Economists From The United States

"Researchers in the social sciences have long debated whether policy analysis, economic theories and other sorts of ideas as well as self-interests affect policy-making in advanced capitalist countries. Many now agree that ideas matter a lot. Peter Hall, for instance, showed that big intellectual policy paradigms like Keynesianism and then neoliberalism shaped economic policy after the Second World War. Mark Blyth revealed how policy makers used ideas as weapons in their political struggles to reform taxation and government spending. Frank Dobbin argued that deep-seated values regarding the appropriate relationship between the state and economy influenced the development of national transportation policies. And others, particularly Vivien Schmidt, explained that cognitive and discursive structures helped frame policy debates in different ways in different countries."

"Property rights define the institutional basis of power relations in production, exchange and accumulation, rather than just the relationship of actors to property. The ability to manipulate property rights affords the state important leverage over the balance of power among actors in the economy."

"In advanced capitalist society the state helps shape the institutional organization of the economy. We show, how the state shapes the economy through the manipulation of property rights. The state's actions create pressures for change that lead actors to look for new forms of economic organization. The state also assists, leads, or constrains the process of selecting new forms of economic organization that emerge in response to these pressures, and it may or may not ratify these new forms. In contrast to the conventional literature on state economy relations that characterizes the U.S. state as having a weak capacity for successful economic intervention, we argue that property rights actions afford the U.S. state a previously unrecognized source of strength. Data come primarily from historical case studies of organizational transformation in the steel, automobile, commercial nuclear energy, telecommunications, dairy, meat-packing, and railroad sectors."

"For many years, attention in both public and intellectual fields was concentrated on the benefits of civil society. However, with the demand for greater state regulation of the economy and the increasing realisation that states of the fourth world will never advance without the enforcement of a rule of law, the tenor of debate is now changing."

"Modern analysis has yet to describe inefficiency in a world where indivisibilities are present and knowledge is costly to produce."

"The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization."

"To Donham, the case study stood squarely in the legal and cultural tradition of Anglo-American thought. Unlike French or Spanish law. Donham emphasized, English law was grounded on the doctrine of stare decisis, in which the written case decisions of the past shape, and instantiate, the law. Just as the recording of cases allowed English common law to break the arbitrariness of local law. Donham argued in 1925, business needed to universalize its procedures by itself adopting the case system. The chaos of local law that ruled in England before the common law. Donham contended, "is exactly the same situation that we have [in the world of business] where practically every large corporation is tightly hound by traditions which are precedents in its particular narrow field and narrow held only The recording of decisions from industry to industry [enables] us to start from facts and draw inferences from those facts; [it] will introduce principle... in the field of business to such an extent that it will control executive action in the field where executive action is haphazard or unprincipled or bound by narrow, instead of broad precedent and decision" ( W. Donham, transcript of talk to the Association of Coll. School of Business Committee Reports and Other Literature, 5-7 May 1925. Harvard Business School, box 17, folder 10. 62)."

"p. 176; cited in: Albert Lepawsky (1949), Administration, p. 194-5"

"Admitting that business and government are both bureaucratic giants, most authorities take the view that an intrinsic difference separates them. This position was expressed effectively by: (a) Professor Wallace Donham, Dean of the Graduate School of Business Administration at Harvard University; (b) Sir Josiah Stamp, an English businessman and public servant; and (c) Professor Nathan Isaacs, also of Harvard University."

"As Dean, Donham developed the "case method" of teaching business administration by the study of actual experiences from day-to-day business life. He was also a leader in the scientific study of human relations, and after World War II helped to introduce human relations courses in Harvard College... When he resigned from the deanship in 1942, Donham still continued as George F. Baker Professor of Business Administration until 1948. During this six year period, he especially studied the human factor in economic relationships. His book, "Education for Responsible Living," in 1944 was a critique of college education and stressed the importance of courses in human relations."

