In his magisterial treatise, The Economic Mind in American Civilization, Joseph Dorfman argued that despite Frank W. Taussig's liberal editorship of the Quarterly Journal of Economics (QJE henceforth) and his tolerance of heterodox ideas in general, Taussig was actually quite conservative (1949, 267). He also noted elsewhere that Taussig had a "cautious bent towards social change," particularly regarding collective bargaining, compulsory social insurance, and unemployment insurance because unlike her British and German counterparts, the USA lacked the relevant socio-political or institutional framework to adequately handle these practices (1959, 240-243). These characterizations, along with Joseph Schumpeter's description of Taussig as "the American Marshall," have seemingly embedded in the minds of historians of economic thought an image of Taussig as a conservative, neoclassical economist.
But just as scholars of an institutionalist persuasion--particularly in the area of contemporary evolutionary economics--have "discovered" Alfred Marshall's heterodox leanings, Taussig may deserve a similar reconsideration. This paper seeks to take up the earlier leads provided by Schumpeter (1966) and Warren Samuels (1988, 1989) and draw attention to the fact Taussig had much more in common with American institutionalism, and in particular with elements of Thorstein Veblen's work, than historians of economic thought have hitherto considered. In fact, Taussig shared many of the traits widely cited by historians of economic thought to characterize those working in the institutionalist tradition and pursued a research agenda that had much in common with the pivotal institutionalists of his time.
Note from the outset, however, that the paper does not suggest that Taussig was an "institutionalist" economist as such or in any way made an enduring contribution to the institutionalist "research program." Like many American economists of the time, Taussig's interests were diverse and eclectic and he had a deep interest in the institutional underpinnings of the American economy. Moreover, as cogently argued by Malcolm Rutherford (1997) and Mary Morgan and Rutherford (1998), during the interwar period there was no definitive or exclusive institutionalist "school" of thought, as such. A commitment to neoclassicism did not preclude an appreciation of wider, critical developments in economics. As Morgan and Rutherford noted further (1998, 4), "in the interwar period it was possible to hold a number of different economic beliefs and to do economics in many different ways without being out of place or necessarily forfeiting the respect of one's peers." (1) The lines of demarcation between orthodoxy and heterodoxy in economics, broadly speaking, were not as clearly and tightly defined at the time Taussig was writing as perhaps they are today.
Taussig's Legacy: What Others Have Said
The intellectual genesis of this paper was an assessment of Taussig's thought offered by Schumpeter (1966), who was Taussig's colleague for almost all of the final decade of the latter's life, and also a more recent assessment of Taussig by Samuels (1988, 1989). "The American Marshall," as Schumpeter characterized Taussig, had a great affinity (and a long trans-Atlantic friendship) with Marshall in that both readily identified with the classical tradition of David Ricardo and John Stuart Mill, even though both were prepared to accept the improvement, elaboration, and refinement of these ideas in the guise of modern marginalist analysis associated with the so-called neoclassical epoch (Haberler 1968, 518; Samuels 1988, 596). This is an important point because like Marshall, who is commonly perceived as a pivotal figure in the modern, evolutionary variant of institutionalism, much of Taussig's work was compatible with institutionalism, "but his establishment position apparently kept those in the latter tradition from fully appreciating his contributions" (Samuels 1988, 596). This sentiment was soundly echoed by Schumpeter (1966, 196), who observed of Taussig:
The institutionalist opposition that later arose to the type of theory he taught, seems however to have overlooked that a great part of his work was on institutional lines and that, in important respects, it would have been more correct to claim him as a leader than it was to consider him an opponent. Though an eminent theorist and a great teacher of theory, economics for Taussig always remained political economy. He always viewed economic problems in terms of their social setting and in their historical perspective. "The practical problem in its historical, legal, political, in short, in its institutional aspects attracted him much more than any theoretical refinements ever did" (Schumpeter 1966, 196; emphasis added).
