Review of Tyler Cowen’s GOAT: Who is the greatest economist of all time and why does it matter? (goatgreatesteconomistofalltime.ai)

Note: This is a preliminary review; a shorter version will appear in February 2024 issue of Economic Affairs journal: Economic Affairs (wiley.com)

Deciding who is the Greatest of All Time (GOAT) is a popular debate in sports. Is it Michael Jordan in basketball? Lionel Messi in fútbol? Muhammed Ali in boxing? Babe Ruth in baseball? (In case you are wondering, the answer is “yes” in each category.)

Tyler Cowen, professor at George Mason University and co-publisher of the popular Marginal Revolution website, has come up with one of the most clever, entertaining ways to write a history of economic thought by selecting his favorite GOAT in economics.

His top contenders are, in alphabetical order: Milton Friedman, Friedrich Hayek, John Maynard Keynes, Thomas Robert Malthus, John Stuart Mill, and Adam Smith.

He also has sidebars on Paul Samuelson, Gary Becker, Kenneth Arrow, Alfred Marshall, and Joseph Schumpeter, but all are ultimately rejected as marginal “titans.”

Oddly enough he leaves out several economists who many consider possible GOATs: From the British school, David Ricardo (Milton Friedman’s favorite); from the Monetarists, Irving Fisher (whom James Tobin ranked “the greatest economist America has produced”); from the Austrians, Ludwig von Mises and Murray Rothbard (which the Mises Institute would consider leaving out unforgiveable); from the Institutionalists, Thorstein Veblen (who Max Lerner called “the most creative American social thought has produced”) and Max Weber (the “one man” that Frank Knight admired); and from the Marxists, Karl Marx (which they would consider his omission a cardinal sin). Cowen tells me he may write a short monograph on Marx (email dated November 22, 2023).

He also excluded the big three of the Marginal Revolution of the 1870s: Carl Menger, William Stanley Jevons, and Leon Walras.

His criteria for the top prize consist of the following: “To qualify as ‘GOAT the greatest economist of all time,’ I expect the following from a candidate. The economist must be original, of great historical import, serve as a creator and carrier of important ideas, have a hand in both theory and empirics, have a hand in both macro and micro, and be ‘not too wrong’ on the substance of issues. Furthermore, the person also must be a pretty good economist! That is, if you sat down with the person and discussed economic issues, you would be in some way impressed.” (p. 8)

It is clear in reading his book that he struggled mightily in choosing the winner. He has something good to say about all six choices: Milton Friedman was “the best economist of all the GOAT contenders.” Adam Smith was “the most original and fundamental of all economists. The father of economics.” John Stuart Mill was “the deepest and most comprehensive thinker of all economists.” John Maynard Keynes was “the most influential policy economist.” Friedrich A. Hayek was “author of the best economics article ever.” And Thomas Robert Malthus was “the second most underrated GOAT contender, after Mill.” (p. 347)

Spoiler Alert:

Stop Reading Here if You Don’t Want to Know the Winner

So who alone wins this ultimate Nobel Prize in Economics? (Drum roll, please): None of the above! Harry Truman, who demanded a one-armed economist, would be frustrated. Cowen has many hands, like an economic octopus with numerous tentacles. He concludes, “I can’t quite give you a single GOAT, but those are my three picks for a combination award” going to Friedman, Smith, and Mill.

John Stuart Mill (1806-1873)

Amazingly, he is tempted to give the ultimate GOAT award to a single economist, John Stuart Mill (1806-1873). He devotes more space to Mill than another contender (56 pages). Cowen claims that “Not only was Mill for decades the best economist in the world, but he was arguably – again for decades – the very best thinker and writer in the world, at least on social science topics. Hayek is the only other GOAT contender where you might even try to make that claim.” (P. 190).

Cowen applauds Mill for writing “the dominant textbook for many decades, reaching into the early twentieth century” (p. 190) and considers Mill’s On Liberty to be “one of the top three or four works written to defend some notion of a liberal society, and it is taught very actively in philosophy and also politics classes up through this day,” better than Hayek or Friedman (pp. 191-192).

He adds that “Mill is also the only GOAT contender to have served in Parliament or any other major legislative body” (p. 192) – but what about Ricardo in Parliament and Keynes in the House of Lords?

Cowen concludes, “I find Mill’s approach to a free society better than that of either Friedman or Hayek. So on the #1 question of social science, Mill is winning hands down” (p. 192).

What About Mill the Economist?

But as an economist per se, it’s an odd choice, because the British philosopher does not seem to fit Cowen’s requirements that he “not be too wrong” in fundamental economic theory. Although Mill is famous for advocating a philosophy of personal liberty and is one of the early defenders of women’s and minority rights, a major part of his economics is fatally flawed. His defense of Say’s law is well executed, but he blundered with his major thesis that the laws of distribution could be totally divorced from the laws of production, an egregious error that he perpetuated for decades in his popular Principles textbook. He wrote:

“The laws and conditions of the production of wealth partake of the character of physical truths. There is nothing optional or arbitrary in them. It is not so with the distribution of wealth. That is a matter of human institution solely. The things once there, mankind, individually or collectively, can do with them as they like. They can place them at the disposal of whomever they please, and on whatever terms.” (Mill, 1884 [1848]: 155)

Consequently, Mill advocated not only progressive taxation on income, but a 100% confiscatory inheritance tax on estates with no heirs. He favored nationalization of land in India. He said there was no justification for speculative holding of unused land, a theme enjoined by Henry George and his 100% land tax proposal (Mill, 1884, p 173).

