That is why professional organizations like the AEA exist: to enforce standards among the credentialed to convince outsiders of the probity of those to whom authority has been entrusted. Since 1900, the economics profession has ruled out the sort of advocacy espoused by Ely and his erstwhile allies as inconsistent with the public trust.
On the other hand, since the 2008 financial crisis, the AEA has increasingly insisted that economists who publish in its journals issue a disclosure statement about their sources of funding and make data available for replication, subject to a generous confidentiality loophole—reforms that have been received with some hostility in a field where the ethos is that the final research output should be judged solely on its merit and not by the motives of its authors. What the early history of the AEA tells us, however, is that when the subject at hand is inherently controversial and political, as is the case with inequality, formal devotion to impartiality may serve to impair rather than promote insight, by ruling out any explanation that carries with it a threat to the sources of academic funding and prestige.
The marginalization of Ely’s radicalism came at the hands of his peers, and it is only by economists themselves that such a marginalization of views that challenge incumbent wealth might be reversed. In contrast with other social sciences, which could be said to lean left, economists have a reputation for ideological diversity if not conservatism, which is exactly how it comes to be that their research is lavishly funded in prestigious business schools and marquee departments. Economists should come to see their influence for what it is: contingent on staying within certain boundaries first tested by Ely. It’s hard to escape the conclusion that in exiling radicalism from the AEA and from mainstream economics, its practitioners attained enormous intellectual prestige precisely by sacrificing the disinterested search for answers to the most controversial questions in economics to the professional imperative of gaining the approval of the elite.
That they abandoned “advocacy” under the banner of “objectivity” only raises the question of what that distinction really means in practice. Perhaps actual objectivity does not require that the scholar noisily disclaim advocacy. It may, in fact, require the opposite.