THE ECONOMIC CONVERSATION
by Arjo Klamer, Deirdre McCloskey, and Stephen Ziliak
December 2006
© Arjo Klamer, Deirdre McCloskey, Stephen Ziliak
forthcoming Palgrave/Macmillan, 2007
From Arjo to Renée, Lucas, Alexandra, Anna, and Rosa
from Deirdre to Dan and Meg
from Steve to Flora, Jude, and Suzette
And from the three of us in memory of a friend and adopted teacher,
Wayne C. Booth (1921-2005),
whose influence on our thinking is we hope evident.
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ACKNOWLEDGMENTS
[ TBA]
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PREFACE TO STUDENTS: HEY, WHAT’S UP?
Economics has many definitions. One definition describes economics as the
"worldly philosophy,” which is to say a philosophy about the world of things and our
human ways of getting along, materially speaking. “Philosophy” is usually thought of as
being about impractical things, the metaphysical stuff, things so far out of this world it’s a
wonder that the philosophy major living down the hall can pay his bills. But philosophy
can also address practical concerns such as work, consumption, profit, and poverty. And
then it is called economics. As our late friend the economist Robert Heilbroner points
out in a book The Worldly Philosophers, a book which has greatly influenced the life-choices
of some of your teachers, the leading economists can hold their own in the company of
pure philosophers. In fact, some of the leading economists are pure philosophers.
Economics has also been defined as “social engineering.” Page through our book
and you'll see numbers and charts in abundance, certainly in more abundance than in
typical books of philosophy or history. Economics is quantitative, as is engineering, and
in its higher reaches is heavily mathematical and statistical, as is engineering. It has the
problem-solving, let’s-build-that-bridge attitude of engineering, too. The difference is
that the economic “bridges” are cigarette taxes, the Federal Reserve policy, or ideas for
increasing the prosperity of poor countries. Actual bridges – such as the London Bridge
–are obviously of human concern. But economic bridges appear, reconfigure, and even
disappear depending on the actions of the humans interacting with them. Thus "social"
engineering. The "social" part means that the economy is not easily mechanized or made
into something with a simple on/off switch, even if you want it so.
Economists who favor the social engineering definition are taking their cue partly
from a philosopher of economics, Lionel Robbins, who said in the 1930s that
economists should focus on the “means”—the how-to—of economic questions,
allowing citizens, politicians, or philosophers to determine what the “ends” of the
economy should be. Many economists have taken Robbins’s means and ends philosophy
to heart. Figuring the best way to do a job is an engineer’s approach; but the job itself,
Robbins was saying, is typically defined by others. “Just tell us the ends you have in
mind,” economists after Robbins have said to a Bush or Blair or Berlusconi, “and we’ll
tell you the efficient means to achieve them.”
You can imagine that not every economist is thrilled with the “means and ends”
definition of economics. On ethical or political or scientific grounds they object to a
science that yields all of the important decisions and interpretations to a politician or
philosopher or man on the street. Some economists prefer a definition of economics
that focuses more on the social systems or circumstances in which economic decisions
are made—or forced—a reflexive style of economics that also acknowledges the social
role of the economist-observer in the interpretation of “means” and “ends.” For
example, Samuel Bowles, Richard Edwards, and Frank Roosevelt (the economistgrandson of President Franklin D. Roosevelt) define economics as “the study of how
people interact with one another and with their natural surroundings to produce their
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livelihoods.”1 Such economists want to understand how socio-cultural systems like
power, class, kinship, religion, ethnicity, and gender affect the production and
distribution of goods, and vice versa. These economists do not entirely reject the
methods used in engineering or philosophical approaches. But they believe that
economics ought to have a wider historical and sociological perspective and, to repeat,
that it ought to acknowledge the observational and interpretative role of the economists
themselves.
And economics, finally, has been defined as “the study of humankind in the
ordinary business of life.” It's then like a human biology, a social physics, or a current
history, a factual account of how people earn their living and a mathematical or
experimental interpretation of why it matters. It answers great historical questions, such
as "Has capitalism been good for us?" and “What caused the Industrial Revolution?” Or
great current questions, such as "Why are South Asians at present poorer than the
Japanese?" and “Why is the welfare state being dismantled?” Or little puzzles about the
ordinary business of life, such as "Why are cable companies large and pizza places
small?"
The difference between economics and, say, history is that economics is also
philosophical and quantitative. And like biology and especially physics, it uses “models”
to explain behavior and data to estimate relationships. In short, you see, economics
reflects all of the above—it is speculative like philosophy, quantitative like engineering,
model-oriented like biology and physics, factual like history.
Unless you had economics in high school you'll probably find economics a little
weird. And your economics in high school was probably different from what you are
about to experience. Each of us—the three authors—were stunned by our first
economics courses, at the University of Amsterdam (in the early 1970s), at Harvard (in
the early 1960s), and at Indiana University (in the early 1980s). No wonder: in some
ways a course in economics is like an English or math course, in others like a science
course, in still others like a history or journalism course.
