(This piece is an outline of a future article:
so your comments are very
welcome.)
Peter Earl’s (1992) review article attributes the reaction to Scitovsky’s project to the ‘Cartesian’, or positivist, nature of the mainstream economics, which is averse to analyzing the complexity of human behavior. However plausible, this explanation is not exhaustive. Incorporating psychology is by no means a taboo in the mainstream. Indeed, G.Akerlof’s work which makes an explicit use of psychology theories (see, for example, Akerlof [1992]) has met quite a welcome reception in the academic world. If bringing psychology into economics was Scitovsky’s sole purpose, the source of his dissatisfaction about the fate of The Joyless Economy could hardly be understood. However, his dissatisfaction becomes far more understandable if we admit that, for Scitovsky, psychological methodology was but a useful heuristic in realizing more important goals. A secondary role that psychology played in Scitovsky’s project can explain why he has not deepened the behaviorist underpinnings of his theory by going beyond the rather simplistic opponent process model. This is one of the major criticisms leveled against Scitovsky by Earl (1992, p.281):
But the goal of Scitovsky’s project was not primarily to improve the micro assumptions of economic theory, but to show the sources of instability inherent in the American economy. Scitovsky’s world outlook as an economist was being shaped in the late 1930s when virtually all economists were convinced of vulnerability of the capitalist economy. In the immediate postwar period, a similar concern with the recurrence of deep depression was widespread among economists. It is in that environment that the Harrod-Domar growth models with built-in possibilities of extreme instability appeared (see Rostow [1990], pp.254-257, 333-337). In those models, the fragility of growth in the advanced industrial world was attributed to the inadequate linkages between investment, income and employment within the multiplier-accelerator framework. It is this paradigm implying "that even for the long run the economic system is at best balanced on a knife-edge of equilibrium growth" (R.Solow, cited in Rostow [1990], p.335) that became Scitovsky’s line of thought.
By the mid-1950s, the US economy had emerged with vigor from the Korean war, post-Marshall-Plan Europe and the Japanese economy had embarked upon a surge of sustained growth. At that time it occurred to a number of economists that the fragility of growth in the advanced economies was overdone by Harrod and Domar, and that these economies might possess endogenous forces that prevent deviations from steady growth paths. Thus appeared the models by Tobin, Solow, and Swan which have become the core of the neoclassical growth theory. This is another paradigm which is optimistic about the long-term prospects of the capitalist world.
However, in 1973-1974, capitalist economies moved into a protracted phase of the most acute instability since the 1930s. The forces inducing this instability were not taken into account by the Harrod-Domar models and could not be accommodated with built-in correction by the neoclassical models. The economics profession was in the state of impasse which is illustrated by "virtual disappearance of fresh work [in the field of growth theory]" (Rostow [1990], p.334) from 1973-1979.
Scitovsky reacted to the realities of 1973-1974 by trying to revive the Harrod-Domar paradigm through expanding the range of its explanatory variables. He recalled Harrod’s warning that "the economic struggle, which we have been accustomed to regard as the central feature of the human situation may in the long run of history to have been a transitional period" (Harrod, 1958, p.210). Harrod predicted that, given the modern rates of economic expansion and technological progress, the struggle for physical survival would cease to be the key feature of man’s life and the filling of leisure time would become central. In other words, cultural processes are to become of critical importance in the life of society. Fred Hirsch came to similar conclusions, although his work (Hirsch, 1976), as the title of the book suggests, was primarily a reaction to the gloomy predictions made by the authors of The Limits to Growth report. Hirsch thought the warnings about the exhaustion of natural resources in some relatively remote future to be misplaced and maintained that a dangerous cultural dynamics could lead to a collapse much sooner. Thus Scitovsky and Hirsch produced a version of Harrod-Domar theory which places cultural variables at the center of analysis and links them with such macroeconomic variables as inflation, investment, consumption, and so on. The radical implications of Scitovsky’s analysis could be that "a nervous breakdown" in the affluent society may bring about economic instability, which will be further reinforced by ensuing war and violence. In the spirit of Scitovsky, we can say that while in Europe personal stability is generally associated with emotional stability, and economic prosperity is not central to people’s existence, in USA financial stability is crucial to a person and entrepreneurship is not just a project of the firm but the national project. In periods of economic calamity, people’s personal wealth might get lost and, since financial stability is so critically important for the personal well-being, this may lead to unpredictable consequences (for instance, a number of Americans committed suicide during the Great Depression.)
Scitovsky’s goal was to encourage his fellow economists to further analyze economic processes as linked to cultural dynamics. The question is: could this line of reasoning be picked by the economics profession? Taking into account the fact that one of the major ideological functions of American social sciences from the moment of their inception has been to provide a rationale and support for the treatment of America as a ‘new millennium paradise’ (see Ross, 1991), we can hardly give a positive answer to this question.
References:
Akerlof, George, "Procrastination and Obedience", American Economic
Review, 1992.
Earl, Peter, Tibor Scitovsky, in W.Samuels, ed. New Horizons in
Economic Thought: Appraisals of Leading Economists, Aldeshot: Edward
Elgar, 1992.
Harrod, Roy, «The Possibility of Economic Satiety», in
Committee for Economic Development, Problems of Economic Development,
New York, 1958.
Hirsch, Fred, Social Limits to Growth, Cambridge, MA: Harvard
University Press, 1976.
Ross, Dorothy, The Origins of American Social Science, N.Y.:
Cambridge University Press, 1991.
Rostow, W.W., Theories of Economic Growth from David Hume to the
Present, N.Y.: Oxford University Press, 1990.
Scitovsky, Tibor, The Joyless Economy, N.Y.: Oxford University
Press, 1976. (2nd edition in 1992).
Note: this piece is a follow-up to the term paper for Philip
Mirowski's graduate course "History of Economic Thought" taught at the
University of Notre Dame in 1995.