According to Friedrich Hayek, it was this kind of thinking that led intellectuals to support the wholesale redistribution of property and wealth, convinced that such radical schemes could be accomplished without hurting economic growth. Sound economics teaches otherwise. How profits are distributed does affect what is produced. As Hayek concluded, “if we did do with that product whatever we pleased, people would never produce those things again.” Hayek contends, “I am personally convinced that the reason which led the intellectuals to socialism was John Stuart Mill” (quoted in Boaz 1997, p. 50).

Cowen does his best to counter Hayek’s critique of Mill, showing that Mill strongly disagreed with many socialist arguments in a later edition of his Principles textbook, concluding that Mill’s “Chapters on Socialism” show “just how attached he remained to the idea of market competition and how skeptical he was of centralized planning. This extended essay was published in 1879, and it reflected Mill’s mature thoughts on the question, well past his early Ricardian phase” (pp. 229-230). He concludes, “If you think of fiscal policy as reflecting the essence of a person’s view of the state, through his entire life Mill remained eminently sane, conservative, and non-socialistic by any reasonable standard.” (P. 234).

Yet the fact that Mill himself called himself “socialist” raises doubts about his philosophy. I’m afraid Mill spends too much milling around to be truly the GOAT in economics.

New Ideas from Dead Economists

Cowen is really good at revealing new aspects of the lives of the economists. As the author of a “tell all” biography of the great economic thinkers,[1] I was surprised how many new things I learned reading Cowen’s book. Tyler Cowen comes across as one of the most well-read history buffs in the profession, maybe even more than Chicago’s Harry Johnson or Deirdre McCloskey.

For example, who knew that Keynes was anti-Semitic and embraced the theory of eugenics (pp 87-88), that Hayek advocated national health insurance, anti-trust legislation and a large welfare state (pp. 113-116), that James Buchanan favored a 100% confiscation of all inheritances (p. 234), or that Malthus rejected the labor theory of value and used supply and analysis regularly in his Principles textbook? (p. 249).

There is also much I found in agreement in Cowen’s assessment of the great economic thinkers:

Milton Friedman

In Cowen’s book, Milton Friedman (1912-2006) receives high marks for his pioneering use of statistical work and the testing of theories (which led him to reject Keynesian theory and big-government policies). He likes Friedman’s advances in school choice, financial futures, tax cuts, and welfare reform (negative income tax).

Milton Friedman (1912-2006)

He rightly regards Friedman as “the most influential macroeconomic thinker since John Maynard Keynes” in terms of central bank policies during a recession or depression (p. 23). Thanks to his Monetary History, co-authored with Anna Schwartz, the early Keynesian view that monetary policy was useless (like “pushing on a string”) has proven dead wrong. Thanks to Friedman, monetary policy plays a huge role today, and central banks have learned their lesson all too well: No matter what, don’t let the stock of money decline during an economic contraction. That was the fundamental error the Fed made in the 1930s, allowing the money supply to decline by a third, and refusing to be a lender of last resort. Nowadays, whenever there’s a monetary crisis, the answer is always “inject liquidity,” cut interest rates, bail out financial institutions, and expand the money supply as rapidly as necessary to keep the financial system afloat.[2] As Ben Bernanke told Milton Friedman in 2002, “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”[3]

True to his word, Bernanke lived up to Friedman’s legacy by injecting unprecedented amounts of liquidity (Quantitative Easing) during the 2008-09 financial crisis. Under Jay Powell, the Fed did the same during the Covid-19 pandemic in 2020-21, though Friedman probably would object to the excessive easy-money policies since his death in late 2006.

It’s hard to pinpoint the reason why Friedman is not Cowen’s favorite economist, at least for the past 100 years. He notes that “those who knew Milton Friedman unfailingly testify to his presence as the sharpest economic mind in the room” (p. 33). He’s right. I met Friedman many times and I can tell you that he never lost a debate – ever.[4] Under his forceful personality, “University of Chicago economics scholarship are indeed overwhelming. Over the span of a few decades, the school produced more Nobel Laureates in economics than any other department ever.” (p. 36).

His arguments against Friedman as the GOAT seem unconvincing and relatively modest compared to his major contributions. Friedman meets practically every measure of Cowen’s criteria for GOAT. Of course, there are weaknesses. Friedman’s essay on methodology is defective, and the title of the Friedman’s autobiography, Two Lucky People, fails to capture the greatness of the couple. Cowen rightly points out that the Friedmans were more skilled than lucky. Friedman lacked an understanding of the Austrian theory of capital and the business cycle, and was excessively anti-gold. In the end, Cowen is tempted to give the prize to him anyway: “Milton Friedman is a genuine contender for GOAT, greatest economist of all time. If he is your pick, there is plenty of positive evidence you can cite for that judgment” (p. 37).

As a libertarian, Cowen should admit it: Friedman may not be “the” GOAT, but by his own rules, he was clearly the greatest economist of the 20^th century.