Considering that it's about the ordinary business of life, economic theory is
unexpectedly foreign. For example, economists use diagrams and mathematical
equations to talk about the decision to buy a house or attend graduate school. Did you
use equations or diagrams to decide whether to go to college? One of the authors did as
have numerous other economists. Math may not be your cup of tea. We keep the math
to a minimum, and try to make the diagrams as lively as possible. But you can’t do
economics entirely without math and diagrams. In 1946 the famous American
economist Alvin Hansen taught advanced-level economics to the father of one of the
authors. Because the eager grad student was hopeless at mathematical thinking, he
skipped all the diagrams and every equation. By focusing on just the words and meanings he
got an A+ in the course. So it was in 1946 economics, your great grandmother's time,
when clocks had hands and radios had legs. Today the techie stuff is not entirely
skippable. Since the 1940s economists have spotted more and more ways of picturing
the economy in diagrams. Be thankful. Diagramming is one of their efficient languages,
1. Bowles, Edwards, and Roosevelt, Understanding Capitalism, 3rd edition, 2003.
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math another. So get ready. But remember: you can get a lot from a close study of the
words, too, as that student did in 1946.
The economic way of inquiring about the facts of the world is also unexpectedly
foreign. You live in an economy, so you'd think the economists would talk about what
you know in straightforward ways. Nope. Not straightforward. Economics has been
since its invention in the 1700s strangely, well, ironic. The irony emerges from an
economic phenomenon called “unintended consequences,” which you’ll see a lot of in
this book. “If Jamaica is so hot, why can’t you find any ice?” Or: “Why do government
welfare programs produce more poor people?” Or: “Why does the drive-through ATM
put Braille on the keyboard?” As you can imagine, the irony of economics does not
always entail humor or consensus, though it sometimes achieves both. Economists have
developed a special language, too, with terms that may sound familiar but turn out to
have special, even highly technical meanings. “Investment” may make you think of the
stock market but economists use the word investment to think about the effect, for
example, of a new robot on new automobile production. Even the word “production”
has a technical meaning in economics, different from ordinary language. Think of
economics as a foreign language with an ironic perspective and you will be at a good
starting point for learning this glorious subject. The Economic Conversation will introduce
you to the peculiar and often powerful ways in which economists talk.
Economic dialogues
When in the 4th century B.C. the philosopher Plato (427?-347? B.C.) claimed to
be writing down the ideas of his teacher, Socrates (470?-399 B.C.), he chose to do so by
way of dialogues. The implicit argument in Plato’s dialogues is that knowledge—such as
knowledge about beauty and love, as in his dialogue Phaedrus (FAY-drus), or knowledge
about virtue and good government, as in his dialogue Gorgias (GORE-ghee-us)—comes
from the give and take of conversation. We learn from conversation, even if only an
internal conversation within ourselves.
That seems right, and many other great teachers have followed Plato’s example.
For instance, two thousand years after Plato the Italian physicist Galileo (1564-1642
A.D.), from whom most of modern physics flows, presented his scientific ideas as
dialogues between imaginary characters:
Sagredo:
Will you not then, Salviati, remove these difficulties and clear away these
obscurities if possible: for I imagine that this problem of resistance opens up a
field of beautiful and useful ideas; and if you are pleased to make this the subject
of to-day’s discourse you will place Simplicio and me under many obligations.
Salviati:
I am at your service if only I can call to mind what I learned from our
Academician [that’s Galileo referring to himself] who had thought much upon
this subject and according to his custom had demonstrated everything by
geometrical methods so that one might fairly call this a new science.
Galileo Galilei, Dialogues Concerning Two New Sciences
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(New York: Dover, 1638 [1954]), p. 6,
trans. by H. Crew and A. de Salvio.
By the nineteenth century the dialogical form had fallen out of favor as a method
of scientific persuasion, replaced by so-called objective and neutral “observation,”
“testing,” and “writing up the results” in the now-standard format you learned in highschool science. The formal "method of science" now follows a rigid outline from
scientific question to scientific answer.
The suppression of dialogue is most unfortunate, we think. After all, you and we
-- everyone -- learns by means of conversations with others. Sometimes, to repeat, the
conversation is taking place only in our heads. At this moment a stream of words may
be running through your frontal lobes seemingly spoken by a parent or friend or teacher
and you are silently responding to them. You will master a language such as Greek or
Chinese only when you speak it in conversation with others, preferably native speakers.
That is how we want you to learn economics: learning to speak economics by engaging in
dialogues.
Throughout the text you will encounter students and professors talking, even
quarreling. They are commenting on the claims of the economic arguments and even on
the form of the arguments themselves—that is, on the arguments about the arguments.
Such argument about argument is called "rhetoric." By "rhetoric" we do not mean
merely "deceptive speech" or “flowery language.” We mean essentially the art of having
a real conversation, a real argument with real human beings. Why do you believe what
you believe?
The dialogues show economics, in other words, to be a controversial and
conversational subject, thoroughly "rhetorical," where people disagree with one another,
and quarrel over the arguments about the arguments.
Students are more attuned than most are to the communicative and social failures
of blabber mouth television shows and agree-to-disagree blog encounters. And, as
students, you know better than most professors do what it’s like to be forced into
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silence. Our book offers, we are happy to say, an alternative that students around the
globe have been asking for. It makes student voices central to the classroom, a fact we
hope to see more of in actual classrooms. We've named the students in the dialogues
Paul, Bayla, Maria, and Rodney. They're modeled on actual students.
