DRAFT New Preface to "Concrete Economics: The Hamiltonian Approach to Economic Management & Policy"
Stephen S. Cohen & J. Bradford DeLong
The fight we are still engaged in over what a country’s industrial policy should be—how to take abstract theoretical dogmas and doctrines, bring them down to earth, and build a useful and concrete economics—has been ongoing for more than a century.
It was in 1926 that John Maynard Keynes  published his essay “The End of Laissez-Faire”. Up until perhaps 1850, he argued, government and authority had mostly been a fetter on the economic development of the world as it moved from Feudal to Gunpowder-Empire to Commercial and then on to Steampower society. It has been private entrepreneurship that had led humanity forward, and—once the fundamentals of property, contract, and “tolerable administration of justice”, as Adam Smith  reportedly put it, were established—well, it might not have been the case that “that government is best that governs least” . But it definitely was the case that, among really-existing societies, to govern less was probably to govern better, and was to make society more prosperous.
But by 1850 the feudal and gunpowder-empire remnant aristocracies that gathered where they did not scatter and reaped where they did not sow were in swift retreat. Moreover, even in the shift from Commercial to Steampower Society it was very clear that a progressive and prosperous society needed more than what Michael Polanyi  called the “mercenary institution” of the market. It also needed the “fiduciary institution” of science, in which people were motivated overwhelmingly by the desire to win applause and prestige. Plus it needed bridges between the two: a profession of engineering, and sectors of finance and manufacturing to mobilize resources to apply knowledge and learn how to transform theoretical possibilities into efficient production processes. Here in the United States it was the genius of Alexander Hamilton and his successors in constructing the original “American system” of economic development to see this at a time when few others did, and to put it into effect. And so the United States in the second half of the 1800s was not simply an agricultural Arcadia more populous than but otherwise like Australia, but rather a rapidly growing industrial-engineering-scientific powerhouse.
That is a story we tell in our Concrete Economics .
But there is more: Humanity moved on from Steampower Society after 1850. Humanity moved on to Applied-Science, then Mass-Production, Global Value-Chain, and now is moving into Info-Biotech Society. With each such leap and shift the idea that leaving the ordering of economic life and growth completely to the laissez-faire market became less and less a good one. And with each such shift the proper role for government changed. Adam Smith’s Invisible Hand is, after all, at one end of a forearm. At the other end is the elbow which needs support. And how and where the government should place and brace this elbow shifts over time as the technologies underpin the economy change.
In our Concrete Economics, we try to tell these stories of government economic management and the repeated recalibrations of the government’s economic role as well.
But then, in the 1980s, there is a profound shift. American governance and industrial policy ceases to be pragmatic and becomes much more ideological. Rather than a focus on what works, there is, rather, a command that people accept whatever injustice and poverty the market dishes out to them. People were commanded to emulate the protagonist of the Biblical Book of Job: “the market giveth, the market taketh away: bessed be the name of the market”.
And we try to tell this story as well.
Let us close this preface with one more point: For an emerging-market developing economy, the balance between the scope of the market and the directives of uncorrupt functional government is different. Its industrial policy should be less market-heavy. Less is needed of what the market does best: crowdsourcing currently unknown solutions to problems of process engineering. More is needed of what government does best: education, infrastructure, and resource mobilization.
John Maynard Keynes: “The End of Laissez-Faire” <https://www.cambridge.org/core/books/abs/collected-writings-of-john-maynard-keynes/end-of-laissezfaire-1926/B07D36063B67383E946673FB1F68DC9B>
Jim Powell: “Invisible Hand: A Biography of Adam Smith” <https://www.libertarianism.org/publications/essays/invisible-hand-biography-adam-smith>
Eugene Volokh: “Who Said ‘The Best Government Is That Which Governs Least’?” <https://fee.org/articles/who-said-the-best-government-is-that-which-governs-least/>
<https://www.tandfonline.com/doi/abs/10.1080/01916599.2021.2009359?journalCode=rhei20> Gábor István Bíró: “From red spirit to underperforming pyramids and coercive institutions: Michael Polanyi against economic planning”
Stephen S. Cohen and J. Bradford DeLong: Concrete Economics <https://www.amazon.com/dp/B00O92Q6C6/>
Stephen S. Cohen and J. Bradford DeLong: Concrete Economics <https://www.amazon.com/dp/B00O92Q6C6/> <https://braddelong.substack.com/api/v1/file/68193a2b-8d6b-47a7-9c5f-adbda5d874aa.pdf>
I have no complaints about "industrial policy" except that it should not be anything different from "policy" period. If there are high-yielding investment in research, or infrastructure, or activity X that the private sector is not investing in (for reasons that do not impeach it being "high yielding") then a income (or utility) maximizing government should make the investment or give a Pigou subsidy to the private sector that equalizes private and positive externality inclusive return (and vice versa for Pigou tax and negative externality). Do we really need a category of "industrial policy" if government have NOT been acting like income maximizers, leaving projects with NPV>0 unfunded, uncertain of their ability to identify the positive externalities that merit Pigou subsidies, terrified at imposing Pigou taxes?
We should be skeptical of the person who suddenly discovers that they have been speaking prose (but badly).