Adolph Löwe's political economics : Instrumentalism as enlightened intervention

Keynes's articulation of his theory of aggregate effective demand laid the theoretical foundation for what is now termed the "Keynesian revolution." Questioning the efficacy of the so-called "Treasury view", Keynes provided a substantially new model of the functioning of the macroeconomy, and a theoretical foundation for establishing appropriate mechanisms for enlightened intervention to move the economy in the direction of achieving national policy goals. What he offered was both a protest against and an alternative to 19th century laissez faire which he viewed as expressing "the needs and wishes of the business world of the day." (John Maynard Keynes JMK IX, 286). A parallel intellectual revolution which was similarly a response to the economic (and political) tumult of the interwar period was taking place in Germany. At the same time as Keynes was railing against the Treasury's balanced budget convention, and its commitments to free trade and the gold standard, Adolph Lowe (1893-1995) was laying the intellectual foundation for what he termed "political economics."(1) Lowe held a politically sensitive post in the Weimar republic that was involved with the practical planning and management of the currency reforms which brought the great hyperinflation under control. He became Director of Research at the Institute of World Economics at the University of Kiel in 1921, where he established a research center for the study and control of business cycles through regulation and planning. His work on cycles and the prospect for their control via planning provided the essential basis for his development of "instrumental analysis" to reconceptualize the role of economic theory as a technique for directing a politically free economy along the path of economic growth. Adolph Lowe's ideas remain known only to relatively few, despite his long and active professional life at the New School in New York City, to which he emigrated from England in 1941 as a refugee fired by Hitler from his prestigious academic post at the University of Frankfurt.(2) Yet, his work as a political economist, like that of a Keynes's, is a frontal challenge to the conventional wisdom that economic outcomes can safely be left to the operation of the market mechanism. Lowe's "political economics," set forth principally in On Economic Knowledge; Toward a Science of Political Economics (1977) The Path of Economic Growth (1976) and Essays in Political Economics: Public Control in a Democratic Society (1987) undertakes to relate economic institutions and their functioning to the socio-political environment. Its conceptual roots can be traced to Adam Smith's theory of economic growth and to Keynes's principle of aggregate demand. From these, Lowe derives a logic of causality that centers on the macro goals towards which the system is to be directed. The object of instrumental analysis, as he envisioned it, is to "search for the economic means suitable for the attainment of any stipulated end" (Lowe 1977, 1112). Forsaking the conventional distinction between "positive" and "normative" economics, the technique of instrumentalism takes as its starting point the macroeconomic outcomes which the majority of a country's citizens have identified as desirable. It then seeks to develop a strategy for attaining the desired outcome by means of institutional changes that substantially re-engineer the range of possible micro-choices to those that are consistent with the macro-outcomes society desires. Lowe is, nevertheless, deeply committed to personal freedom as ranking among the highest goals to which a society can aspire. The control mechanism is intended to be made indirectly operative by altering the institutional milieu within which individuals make free market choices. Yet, Lowe's instrumentalism is certain to require a level and degree of public management that is likely to make it unacceptable to an electorate like that of the U.S. or Britain, except under emergency economic conditions as devastating as the German inflation or the 1930s U. …