Paul is (as he puts it) “a middle class suburban kid,” and a business major. He
seeks the middle of the road for just about everything. He’s pretty self-confident but he
doesn’t like to ruffle feathers. A Republican, he’s in college strictly to further his goals in
business.
Bayla comes from a modest background in Eastern Europe. She's an older
student who wants after college to work in the fashion industry. She's a fervent believer
in capitalism, coming from a part of the world damaged by Communism. She celebrates
the entrepreneur and other go-getters in society. Radiohead dominates her iPod.
Maria is the only child of a single mother. Her mom is a Hispanic immigrant who
owns an organic foods restaurant in a working-class Latino neighborhood of Chicago.
Perhaps because of her upbringing she's especially troubled by the injustices of the
current economic system. She repeatedly calls attention to the plight of minorities,
especially of women. She is religious.
Rodney is more radical in temperament than the others. A leader of the debate
club in college, in love with anything British (he plays the English game of cricket, of all
things: he learned it young from a doting Jamaican uncle), he’s also a budding intellectual.
He loves the argumentative character of economics. But according to Rodney, an
African American who sees himself as a future politician, the capitalist system as a whole
is wrong, and radical changes are needed to bring about economic justice.
We think you will see yourself, or a friend, in one or another of them. At every
turn in the book we found ourselves asking, “What would Rodney say?” or “Would
Bayla find this persuasive?” See if you do, too.
Studying economics
How to study this dialogical economics is a question. You learned how to study
in high school, right? Just read the chapter, highlight the important points, memorize the
night before, and you’re finished. Clang!!! Wrong. College studying has to go beyond
mere memorizing, to understanding. There’s vastly too much to memorize in most
college courses, and in most cases memory is not what's being tested. (We said “in most
cases”.) One of us tried to learn calculus in college by putting the equations on flashcards
and memorizing them. Save that method, please, for Kindercare and the lunatic asylum.
Try instead to understand the argument. We introduce a formal definition of
“argument” and “understanding” in Chapter 1. But intuitively speaking you can get our
meaning now. We want you to get inside of an argument about free trade or the living
wage; identify with it, make it the master of your mind for a moment. Let the argument
run through your veins. By “argument” we do not mean shouting and kicking or givingof-the-old-silent-treatment. We mean the opposite of all that: by “argument” we mean
the give-and-take of civil discourse, as in Galileo’s introduction to the new physics, that
lead us to reveal why we believe what we believe. Like our students in this book, in
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argument it’s best to involve others. Try out on friends some economic ideas and see
whether you have the logic and evidence to back them up. Try today using the terms and
concepts you encounter in this course, even though brand-new to you. Recall that when
learning a foreign language you always learn faster and better by speaking it out loud. Do
the same here. Who knows, you might discover a true economist in yourself!
For the best results in studying economics:
 Embrace the Maxim of Presumed Seriousness. We presume our reader (that's you)
to be a serious thinker whose intuitions and values gives her the right to a voice in the
economic conversation. You should presume the same about others, actual and
virtual, in your classroom. No Fox-News shouting, please.
 Reading a chapter two times through quickly is better than getting stuck on every
little detail in the argument. You’ll often find that once you see the design of the
argument, the details fall into place. Collectively speaking your authors have
published over 30 scholarly books and 350 journal articles on subjects ranging from
ancient rhetoric and art to public welfare and the gold standard. When pertinent we
bring some of this learning to the book. But again, don’t get stuck on details. The
design or architecture of each argument is the proper object of your concentration.
 Pay special attention to the graphs and the technical workshops. Graphs, we have
said, are important tools in economic analysis. It will help if you are comfortable
with them as explained in high-school algebra and physics. If you are not, look at the
Technical Workshop in Chapter 2, which reviews the basics.
 The Technical Workshops are essential. They present the basic mathematics needed
in the course. Don’t overlook them unless specifically told to do so by your instructor.
You need them to do many of the problems at the end of the chapters.
 And take seriously the Heterodox Boxes. If they are not assigned, consider them
mandatory bedtime reading! They present alternative points of view (that is,
“heterodox,” non-orthodox, points of view: the Greek words mean "many-opinion"
vs. "upright opinion") on everything from the role of mathematics in economic
theory to the visions of libertarianism after Ayn Rand. Think of the Heterodox
Boxes as an introduction to the wider culture of economics.
 Talk with fellow students. This may be the most important advice of all, and it
applies to many of your other courses, too. Students who never talk about their
homework, never edit each other’s homework, and never argue about the politics of
economics will have to work harder to get the same results. In a professional job at
Ford Motor Company or the United Nations or the Environmental Defense Fund
you're asked to do more than sweat in isolation over the meaning of a legal or
business document. You are asked to persuade other people to see and act upon it in
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one way or another. Talking with fellow students about ideas is a good way to begin
practicing your persuasion skills. In the end---believe the old professors of
economics---it's more fulfilling than chitchat during rush week!
 Consider getting and using a supplementary book on how to be a critical thinker in
college, such as Asking the Right Questions or Striving for Excellence in College, both written
by the economist Neil Browne and his collaborator Stuart Keeley, a psychologist. We
also recommend a book by colleagues of ours in English at the University of Illinois
at Chicago, Gerald Graff and Cathy Birkenstein, “They Say/I Say”: The Moves That
Matter in Academic Writing, New York: Norton, 2006; ISBN: 0-393-92409-2. The
market is flooded with self-help books on critical thinking, eager to claim your
dollars. But you could do well to check out these three books.