This aspect of Taussig's thought was also emphasized by eminent Harvard sociologist Talcott Parsons, who noted:
Professor Taussig ... broadened the perspective of economics by paying careful and explicit attention to aspects of the social environment of economic activity which do not fit readily into the rubrics of traditional economic theory. (1936, 369-370) Parsons was of the view that because of his "liberal open-mindedness" Taussig occupied a middle ground between dogmatism and pragmatic empiricism and possessed the quality of recognizing that under actual rather than assumed social conditions, the free exercise of individual economic interest works out at best imperfectly to the maximum benefit of society. The whole gamut of "predatory" activities in business and elsewhere, typically overlooked or ignored by most economists, was of central concern for Taussig (Parsons 1936, 362-370). He was also skeptical of the simplistic and mechanistic assumption of hedonism supposedly driving human motivation. As Parsons emphasized:
His clear grasp of the concrete reality of economic life ... made him realize that of the motives important to the concrete results of business and industrial activity, many would not fit, not only into strict hedonism, but into any form of the self-regarding type in the ordinary sense. In this context, in an erudite introduction to the 1989 reprint of Inventors and Moneymakers, Samuels noted that Taussig fitted squarely into the heterodox tradition of Veblen and others in his attempt to penetrate the psychodynamic nature of human motivation beyond homo oeconomicus. Make no mistake, Samuels admitted that Taussig "was no heretic" and "a pillar of economic orthodoxy," but he wrote in a time when economics was more respectful of heterodoxy and Taussig was by nature more candid than most of his mainstream colleagues (xv).
This respect of heterodox ideas is perhaps best encapsulated by his liberal editorship of the QJE and his documented admiration for the ideas of Veblen. As editor of the QJE, Taussig opened the journal to Veblen's research in economic theory and even contrived to invite Veblen to give a series of lectures at Harvard on "The Instinct of Workmanship." Fully aware of Veblen's vicissitudes emanating from "involuntary" changes in his university posts, Taussig was anxious that Veblen finish The Instinct. He remarked to Wesley Mitchell in 1910 that "[a]s you know, I think well of Veblen and have learned ... of his difficulties of the present year" (Taussig cited in Dorfman 1964, viii). He also described The Instinct as "a brilliant and original book, like everything that comes from his [Veblen's] pen" (Taussig 1989, 85n). In this context, Taussig attempted to ensure that the Harvard economics department was staffed with as many broad-minded economists as possible. Upon learning of Mitchell's decision to accept a Columbia post, Taussig wrote to Mitchell in 1910 expressing his disappointment that the latter had not come to Harvard. He perceived in Mitchell, a student of Veblen, a heterodox leaning that would complement Taussig's agenda to broaden the Harvard department (Rutherford).
Taussig's Commonality with the Institutionalists
Taussig had much in common with the institutionalist tradition. First, he shared many traits often employed by historians of economic thought to characterize those working in this tradition. He was critical of economics' ignorance of the inner workings of the firm and its somewhat cavalier treatment of the motives and impulses of economic agents, particularly business managers. Second, he shared with other "founding fathers" of institutionalism a deep appreciation (perhaps as a result of his studies at the University of Berlin) of the ideas of the German historical school, namely Gustav Schmoller and Werner Sombart, widely acknowledged as the intellectual antecedents of "old," or American, institutionalism.
Further, and like many institutionalists of the time, Taussig was actively involved in public life, serving various government agencies to improve the understanding and functioning of the institutional structure of the U.S. socioeconomic system. He held a firm belief in the duty of economists to shape and evaluate public policy and to guide public opinion. This is reflected in his public service career as the first chairman of the U.S. Tariff Commission, his role as personal adviser to President Woodrow Wilson, and his participation in the war-planning experience in the Price-Fixing Section of the War Industries Board. He also participated in the second of President Wilson's Industrial Conferences in 1920 to curb labor discontent. Interesting for later discussion, he also was a member of the American Association for Labor Legislation (AALL) which, with formative figures like Richard T. Ely and John R. Commons, was a virtual hotbed of heterodox ferment. In fact, Taussig had much sympathy for the working class and was of the view that class conflict emanated from the failure by management to exercise what later writers would call "business professionalism" in the sense of their responsibility accompanying wealth and power...