Economists Turn against Unions: Historical Institutionalism to Neo-classical Individualism

Abstract

Fewer than fifty people attended the first meeting the American Economic Association (AEA) in Saratoga Springs, New York, in September 1885 (AEA 1886, Ely 1936). At the time, economics was hardly an organised discipline in the US. With only a handful of foreign-trained PhD economists, teaching was dominated by autodidacts, including many ministers, who taught an extreme version of the Manchester School tinged with religious belief in the virtues of free trade. ‘Free trade and laissez faire were the principal features of their orthodoxy’, recalled Richard Ely (1936: 143), architect of the AEA, based upon an ‘absolutism of theory in its two forms — cosmopolitanism and perpetualism’. By ‘cosmopolitanism and perpetualism’, Ely referred to theories held to be true in all places and in all times. In America, this approach was linked to laissez faire politics through an assumption that free individuals would advance their interests until there was an optimal economic arrangement. For many of the clergymen economists, the operation of the unfettered free market was taken as proof of divine beneficence; interference would not only reduce economic welfare but would violate ‘natural law’ and God’s will (Science Economic Discussion 1886, Wayland 1985, Ely 1884a). Not only was the work of economists essentially done, but so was that of the policy maker who need only apply laissez faire et laissez passer.