Economics, then, is rhetoric, and rhetoric is persuasion. The word “persuasion”
comes from Latin, itself from the same root word that leads by way of Old Germanic to
our English “sweet.” It’s sweet stuff, this philosophical, engineering, model-making
history of the economy, with all its persuasive conversations. Or so we hope to persuade
you.
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PREFACE TO TEACHERS
The book began years ago, in 1985, after a conference in Amsterdam. Two of us,
Klamer and McCloskey, found ourselves in a Jugendstill café discussing economics,
teaching, and economics textbooks. For the price of four hot chocolates, European
style, we talked right through a rainy afternoon. Our differences should have kept us
apart. McCloskey was and is a Chicago School economist, enthusiastic about free
markets and down on government intervention, while Klamer combines cultural
conservatism with a Northern-European skepticism about the fairness and efficacy of
market processes. We concurred, however, in our concerns about economics as a
discipline (which we love), especially with regard to teaching it.
We worried about how our students at Wellesley, the University of Chicago, and
the University of Iowa had reacted to economics. A professor of economics does not
have to read the reports of William Becker or Michael Watts or Michael Salemi to know
that too many students are bored stiff by a subject about which we economists care
passionately. You know from your own experience and from the reports of Becker and
others that even the students who stick with it forget much of what they learned the day
after the exam.
One problem, we concluded, is the strangeness of economics. Economists speak
a language that is foreign to students, as foreign as, say, French. Like taking a French
course without visiting France or Quebec, most students cannot relate economic
reasoning to their everyday world, or vice versa. We decided that it was a rhetorical
problem – a lack of attention to one’s audience, in this case to the students – and that
economic education could benefit from a rhetorical perspective. Eureka.
Another problem was that most textbooks present economics as a series of
answers, often without making clear what the questions are – or could be. It contradicts
what is promised by the same textbooks, that economics is an “approach” and not a
body of settled conclusions. The over-boiled quotation of Keynes on “what an
economist is” (namely, what an economist does) has been betrayed. Textbooks tell us
that “markets are efficient” or that “cash welfare is better than food subsidies.” But what
is the question? Too often the textbooks don’t say. So students fail to see economics for
what it is, a living body of knowledge, full of evolving arguments in its research, teaching,
policy, and ethical arguments. Students fail to see that asking the right question is
fundamental to economic persuasion. And the style of most textbooks (to mention
another troubling part of their rhetoric) is usually so single-voiced and authoritarian that
students are left without a voice. Little wonder they’re bored. Being economists, we
searched for a solution – initially, at the bargain price of another cup of hot chocolate.
Klamer and McCloskey came out of the Dutch café wanting to write a textbook
that would be considerate to novices and yet fair and interesting to the discipline. We
would write it as if we were in a real classroom, in conversation with real students and
professors, acknowledging them for what they already know, and inviting them to
become central participants in the economic ways of thinking.
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We got started in the late 1980s, and thanks to Kenneth King and Alan Venable,
two exceptional editors of books, drafted a lot of the book in the early 1990s. After a
delay of quite a few years---professors as you well know are often distracted by multiple
projects!---we were pleased, and relieved, when Steve Ziliak, a long-time collaborator of
McCloskey’s, agreed to join our team. Steve is an imaginative scholar and a prizewinning teacher. Like Klamer and McCloskey he is a "rhetorician" as well as an
economist. McCloskey is a professor of communication; Ziliak holds a degree in rhetoric
and has been offered a professorship in it; Klamer is an internationally recognized
scholar in rhetoric, too.
The present team, by the way, has real ideological range, which is pretty unusual
in this market. McCloskey is a Chicago School free-marketeer, though recently also a
progressive Christian and a postmodern literary type, too. Klamer is an evolving
European social democrat. Ziliak is actively committed to racial and social justice,
leaning towards the market for some solutions and towards the state for others.
Economics is argument
We present economics as an ongoing argument rather than as a body of settled
facts and laws. Above all we try to teach the art of arguing as an economist. We want to
draw students into the economic conversation. Such an approach has a better chance of
leaving students with economic understandings they can actually use. And anyway it has
a better chance of getting them to think.
We are not interested in showing the scientific status of economics. It doesn't
need it. We are uninterested in impressing the students with how Very Scientific our
field is. But we are very interested in bringing students into the scientific conversation.
By “conversation,” we say again, we don’t of course mean empty chatter. We mean
serious arguments, the sort you and we just experienced at the meeting of the ASSA in
January. It’s a serious matter to decide, say, whether you believe markets work quickly or
sluggishly in this or that circumstance. That particular conversation is at the heart of the
disagreement in macroeconomics and of course adjustment costs matter in micro, too.
We don’t pretend that students know as much as we do about our discipline and
its disagreements. But neither do we speak down to them, regarding them as knownothing novices. We embrace the Maxim of Presumed Seriousness, presuming that our
reader is a serious thinker whose intuitions and values give her a voice in the economic
conversation.