Friedrich Hayek

Cowen is hot and cold about Hayek. He states upfront that Hayek “has what I consider to be the most unbalanced case for GOAT. His strengths are formidable, but the gaps and weaknesses are large” (p. 102). He highlights an obscure “tell all” biography of Hayek by his personal assistant, Charlotte E. Cubitt, which Cowen calls “one of the most open and honest books about an economist you ever will read, a tale of decline from a very close inside source” (p. 130). And here I thought I knew all about Hayek, the man. I definitely need to update my chapter on Hayek in the next edition of The Making of Modern Economics (2022).

Friedrich Hayek (1899-1992)

Cowen writes favorably about Hayek’s critique of socialist central planning, and his defense of decentralized decision making, which he notes has “influenced many business leaders – [Charles] Koch, [John] Mackey, [Peter] Thiel, John Malone, Jimmy Lai, Jimmy Wales (Wikipedia) et al” (pp. 107-108). He considers “The Use of Knowledge in Society” (1945) and “Competition as a Discovery Process” (1968) as two of the most important articles ever written in economic literature. Of course, much of Hayek’s thesis is not original, as it can be found in Adam Smith, who wrote, “Every individual can, in his own situation, judge much better than any statesmen or lawgiver can do for him” (Smith 1965 [1776], p. 423).

Cowen sounds like Milton Friedman (and Keynes, for that matter) when he criticizes Hayek’s macroeconomics. In an interview, Friedman said, “I am an enormous admirer of Hayek, but not for his economics. I think Prices and Production was a very flawed book, I think his capital theory book is unreadable. On the other hand, The Road to Serfdom [1944] is one of the great books of all time. His writings in [political theory] are magnificent, and I have nothing but great admiration for them” (interview by Ebenstein, 2001, p. 81).

Hayek’s Prices and Production (1931), in which he introduces the Austrian capital and business cycle theory, was not really the “frightful muddle” that Keynes and Friedman claimed it to be. His theoretical model was sound and not that difficult to follow, but it was overshadowed by his stringent opposition to credit expansion to end the Great Depression, what Tyler Cowen calls an “inhumane liquidationist monstrosity” (pp. 116-117). Hayek’s extreme policy prescriptions kept economists from recognizing the brilliance of the Hayekian time-structural approach to macroeconomics.

His macro view of the economy in terms of stages of production, as illustrated with his novel Hayekian triangles, was actually a robust heuristic model based on the works of Carl Menger, Eugen Böhm-Bawerk, and William Stanley Jevons. The problem was that Hayek failed to put any flesh on the theoretical bones of his model. The Austrian economist seldom did empirical work to support his theories, a requirement in Cowen’s case for GOAT status. Only years later did Hayek’s followers apply statistical evidence for his Austrian macro model and business cycle theory (see for example F. Mills 1936; Skousen 1990; Calloway and Garrison, 2003).

Hayek’s macroeconomics has legs. In 2014, the Bureau of Economic Analysis (BEA) started measuring gross output (GO), total spending at all stages of production, on a quarterly basis, along with GDP. I urged the BEA to add GO as the “top line” in national income accounting since writing my Structure of Production book (1990). It is complementary to GDP, the “bottom line.” In essence, GO measures Hayek’s triangles.[5] I consider GO the greatest breakthrough in Hayekian macroeconomics since Hayek won the Nobel prize in 1974.

For the all the reasons, above I dedicated my own textbook, Economic Logic, to both Milton Friedman and Friedrich Hayek as the two giants of the 20^th century.

John Maynard Keynes

Keynesians, such as Joseph Stiglitz, consider John Maynard Keynes (1883-1946) the GOAT in economics, even ahead of Adam Smith. But for the libertarian Cowen, that is a bridge too far. He likes Keynes as a person (“extremely charming”): “He seemed multifaceted in a way that Milton Friedman was not, and open and engaging compared to the stuffiness and ‘old regime’ airs of Hayek (p. 54).

John Maynard Keynes (1883-1946)

However, the GOAT race is not about social graces or financial acumen, but intellectual prowess and influence.

One dissenting note: Cowen claims Keynes was a “successful investor” and “quite well off” financially when he wrote “Economic Possibilities for Our Grandchildren” in 1930 (p. 60). Actually, biographer Robert Skidelsky reports that Keynes was “wiped out” by the 1929 crash, losing three quarters of his net worth (Skidelsky 1992, pp. 338-343). Keynes was never good at getting out at the top of a bull market, but was much better buying stocks at the bottom of a bear market in 1932-33 and 1937. Indeed, by 1946, he died a wealthy man.

Cowen gives high marks to Keynes for his negotiation skills at Bretton Woods in 1944, which resulted in a new “dollar” standard linked to gold and the creation of the International Monetary Fund (IMF) and World Bank to help nations recover from the war. But Keynes’s actual pro-British agenda was rejected at Bretton Woods in favor of Harry Dexter White and the American negotiators. Keynes left Bretton Woods defeated, depressed, and ill, dying from a heart attack two years later (Steil 2013).

