Poverty and the Scope of Economics in the Sixties

Jean Baptiste Fleury

Economix-Cachan

Bâtiment Cournot

Ecole Normal Supérieure de Cachan

61, av. du president Wilson

94235 Cachan Cedex

Very Preliminary draft

I. Introduction

When remembering her work as Deputy Assistant Secretary at the Department of Health,

Education, and Welfare (HEW), the economist Alice Rivlin said:

“We thought we were pioneers, crusaders for a cause. The ideas of quantifying,

measuring, evaluating and systematically analyzing the cost effectiveness of

alternative policies were relatively new and quite threatening. We were young

and brash and hopeful -- and to many of the seasoned bureaucrats in the

Department we must have sounded pretty naive and silly. But we found out

that they had a lot of knowledge and relevant experience. They found out that

some of our crazy ideas made sense and helped them make and defend

decisions” (Rivlin, 1998).

This recollection captures the social engineering spirit that characterized the work of

social scientists, and especially economists, during Lyndon Johnson’s presidency. The

implication of social scientists in the War on Poverty has been subject to a certain numbers of

historical studies, by Romain Huret (2004, 2008), David Jardini (1996), or Carl Brauer

(1982). Although Huret mentions the relations between economists such as Rivlin, Robert

Lampman and other social scientists (such as Ida Merriam, or Molly Orshansky), none of

these studies, however, address the question of the boundaries of economics and their

evolution.

It is generally believed, after Swedberg (1990), that the work of Gary Becker (1957)

on discrimination, and of Anthony Downs (1957) on democracy, renewed the dialogue

between economists and the other social scientists after a long period of mutual ignorance, a

consequence of the Methodenstreit. The existing literature on economics imperialism shows

that such an approach, traditionally associated with the department of economics of the

University of Chicago, became visible as late as the mid-seventies, following the publication

of Gary Becker’s The Economic Approach to Human Behavior (see, for instance, Swedberg,

1990, p. 4). Indeed, Becker’s 1976 book defined the economic approach, as a method that

enables the economist to study every facets of human behavior. Interviewed by Swedberg

(1990, p. 34), Becker claims that by the early 1970s, he had become confident in his choice of

topics, and that the criticisms he faced were too conservative.

However, it is generally believed that a decade before, such an approach to social

phenomena was criticized among the economics profession. For instance, Becker’s first paper

on fertility was criticized by Duesenberry (1960) and Okun (1960). Duesenberry’s comments

remain legendary: he reminded Becker that economics was the study of choice, whereas

sociology was the study of why people had no choice. Teixeira (2005, 2007) also claims that

the early human capital literature faced a similar skepticism. Yet, the literature on economics

imperialism offers no explanation of the growing influence of this approach. The aim of this

paper is precisely to study that question. We wish to focus on the relationships between

economists and other social scientists during the sixties, in order to depict the growing

influence of the “economic approach” to social phenomena. In this development, the context

of the War on poverty by the Johnson administration offered an important opportunity for

economists to demonstrate their ability to study social phenomena.

We show that the emphasis on the notion of poverty led to an expansion of the

economist’s domain of expertise. Poverty stood at the boundaries of many social sciences. It

was an economic problem that had social ramifications. In these days, most of the social

problems were related to poverty: crime, public order, public health, education, and

discrimination. We focus on the work of Mancur Olson at HEW. As Deputy Assistant

Secretary, he was in charge of writing the first “social report” in the history of the United

States. The report built a very specific definition of the “social”, which comprised the various

expressions of poverty. Moreover, it gave visibility to the new subfields of economics that

were developing in response to such social problems. Thus, we identify the links between the

work on the social report and the nascent fields of the economics of education, health, and

crime. This development diffused a specific understanding of the relationships between

economics and the other social sciences, in which economics emerged as a helpful tool to

study non-economic phenomena and formulate relevant policy recommendations.

In the second section, we study the coming of poverty to the public mind, as the

outcome of political decisions. In the third section, we show that the first social report to the

President offered a specific definition of the “social”, linked to the notion of poverty. In the

fourth section we analyze the links between the social report and the growing economic

literature on social issues. The fifth section studies Olson’s approach to the Social Report and

its consequences on the relationship between economics and the other social sciences. Finally,

the sixth section offers concluding comments.