With contrasting viewpoints
We highlight free-market arguments, Chicago’s strength, but also present
coherent ways of criticizing Chicago, from Austrian libertarian to empirical Post
Keynesian. The alternative perspectives emerge through a series of dialogues. Arguing,
we show, is a mode of higher learning. Says Klamer, “Yes, I’ve learned from our
arguments about the difficulties in regulating such a thing as an economy.” McCloskey:
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“And I’ve learned that economics needs to be seen from a wider social point of view, in
conversation with other disciplines.” Ziliak: “And I’ve learned that empirical evidence
does not easily change the minds of economists committed to a certain theory or
ideology.” We carry these arguments right into the text, in the style of team teaching
(incidentally, we’ve periodically team-taught in actual classrooms—in Iowa City, Chicago,
Rotterdam, and Hilversum, The Netherlands—for some twenty years.)
But still makes progress
We present economics as a progressive research project. Students are shown that
the economics they learn now, no less than the physics they learn now, will certainly
evolve; that economics entails research, much of it quantitative and mathematical; that
there are unresolved empirical questions, many of an exceptionally subtle character; and
that by means of critical inquiry our subject economics progresses towards ever better
knowledge of the economy.
We teach economics by making it speak (and listen) to students
The book, we hope you find, is personally and engagingly written. We draw on
our collective 85 years of university economics instruction and research. But we also
draw on our experience in journalism and literature, poetry and rhetoric, history and
politics, statistics and government, too. Klamer wrote for many years a weekly column
for a major Dutch newspaper, and is well known in Dutch politics. Ziliak has published
poetry, “haiku economics,” for example (he was a friend and student of the great African
American poet Etheridge Knight [1931-1991]), and has been employed as a social worker
and labor market analyst. McCloskey has held faculty positions in fields as disparate as
economics, English, philosophy, history, communication studies, and art and cultural
studies, and has authored or coauthored (with Klamer and Ziliak, for example) articles
and books on economic history, ethics, statistics, and rhetoric. Two of the authors are
economic historians in their scientific work, so we also include historical illustrations and
examples to enliven the text. And in other non-academic regards we offer experience of
life. Ziliak, for example, has significant work experience in more than nine different
occupations, from Cajun cook to professor. Each of us has lived in a variety of places
and circumstances: city and country, glitz and slum, with family and alone. And each of
us works and travels internationally, and has significant experience of living outside the
United States---Ziliak in Italy, and McCloskey for six years in England and Holland, for
example; Klamer is Dutch, though he spent 18 years studying and teaching in the United
States. A globalizing team for a globalizing economy, you might say.
Yet core concepts are kept prominent: for example, micro is unified by choice
Mainstream devotion to “rational choice” motivates the central microeconomic
arguments. But even here constrained maximization and the Chicago School do not rule
xiii
exclusively. The dialogues ensure it. We explore exceptions and alternatives to the freemarket-cum-rational-choice perspective, including for example a novel treatment of
externalities and the Coase Theorem in which we highlight the Coase’s little-understood
“second theorem”: the idea that the assignment of property rights is critically important
when high transactions costs make it hard to strike deals among the interested parties.
It's one case of many showing students that the best policy combines markets and
government.
Throughout the text we honor a venerable and still strikingly important, but
almost forgotten, tradition in economic pedagogy by using basic principles of accounting
to define the constraints facing various decision makers. This allows students to learn
something they see as practical---accounting certainly is---while also mastering key
economic concepts such as the differences between stocks and flows, wealth and
income, consumption and savings.
Macro is not “one darned model after another”
Our treatment of macroeconomic topics is current yet connected to the major
traditions of economic thought. The backdrop is the classical model of the economy, in
which all markets are perfect, in a sense to be defined. We build up the aggregate
demand and supply model and use it to interpret six major macroeconomic issues:
inflation, unemployment, domestic instability, international economic relations, growth,
and macroeconomic policy. Free markets, institutions, and fiscal and monetary policy
are presented as the steering mechanisms.
And all reasoning revolves around the circular flow
Another unifying analytical device is the circular flow diagram. Every
macroeconomic chapter orients the student as to where we are in the circular flow. The
diagram, which is after all a piece of social accounting fundamental to all economic
thinking, reminds students of the interconnectedness of an economy.
With frequent Concept Checks and Technical Workshops
As in engineering, the economic way of thinking entails the identification and
solving of problems. In addition to the usual end-of-chapter questions and problems we
introduce Concept Checks at strategic points. The Concept Checks ask the student to
apply the ideas just explained. Answers are found at the end of each chapter.
We also provide Technical Workshops to explain certain mathematical or
graphical points, such as how to calculate percentage changes or how to shift demand
and supply curves. They help students to focus more effectively on the technical points,
and to realize that economics is more than a pile of numbers and graphs.
xiv
And conversation throughout
The text is interspersed with conversations among students, other economists,
and the authors. The conversations show right on the page that economic knowledge,
like all knowledge, is constructed and contested. Students come to think of themselves
as participants in the conversation. The practice follows the liberatory educational
philosophies of John Dewey, Paolo Freire, bell hooks, and others (McCloskey is amazed
that she, a devout Chicago Schooler, has come to agree on educational philosophy with
radicals like these; but the radicals this time are making common sense). The
conversations serve to simulate a well-functioning classroom, by anticipating, for
example, common misunderstandings and by acknowledging that some of the
"misunderstandings" of students suggest in fact worthwhile critiques of economics.
