The Neoclassical Advent: American Economics at the Dawn of the 20th Century

Abstract

For the U.S. economy, the last quarter of the 19th century brought the closing of the Western frontier, agricultural hardship in the South, the rise of large corporations and trusts, and the emergence of a serious labor movement. The fledgling American economics profession struggled to document and prescribe for the confounding mix of industrialization, urbanization, and rural crisis. In 1900, the relatively small community of serious economic researchers focused on applied issues in public policy and industrial organization. The prominent institutionalist school, strongly influenced by the almost millennial theories of the social gospel movement, emphasized the inequities of the emerging economy and looked forward to a new, more cooperative system of production. On the eve of the 20th century, John Bates Clark published in 1899 The Distribution of Wealth: A Theory of Wages, Interest and Profit. With this volume, neoclassicism matured into a major intellectual force within American economic thought, with Clark as its defining figure. Clark's analytical approach and his normative purposes hardly went unchallenged. Moreover, the great majority of economists in the United States continued to work in the institutionalist vein up to World War II. Nevertheless, by viewing the American neoclassical advent in the context of its own time, we can gain a deeper understanding of both American economics at the turn of the 20th century and the early character of the school that came to dominate our discipline.