This is a lengthy biography of one of the twentieth century’s most unique economists. In many ways he was a throwback to the Enlightenment thinkers, too cross-disciplined to be pigeon-holed into any one specific genre within the social sciences. Hirschman was a German Jew, a socialist in his youth, who had to flee from Nazi Germany, fought against Franco in the Spanish Civil War, and fled France during its WWII occupation. Before he fled, he allied with an American, Varian Fry at the Emergency Rescue Committee, to help thousands of others flee the Nazis’ grasp, including Marc Chagall, Marcel Duchamp, Max Ernst, and Hannah Arendt. Hirschman’s role forging papers, procuring visas and passports under false names, and dodging Vichy spies and police could alone make for a compelling biography. In fact, he would later return to Europe as part of the US Army liberation effort. In Italy, he was assigned as the translator for the first German to be charged, sentenced, and executed for war crimes, General Anton Dostler. However, Hirschman’s role in shaping development economics and the field at large would not even begin until he was finally settled in America.
His first contribution to the economic literature was the invention of a market concentration index. “This calculation gives an observer a consistent gauge of the size of a firm to a particular industry. Much later, the index became a standard measure for competition and antitrust enforcement.” Hirschman’s first book “National Power” sought to integrate economic policy with a nation’s political regime. Particularly, it showed how fascism, by its nature, sought to dominate others in all spheres of life, both political and economic. However, autarky did not mean that nations only looked inward, but in certain spheres adopted a bullying commercial strategy, instead of free trade. The strong state sought to manipulate trade with weaker states to influence political gain. This was his analysis of Mussolini and Hitler’s colonization policies. Welfare and warfare were inextricably linked. Hirschman concluded that “the exclusive power to organize, regulate, and interfere with trade must be taken away from the bonds of single nations.” After the war, he began work in Washington at the Economic Cooperation Administration. There he would argue for the Marshall Plan and a more integrated approach to Europe, as opposed to separate bilateral deals. He pushed for a European central bank and currency, arguing that a European Union gave “the best hope for a regeneration of Western European civilization and for a new period of stability and growth.”
Because of his past in European socialist youth groups and questions about his loyalty to America, Hirschman was blacklisted for promotion and plumb jobs at the FED or Treasury Departments. Instead, he found himself consulting for the newly formed World Bank in Columbia. In Bogota, he argued for the specificity and uniqueness of development projects and studied private, but collective, ways to help the poor. Instead of compiling national statistics, he pushed for case studies of successful businesses, analyzing the “personality and background of founders and managers.” He sought to affect change on the margins. “I am precisely no creator of systems, but I always only come up with small improvements or criticisms, which give me pleasure while I am doing them, but which, upon their completion, always throw me back into a vacuum in which it seems completely impossible to me to ever have a single new thought again.” He opted for modesty in his field and hated the role of the outsider expert. “Our abilities will sooner or later invite reactions of the type ‘But the Emperor has nothing on!’ [The economist] suffers from the universal desire for power” and fails to “admit that there are limits to his prowess” resulting from “an optical illusion that economics as a science can yield detailed blueprints for the development of underdeveloped societies.” Hirschman advocated a “propensity to experiment and to improvise [instead of] a propensity to plan…. Nothing in progression can rest on its original plan.”