The book does all of this--plus what the other textbooks do
Our introduction to The Economic Conversation is:
 comprehensive, but more concise than most;
 well organized, but more effectively so, employing various unifying devices, such as
the diagram of the circular flow;
 balanced, but more explicitly so, in its a fair presentation of contrasting viewpoints,
exemplified by our unusual Heterodox Boxes;
 internationally oriented but, given our international backgrounds, more obviously so;
 well written but, since we have a reputation to defend on this count, more so---we
hope---than most.
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A TRILOGUE FOR TEACHERS:
HOW WE GOT HERE, WHERE WE ARE HEADED
"Madam, we guarantee results—or we return the boy!"
12th
Francis L. Patton (1843-1932),
President of Princeton University.
READ THIS CHAPTER IF YOU ARE CURIOUS ABOUT:




Why one might teach in the aisles
“The demand for students” versus “the demand for student development”
Sixties protest songs and why McCloskey became an economist
“Education as the practice of freedom,” student success, and this book
We think the open-handed approach of our book is unusual enough to warrant a brief
justification. Who are the authors? How did we get here? Where are we going?
Klamer:
For example, it may help to know that we represent three different
generations of economics education, and that we each bring a different
theoretical and philosophical perspective to the world. Deirdre, you should
explain how you turned out to be such a prominent champion of free
markets.
McCloskey: I started on the left of politics. A lot of economists have. As a teenager I
wanted to help the poor, and took the simplest view of how to do it.
Folksong economics, I call it. "You gotta go down and join the union,” you
know, that kind of stuff. The great American folksingers of the 1960s, Pete
Seeger and Joan Baez, were my big influences. Reading Steinbeck's novel
about the migration of poor farmers from Oklahoma to California, The
Grapes of Wrath (1939), made me a socialist.
Klamer:
And Steve, you’ve taught economics principles—this course—with The
Grapes of Wrath, folk songs, and other popular economics-oriented media.
Ziliak:
Yes. But my motive is not to produce socialists! I use The Grapes of Wrath in
my classes. It’s a great aid, raising all the issues, micro and macro, in a
gripping story. Steinbeck doesn’t resolve the issues the way an economist
would, naturally. But I disagree with you, Deirdre: there’s nothing “simple”
about the kinds of questions Steinbeck raises. How should a citizen of the
United States make the trade-off between self-reliance and compassion, for
xvi
example? Even Jesus would have considered this a difficult question. I for
example want my students to understand what happens to the most poor
and disadvantaged in an economy that is characterized by a lack of
compassion. Most economics textbooks lack such perspective.
McCloskey: But I’ve come to learn that folksong economics and socialism don't actually
help the poor. Good markets do. And that is a big difference. We both
care about injustice but whereas you consider the market economy part of
the cause of injustice, I consider it the major part of the solution.
Ziliak:
You make me sound like a socialist. I’m not. I favor markets, too. But
when the wages of farm workers amount to a stale biscuit I don’t see why an
economist would find reason to ignore the injustice and instead celebrate
“the market.”
Klamer:
Hear, hear! Deirdre, when you first told me your story twenty years ago I
was startled---from my European social-democrat perspective it seemed
strange that a right-wing economist like you actually seemed to care about
the poor. And it seemed even stranger that you actually seemed to believe
that free markets, of all things, were good for them.
McCloskey: Still do. But as I said, I only very slowly changed my mind. I noticed, for
example, what a bad job the American government did at running the war in
Vietnam. After I finished my study at Harvard I moved to the University of
Chicago where I had countless conversations with free-market thinkers like
Milton Friedman (1912-2006). In my research I discovered how well
markets had worked over time, what free trade and free enterprise has
brought to people all over the world, and how governments often stood in
the way of development. They still do, by the way. Of course, the
conversations with these free market economists made me see this clearly.
So I shed my socialist feathers and became a free market economist.
xvii
[Arjo Klamer: Unrepentant Keynesian]
Klamer:
Deirdre, you have persuaded me that markets work better than I once
thought. I became an economist when most of my fellow students were
protesting the Vietnam war. We drew conclusions quite different from
those of the U.S. establishment—we saw the U.S. as a capitalist-ideological
country trying to overpower people in poor countries. But I believed in
good government. I came to this country in 1977 a passionate Keynesian.
Like all Keynesians I continue to see good reasons for governments to
intervene, to design and watch over effective rules of the game, and to
support people who lose their job, fall ill, or grow old and feeble. We need
effective governments to counterbalance the excesses of markets.
Ziliak:
Agreed. I was a student of undergraduate economics in the generation after
you. I too was on the margin of the establishment. When my classmates
were campaigning for President Reagan I was in the middle of campus in a
makeshift shantytown protesting U.S. investment in South Africa (the books
of Nietzsche, Friedman, and Marx in my backpack). By that time, the early
1980s, a typical department of economics was staffed by neoclassical
economists hostile or indifferent to any talk of social justice and alternative
perspectives.
McCloskey: Absolutely. So how did those books wind up in your backpack?
