Brief Musings on Economists, Economic Ideas, & the Cold War

In the end George Kennan was right: containment was the way to win the Cold War because, ultimately, the really-existing socialist system inside the Iron Curtain was not made to work well enough...

In the end George Kennan was right: containment was the way to win the Cold War because, ultimately, the really-existing socialist system inside the Iron Curtain was not made to work well enough, while the market-capitalist system outside the Iron Curtain was. But this required that economists think up useful ideas about economic-system management and then actually get them applied in the real world, somehow—and that the ideas actually work. When the dust settled, (a) the countries inside the Iron Curtain had sacrificed 80% of their potential wealth on the altar of Stalinoid central planning, (b) the East Asian Pacific Rim and Southern Europe had joined the First World, (c) the First World had seen a burst of prosperity and growth during the Cold War of a magnitude never seen before, and (d) “convergence” had not happened—the Third World had grown economically, but had fallen further behind the First…

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I was on a panel on a very nice recent book by Alan Bollard: Economists in the Cold War: How a Handful of Economists Fought the Battle of Ideas. A kind of group semi-biography of fourteen Cold War-era economists: White vs. Keynes; Lange vs. Friedrich von Hayek; von Neumann vs. Kantorovich; Erhard vs. Monnet; Robinson vs. Samuelson; Suburo Akita vs. Chou Enlai; & Prebisch vs. Rostow:

Economists in the Cold War: How a Handful of Economists Fought the Battle of Ideas:

Monday Oct. 2, 2023 4:00pm – 5:30pm ET

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What did I say on the panel? I did answer a question about my zoom background:

This is an artificial [zoom] background I have behind me, but it is a picture of the real view from my back deck looking south. The problem is that right now the sun makes this camera angle infeasible...

I did ask my one big question. My question-as-a-panelist, as transcribed by MacWhisper:

Was it [Joan] Robinson [writing] to [Paul] Samuelson or [Paul] Samuelson [writing] to [Joan Robinson who said, "I would not be so rude if you were not so pig-headed"? I forget which....

Let me start with my windup. Let's go back to Rostow and Prebisch:

[Walt Whitman] Rostow: In a thumbnail, any country that guarantees property rights and maintains full employment can develop as a democratic, market, capitalist society, as long as it boosts its savings rate and invests at scale. Investment brings capital; capital brings engineers; engineers bring technological advance and productivity, and you get the takeoff into self-sustained growth. That’s Rostow.

[Raúl] Prebisch: In a thumbnail, supply of primary commodities is elastic while demand is inelastic. That means a developing country that accepts its place in the world capitalist division of labor cannot get self-sustained growth. Why nor? Because the benefits from its technological advances all flow to the core, and none of them remain in the periphery. Hence developing countries cannot rely on the market to generate self-sustaining growth, but must subsidize, plan, and socialize. That’s Prebisch.

Now, the United States did over the course of the Cold War make a long turn away from economic development as a Cold War strategy to the pro-oligarch version of anti-communism—a turn which reached its apogee in Jeanne Kirkpatrick’s “Dictatorships and Double Standards”, arguing that the overthrow of Allende's government and many other things were justified because "authoritarians" were much better than "totalitarians". In her view, there was a road from Pinochet back to the rich and democratic Chile of today, while there was no road from Allende, or rather from Allende's likely more hardline communist successors, to the Chile of today.

Now the pitch, the question: To what extent do you see Rostow's energy and ire in his debate with Prebisch as to some extent reflecting an argument within Rostow himself—that his political and his administrative commitments forced him to believe that his Stages of Economic Growth: A Non-Communist Manifesto was right, but that his analytical brilliance created a still, small voice inside him whispering "maybe Prebisch was right" that he found he had a hard time dealing with.

Indeed, in one of his books Rostow describes a trip to Indonesia when he was NSC Chair to make the economic development pitch, and quotes how Sukarno replied to Kennedy: “Mr. President, development takes too long. Give me Irian Jaya instead.”

That was my big question.

In reply, Alan Bollard said that he did not think he could get inside Walt Rostow's head, and that he probably, given who Rostow was and what he thought, really did not want to—that Rostow was both the extremely hawkish presidential advisor and also the very good academic historian of industrial economic development. Alan said that he thought the energy came mostly from the fact that Raúl Prebisch and company saw Rostow as being intolerably condescending, while Rostow saw Prebisch and company as pig-headed beyond belief in refusing to rally behind him and apply what Rostow saw as the obvious truths of how to start the process of economic development laid out in The Stages of Economic Growth: A Non-Communist Manifesto.

I do find it ironic that the early 1960s were a time when the Chair of the National Security Council could be a development economist and an economic historian rather than a specialist in bombs, bullets and spies, and yet the development economist and economic historian they chose was the most hawkish person imaginable when it did come to the bombs and bullets.

And I do also find it ironic that Rostow does not seem to have been influenced at all by Alexander Gerschenkron’s Economic Backwardness in Historical Perspective. There seems little recognition in what Rostow wrote in the 1950s that changes in technology and in the world economy made the problems of development very different for the follower economies than they had been for Britain and New England. Indeed, Rostow seems to me to have little sense that the most successful industrializers of the 1950s—in Southern Europe and Japan—were following a significantly different path than the British-New England path that Rostow, as an economic historian, had done so much to map out and understand.

I did say one other thing, expressing my surprise about the extent to which Leonid Kantorovich was censored in the Soviet Union in the 1960s:

I would have thought that Kantorovich would have had a very very powerful protector in Alexei Kosygin—the guy, either number one or number two in the hierarchy—trying to figure out the economic road forward to mass prosperity in the Soviet Union, and extremely interested in cybernetics, control, and mechanism design. And Kosygin had real accomplishments as a leader and a manager and not just an inside-the-Kremlin courtier. He was the guy who had saved Soviet industry from the Nazis by moving it a thousand miles east in two months in the fall of 1941. The supersession of Kosygin by Brezhnev, and the tilt of Soviet policy starting in the late 1960s away from domestic economic development o what one might characterize as third-world adventurism—that has always been something that I have never understood well.

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Here is the introduction to the panel:

The Cold War was a harsh time for economics with its ideologues, its hard-liners and its spies. Economists were pushed between two camps with opposing views, caught up in a battle of economic ideas. There were fundamental questions like: can a planned economy ever be efficient, is investment driven by profits or wages, could a social market economy offer a middle way, all seen through the eyes of seven diverse economists: an American, a Pole, a Hungarian, a German, a British, a Japanese and an Argentinian. There was argument and dissent, but it could be dangerous.

Alan Bollard is an economics professor at Victoria University of Wellington. He has a diverse background: he formerly managed APEC, the world’s largest regional trade organization,  he was Governor of the Reserve Bank of New Zealand, and he was Secretary of the NZ Treasury. He has written an insider account of the Global Financial Crisis called Crisis (2010, AUP), a biography of economist Bill Phillips, A Few Hares to Chase (OUP, 2016), and a study of World War II economics in Economists at War: How a Handful of Economists Helped Win and Lose the World Wars (2020, OUP).

The Washington History Seminar is co-chaired by Eric Arnesen (George Washington University) and Christian Ostermann (Woodrow Wilson Center) and is organized jointly by the American Historical Association and the Woodrow Wilson Center's History and Public Policy Program. It meets weekly during the academic year. The seminar thanks its anonymous individual donors and institutional partner (the George Washington University History Department) for their continued support.