Cowen contends that Keynes’s The General Theory of Employment, Interest and Money (1936) was “one of the best written books of all time, in spite of its loops, obscurities, and analytical infelicities” (p. 70). He confesses that he has changed his mind about The General Theory, stating, “As for my own biases in assessing Keynes, I was taught early in my life that the General Theory was a deeply flawed and mostly harmful work, marred by numerous mistakes in reasoning, exposition, and microeconomics. Furthermore, Keynes did not take great care to read his intellectual opponents in the most reasonable or generous light, and he put politics before scrupulous accuracy in reasoning. My current view is that the General Theory is a brilliant work, marred by numerous mistakes in reasoning, exposition, and microeconomics” (p. 96).

I believe Cowen’s first impressions are more accurate. No doubt Keynes in general is a superb and even a beautiful writer, but The General Theory is not the best example of his prose or theoretical prowess. Among economists, it is considered one of three “books of headaches,” the others being David Ricardo’s Principles of Political Economy and Taxation (1817) and Karl Marx’s Capital (1867).

Here is an example of his tortured propensity to confuse: “My definition is…as follows: Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods relative to the money-wage, both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that would be greater than the existing volume of employment (Keynes 1936, p. 15)

Or how about this one: “Our conclusions can be stated in the most general form: No further increase in the rate of investment is possible when the greatest among the own-rates of own-interest of all available assets is equal to the greatest amongst the marginal efficiencies of all assets, measured in terms of the asset whose own-rate of own-interest is greatest (Keynes 1936, p. 236).

You can see why I don’t assign The General Theory to my students. As Paul Samuelson, a devote Keynesian, wrote, “It is a badly written book, poorly organized; any layman who, beguiled by the author’s previous reputation, bought the book was cheated of his five shillings. It is not well suited for classroom use. It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds in mares’ nests or confusions…Flashes of insight and intuition intersperse tedious algebra. An awkward definition suddenly gives way to an unforgettable cadenza. When finally mastered, its analysis is found to be obvious and at the same time new. In short, it is a work of genius” (Samuelson 1947: 148-149).

Cowen is more accurate when he says later that “the General Theory will frustrate the hell out of you” (p. 75).

If you want to read Keynes’s beautiful prose, consider his Essays in Persuasion (1931) or his first bestseller, The Economic Consequences of the Peace (1920).

What was Keynes trying to achieve in writing his tortuous magnum opus? His work gave theoretical justification for increasing government spending and running deficits during times of unemployment and economic contraction such as the Great Depression of the 1930s.

But it was more than that. Keynes sought to overturn the House that Adam Smith Built, the classical model that favored productive saving and investing; balanced budgets; limited government (laissez faire); and free trade and globalization. Keynes didn’t support totalitarianism (as Cowen points out, Keynes despised Soviet communism), but neither did he favor the laissez faire model of Adam Smith. The Cambridge economist attacked Smithian capitalism as “inherently unstable” and denied the invisible hand doctrine that self-interest was always enlightened. For Keynes, the classical model was a “special case” when the economy was at full employment. He sought to build his own “general” model of a democratic state that favored a consumer society; debt over equity; deficit spending whenever there was a whiff of recession; big government and the welfare state; and fair trade. For him, the visible hand of big government was vital. James Buchanan rightly called it a “permanent revolution” in his book Democracy in Deficit: The Political Legacy of Keynesian Economics (1977).

Keynes introduced a whole new lexicon of terminology, such as the marginal propensity to consume and save; the multiplier; the liquidity trap; and aggregate demand and supply. Milton Friedman summarized Keynes as “a brilliant scholar” and “one of the greatest economists of all time.” He wrote, “I believe that Keynes’s theory is the right kind of theory in its simplicity, its concentration on a few key magnitudes, its potential fruitfulness….[But] I have been led to reject it…because I believe that it has been contradicted by experience (Friedman 1986, p. 48, 52).

Cowen also rejects Keynes as the GOAT, largely because of his policy recommendation calling for the “euthanasia of the capitalist rentier” and the “somewhat comprehensive socialization of investment,” a critical mistake that the government could centrally plan investment in an efficient, productive manner (p. 69).

Thomas Robert Malthus

Despite Rev. Malthus’s disastrous predictions of increasing world poverty and environmental collapse back in the late 18^th century, Cowen still places Malthus on a pedestal because he addresses our #1 challenge of “environmental economics”: “So if Malthus is the major economic thinker on what might be our number one problem, isn’t that a decent case for GOAT right there?” (p. 245).

Thomas Robert Malthus (1766-1834)

Thomas Robert Malthus (1766-1834) has had a powerful impact on modern-day thinking. He is considered the father of demography and population studies. His Essay on Population (1798) encouraged the first population census in 1801. He inspired Charles Darwin’s and Alfred Wallace’s theories of evolution, and Keynes’s theory of effective demand. He is the mentor of social engineers who advocate population control, limits to economic growth, and ecological regulations to save the planet from global warming.

Cowen goes out of his way to improve the image of Malthus and his “dismal science” of subsistence wages and increased poverty, and his opposition to the Poor Laws. He emphasizes Malthus’s sound trade policy and his opposition to slavery and war.

