The Establishment of American Economic Association

In order to properly understand the early development of the discipline of economics in the US, it is imperative to study the original establishment and

180 GHSE and Establishment of Economic Associations and Journals evolution of the AEA.

the development of Social Science, and to guide the public mind to the best practical means of promoting the Amendment of Laws, the Ad­vancement of Education, the Prevention and Repression of Crime, the Reformation of Criminals, and the progress of Public Morality, the adoption of Sanitary Regulations, and the diffusion of sound principles on questions of Economy, Trade, and Finance.

(American Social Science Association 1866, 3)

Its members, which included academics, politicians, clerics, and businessmen, were supposed to ‘to collect all facts, diffuse all knowledge, and stimulate all inquiry, which have a bearing on social welfare.’¹ Some adherents of the Old School, such as William Graham Sumner (1840-1910), were ‘disenchanted with the “do-goodism” aspect of the ASSA’s activities,’ whereas adherents of the New School were pleased with ‘the reformist dimension of the ASSA’s style’ (Barber 2001, 219). Eventually, the ASSA came to an end in 1912, as its membership gradually splintered off and formed their own associations.

For German-trained American economists, the goals and agenda of the ASSA were far removed from those of Vereinfur Sozialpolitik (the German As­sociation for Social Policy), which directly inspired the establishment of the AEA. Verein fur Sozialpolitik was a reformist organization founded by adher­ents of the GHSE to oppose the individualism and laissez-faire approach of the Manchester School, which was directed by Richard Cobden (1804-1865) and John Bright (1811-1889). Verein fur Sozialpolitik was officially established in 1873, with its first congress taking place on October 6 and 7 of that same year. However, an initial meeting that led to its creation was organized in Halle, Germany, in July 1872, which involved the participation of promi­nent theorists of the GHSE, including Wilhelm Georg Friedrich Roscher (1817-1894), Ernst Engel (1821-1896), Bruno Hildebrand (1812-1878), Adolf Gotthilf Wagner (1835-1917), Johannes E. Conrad (1839-1915), Lujo Bren- tano (1844-1931), Gustav von Schmoller (1838-1917), and Friedrich Knapp (1842-1926) (Philippovich 1891, 226).

Verein fur Sozialpolitik aimed to address ‘broadly the social problems of in­dustrialisation and urbanisation, involving impoverishment, class conf lict,

GHSE and Establishment of Economic Associations and Journals 181 and social fragmentation’ (Tribe 2002, 10). Its membership included scholars from political economy and other social sciences, trade union leaders, ‘gov­ernment officials, publicists, journalists,’ ‘manufacturers, land proprietors,’ and members of political parties (ibid.). However, while this diverse group may have had significant differences of ‘opinion,’ they were ‘united in their opposition to the Manchester school’ (ibid.: 226, 231). They were also in agreement that unrestricted economic activities on the part of private busi­nesses did not safeguard the welfare of the masses.

In Germany, Conrad advised the American students in his seminary to organize an association similar to Verein fur Sozialpolitik in the US after they returned home (Ely 1910, 108). Basically, he told them that:

the old order was passing away, and if economic students were to have any inf luence whatever upon the course of practical politics, it would be necessary to take a new attitude toward the whole subject of social legislation, and if the United States were to have any particular influence in the great social legislation and the great readjustment of society on its legal side which seemed to be coming, an association of this sort would have very real value.

(ibid.)

Edmund Janes James (1855—1925), who was among those in attendance, was inspired by Conrad’s advice and decided that he would work on creating such an association in the US as soon as possible (ibid.).

In February 1883, James visited many of the leading American institu­tions of higher learning to engage in conversations with some of their prom­inent members about the possibility of establishing an economic association of the sort suggested by Conrad (ibid.: 109). Some of the specific individuals that he engaged with included Henry Carter Adams (1851—1921) of Mich­igan, Arthur Lathamn Perry of Williams (1830—1905), Charles Franklin Dunbar (1830-1900), and James Laurence Laughlin (1850-1933) of Har­vard, John Bates Clark (1874-1938) of Smith College, William Graham Sumner (1840-1910) and Henry Walcott Farnam (1853-1933) of Yale, Fran­cis Amasa Walker (1840-1897) of Massachusetts Institute of Technology (MIT), Edwin Robert Anderson Seligman (1861-1939) of Columbia, Richard T.

