Econ-Atrocity {special History of Thought series} Richard Ely and Aristotelean Economics

By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst

The strength of conservative economics comes from methodological individualism. By treating economic outcomes as the product of individual choice subject to constraint, conservatives treat all social interference, either by government or by concentrations of private power, as illegitimate interference with individuals’ choices. Any reformist economics must begin by challenging this individualist premise.

Beginning in the 1880s, Richard Ely (1854-1943) articulated a different vision for a reformist economics built on Aristotle’s dicta that man “was formed for society.” Ely led a group of younger economists who founded the American Economic Association in 1885 to promote economics as a social science, uniting labor, scholarship, and the church to advance social reform. Ely declared that the “younger political economy no longer permits the science to be used as a tool in the hands of the greedy and the avaricious for keeping down and oppressing the laboring classes. It does not acknowledge laissez faire as an excuse for doing nothing while people starve.”

For Ely, economics is a social science that must take account “of time and place; historical surroundings and historical development.” Individuals are not autonomous but act on the basis of socially determined values and opportunities. Fixed social structures constrain individuals, including the available capital and technology and also society’s system of governance and property rights.

Ely’s magnum opus, for example, was his 1914 study of income distribution entitled Property and Contract in the Relations to the Distribution of Wealth. Income distribution, he argued, was a social product, determined by a society’s history and the allocation of property rights. Ely’s institutionalism was a powerful weapon against conservative economics because it showed how every economic outcome in society reflected social choice. The role of history and institutions in economic outcomes removes any presumption in favor of the status quo. More, if past politics produced the current economy then current politics could produce a better future one.

Soon after returning from studying in Germany, Ely became the most prominent economist in the United States. Teaching at the new Johns Hopkins University, he trained some of the country’s first Ph.D.s, including John R. Commons and David Kinley, Edmund Ross, and even Woodrow Wilson. He also campaigned actively for social reform, including tax reform, labor unions, minimum wages, and state regulation of business.

But Ely’s prominent role in reform politics and economics attracted powerful and wealthy critics. He was driven from Johns Hopkins in 1892, encouraged to leave by an administration that feared losing donations because of his radical economics. That same year, he lost control of the American Economic Association when his allies abandoned his reform agenda to allay suspicions that the entire economics profession was radical. Ely was hired at the University of Wisconsin but soon after moving there he was attacked by the Wisconsin Superintendent of Public Education for his radical teachings. Ely was exonerated at a trial by the Wisconsin Board of Regents but only after denying any radical or socialist ideas and agreeing with his critics that a socialist would be unfit to serve as a university professor.

After this exoneration, Ely walked a cautious path. He gradually drifted to the political right, sometimes to attract funding for a series of ambitious research projects but also as his own successful real estate speculation brought him wealth. Through his students, Ely’s vision survived into the 20th century, influencing New Dealers like John Maurice Clark and Rexford Tugwell, as well as the Wisconsin school of labor economics. But he himself abandoned radical economics under pressure of repression and ambition.

For further reading:

Richard Ely, Past and Present of Political Economy (Baltimore, Johns Hopkins University Press, 1884).

Richard Ely, Introduction to Political Economy (New York, Chautauqua Press, 1889).

Richard Ely, Socialism: An Examination of Its Nature, Its Strength and Its Weakness (New York, T. Y. Crowell, 1894).

Richard Ely, Property and Contract in their Relations to the Distribution of Wealth (New York, Macmillan, 1914).

Richard Ely, “Industrial Liberty,” in American Economic Review (Supplement, 1901).

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.