Regarding his most famous thesis, that food production can’t keep up with population growth, Cowen suggests that Malthus should not be blamed for being wrong, since “until the late 18th /early 19th century, most of human existence did take place at or near subsistence” (p. 246). Indeed, one could say that if Malthus had lived a century later, his Essay on Population might have adopted the opposite thesis, because by then the evidence would be quite the opposite with the dramatic increase in the production of wheat, corn, and cotton due to the development of agricultural machinery. Too bad Malthus, who died in 1834, didn’t live long enough to see the benefits of the green revolution.

The problem is that, like Marx, Malthus’s forecasts have proven wrong time and time again. He applied the law of diminishing returns to show that the supply of agricultural land was inelastic and could never keep up with population growth, leading to stagnating wages and growing poverty. only He thought the only way out was to reduce the population growth rate through birth control and moral suasion. War and famine could do the job even more efficiently.

What Malthus failed to take into account was human innovation and technology, namely the green agricultural revolution that resulted in food production growing much faster than population growth. The idea that plants and animals reproduce at slower rates than humans seems preposterous today. Cowen wisely cites the economist Julian Simon, “who wrote of the human creative spirit as the ‘ultimate resource,’ a source of new ideas and innovation and a blessing for mankind. People are thus also creators” (p. 261). As a result, the earth can now accommodate over 8 billion people, more and more of which are living longer (due to medical and health advances) and substantially above the subsistence level. Some experts are even talking about a population shortage, especially in China, which for decades adopted the disastrous Malthusian one-child policy.

Of course, there is always the fear that the earth will suffer catastrophic natural disasters and economic crises that humans can’t solve. Thus, the Malthusian principle of scarcity and pessimism will never go away. But Malthus has been wrong for so long, it’s clear he failed to understand how the global economy works.

A Sidenote on Other Prominent Contenders

Before discussing the remaining potential GOAT (Adam Smith), I thought it important to comment on several of Cowen’s near misses:

Alfred Marshall (1842-1924)

British economist Alfred Marshall (1842-1924) is one of Milton Friedman’s favorite economists (along with David Ricardo). He marveled at the world of Marshallian economics of supply and demand analysis. Cowen downplays Marshall by stating “the systematization of diagrammatic marginalist micro was all he did of major import” (p. 178) but what import it was! It was not only the development of supply and demand diagrams, but his discovery of elasticity, and consumer surplus, to name just a few advances used in economics courses today. Today’s theory of price is all due to Marshall.

What about Paul Samuelson (1915-2009), the MIT professor and promoter extraordinaire of Keynesian economics? Cowen summarizes his view that “although Samuelson is one of the all-time greats…I cannot in good conscience put Samuelson on the short list for GOAT. His main problem is that, while he was a great economist of high import, he did not in fact understand economics. I am sorry to report that, but yes it is true and it is also a deal-breaker. Exhibit A is how Samuelson’s textbook presented Soviet economic growth….He did not understand either Soviet-style planning or for that matter markets, and those are two huge strikes against him” (pp. 145-146, 156). Indeed, Samuelson is famous for declaring, “The Soviet economy is proof that, contrary to what many skeptics had earlier believed [a reference to Mises and Hayek], a socialist command economy can function and even thrive” (Samuelson and Nordhaus, 1989, p 837). He made this embarrassing statement in the year the Berlin Wall came down (1989) and only two years before the collapse of the Soviet socialist central planning model (1991).

Paul Samuelson (1915-2009)

No doubt he was misled by the CIA, which provided the phony Soviet statistics. Samuelson also toyed with wage-price controls, and was a long-time apologist for the national debt and deficit spending, and his notorious anti-thrift doctrine known as the “paradox of thrift.”

But on the positive side, he was optimistic about globalization and the American “mixed” economy, and was willing to change his mind. He was famous for saying “I hate being wrong. But I hate even more to stay wrong.” He would eventually change his mind on many things, which is unusual among academics. He used to be anti-saving in the early editions of his Economics textbook, but by the early 1990s, he worried that the US consumer wasn’t saving enough. He initially criticized monetary policy as ineffective, but by the late 1990s, taught that monetary policy was more effective than fiscal policy. He supported surpluses in the federal budget in the early 2000s. And he was an early supporter of the efficient market theory and index investing.

As far as influence is concerned, let’s not forget that he wrote the most successful textbook in any field ever, 19 editions of Economics (1948-2009), which sold more than 3 million copies.[6] He was the first American to win the Nobel prize in economics. His influence is chronicled in Nicholas Wapshott’s book Samuelson Friedman: The Battle Over Free Markets (W. W. Norton, 2021).

But, as Cowen points out, Samuelson falls down when it comes to his excessive devotion to Keynesian economics and his failure to do much in terms of empirical studies (almost all his academic work is purely mathematical and high theory).

How about Gary Becker (1930-2014), the Nobel prize economist at the University of Chicago? He was instrumental in shifting economics away from the “dismal science” to the “imperial science.” As Cowen notes, “Becker did more than anyone to promote the notion and indeed the methods of economics should spread to the other social sciences” (p. 169). Sadly, Becker’s work “has not aged well” and “behavioral economics has assumed greater importance, relative to the relative price effects and rational choice approaches that are so prominent in Becker’s work” (p. 170).