Ely (1854-1943) ofJohns Hopkins, and Robert Ellis Thompson (1844-1924) and Albert S.

The following year, in 1884, James and Simon Nelson Patten (1852-1922), both of whom received their doctorates in political economy from the Uni­versity of Halle, launched an initiative to establish an organization that would be called the Society for the Study of National Economy (SSNE) which was inspired by Verein fur Sozialpolitik (ibid.: 50). The stated objectives of the SSNE were to: ‘encourage the careful investigation and free discussion of the special problems’ of the national economy; facilitate ‘the publication of economic monographs’; fight methodological individualism; promote meth­odological collectivism so as to ‘secure to each individual the highest devel­opment of all his faculties’; and advocate for ‘a general unity of sentiment’ in order to have ‘a hearty cooperation’ between people (ibid.). The SSNE would also serve as an advocate for the working classes by calling for improvements to working conditions, higher wages, and limited hours. Additionally, it was supposed to play a role in combatting the laissez-faire approach, reducing the wasteful exploitation of ‘national resources’ and encouraging conservation efforts (ibid.: 53). Ultimately, the proposed SSNE never came to fruition, as it did not attract sufficient support to justify its establishment. According to Ely (1936, 144), the proposed ‘platform’ of the SSNE was ‘too narrow’ to ‘enlist the sympathy of a sufficiently large group of American economists.’ In particular, Americans were not prepared to digest its support for more state involvement in the economy.

Despite falling short in their attempt to establish the SSNE, James and Pat­ten still believed that it was necessary to have an association that could unite political economists and encourage them to take on a new attitude when it came to the teachings and practices of their discipline.

On September 8, 1885, Henry Carter Adams, Clark, and Ely held a meet­ing in Saratoga to discuss the formation of the AEA. Most of the attendees ended up being Americans who studied in Germany, including ‘Hon. Andrew D. White, President C. K. Adams,’ ‘Professor E. J. James, Rev. Washington Gladden, Professor E. Benjamin Andrews, Rev. Samuel W. Dike’:

Mr. V. B. Denslow, Professor AlexanderJohnston, Dr. E. R. A. Seligman, Professor H. B. Adams, Mr. F. B. Sanborn, Miss Katharine Comnan, Mr. Davis R. Dewey, Edward W. Bemis, Ph.D., Mr. John A. Porter, Clar­ence Bowen, Ph.D., Professor Herbert Tuttle, Hon. Eugene Schuyler.

(Ely 1910, 58)

The following day, on September 9, the AEA was officially founded. Its overarching goal was to ‘seek light, to bear light, to diffuse light-ever the highest aim of all true science’ (Ely 1886, 6). That is to say, it was designed to encourage independent economic research and the publication of economic monographs, ensure freedom in all economic discussions, and ‘disseminate economic knowledge’ (Ely 1887, 5). In fact, Ely (1910, 69) stated:

We felt called upon to fight those who, rightly or wrongly, we believed, stood in the way of intellectual expansion and of social growth... Some of us felt that men who thought as we did were denied the right to exist scientifically, and this denial we believed to proceed from certain older men able to exercise a very large inf luence over thought, particularly thought in university circles. Very soon we felt that we had won our battle so far as the right to exist scientifically was concerned.

Like Verein fur Sozialpolitik, the AEA sought to gather ‘like-minded men’ to work together and protest ‘against the narrow English economists’ (Ely 1910, 80).

With the establishment of the AEA, young American economists or ‘the young rebels’ were made to feel as though ‘economics was not a dead thing of the past, but a live thing of the present, inviting young men to put the best they had into this field’ (Ely 1936, 146). There is no doubt that, in the early years of the AEA, its members were highly inf luenced by the GHSE and widely regarded as the new generation of economists. Meanwhile, the old generation of economists, including Arthur Twining Hadley (1856—1930), Simon Newcomb (1835—1909), Laughlin, Sumner, and Frank William Taus­sig (1859—1940), refused to join the AEA, accusing it of being a socialistic organization that was inf luenced by German socialist policies, even though members of the AEA made it abundantly clear that they did not champion any class interests.

