Railroading Economics: The Creation of the Free Market Mythology

by Michael Perelman

Overview

Most economic theory assumes a pure capitalism of perfect competition. This book is a penetrating critique of the rhetoric and practice of conventional economic theory. It explores how even in the United States—the most capitalist of countries—the market has always been subject to numerous constraints.
Perelman examines the way in which these constraints have been defended by such figures as Henry Ford, J. P. Morgan, and Herbert Hoover, and were indeed essential to the expansion of U.S. capitalism. In the process, he rediscovers the critical element in conservative thought—the “forgotten traditions of railroad economics”—that has been lost in the neoliberal present. This important and original historical reconstruction points the way to a discipline of economics freed from the mythology of the market.

Product Details

ISBN-13:	9781583671351
Publisher:	Monthly Review Press
Publication date:	06/01/2006
Edition description:	ANN
Pages:	224
Product dimensions:	6.00(w) x 9.00(h) x 0.55(d)

About the Author

Michael Perelman is professor of economics at California State Universityat Chico, and the author of numerous books, including Steal This Idea and Railroading Economics.

Table of Contents

Introduction     9
Setting the Stage     9
Confessions of a Lapsed Economist     9
The Conservative Rejection of Market Economics     10
The Forgotten Tradition of Railroad Economics     11
The End of Laissez Faire     12
Emotional Investment in the Imaginary World of Perfect Competition     12
Business and Laissez Faire     13
The Unsteady Support for a Competitive Economy     14
After Economics     16
The Framework of This Book     17
Overview     18
The End of Economics     21
What Is an Economist?     21
Sociology of Economics     23
A Child's Guide to Price Theory     38
Marginal Costs and Economic Psychology     41
The Unrealistic World of Conventional Price Theory     44
Fixed Costs     47
Liquidity     48
Economic Theory and the Historical Increase of Fixed Capital     51
The Reluctance to Invest in Fixed Capital     51
Irrationality and the Expansion of Fixed Capital     52
Keynes and "Animal Spirits"     53
More on Irrationality and Investment     54
Psychology of the Business Cycle     56
Accounting and the Quest for Rational Decision Making     58
The Role of Recessions in Market Economies     60
The Paradox of Rationality     61
Investment and Economic Progress     63
Railroads and the Increase in Fixed Capital     65
The Historical Increase in Fixed Capital     65
Railroad Speculation     66
Accounting for Profits in the Railroad Industry     68
The Delayed Reflection of Fixed Capital in Economic Theory     69
The Initial Theoretical Retreat from Laissez-Faire Theory     71
Henry Carey, David Wells, and Destructive Market Forces     73
The Economy of High Wages     74
David Wells and the Theory of Creative Destruction     76
Boom and Bust Again in the Railroad Industry     78
Charles Francis Adams, Jr., and Railroad Economics     79
The Conundrum of Railroad Economics     81
Hadley and the Generalization of the Railroad Problem     83
Hadley on the Trust Problem     85
Hadley's Choice: Neither Socialism nor the Market     88
The Corporatist School of Political Economy     89
Populism, Socialism, and Conventional Economic Theory     90
The Strange Case of John Bates Clark     94
The Evolution of John Bates Clark     95
Clark Becomes Conventional     96
The Further Evolution of John Bates Clark     97
Clark's Schizophrenic Attitude toward Competition     98
Clark and Johann Karl Rodbertus     99
Clark and the Founding of the American Economic Association     101
Lessons from Railroad Economics     104
The Role of Finance     105
Merchants, Finance, and the Economic Climate     105
The Role of Financial Intermediaries     106
The Evolution of Financial Intermediaries     108
Finance Capital and the Gold Standard     110
The Interests of Industrial Capital     112
Carnegie and Productionist Management     114
J. P. Morgan and the Reorganization of the Market     116
The Dark Side of Morganization     121
Andrew Carnegie's Crystal Ball     122
Corporatist Economics and Financial Manipulations     124
Conflicting Versions of Laissez Faire     126
Industry Takes Command: The Rise of Welfare Capitalism     129
The First Stirrings of Corporate Liberalism     129
War Socialism     130
Welfare Capitalism: An Introduction      132
Labor-Management Relations before Welfare Capitalism     133
Ford's {dollar}5 Day     135
Balancing Nationalities No More     137
The Americanization of Labor     138
The Strategy of Welfare Capitalism     139
The Economy of High Wages     140
High Wages and Labor Militancy     141
The Rhetoric of Welfare Capitalism     143
The Appealing Logic of Welfare Capitalism     144
The Success of Welfare Capitalism     146
The Limits of Welfare Capitalism     147
Modern Finance Capital     149
The Eclipse of Morgan and the Temporary Decline of Finance Capital     149
Finance without the Dominance of Morgan     151
The Stock Market Bubble     152
Storm Clouds     154
The Great Depression     157
Holding the Line     157
Or Did They Hold the Line?     158
The Depression and the Limits of Welfare Capitalism     160
U.S. Steel and the Limits of Corporatism     161
The Humiliating Capitulation of Welfare Capitalism     162
Hoover's Welfare Capitalism     163
Hoover's Disillusionment     165
The New Deal and the Resuscitation of War Socialism     167
Assessing Welfare Capitalism     167
The Search for Blame     169
Wages, Deflation, and the Way Out of the Depression     171
The Reemergence of Financial Hegemony     172
The Golden Age     175
Background to the Golden Age of Industrial Independence     175
Finance Capital in the Postwar Period     176
The Naive Optimism of the Golden Age     177
The End of the Golden Age     179
The Return of Finance Capital     180
Renewed Speculative Frenzy     181
Financial Capital versus Industrial Capital     183
Bureaucratic Management     184
The Holy Gospel of a Return to Productionism     185
Michael Jensen and the Critique of Managerialism     187
The Unproductive Labor Dissipated in Corporate Takeovers     188
More on How Jensen's Approach Backfired     190
Jensen in the Context of Economic Theory     192
The Spreading Influence of Financial Capital     193
The Exploding Cost of Financial Capital     194
The Legacy of Morgan     196
Conclusion     199
Beyond Competition     199
Information and Competition      200
The Myth of Market Rationality     202
Cooperation     202
Notes     205
Index     229