Ricardo and Marx

David Ricardo (1772-1823)

What about the British economist David Ricardo (1772-1823), which Cowen omits? When I visited the office of economic historian extraordinaire Mark Blaug, he had one picture hanging on his wall: David Ricardo. Blaug (and others, including Friedman) consider Ricardo the founder of economics as a rigorous science involving mathematical precision. Model building was his forte and out of it came what many consider the most important principle in economics: the law of comparative advantage. (Guatemalan economist Muso Ayau thought the law was so important he wrote an entire book on the subject.)

But Ricardo’s down fall was his chronic divorcing of theory and history His abstract model building stripped economics of the past, present and future, and many of today’s academic papers are nothing but differential equations and assumptions far removed from reality. One of the casualties was Ricardo’s bankrupt idea of the labor theory of value. It’s called the “Ricardo’s vice” (Skousen 2022, pp. 94-96).

Karl Marx (1818-1883)

Finally, I would be remiss if I didn’t comment on the German philosopher Karl Marx (1818-1883). Like Mill, he was more than an economist. Schumpeter called him a “genius” and Martin Bronfenbrenner deemed Marx “the greatest social scientist of all times.”

But his economics was pretty bad – the labor theory of surplus value, the insolvable transformation problem, his failure to comprehend the role of capital, markets, prices and money in advancing the material abundance of mankind, or how capitalists might share the wealth with workers. Almost all of his predictions have proven wrong – that real wages of the working class would inevitably fall, that profits would decline over time, and that capitalism would collapse and never recover.

But his contributions should not be ignored: the theory of historical materialism and economic determinism, the class struggle, exploitation and alienation under capitalism, and the money nexus from barter to money exchange to financial markets. Marx cannot be ignored. He is, in fact, better known than any other economist, including Keynes, Friedman, or Adam Smith, and has influenced many other disciplines including sociology, history, anthropology, literary theory, and political science.

Last and Definitely Not Least, Adam Smith

One would think that the final chapter eight would be the climax of the contest. Indeed, Cowen ends his search for the GOAT with the Scottish philosopher Adam Smith (1723-1790). He begins this chapter asking what I thought was a rhetorical question: “Is Adam Smith the obvious winner? Wasn’t he the first real systematic economist?” (p. 289)

Adam Smith (1723-1790)

He starts examining the case for Adam Smith at the end rather than the beginning of The Wealth of Nations, with Book V, discussing his defense of standing armies as well as Das Adam Smith Problem, and then moves back to the importance of the division of labor in Book I.

But where is the piece de resistance of Adam Smith, his ideal model for the “Wealth of Nations,” the topic most paramount in his mind? Smith makes a bold promise—countries that adopt his model would bring “universal opulence which extends itself to the lowest ranks of the people” (1965, p. 11). Shouldn’t that be the focus on Cowen’s search for GOAT?

One of the problems is that Smith finally reveals the basics of his model deep into Book IV, on p. 651, in The Wealth of Nations, where he writes:

“Every man, as long as he does not violate the laws of justice, is perfectly free to pursue his own interest his own way, and to bring both industry and capital into competition with those of any other man, or order of men” (1965, p. 651).

Thus, Adam Smith finally came up with a way to achieve real prosperity for all: Give people their maximum freedom under conditions of competition and the rule of law (justice). Within those boundaries, citizens and businesses would have the freedom to do what they wish without interference from the state. It meant the free movement of labor, capital, money, and goods. Let them decide on their own what to do.

According to Wesley Mitchell, Smith came to the conclusion “that the wealth of nations will increase most rapidly if every person is allowed the fullest opportunity to decide for his own individual self what is the best way to use his labor and whatever capital he possesses. In other words, the best policy for governments…is to interfere as little as possible with the occupations and investments of its citizens.” (Mitchell, pp. 15-16)

Smith even went so far as to insist it was a God-given natural right to be free to act. He wrote, “To prohibit a great people from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind” (Smith 1965, p. 549).

It was an ingenious solution: To the extent possible, government should get out of the way and let individuals and entrepreneurs work their magic.

There is evidence that Smith favored this small government formula as far back as 1755, when he famously said, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”

Even more interesting are his follow-up lines: “All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.” (Smith 1982, p. 322)

What Should He Call his Model?

Of course, Adam Smith was well aware of the French physiocrats calling their small government approach “laissez faire,” having spent three years in France in the 1860s.

Why then did he choose not to use the term “laissez faire” in The Wealth of Nations? Probably because “laissez faire” was too representative of “unfettered capitalism,” to use a modern term. For Adam Smith, it was not enough to call his model “laissez faire,” which means literally “let us alone.” It put no limits on the human passions and seemed like a defense of selfishness and “greed is good” attitude.

“The System of Natural Liberty”

Besides, he wanted a term that was his own, since he believed he had created a new model of enduring prosperity. I believe he deliberately chose to imitate Sir Isaac Newton’s “system of natural philosophy” (natural philosophy was what the physical sciences were called in the 18^th century) by calling his revolutionary model “the system of natural liberty,” which he mentioned twice the final chapter of Book IV, where he summarizes is 3-pronged model combining justice, freedom and competition. He calls it “the obvious and simple system of natural liberty” and later, “the system of natural liberty” (1965, p. 651). Smith uses the term “natural liberty” ten times, and “perfect liberty” 16 times in The Wealth of Nations.