Walker, who was president of MIT, became the inaugural president of the AEA when it was founded in 1885 and served in that capacity for the first seven years of its existence, with Ely acting as its secretary during that same period (Ely 1936). That same year, Henry Carter Adams (University of Michigan and Cornell) became the first vice president of the AEA, James (University of Pennsylvania) was appointed second vice president, Clark (Smith College) was made third vice president, and Seligman (Columbia College) became Treasurer (Ely 1887, 40). Ely (1936, 147) stated that mem­bers of the AEA looked to Walker as their ‘leader and were proud to hail him as chief.’ Walker, in turn, was ‘thrilled by the thought’ that the younger generation were ‘giving him support and were to carry on’ activities of the AEA ‘in the free and scientific spirit which always characterized his writings’ (ibid.). However, his election as the first president of the AEA also led people to mistakenly believe that Walker represented the New School, when, in fact, he could ‘not be said to have represented any particular school’ (Dunbar 1897, 445). In reality, he was ‘both theorist and observer, the framer of a theory of distribution, and also an industrious student of past and current history’ (ibid.). In 1892, Walker vacated the presidency of the AEA, as he and Ely were fully confident that it was ‘thoroughly established and any doubts about its future disappeared from’ their minds (Ely 1936, 147). In 1893, Dunbar was appointed as the second president of the AEA, even though ‘he was a progres­sive of the old school’ (ibid.). However, Ely (1936, 147) pointed out that this selection did not mean that there was a shift to the left or to the right at the AEA. Shortly thereafter, Ely nominated Edward Alsworth Ross (1866—1951), his former student, to be his successor as secretary of the AEA (ibid.).

In the first few decades after the AEA came into existence, the majority of its presidents studied under theorists of the GHSE or adherents of the New School. For example, Clark, who studied at the University of Heidelberg un­der Conrad and Karl Knies (1821-1898), was president of the AEA in 1894­1895. Then, Henry Carter Adams, who studied in Heidelberg and Berlin for two years, served in that capacity during 1896-1897. Subsequently, Hadley, who studied political economy at the University of Berlin under Adolph Wag­ner (1835-1917), was president of the AEA in 1898-1899. In 1900-1901, the presidency was given to Ely, who obtained his PhD from Heidelberg under Knies, followed by Seligman during 1902-1903, who had previously attended the universities of Berlin and Heidelberg. In 1905-1906, the position was given to Taussig, who studied economics at the University of Berlin. Next, Jeremiah Whipple Jenks (1856-1929), who obtained his PhD from the Uni­versity of Halle under Conrad, was president of the AEA in 1906-1907. In 1908-1909, the presidency was assumed by Patten, another alumnus of the University of Halle (1876-1879) who studied under Conrad. Then, Davis Rich Dewey (1858-1942), who studied at Johns Hopkins University under Ely and Henry Baxter Adams (1850-1901), became president in 1909-1910. He was followed by James, who obtained his doctorate in political economy from the University of Halle in 1877 and served as president of the AEA in 1910-1911. Next was Farnam, who was president in 1911-1912 after previ­ously having his thesis evaluated by Schmoller at the University of Berlin. In 1912-1913, Frank Albert Fetter (1863-1949), who obtained his PhD from the University of Halle, became president of the AEA. Subsequently, David

GHSE and Establishment of Economic Associations and Journals 185 Kinley (1861—1944), a former graduate student of Ely at Johns Hopkins Uni­versity, was made president of the AEA in 1913—1914. The following year, the position was given to John Henry Gray (1859—1946), another American econ­omist who obtained his PhD under Conrad at the University of Halle. Then, in 1916—1917, the presidency of the AEA was assumed by Thomas Nixon Carver (1865—1961), who studied under Clark and Ely at Johns Hopkins Uni­versity. Following Carver, only a few of the subsequent presidents of the AEA were directly influenced by the ideas and methods of the New School.