Ziliak:
I was dissatisfied with the conventional curriculum, and sought
enlightenment in philosophy and history departments. In my indignation I
xviii
more identify now as then with Arjo’s position. I might even be more
radical than he is in my passion for social justice and equal chances for
everyone, men and women, whites and blacks, poor countries and rich
countries. For example, I think that Post Keynesians are among the few
talking sense about what is just and fair in global finance and stability. Yet I
also identify with you, Deirdre, when thinking about the issue of freedom
and its lack in neoclassical economics after Samuelson. I’m for small
government and social justice, which is a tension. Governments do a bad
job when their actions stifle our freedom to act, to trade, and to determine
our lives as we see fit. I saw plenty of that when I worked for the welfare
and labor departments. I see value in Amartya Sen’s notion of “freedom to
achieve”: a person is unlikely to vote or save or even complete an education
if her market pay is too low to cover housing costs. Why does an African
American woman in the U.S. not own her house? Sometimes the
government needs to give her a boost. I am in other words a “leftlibertarian”: liberty, dignity, and racial and social justice are my chief values.
When it comes to economics as a profession, I am bothered by the
single-minded focus on neoclassical economics and mathematical methods.
Let’s teach those subjects, and teach them well. But economics should not
be indoctrination, with students learning only one set of questions, one set
of answers, and one abstract method for justifying them. Philosophers and
physicists don’t teach that way and neither do historians. Economists
shouldn’t, either. It goes against the grain of who we are as economists. As
the three of us illustrate, economists do not speak with one voice. Often
enough we ask different questions. And we use a number of different
methods to answer those questions: Deirdre and I use a little bit of math,
sure. But all three of us draw on methods found in statistics, history,
philosophy, literature, rhetoric, and other social and natural sciences. I am
committed, therefore, to teach the different voices and methods in the
conversation of economists. I want students to know Deirdre’s position as
much as I want them to know the positions of Arjo and myself. Students
need the freedom and the tools to make up their own mind.
Klamer:
Here we agree, don’t we, Deirdre?
McCloskey: Yes. Now we do. But I must admit that I’m responsible for indoctrination
into the one voice—a fact I’m not happy about. For twelve years I was the
teacher of the basic graduate price-theory course at Chicago, and was for
almost six years the director of graduate studies there. The teaching was all
about free market economics and the one voice. Since then I’ve changed
my teaching, partly thanks to both of you. This textbook will underscore my
change.
xix
[Deirdre McCloskey: Free market feminist and virtue ethicist]
Ziliak:
Education as the practice of freedom is what it’s about for me. In the
classroom I lean against what Paulo Freire and bell hooks call the “banking
system” of education—a good though sarcastic description of many college
courses (Freire 1970; hooks 1994). Students in the banking system are like
interest free bank loans. The professor lectures to them, depositing
knowledge in the “accounts.” Students sit on the deposited knowledge for a
while. Then, later on, they get to “spend them” on exams or essays or jobs
in an actual bank. If they give back what was loaned out, and maybe even a
little more by, let’s say, answering a tricky extra-credit question, the
transaction is completed satisfactorily. Higher education has been achieved.
Klamer:
Have a look at the 2004 Handbook for students of economics at Harvard
University, written by the Director of Undergraduate Studies in Economics,
as an example of the banking system. The first sentence reads, “Economists
believe that a wide variety of social issues can best be understood by using
the tools of constrained optimization” (p. 1, Chap. 3, on-line Student
Handbook/Economics). So there it is, at Harvard: economics is declared to be
a single tool of mathematics—constrained maximization—and not what it
really is: a variety of arguments.
Ziliak:
It’s unfortunate and I believe socially damaging that constrained
optimization is considered to be a scientifically, politically, and ethically
complete economics—polished and finished. You don’t have to be a
rhetorician or historian or folksinger to agree with that. Our friends the
Nobel laureates Ronald Coase and Thomas Schelling, for example, agree
with us.
xx
McCloskey: I admit I taught in the banking way for decades. It was an easy way to
deliver my free market conclusions. I haven’t changed my conclusions
about the goodness of free markets. But I have changed the way I present
them, and I now believe that something more is needed beyond prudence
and limited government—such as love and solidarity—to achieve good
markets. In my classes a Steinbeck or Dickens, a Marx or Keynes, a
Aristotle or Simmel, now gets a fair hearing. Students do a lot more of the
talking and I do a lot more listening. We argue. Studying classical rhetoric
in the 1980s showed me the ethical limits of having only one story to deliver.
Klamer:
That’s crucial what you say, Deirdre, and bears repeating: teaching one story,
as many neoclassical economists do, is probably impossible to defend on
moral grounds. Therefore we should seek to teach multiple stories.
Ziliak:
When it comes to livelihood, economists turn out to be pro Big
Government: we protect our own livelihood by levying taxes and embargos
on people representing other schools of thought. We need an Emersonian
economics, so to speak. Freer markets and freer minds. To build the virtues
of independence of thought and of self-reliance in the economic
conversation, our students need to know how to make their way around the
economic conversation in its broadest sense. Just as the best economists do.
Klamer:
Yes. But we don’t argue that mainstream or neoclassical economists created
the banking system of education.