According to Brad DeLong, Smith choses “liberty because it leaves people free to do what they want with their labor and their possessions, ‘natural’ because it confirms with human nature, ‘system’ because it can be and is extended to the status of a general principle.” DeLong summarizes Smith’s vision: “Let people decide what they want to do with their things and their labor, and they arrange themselves in a large highly-productive societal division of labor. Self-interest focuses people on creating value. Competition curbs any distracting focus of self-interest on accomplishing exploitation.” (DeLong 2019)

Cowen discusses Smith’s idealistic model in terms of its consequences, i.e., the invisible hand doctrine, how the private actions of individuals benefit the public weal. Cowen states, “Overall, if you asked what was the single biggest advance economists have made in understanding the market price system, these sections [dealing with the invisible hand concept] of Wealth of Nations would be hands-down winners, with Hayek’s classic essays coming in at number two” (p. 311).

Here would be a good place to cite George Stigler: “Smith had one overwhelmingly important triumph: he put into the center of economics the systematic analysis of the behavior of individuals pursuing their self-interests under conditions of competition” (Stigler 1976, p. 1201). Stigler calls it the “crown jewel” of The Wealth of Nations and “the most important substantive proposition in all of economics.” Not surprisingly, Adam Smith was Stigler’s favorite economist, and famously said, “It’s all in Adam Smith.”

Other economists have recognized the genius of the Scottish professor:

”Adam Smith did for economics in many ways like what Charles Darwin did for biology….a new framework.” – Wesley Mitchell (1934, p. 13)

“The Wealth of Nations…is the most important book ever written about capitalism and its moral ramifications…it was intended to make men better, not just better off.” – Jerry Z. Muller (2002, pp. 51-52).

“When we read this work, we feel that previous to Smith there was no such thing as political economy.” – J.-B. Say (1827)[7]

As far as influence is concerned, it’s hard to beat Adam Smith’s impact on trade and globalization. Free trade is without doubt Smith’s greatest achievement, with both the West and East gradually reducing barriers in goods, capital, and even immigration since Adam Smith published his devastating critique of protectionism in Book IV of The Wealth of Nations.

On a broader scale, how many economists have had their model made into a popular index, the Economic Freedom Index, published annually by the Fraser Institute and the Heritage Foundation? Indeed, that is exactly what the Economic Freedom Index is: a way to quantify the classical model of Adam Smith’s “system of natural liberty” into five broad categories: size of government, rule of law, monetary policy, trade, and business regulation.[8] The index confirms the Adam Smith model: The more the countries adopt Smith’s model, the higher their standard of living. “The wonderful world of Adam Smith,” as Robert Heilbroner calls it in The Worldly Philosophers, is vindicated.

If I were writing GOAT, I’d put an exclamation point rather than a question mark at the end his statement, “Isn’t it obvious that Adam Smith is the GOAT?” (p. 344). But he declines, largely due to his belief that the Scottish philosopher’s economics were somehow “the worst, with the exception of Malthus” (p. 344). That’s a surprise. Was it Smith’s crude labor theory of value, his defense of usury laws, his strange distinction between productive and unproductive labor, or his failure to introduce marginal analysis? Smith made plenty of mistakes, but I don’t think it was enough to overturn his central triumph of the invisible hand and individual liberty under conditions of competition and the rule of law.

Carl Menger (1840-1921)

Last year I wrote a paper entitled “The Greatest Economist Who Ever Lived,” by which I meant the greatest theoretical economist.[9] My choice was Carl Menger (1840-1921), the founder of the Austrian school. I rate him tops for discovering the foundation of both true macroeconomics (the time structure of production) and microeconomics (subjective demand and marginal analysis), all in one book, the Grundsätze. Knut Wicksell wrote, “No book since David Ricardo’s Principles has had such a great influence on the development of economics as the Grundsätze.”

So maybe Adam Smith isn’t the GOAT, but as far as I’m concerned, he is the BOAT – Best Of All Time! When I was writing my history of economics, I replaced the traditional political spectrum (Smith on the extreme right, Marx is on the extreme left, and Keynes is in the middle) with the totem pole of economics, so that Smith is on top, Keynes is still in the middle and Marx is low man on the totem pole (Skousen 2022, pp. 6-7). The Economic Freedom Index confirms this ranking, since countries that have adopted the Smithian system of natural liberty have grown the most.

Doing so made my history book, The Making of Modern Economics, a unique contribution to economic thought. Now for the first time, there was a hero and a story line: Adam Smith and his system of natural liberty. It involved a bold running plot where the Adam Smith model is constantly attacked by his enemies (the Marxists, the socialists, the Keynesians) and sometimes left for dead, only to be resuscitated by his supporters (French laissez faire school, the Austrians, the Chicago school, the supply siders). The Smith model of capitalism triumphed in the end with the collapse of the Berlin Wall and the Soviet socialist central planning model. But the triumph was short-lived, and the battle over the free market continues to this day.

A Future GOAT?