The AEA stimulated significant progress and improvement in economic and statistical work, while also playing an active part in the establishment of a permanent census bureau (Ely 1938, 158). Additionally, the AEA helped develop ‘a growing awareness of collective interests’ among political econo­mists (Coats 1985, 1703). Its members extensively discussed and worked on labor rights and ‘railway problems,’ which led to railway reforms being en­acted (Ely 1910, 82). The AEA also played a major role in the implementation of publicly funded social and economic reforms and programs. In fact, Ely (1936, 141) claimed that without the AEA, ‘neither the New Deal nor the old could be understood.’ He believed that the New Deal was directly influenced by the social and economic reforms that were implemented by Bismarck in Germany during the 1880s. Moreover, Patten was considered to be a fore­runner of New Dealers.

In its early years, there is no disputing the fact that the AEA was a key driver of ‘thought-forces’ within the discipline of economics (Ely 1910, 81). It pro­vided ‘a forum for discussion and a medium for the publication and dissemina­tion of ideas’ (Ely 1936, 148). It also played a significant role in ‘the emergence of a national scholarly elite’ (Coats 1985, 1703). During that time, the AEA was mainly shaped by adherents of the New School. Accordingly, its publications focused on positive state actions with respect to public utilities, the achieve­ment of the general welfare of society, and ‘the principle of competition, as a regulating factor in the sphere of industry’ (Ely 1936, 148). Other topics that were frequently covered included transportation, international trade, public finance, and statistics. It also published a number of monographs on labor and cooperation that were written by some of Ely’s former students from Johns Hopkins University who were inf luenced by theorists of the GHSE (ibid.). Additionally, the AEA offered ‘prizes for essays on various economic questions of the day’ to inspire ‘popular interest in economic questions’ and direct ‘a few young people in useful careers’ as political economists (Ely 1910, 74). The membership of the AEA expanded considerably since it was first established in 1885, due in large part to the fact that ‘all the active economic workers’ in the US were invited to join and participate (Walker 1889, 17).

Although one cannot precisely measure the contributions that the AEA made to the rapid development and progress of the discipline of economics in the US, Ely (1910, 98) stated that ‘the indefinable influence and intangible ef­fects’ of this association were ‘very great.’ Before the AEA gained prominence, theorists of the New School were isolated, even facing a hostile environment

perpetrated by adherents of the Old School (Devine 1894). Eventually, the AEA became so important that some supporters of the classical orthodoxy joined ‘in spite of objections’ about its goals and principles (Walker 1889, 22). Prominent among them was Newcomb, who joined the AEA in 1894 even though he was highly critical of Ely’s views, even stating that ‘Dr. Ely seems to... be seriously out of place in a university chair’ (Barber 1993, 220). Over time, cooperation among American economists from different schools of thought resulted in ‘indifference, distrust, antagonism’ gradually dissipating (Walker 1889, 22). In other words, the AEA contributed to eas­ing tensions and putting battles between the Old and New Schools behind them, mainly due to compromises ‘in tactical matters’ made by German- trained economists (Herbst 1965, 149). In essence, the AEA represented ‘the wave of the future’ for the discipline of economics (Coats 1985, 1701).

According to James, the AEA and American economists in general owed ‘a great debt’ to Ely for his ‘untiring industry and devotion’ to reforming the discipline of economics (Ely 1910, 111). He emphasized that without Ely, the AEA would not have been established when it was, nor would it have ‘succeeded so well’ (ibid.). The AEA ‘awakened new interest in economics, has brought kindred minds into fruitful contact, has aided students by advice and counsel’ (Ely 1886, 32). As a result, there was an ‘increased influence of economists and statisticians in the public life’ (Ely 1910, 98). Ely (1910, 98) pointed to ‘the aggregate change in the attitude of the American people to­ward expert knowledge of economic affairs which this Association can claim as its great and significant achievement.’ The AEA also exerted:

an inf luence on foreign countries. In Glasgow it served as a stimulus for a local University Economic Association. From Oxford, England, came the suggestion made by a well-known English economist of the formation of a local association in alliance with the American Economic Association.

(ibid.: 85)

The AEA was essentially ‘a stimulus and a model’ for economists in Great Britain, who established the British Economic Association (later renamed The Royal Economic Society) in 1890 (Ely 1936, 148). It also served as a catalyst for the establishment of similar associations in Australia, South Africa, and Japan (ibid.). Although many of the important achievements of the AEA could be attributed to the ideas, methods, and policies that it imported from the GHSE, this school of thought was nonetheless abandoned by AEA members for most of the 20th century.