"To me, there are multifarious forces at work in government departments which are different from those in private business; the responsibility to and necessary interference of Congress, the responsibility to the President, to defined over-all controls, have little parallel in private business. The power politics of government departments are radically different from the power politics of private companies. The existence of pipe lines into Congress strengthens the bureaucracy against the chief executive of the particular subdivision of government. It may strengthen it against the President of the United States or Congress itself. Dimock himself points out how easily government bureaucracies develop organized opposition to policies involving change. This opposition may in substance, though not in form, sabotage all change which appears to threaten the security of the bureaucracy. Power politics, of course, exists in large private companies; but the urge to expand functions and simultaneously to defend what exists seems to me radically less in the case of well-run, large, private industry than in the case of big departments of the government. The quantitative difference becomes a qualitative change."

"As a result our graduates leave us without having formed the habit of seeking wide generalizations related to diverse variables in the social situations which surround them. Because they lack both habits and methods which lead them to seek generalizations, they become, after they leave us, Specialists themselves and make decisions without the guides to action within their special fields which wider viewpoints might give. To develop them as we must, the artificial dividing lines between social sciences must in large measure be broken down. Specialized training must be both counteracted and supplemented by training which brings in the widest social implications. Otherwise men will not be trained to meet the problems faced by public and private administrators."

"Dimock makes the generalization that 90 percent of the characteristics of public government executive management are identical with those of private executive management. In spite of large areas of similarity, I strongly dissent. I would place the percentage very much lower - whether 30 per cent or SO per cent lower, I shall not attempt to say."

"I find from experience both with government agencies and with private business that there are striking differences. One of those differences is that, in government, there is more continuity and definition in the mandate. The limits of action are often clearly defined. in many cases by Congress. No such situation exists in large private business. Dimock says bureaucracies are related, for example, to size. Yet he points out some bearings on bureaucracies of the inadequacies in our federal civil service system and the conflict of loyalties which arises out of it. This, he states, he succeeded in overcoming. I have had contact with several war agencies made up mainly of businessmen. These men rapidly took on bureaucratic characteristics radically different from their own behavior in private life. The only close parallels I find in the areas of private business to the deadening effects of the present civil service are, on the one hand, what one of my old labor leaders used to call the "sonority" system and, on the other, the very real problems faced by management in dealing with labor which arise immediately out of the prolonged governmental support for organized labor-which is in my judgment bad for labor."

"His imaginative nature led him to a wider conception of the character of business administration than had been current. The administrator, he said, must "look all around things before interpreting them" and be aware that administration takes place in a context of face-to-face human relations and of conditions imposed by the broader social situation. Thus he came to develop a new way of teaching businessmen about their work and to encourage a field of research that has subsequently had an important influence on the growth of the social sciences generally."

"Everything ahead of us is dangerous. There isn’t a power the President has asked for that isn’t dangerous. But there isn’t a power or a combination of powers he has asked for so dangerous as continuing to do nothing."

"In the social sciences there has been a serious gap, except where administration is involved, between the theorist and the man who must act. As a result our social science theory continues to be detached from reality. There is great need for a new social science, namely, the Science of Administration, where social theory and action must meet. Administration as conceived in this paper is, therefore, a social science with its own techniques, its own abstractions clustering around the concept of action through human organizations, and its own problems of theory. It is vitally concerned in integrating other sciences, physical, biological, psychological, and social, at the point where action is involved. Its social importance is great. Indeed if our civilization breaks down, it will be mainly a breakdown of administration, both private and public."

"At this point water-tight compartments of university specialization and theories founded on the selected isolation of facts easily break down. Specialized thinking is rarely a sufficient foundation for concrete decisions involving action. The social scientist cannot often form sound administrative judgments solely on the basis of elements which he has picked out simply because they relate directly to his particular specialty. The present emphasis on artificial subdivisions of knowledge and on specialized thinking and teaching in universities, technical schools, and colleges and the relative neglect of administrative problems involving action have a dangerously narrowing effect on graduates of these institutions. While we may and frequently do arouse the intellectual interest of students in a considerable variety of subjects intimately related to the civilization of which they are a part, we pay almost no attention to the web of cross ties among these subjects."

"The search for original cases and the "superior" rules that would emerge from them spread far outside legal practice. Wallace Donham, dean of the Harvard Business School from 1919 to 1942, was trained at the law school in the heady days of the case system's early and enthusiastic reception. Where law and business parted ways was in the contingent matter of the availability of ready- made cases — law faculty simply reached for their shelves, while professors of business needed to create a new literary species — the business case book."