As for the future, will a new GOAT appear? Cowen is skeptical, saying “economics is no longer a carrier of ideas. It is primarily a means of data collection and very sophisticated hypothesis testing” (p. 348). True enough, but never underestimate the future of humanity. In 1915 Alfred Marshall made an amazing prediction: “A thousand years hence 1920-1970 will, I expect, be the time for historians. It drives me wild to think of it. I believe it will make my poor Principles, with lots of poor comrades, into waste paper.” Maybe another Keynes or Friedman is making their way through life right now, and will come up with an ingenious new brand of economics that is linked to some future event that will shatter the established view of the world. But it’s hard to beat the fact that it all started with Adam….Smith, that is.

References

Boaz, David. 1997. Libertarianism: A Primer. New York: Free Press.

Callaway, Gene and Garrison, Roger. 2003. “Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust?” Quarterly Journal of Austrian Economics 6:2 (Summer), 67-98.

De Long, Brad. 2019. “Society and the System of Natural Liberty’: Adam Smith: Society & the “System of Natural Liberty” (bradford-delong.com)

Ebenstein, Larry. 2001. Friedrich Hayek, A Biography. New York: St. Martins Press.

Friedman, Milton. 1986. “Keynes’s Political Legacy,” in Keynes General Theory Fifty Years On, ed. by John Burton. London: Institute of Economic Affairs.

Keynes, John Maynard. 1936. The General Theory of Employment, Interest and Money. London: Macmillan & Co.

Lai, Cheng-chung 2000. Adam Smith Across Nations: Translations and Receptions of The Wealth of Nations. Oxford: Oxford University Press.

Mill, John Stuart. 1884 [1848]. Principles of Political Economy. New York: D. Appleton.

Mills, Frederick C. 1936. Prices in Recession and Recovery. New York: National Bureau of Economic Research.

Mitchell, Wesley C. 2021 [1934]. Lecture Notes on Types of Economic Theory. Melbourne: Hassell Street Press.

Muller, Jeffrey Z. 2002. The Mind and the Market: Capitalism in Modern European Thought. New York: Knopf.

Samuelson, Paul A. 1947. “Lord Keynes and the General Theory,” in The New Economics, ed. by Seymour Harris. New York: Alfred A. Knopf.

Skidelsky, Robert. 1992. John Maynard Keynes: Economist as Savior, 1920-1937. London: Macmillan.

Skousen, Mark. 1990. The Structure of Production. New York: New York University Press.

Skousen, Mark. 2022. The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. 4^th ed. London: Routledge.

Smith, Adam. 1965 [1776]. The Wealth of Nations. New York: Modern Library.

Smith, Adam. 1982. Essays on Philosophical Subjects. Indianapolis: Liberty Fund.

Steil, Benn. 2013. The Battle of Bretton Woods: Harry Dexter White, John Maynard Keynes, and the Making of a New World Order. Princeton: Princeton University Press.

Stigler, George J. 1976. “The Successes and Failures of Professor Smith” in Journal of Political Economy 84:6 (December), 1199-1213.

 

About Mark Skousen

Mark Skousen holds the Doti-Spogli Chair of Free Enterprise at Chapman University in California.  He has taught economics at Columbia Business School and Columbia University, and is the author of our 25 books, including “The Making of Modern Economics: The Lives and Ideas of the Great Thinkers.”  This book and others are available at www.skousenbooks.com.

 

Footnotes

[1] Mark Skousen, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers, 4^th ed. (London: Routledge, 2022).

[2] Friedman was prescient when he presented a paper in 1954 in Stockholm, Sweden, entitled, “Why the American Economy is Depression Proof,” published in Milton Friedman, Dollars and Deficits (New York: Prentice Hall, 1968). He made his arguments during a time when many pundits were predicting another Great Depression around the corner. He was right until the Great Recession hit in 2008-09. I held an “ad hoc” session at the Mont Pelerin Society meetings in 2009 in Stockholm on his book, where most of the attendees concluded that the US economy was depression-resistant, but not depression-proof.

[3] Benjamin Bernanke, Remarks at the Conference to Honor Milton Friedman, University of Chicago, November 8, 2002: FRB Speech, Bernanke – On Milton Friedman’s ninetieth birthday — November 8, 2002 (federalreserve.gov)

[4] See “My Friendly Fights with Milton Friedman,” at My Friendly Fights with Dr. Friedman – MSKOUSEN.COM

[5] For more information, see my website www.grossoutput.com, and my quarterly press releases on GO.

[6] See my article, “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives, Vol. 11:2 (Spring 1997), pp. 137-152. The Perseverance of Paul Samuelson’s Economics – American Economic Association (aeaweb.org)

[7] J.-B. Say, letter to Louis Say in 1827; cited in Cheng-chung Lai (2000, p. 81). This statement was a remarkable discovery.

[8] The creators of the index were inspired by Adam Smith’s Wealth of Nations, that “basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society.” See “Executive Summary,” Index of Economic Freedom, January 15, 2008, Heritage Foundation.

[9] Mark Skousen, “Carl Menger: The Greatest Economist Who Ever Live,” in “The Emergence of a Tradition: Essays in Honor of Jesus Huerta de Soto,” Volume 1: Money and the Market Process, Palgrave Macmillan, 2023, pp. 327-342). It’s available online at https://mskousen.com/wp-content/uploads/2023/10/Mark-Skousen-Carl-Menger-The-Greatest-Economist-Who-Ever-Lived.pdf