Joe Wiesenthal and Tracy Alloway speak with Jommy Modude, professor of economics at Sarah Lawrence College and board member of the Law and Political Economy Collective, about the intellectual history of economic thought and its relevance to contemporary policy debates.

The conversation explores how neoclassical economics became the dominant orthodoxy, displacing earlier traditions of political economy that viewed markets as embedded in social and political institutions. Modude traces this shift from Adam Smith's original institutionalist approach through the post-war mathematization of economics.

The discussion connects this intellectual history to current policy debates around New York Mayor Eric Adams' heterodox economic proposals, including rent controls and billionaire taxes, examining why such policies are considered radical despite having historical precedents.

The Myth of Adam Smith's Invisible Hand

The Wealth of Nations mentions the famous 'invisible hand' phrase only once in its 800 pages, contradicting the popular narrative that it's central to Smith's economic theory.

Smith was actually an institutionalist who understood that markets operate within a foundation of human-created property rights and power relations, not as pre-political entities.

Classical political economists like Smith, Ricardo, and Marx viewed capitalism as a product of history rather than a natural, transhistorical institution.

How Economics Became a Machine Science

The American Economic Association was originally founded by institutionalists trained in the German historical school, who believed theory must be constructed in dialogue with social reality.

Post-war economics became dominated by mathematicians and engineers employed at institutions funded by the Department of Defense, as detailed in Machine Dreams.

A 1985-86 National Science Foundation study of top graduate economics programs concluded that 'the profession is trained idiot savants' who could learn mathematical economics but couldn't apply it to social reality.

This transformation divorced economics from society, politics, and history, treating the economy as an eternal machine rather than a social construction.

The Reality of Post-War Industrial Policy

European post-war reconstruction involved extensive industrial and social policies through nationalized banks, not laissez-faire markets as commonly believed.

The Bank of France was nationalized in 1944-45 with a National Credit Council including unions, employers, and farmers involved in planning credit allocation.

Germany's KfW public bank operated with different stakeholders including unions, coordinating economic and social reconstruction through democratic credit allocation.

The US Congress conducted studies on European central banks' roles in mobilizing finance for industrial and social policies during reconstruction.

Rethinking Market Failures as Political Design

Pollution and waste are ubiquitous features of any production process, making 'market failures' the norm rather than exceptions requiring government intervention.

Social costs like pollution depend on the legal design of property rights - before the National Environmental Policy Act of 1969, industry had far greater leeway to dump chemical waste.

The 1877 Munn v. Illinois Supreme Court case upheld price caps on railroads and grain elevators because affordable food was deemed of social importance.

Politics through law is always structuring the composition and level of social costs - the question is who benefits and who loses, not whether to intervene.

Historical Precedents for Progressive Economic Policy

The 16th Amendment legalizing progressive income taxes didn't destroy American capitalism - the 1950s-60s had much higher tax rates during capitalism's 'golden age'.

The US historically had a more progressive taxation system than Europe, contradicting narratives about American exceptionalism in free-market policies.

America developed a robust developmental state during Reconstruction, with many New Deal economists and lawyers trained in institutional methods that engaged with social reality.

Municipal socialism or 'sewer socialism' has a long history in America, providing precedent for current policy proposals like those of Mayor Adams.

Constitutional Foundations of Economic Systems

European post-war constitutions embedded social and economic rights and human dignity as safeguards against the inequality that fueled 1920s-30s fascist movements.

America's first-generation constitution lacks explicit commitments to economic and social rights, with the 14th Amendment's personhood rights weaponized for corporate personhood.

Constitutional differences help explain why European welfare states became more robust than America's, where such protections were never constitutionally embedded.