"Although good administrators are not necessarily interchangeable, there appear to be certain recurring aspects of administrative work to which attention may be profitably directed."

"It may be that the process of education can do no more than make a man aware of the need for making decisions and taking action, and of the advantages of doing so wisely and with good judgment. But even that, though it can be expressed in a sentence, is manifested in many different ways that its full development and the appreciation of it may be a lengthy process. Can a formal educational process assist students to develop facility in making and implementing wise decisions in administrative matters? There are many aphorisms about the advantages of self-education, the dangers of the theorist with his learning and lack of common sense, and the value of experience as the best teacher. Certainly. it is difficult to match, with formal education, the wisdom that comes from experience. It may be noted, however, that experience may lead to a lack of mental flexibility in meeting new situations; an experienced but opinionated man is as ineffective as one with a formalized doctrinaire approach."

"Though it is possible to develop various principles of administration by generalizing from particular cases, the resulting abstractions seem to have little significance. The process of administration involves action requiring the application of any given principle in infinitely varying actual situations. In brief, administration is an art requiring skill, practice, and judgment. However much it can be analyzed in the abstract, it becomes manifest only in specific concrete situations. In fact, the best administrators may have difficulty in relating their actions to explicit principles; the fully developed skill will most often lead to quasi-intuitive action without a conscious frame of reference or checklist of points to be considered."

"We usually think of an individual doing administrative work not as an administrator, but as a businessman, an Army officer, or a civil servant. More specifically, we think of him, if he is a businessman, as a merchant, a production man, a sales manager, or a financial expert; while the Army officer may be a company commander, a staff officer, or a tactician; and the civil servant, a diplomat, a postmaster, or a revenue collector. It is true that all of these jobs involve administration: yet each of them is intimately bound up with a more or less specialized subject matter and it does not follow that a good production man win make a good diplomat or company commander."

"After joining the faculty at UCLA in 1948, Professor O'Donnell quickly became a leader in the newly developing field of management theory and policy. He taught the basic courses in this area. In 1955 the first edition of the textbook Principles of Management, coauthored with Professor Harold Koontz, was published by McGraw-Hill. This book synthesized an operational approach to the management of enterprises. By filling a long-felt need in colleges and universities, it soon became the outstanding college textbook on its subject."

"Harold D. Koontz (1908–1984) and Cyril O’Donnell (1900–1976) of the University of California at Los Angeles defined management as "the function of getting things done through others." They furthered Fayol’s ideas and sought to provide a conceptual framework for the orderly presentation of the principles of management. According to Koontz and O’Donnell, managers were known by the work they performed, which was planning, organizing, staffing, directing, and controlling. These authors pointed out that, although some authorities maintained that these functions were exercised in the sequence given, in practice managers actually used all five simultaneously. They stressed that each of these functions contributed to organizational coordination. Coordination, however, was not a separate function itself but was the result of effective utilization of the five basic managerial functions. Koontz and O’Donnell offered a number of principles: in organizing, for example, "the principle of parity of authority and responsibility" and "the principle of unity of command"; in planning, "the principle of strategic factors"; and so on. The Koontz and O’Donnell text became an enduring, integral part of the search for a systematic body of management knowledge."

"Dan Throop Smith [was] one of the nation's leading tax experts and the principal architect of the present ... Professor Smith belonged to an elite group of economists who switched back and forth from top academic positions at Harvard, Stanford and other major universities to policy-making positions in Government. He was generally regarded as a conservative economist."

"I'm a professor all right. But I was always violently anti-New Deal."

"All these associates were willing to help me in expanding my habit of trying to look all around things before interpreting them, as it seemed to me that the administrator should, instead of limiting his range of thought to some specialized point of view."

"[ Management can be defined as] the function of getting things done through others."

"The problem is one in the general physiology of society. The continuance of life and health for any individual depends on maintenance of a moving organic equilibrium within certain definite limits of tolerance. The daily work of the world is done by individuals living their specialized economic and social lives within a moving equilibrium... But specialized progress brought uneven social and economic developments and serious maladjustment. General equilibrium is lost. The limits of tolerance, the margins of safety, are exceeded."