Ziliak:
No, we don’t. One voice/one method is not at all limited to neoclassical
economics or to schooling in the United States. Galileo complained about it
in Italy at the University of Padua in the 17th century. The Brazilian
philosopher Paolo Freire found the banking approach to be rife in 20th
century South America, and South Korean students come to the U.S. today
expecting nothing else. A particular nasty form of the banking system was
routine under communism. A Chinese friend of mine from grad school,
now a game theorist in San Francisco, is the son of a Chinese economist
who taught Adam Smith prior to the so-called Cultural Revolution in the
China of the 1960s. During the Revolution the economist-father was
paraded down the street with other intellectuals, to be mocked by a crowd
before arriving at a labor camp. The exact crime the professors and
intellectuals were accused of was painted on heavy wooden boards, one
hanging from each of them: “Bourgeois,” the signs said.
McCloskey: It makes my skin crawl.
Ziliak:
As recently as the 1980s a similar thing happened in Hungary. A professor
of philosophy was literally executed by the state. His crime? He told his
students about German Idealism, the philosophy of Immanuel Kant. It
could happen again.
xxi
Klamer:
These are extreme cases but I see your point. A dialogical or conversational
model of teaching does most justice to the idea of economics as
argumentation. It certainly beats any the execution squad! Still I find that
many teachers are afraid to try it.
McCloskey: I was hesitant. I actually learned to teach dialogically from you, Arjo, when
we co-taught elementary economics at the University of Iowa in the 1980s. I
didn’t want to give up control.
Ziliak:
I plunged in to dialogue, nearly blind. I had had some superb lecturers at
Indiana University, such as H. Scott Gordon (b. 1924) and the historians of
science Richard Westfall and Edward Grant. But at the end of the day I
realized even in those classes that my arguments hadn't mattered. Essentially
no student voices were fundamental to the arguments in play. So as a new
professor in the 1990s I thought, “How am I going to break through what
the theatre professors call the ‘fourth wall’”—the real or implied curtain that
separates the audience from the actor on stage? How do I help the students
see me as a real human, in dialogue with live and dead economists and them?
[Stephen Ziliak: Optimistic left-libertarian]
McCloskey: By the end of a five-course semester monopolized by the banking system, a
lot of students begin to think that they have nothing to say.
Klamer:
Yes. I find that an "open" classroom reduces that problem: getting out in
front of the lectern and walking the aisles, engaging the students, stimulating
and facilitating student discussion. This is one way to sustain a dialogical
classroom—and student self-esteem—even in a large lecture hall.
McCloskey: At first the movement around the aisles will intimidate students. You have
to remember that they come to you in the first year of college used to
something like the banking approach. The prof is supposed to be far, far
away from them—in more ways than one.
xxii
Ziliak:
True. So on the first few days of class I go easy. I try to wear softer colors,
a pair of Dockers, and a light scent.
McCloskey: You’re crazy, Steve! But seriously, walking the aisles and speaking directly
with students is highly effective.
Ziliak:
Can be. Walking-around type classes do not entail chaos, but neither do
they guarantee results. For example, some students fall silent on grounds
that they “can’t keep up with the conversation.”
Klamer:
Absolutely. I’ve found that most students need a third voice, a third
audience, so to speak, to help keep them on track. I speak with them about
philosophers of liberatory education—the great commitment of a John
Dewey, for example—so they don’t think I’m just one professor making this
stuff up.
Ziliak:
Me too. For years I’ve assigned on the first day of class “Building a
Teaching Community,” a dialogue between hooks and a colleague of hers in
philosophy.2 The hooks dialogue emphasizes to students the need for their
daily preparation and personal responsibility. hooks talks about the
importance of students “coming into their own voice,” and explains why
gender, race, and class differences need to be freely but respectfully
acknowledged (international students also feel empowered by this). It’s the
kind of teaching we’re talking about here. Later in the term, if students
show up unprepared or passive or whatever, hoping that I’ll do all the
talking, we can point to the hooks dialogue and ask, “what would a banking
approach suggest we do?” or “how can we turn this moment into a teaching
moment?”
Klamer:
And then?
Ziliak:
And then students get embarrassed. But trust and mutual respect have been
formed by our previous conversations. So by the next day, we’re back on
track. Witnesses describe my classes as loud, argumentative, and fun, yet
rigorous. But this is just one way of running a dialogical classroom.
Klamer:
Our approach is consistent with what Deirdre and I have been saying about
the rhetoric of economics since the 1980s, joined by you, Steve, in the
1990s. Rhetorical awareness is a precondition for economic conversation.
And economic conversation is obviously carried out in dialogue. Our book
will help students become rhetorically aware, and much more dialogical. At
least, so we may hope.
The dialogue is in Chapter 10 of hooks’ Teaching to Transgress: Education as the Practice of
Freedom (Routledge, 1994).
2
xxiii
Ziliak:
Our book combines a common technique in economics and biology (an
approach to thinking) with a common technique in history, culture studies,
and English (relating the self to a profound historical, economic, or political
event).
McCloskey: It creates a space for personal exploration, scientific invention, and
discussions of social justice.
Ziliak:
And a way to argue reasonably and scientifically, as we show in Chapter 1 in
the introduction to the Toulmin Model of Argument.
Klamer:
All right. Let's get started. As we say in Dutch, Een goed begin is een daalder
waard, literally, "A good beginning goes further.”
xxiv