Hirschman’s next book was “The Strategy of Conflict”. Hirschman was always well spoken and well read. Besides German, he spoke French like a native, from his years as an exile and spy, and he also knew Spanish, Italian, and English fluently. He kept Montaigne’s “Essays” by his bedside and during his time in Bogota he was reading Kafka’s “The Great Wall of China”, Dostoevsky’s “Demons”, Burke’s “Reflections on the Revolution in France”, and rereading Smith’s “Wealth of Nations.” However, the works that were having the most impact on him were Freud’s insights in psychoanalysis. He came away with the idea that normal anxiety served as a stimulus and a psychic resource to overcome subsequent difficulties. “Failure, and learning from it, was a strategy for success.” He was also focussing on the idea of unbalanced growth. It was the creation of “pressures, tensions, and disequilibrium" that put in motion further tensions and frictions. This chain propelled the economy along, as people were inspired to solve ever-new challenges. “Developing countries were not fragile infants at risk of being choked in the cradle without expanded infrastructures. Better to invest in industries, agriculture, and trade directly; allow them to expand and to create the obstacles and bottlenecks- and therefore create shortfalls in social overheads…. Capital was simply underutilized for lack of perceived opportunities.” The main contribution of this book was Hirschman’s idea of linkages. “There were two kinds of linkages- forward (what happens to a product as it gets refined or marketed to yield subsequent economic activity as it rolls to the consumer?) and backward (what sorts of inputs are necessary for the production and handling of the good?). Each yielded different kinds of activities. What was important was that a push in one industry or sector could set in motion tensions or scarcities and thus new opportunities for lucrative ventures in other industries or sectors “linked” to the original push. It was in the very imbalance and the disequilibrium created by the initial shove that the economy might develop.” Particularly in Latin America, but as a general notion, Hirschman strove for reform and not revolution. However, he saw the “increasing disorder of modernization as a virtue.” Development did not fail because it did not go as planned. Projects might not end up being efficient themselves, but they often would spawn imitators and even competitors in tangential fields. “Resistances propel further pressure to adapt and change.” Hirschman mused, “Instead of asking: what benefits [has] this project yielded, it would almost be more pertinent to ask: how many conflicts has it brought in its wake? How many crises has it occasioned and passed through? And these conflicts and crises should appear both on the benefit and cost side, or sometimes on one- sometimes on the other, depending on the outcome (which cannot be known with precision for a long time, if ever.).” He embraced the uncertainty and the need for adaptation on the fly. “Mankind only takes up those problems it thinks it can solve- and then, once bitten, engage, solves them- or fails.” It was this “hidden hand” that often “stumbled into achievement.” Only by going forth can one get to an end, often not of the original intention or design. “Ignorance of risk can offset usefully aversion to risk.” He viewed, “hope as a principle for action.”
Hirschman next wrote “Exit, Voice, or Loyalty”. One could either defect or speak out. (Loyalty was largely ignored in his book.) People were active actors who decided to choose between courses. He recognized that public institutions, from governments to companies to universities, were all in decline. Faced with decline, inherited patterns of loyalty no longer kept “consumer-members” in place. The choice was between raising hell within or withdrawal to without. When people still have a shred of loyalty they tend to favor voice instead of exit. Related to this was Hirschman’s idea of possibilism. Ever the moderate, he wanted to stake out ground between the revolutionaries and the conservatives. He pondered, “the real criticism of the reformer is not that he is ineffective but that he might just be effective and that he may thereby deprive the oppressed from achieving victory on their own terms.” He urged to push ahead even without complete knowledge, ensuring uncertainty. "Not only is history unpredictable but there can be no change without its unpredictability…. Aren’t we interested in what is (barely) possible, rather than what is probable?” The aim was “the search to invent new channels for voices to be heard.” To the revolutionary he cautioned, “envy is such a mean emotion” (and the “only one of the seven deadly sins from whose practice you don’t ever get any fun or enjoyment.”) He coined the metaphor of “the tunnel effect” for the feeling of drivers stuck in a traffic jam in the Logan Airport tunnel. As long as everyone was inching along everyone felt ok, but as one lane moved faster alone, the drivers in the other lanes felt cheated and their moods got even worse than before, when everyone was stuck together. “They were once gratified and now felt deprived.” Perceptions were as important as reality. Relative gains matter. “The concentration on economic discussions may mislead the government into thinking the principal problem is economic when what the people really want is something quite different.”