"The inability of business and political leadership to rise to new heights [required by the] unprecedented situation, [familiar to us now as the Great Depression.. urged for] bold policies...bold anything is needed at this time."

"Part of the downfall came early and on theoretical grounds, with the realization that real-world information lags for aggregate variables like the price level and money supply were much too short to rationalize the persistent multiyear deviations from equilibrium that seemed to characterize business cycles in most industrialized countries. The second dubious assumption, continuous market clearing, was viewed more critically once it was recognized that it was not an inextricable concomitant of rational expectations, especially when Stanley Fischer (1977) and Edmund Phelps and John Taylor (1977) showed that rational expectations could be embedded in a model containing real-world institutional features like multiperiod wage and price contracts to generate nonmarket-clearing behavior. Once Fischer and Phelps-Taylor had shown that rational expectations by itself was a necessary but not a sufficient condition to validate new-classical policy conclusions, the race was on to develop the new-Keynesian theory based on rational expectations and one or another institutional impediment to continuous market clearing."

"The original Lucas version of the new-classical macroeconomics combined the undeniable appeal of rational expectations with two more dubious assumptions inherited from Friedman (1968), that is, continuous market clearing and imperfect information, to form the foundation of the famous “Lucas supply function” (more justly, the Friedman-Lucas supply function). Soon Sargent and Wallace (1975) extracted from Lucas’s model its implication for monetary policy, the famous “policy-ineffectiveness proposition.” The demonstration by Barro (1977) that one could interpret historical U.S. data to be consistent with the proposition and the theory brought new-classical economics to its shortlived period of peak influence."

"The relationship of agency is one of the oldest and commonest codified codes of social interaction. We will say that an agency relationship has arisen between two (or more) parties when one, designated as the agent, acts for the other, designated the principal, in a particular domain of decision problems. Examples of agency are universal."

"It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary -- the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the 'labor-managed firm' system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i.e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation."

"During the relatively brief period in the late 1960s when economists were pondering the possible obsolescence of business cycles, the scholarly discipline of macroeconomics showed signs of becoming fragmented into speciality areas devoted to components of the then popular large-scale econometric models-for example, consumption, investment, money demand, and the Phillips curve. But more recently the revival of severe real world business cycles, together with the revolutions associated with Milton Friedman's monetarism and Lucas's classical equilibrium models, has brought about a revival of interest in economic analysis that focuses on a few broad aggregates summarizing activity in the economy as a whole-nominal and real income, the inflation rate, and the unemployment rate."

"But business cycles as a subject for study have enjoyed a revival for at least a decade now, stimulated in part by the severity of the 1974-75 and 1981-82 recessions and in part by the intellectual ferment surrounding the development of the "equilibrium business cycle model" and the attention paid to the seminal work of Robert E. Lucas, Jr., contained in his book Studies in Business Cycle Theory (1981). Indeed, there is no longer any need to lament the passing of economics courses explicitly carrying the title "Business Cycles," since the topic of business cycle behavior and analysis has so infiltrated courses carrying the title "Macroeconomics" that the two subjects have become almost interchangeable. 2 In this light it is fitting that the major research program of the NBER in this area is called "Economic Fluctuations" rather than "Macroeconomics.""

"A major social problem we face today is how to control the political process that is eroding the free enterprise market system. Although I am pessimistic that we will in fact ever resolve this problem completely, we will surely never solve it unless we develop a viable positive theory of the political process. Such a political theory will not be complete until we also have developed a theory that explains why we get the results we do out of the mass media."

"The postwar era has not surprised Arthur Burns, for business cycles have continued their "unceasing round." although the United States recession of 1981-82 was the eighth since World War II and the deepest postwar slump by almost any measure, the 1983-84 recovery displayed an upward momentum sufficient to befuddle forecasters and delight incumbent politicians. Nor would a reincarnated Joseph Schumpeter be disappointed in the current status of business cycle research in the economics profession. To be sure, interest in business cycles decayed during the prosperity of the 1960s, as symbolized in the 1969 conference volume, Is the Business Cycle Obsolete? and in Paul Samuelson's remark the same year that the National Bureau of Economic Research "has worked itself out of one of its first jobs, namely, the business cycle.""

