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Published by EH.NET (April 2003) 
 
Sherryl Davis Kasper, _The Revival of Laissez-Faire in American 
Macroeconomic Theory: A Case Study of the Pioneers_. Cheltenham, UK: Edward 
Elgar, 2002. viii + 177 pp. £49.45/$75 (hardcover), ISBN: 1-84064-606-3. 
 
Reviewed for EH.NET by Roger W. Garrison, Department of Economics, Auburn 
University. <[log in to unmask]> 
 
 
The title phrase "laissez-faire" is pressed into service as the common 
denominator for this close-up look at the "pioneers" who have given shape 
to market-oriented macroeconomics in the United States. In a 
chapter-per-pioneer format, Kasper presents the ideas of Frank Knight, 
Henry Simons, Friedrich Hayek, Milton Friedman, James Buchanan, and Robert 
Lucas. Each chapter provides a brief personal history, identifies a 
"pre-analytic vision," and presents the case for laissez-faire. The reader 
soon realizes that this common rallying cry of classical liberalism serves 
only loosely as a common denominator. Laissez-faire appears variously 
throughout the book as a presumption, a principle, a policy recommendation, 
a standard, an ideal, and a modeling technique. 
 
Kasper, who takes her own orientation from the institutionalist school, 
doesn't play favorites among the pioneers. As announced in the short 
introductory chapter, her primary concern is with the basis for the 
advocacy of laissez-faire: (1) Are there strong ideological influences? (2) 
Does the theoretical resolution to some contemporary economic problem add 
to the case for less rather than more government involvement? (3) Do new 
tools and methods help to reveal the merits of unhampered markets? 
 
Kasper's ultimate verdict is not easily summarized, but the careful reader 
will see that it emerges as an evolving pattern of answers to the questions 
about the basis for the advocacy of laissez-faire. 
 
A passing reference (p. 149) to the "taint of ideological commitment to 
laissez-faire" supposedly associated with the early pioneers hints that the 
later pioneers labored under a taint by association. Kasper seems to take 
for granted that ideological commitments lie somewhere below the surface of 
the arguments actually made -- just how far below being the only live 
issue. She acknowledges that there were genuine efforts in the 1960s and 
1970s to understand the problems of inflation and stagflation -- problems 
that were inadequately addressed by the Keynesian orthodoxy. And she makes 
the judgment that Friedman's monetarism and Buchanan's public choice theory 
had more appeal than could be accounted for in terms of the implicit 
ideology. But while monetarism and public-choice theory were born of 
ideology-cum-resolution-to-contemporary-problem, Lucas's new classicism was 
born ofresolution-to-contemporary-problem-cum-new-tools-and-methods. Only 
in this most recent reincarnation was market-oriented macroeconomics able 
to dominate the field. 
 
But was it the rigor of new classical methods or the adherence to 
laissez-faire -- or possibly something else -- that won professional 
acceptance? Kasper's answer to this question seems to hinge on the nature 
of the arguments of the early and the late pioneers. The early pioneers 
made negative arguments. Because of unquantifiable uncertainties (Knight), 
the fragmentation of knowledge (Hayek), the lack of timely data (Simons and 
Friedman), and/or the lack of suitable motivation (Buchanan), we cannot 
expect policymakers to engineer results that are superior to those that 
emerge spontaneously in a competitive market economy. With such negative 
arguments, it was difficult to attract adherents in large numbers. Survival 
rather than revival was the order of the day, and to that end the Mont 
Pélerin Society -- suggested by Simons before his untimely death in 1946 
and organized by Hayek in 1947 -- became crucial. 
 
Lucas, by contrast, offered a positive argument. He brought laissez-faire 
into play up front as a modeling technique, rather than saving it as a 
possible policy recommendation. As a consequence, the macroeconomic modeler 
of the late 1970s and early 1980s could make full use of the mathematical 
techniques already in the economist's tool box, could learn some new 
modeling techniques that were part and parcel with new classicism, and 
could possibly develop still more techniques to push the envelope of this 
new mode of theorizing. Devising so-called fully articulated artificial 
economies, calibrating the models on the basis of actual movements in 
real-world macroeconomic magnitudes, subjecting the model economies to 
hypothetical shocks, and making predictions on this basis occupied many 
practitioners. And it was all heady business, despite -- or possibly 
because of -- the tenuous link between theory and reality. Kasper mentions 
-- but almost as an aside -- that during the heyday of new classicism, the 
revival may have been driven by the opportunity to employ sophisticated 
techniques in the pursuit of professional advancement. 
 
In the final page-and-a-half of the book, Kasper notes that the supremacy 
of laissez-faire in new classical dress was short-lived and argues that in 
any case Lucas's contribution was not free of the ideological taint. 
Beginning in the early 1980s, his Friedman-friendly version of new 
classicism gave way to real business cycle theory, which accorded no 
significant role to money, and to new Keynesianism, whose sticky wages and 
menu costs warned against leaving matters to the market. Further, an 
ideological taint attaches to Lucas's new classicism, in Kasper's 
reckoning, because the tools that Lucas borrowed from Friedman were 
themselves influenced by Friedman's ideological commitment to 
laissez-faire. The reader gets the idea that the issue of ideology has 
special significance for our understanding of market-oriented 
macroeconomics. But that special significance is never put into a more 
general context. Nowhere in the book is there a discussion or even a 
mention of the ideological underpinnings of Marxism, Keynesianism, or 
Institutionalism. 
 
Nor does Kasper offer a comparison of new classicism with old classicism. 
The old classical economists favored a system of natural liberty partly on 
grounds of moral philosophy and partly because of their understanding of 
the economic order. Laissez-faire was a presumption, a default-mode policy. 
It assigned the burden of proof to anyone (including themselves) who 
proposed to interfere with the natural order. Would Kasper see the 
classical commitment to laissez-faire as ideologically tainted? Presumably 
she would, since the arguments offered by Adam Smith were the same in this 
respect as those offered almost two centuries later by Hayek, Friedman, and 
Buchanan. 
 
Beyond the issues of ideological taint, readers will find interesting 
material in Kasper's book. Her survey of the pioneers demonstrates, for 
instance, just how broadly the laissez-faire label is applied. Henry 
Simons, who is well known for wanting to use the tax system to redistribute 
income, also favored a tax on advertising, the revenues to be used for 
consumer education and the establishment of uniform commodity standards (p. 
43). Milton Friedman, heavily influenced by Simons, reread his work in 
later years and was astounded to realize that these ideas were was once 
thought to have a pro-market orientation (p. 100). 
 
 
Roger W. Garrison is Professor of Economics at Auburn University. He is 
author of _Time and Money: The Macroeconomics of Capital Structure_ 
(Routledge, 2001). 
 
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