Hirschman’s next book was “The Passions and the Interests: Political Arguments for Capitalism Before Its Triumph”. At this time, Hirschman was retreating back to the Enlightenment ideas. He was reading Machiavelli’s “Discourses” and “The Prince”, Adam Smith’s “Lectures on Jurisprudence", Montesquieu’s “Spirit of the Laws”, and also Hume, Ferguson, Mandeville, Helvetius, Vico, Herder, and Max Weber. Hirschman spent his career searching for the dissatisfaction with modernity and capitalism. “In my scheme the ‘distance that makes one gasp’ (the goal of all theory construction) is between the expectations and hopes that helped install & legitimize bourgeois society & capitalist activity, on the one hand, and the desperately disappointing results- so disappointing in fact that we have repressed the consciousness of those expectations & hopes (grundlichvergessen’ Freud)…. Capitalism was born alienated and already repressed and repressing.” He was toying with the tension between private selfishness and the social good- “rebranding personal passions into interests.” Following Machiavelli, he also sensed that the real danger was honor, power, and the fame of state control. “The expansion of commerce and industry is useful because it will deflect men from seeking power and glory, [and] will keep them busily occupied making money which is harmless and perhaps even socially useful.” Commerce and industry would promote the public interest indirectly, in the course of those pursuing personal gain directly. This was Hirschman’s style of republicanism- the balance between the individual and the common good. He always sought checks and balances- to countervail. “He wanted disruption and repression, harmony and disorder- passions and interests. Each force contained within it its own tendency to resist it.” The passions and the interests were counterpoints to each other, as well as codependent. "The rules of passions could lead, without checks, to horrible utopias; the rein of interests to soulless pragmatism."
Hirschman’s last major work was “Shifting Involvements”. Disappointment was also a counterpoint to hope. Trying to avoid mistakes led to as much regret and disappointment as action. “While a life filled with disappointment is a sad affair, a life without disappointment may not be bearable at all. For disappointment is the natural counterpart of man’s propensity to entertain magnificent vistas and aspirations." Search for “exits” to unhappiness propelled new success. “These efforts could be either private-pursuing or public-engaging; the point is that they were subject to similar propensities.” Consumer society often led to disappointment, as purchasing goods and luxury services led to diminishing returns. This led the consumer-citizen to “climb gradually out of private life into the public arena.” Public life, in turn, led to its own disappointments. “Casting ballots does not allow for the expression of different “intensities” of convictions. The result: voting has a “dual character"- to defend against the “excessive repressive” state while “safeguarding" it against “excessively expressive” citizens…. The franchise was an “antidote to revolutionary change”…. In short, the trouble with political life is that it is either too absorbing or too tame.” The pendulum was always swinging back and forth between the private and public spheres. The hope for Hirschman was to imagine incremental social change without complete overhauls to society. “Help the fallible citizen, this imperfect subject, to imagine alternatives without making them impossible." Hirschman advocated a morality to social science as distinct from the value-free physical sciences. In fact, morality “belongs in the center of our work, and it can get there only if social scientists are morally alive and make themselves vulnerable to moral concerns- then they will produce morally significant works, consciously or otherwise.” He was also concerned with group identity politics. He was troubled by “the systemic lack of communication between groups of citizens, such as liberals and conservatives, progressives and reactionaries…. The resulting separateness of these large groups from one another seems more worrisome to me than the isolation of anomic individuals in ‘mass society’ of which sociologists have made so much.”
Hirschman thought his own legacy was not any grand system, but a series of what he called petites idees. “They are like aphorisms, very astonishing remarks, perhaps paradoxical in nature, but which are perhaps true because of it.” His lifetime was spent gathering and mulling over his own petites idees in countless journals and notebooks, sometimes coming back to them for a new insight after decades in the back of his mind. They took time to germinate. These “small ideas, small pieces of knowledge…. do not stand in connection with any ideologies or worldviews, they do not claim to provide total knowledge of the world, they probably undermine the claims of all previous ideologies.” Another term he used was Machiavelli’s “castelluzi” or little castles. “We can be distracted and diverted and divested by small things, since small things are capable of holding us. We hardly ever look at great objects in isolation; it is the trivial circumstances, the surface images, which strike us- the useless skins which objects slough off.” After all, it was not necessary to know everything in advance before making the biggest of decisions.
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