"New-classical economics has been undeniably influential, but not in the way that its three prominent creators originally imagined. Its most important contribution to macroeconomics, the assumption of rational expectations, was stolen almost immediately, and applied more fruitfully, by the new Keynesians."

"There are four headwinds that are just hitting the American economy in the face. They're demographics, education, debt and inequality. They're powerful enough to cut growth in half. So we need a lot of innovation to offset this decline. And here's my theme: Because of the headwinds, if innovation continues to be as powerful as it has been in the last 150 years, growth is cut in half. If innovation is less powerful, invents less great, wonderful things, then growth is going to be even lower than half of history."

"The corporation as an organizational form is an enormously productive social invention. Partly because of its success it is under increasing attack from various quarters, often under the guise of “protecting” investors from self-interested managers. Some of these attacks are successful simply because the corporation is a poorly understood entity. This paper discusses what the corporation is, what it is not, and how certain misconceptions about the corporate form are fostered by its critics as part of their attack."

"This sensitivity to the phenomena of recession and inflation is a symptom of an increased public awareness of both the need for and the attainability of economic progress. It is precisely because so much of current industrial and governmental practice can be better in the future that our meetings this year are focused on the broad problem of improving the performance of the American economy. However, as we go about the task of appraisal and criticism, it will be well to discipline our impatience for reform. In the measure that we avoid exaggerating our nation's failures or understating its successes, we shall make it easier for ourselves as well as for economists in other countries to see current needs and developments in a just perspective."

"Clearly, the broad effect of economic evolution until about 1920 was to increase the concentration of jobs in the cyclically volatile industries, and this was a major force tending to intensify declines of employment during business contractions. Since then, the continued progress of technology, the very factor which originally was mainly responsible for the concentration in the cyclical industries, has served to arrest this tendency. The upward trend of production in manufacturing and the other highly cyclical industries has remained rapid in recent decades."

"The only disagreement among economists is whether Burns fully understood the mistakes he was making, or was so wedded to incorrect Keynesian theories that he didn't realize what he was doing. The only alternative is that he was under irresistible political pressure from Nixon and had no choice. Neither explanation is very favorable to Burns. Economists now recognize the Nixon era as Exhibit A in how the adoption of bad economic policies in pursuit of short-term political gain eventually turns out to be bad politics as well."

"The OPEC oil-price hike caused inflation to shoot up in the USA. The stock markets took a real hit, causing considerable nervousness, while there was some serious supply and demand confusion within American industry. However, there was no collapse of the stock markets or the currency or the banking system. Under the chairmanship of Arthur Burns from 1970 to 1978, the Federal Reserve, which followed aggressive deflationary policies, proved robust and, although demand remained lower for a while, manufacturing had improved by mid-1974."

"In the early 1970s,... economists began to embrace the Rational Expectations Hypothesis (REH), according to which market participants’ expectations are “essentially the same as the predictions of the relevant economic theory” (Muth 1961: 316). What has been largely overlooked is that, … REH theorists presume that the role of market participants’ expectations in driving outcomes is not autonomous from the other components of the model. … Because REH models, by design, rule out an autonomous role for expectations, they are best viewed as derailing, rather than developing, the microfoundations approach."

"When public spending in the form of transfer payments makes various services and benefits free of charge, work is discouraged. Yet it is precisely Social Security that legislators fear to cut"

"Much time was wasted and ink spilled in the late 1960s and early 1970s trying to interpret the lagged effect of prices on wages as reflecting adaptive lags in the formation of expectations. But if we have learned anything from the new Keynesian economics of Fischer, Taylor, Blanchard, and their younger followers, it is that price and wage inertia is compatible with rational expectations."

"Since the late 1960s macroeconomic debates in the United States have centered on the competing interpretations of the new classical and new Keynesian macroeconomics. The initial new classical model developed in the early 1970s by Robert E. Lucas, Jr., combined market-clearing, imperfect information, and rational expectations. After much testing, it was eventually rejected in the late 1970s for failing to explain why business cycles lasted on average four years while information delays lasted only a few weeks. It was soon replaced by a second new classical approach, the Real Business Cycle (RBC) model, which was also based on continuous market clearing and competitive equilibrium, but now generated the business cycle through serially correlated procyclical technology shocks."