HOISTED FROM ÞE ARCHIVES: Racism as a Way of Easing Stepping-Away from þe Egalitarian Presumptions of Utilitarianism

Þe case of George Stigler & Chicago After Henry Simons...

Originally, in the days of Frank Knight and Henry Simons, Chicago economics was midwestern populism. It was strongly opposed to government’s bossing people around through commands, strongly in favor of the little guy, strongly opposed to market power which oppressed the little guy and to the power the rich could exercise over society via their share of wealth.

As such, it was very much in accord with the long-inherited tradition economics-as-applied-utilitarianism, which is itself greatly egalitarian. The declining marginal utility of wealth creates a very strong presumption that dollars should be transferred from the rich to the poor. There has to be not only a leaky bucket, but the bucket has to be very leaky indeed to “justify” any substantial degree of inequality.

And yet it all changed. When I began studying economics in the mid-1970s, the Chicago position was overwhelmingly that there could be no talk of utility functions or the form of the social welfare function whatsoever. And there was a very strong undercurrent that it was “efficient”—hence good—that the rich should hold what they had, even though the underlying math behind the claim that voluntary exchange would do the job was empty. What the math really said that declaring an arrangement “Pareto optima” told you nothing about its relative desirability vis-à-vis any allocation other than those to which it was strictly Pareto-preferred.

What role did the bog-standard racism of American non-Blacks in the mid-1900s play in that change?

i wrote about this back in 2020, so let me hoist what I wrote then:

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A friend reminds me of:

Beatrice Cherrier (2020) ’I’m worried that colleagues seriously believe “reconsidering” is merely a matter of shedding light on an old paper and tag Stigler as racist, while in fact it requires 1. years of work to document how his racists beliefs originated and evolved as social beliefs about race shifted 2. whether he changed his mind or not, apologized or not, held consistent beliefs or not 3. document how his beliefs influenced his theories of price, competition, regulation, information, markets 4. document how his beliefs influenced his teaching, editorship, university and business service…

I remember back in the… spring of 1981, I think it was. I asked my professor, William Thomson, visiting from Rochester, roughly this: The utilitarian social welfare function is Ω = U(1) + U(2) + U(3)… The competitive market economy maximizes a market social welfare function Ω(m) = ω(1)U(1) + ω(2)U(2) + ω(3)U(3)…, where the ω(i)s are Negishi weights that are increasing functions of your lifetime wealth W(i)—indeed, if lifetime utility is log wealth, then ω(i)=W(i). Market failures drive wedges between what the economy achieves and what it could achieve. 

Why isn’t the unequal distribution of ex ante lifetime income—inequality of opportunity—conceptualized by us economists as the greatest of all market failures? And why isn’t the distribution of political power that creates and preserves a property order of unequal wealth seen as the greatest of all “regulatory capture by a special interest group” flaws in the working of society, economy, and the state?" 

Thomson did not have a good answer. 

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However, another of my teachers at the time, Joe Kalt, did. “These Chicago Boys are all right-wing Marxists,” he said:

They buy the Marxian proposition that the state is an executive committee for rigging the economy in the interest of the ruling class. But they think that that is a good thing as long as the ruling class is based on wealth, however previously acquired. All their objections are to those who use some form of societal power other than wealth to try to rig the economy in their interest. And while there is an argument that a wealth-based ruling class is in general best, it is a weak argument…

(And do remember that I learned much of my political economy from Richard Musgrave and his TA Manuel Trajtenberg, who explicitly conceptualized public finance as having 3 branches:

1. repairing Pigovian externalities,

2. fiscal policy for full employment,

3. redistribution to shrink all the Negishi weights in the market’s SWF toward one.)

The Chicago School underwent an enormous change between the Midwestern Populist days of Henry Simons, for whom private monopoly was the big foe and large inequalities an enormous menace, and the monopoly-tolerant fundraising paradise that Stigler & company created.

• I put it to you that this transformation from Simons to Stigler was possible only by “othering” the non-rich by every means possible, so that their low weight in the market’s Negishi-weighted SWF could be dismissed as “deserved”.

• I put it to you that taking the Rothbard Road in race relations—trying to bring to life their anti-New Deal monopoly-tolerant union-busting economic policy agenda by white racism and supremacy, as Frankenstein’s monster was brought to life by the lightning—was very important.

• I put it to you that it was and remains a very important part of the shift away from utilitarian economics, understood as a policy science that attempts to implement a Benthamism or a Millianianism that seeks the greatest good of the greatest number, starting from the twin presumptions that (a) everyone should count for one, as nobody is especially “deserving”, and that (b) there is sharply declining marginal utility of wealth.