II Shaping a specific definition of the “social”

In the early sixties, poverty was not much of a social concern. Scientists didn’t address the

problem, except perhaps for Theodore Schultz’s 1950 study of poverty among farmers and a

few others (Jardini, 1996).1 However, Republicans and the Eisenhower administration were

not so interested in poverty, as postwar society experienced an unprecedented level of

economic prosperity. This new affluence, as shown in the famous The Affluent Society (1958)

by John Kenneth Galbraith, overcame the disgrace of poverty (Brauer, 1982). Huret (2008)

goes even further: he states that in the Cold War society of the fifties, the mere mention of

poverty could have raised suspicions.2 Even the Civil Right movement was relegated to a

problem specific to the black community and its social status. During Kennedy’s term,

poverty was often referred to as a foreign or international problem. He was more concerned

with unemployment or the rate of economic growth than domestic poverty per se (Brauer,

1982). Thus, there was no clue indicating that the public opinion worried about poverty.

Indeed, according to Adam Yarmolinsky (1969), the list of bibliographical references on the

topic that was compiled by Robert Lampman in the early sixties didn’t exceed two pages (see

Jardini, 1996, p. 307).

To many commentators, the emphasis on poverty was a political move that originated

in the mind Kennedy’s advisers as a strategy to win the 1964 election campaign. According to

Brauer (1982), the Council of Economic Advisers played an interesting part in that

development, and more specifically, two economists from the University of Wisconsin:

Walter Heller and Robert Lampman. Lampman had worked on the topic of poverty at the

NBER during the fifties. In 1958, Lampman worked on an early definition of the poverty line,

as part of a report commissioned by Paul Douglas to criticize Galbraith’s optimistic account

of the American society (Huret, 2008, p. 80).3 In these years, he developed a criticism of the

implicit notion of a “voluntary poverty” found in Galbraith’s writings (ibid.). In 1963, Heller,

then chairman of the CEA, asked Lampman to work on a set of propositions for the 1964

campaign, in which the eradication of poverty would be a major element.

1 Schultz criticized the widespread belief that poverty among farmers was acceptable because it seemed to be a natural phenomenon. He spotted many facets of this “mythology”, including the farmer’s willingness to remain poor, and the fact that many African American and Mexican who composed the agricultural workforce were “naturally” poor (Schultz, 1950, pp. 2-3). 2 During the 1960 election campaign, Richard Nixon had declared that any emphasis on poverty provided "grist for the Communist propaganda mill” (Brauer, 1982, p. 101). 3 In 1959, Lampman and Guy Orcutt were the main architects of the creation the Social Systems Research Institute at the University of Wisconsin, a “Manhattan project” for the social sciences, supported by the Ford Foundation, the NBER, the Russell Sage Foundation and the Brookings Institution (Huret, 2008).

Poverty was slowly emerging as a central aspect of the social issues facing American

society. Since the late 1950s, the American society had witnessed an important increase of

crime rates, a consequence of the growing proportion of young people in the American

population. President Kennedy addressed the problem of juvenile delinquency through the

creation of the President’s Committee on Juvenile Delinquency and Youth Crime in 1961.

According to Lagemann (1999), the same year, Dyke Brown, the Ford Foundation’s Vice

President, and David Hunter, one of the Foundation’s staff members, met with the

Committee’s executive director, David Hackett, in order to expose their approach to the

problem. The Foundation was engaged in many programs. The most notable was the

Mobilization for Youth in New York City. Its action was grounded on the work of two

sociologists, Richard Cloward and Lloyd Ohlin, which approached crime not as an individual

problem but as a community pathology, later labeled the “opportunity theory” (Sundquist,

1968).4 Thanks to the links between the Foundation and the President’s Committee, the

opportunity theory gained considerable visibility, especially since Heckett recruited Ohlin to

be the main architect of the Committee’s main philosophy (Lagemann, 1999). Subsequently,

the report of the President’s Committee’s emphasized poverty as the main factor of crime.

Thus, alongside with the Ford Foundation, the President’s Committee supported many

communities in the early sixties (Sundquist, 1968). As Sundquist wrote, “before the war on

poverty was declared, some highly organized preliminary skirmishing was under way” (ibid.,

p. 135).

The struggle against poverty gained momentum after Kennedy’s assassination in

October 1963. His successor, Lyndon Johnson was an admirer of Franklin Roosevelt. He had

hoped that Kennedy’s reforms would go beyond the tax cut. He took advantage of the specific

emotional and political context to push forward his own political agenda. Meanwhile one of

Kennedy’s engagements, the Civil Right Acts Bill, was voted by the Congress in 1964,

Johnson brought into light the problem of poverty. On January 8, 1964, during his State of the

Union address, Johnson declared the war on poverty. It was as a way to overcome the major

social ills of the country. Johnson’s landslide victory in 1964 supported the launch of one of

the biggest social reforms program, Great Society. The War on Poverty was designed to be

the cornerstone of the Great Society program. Vindicated by the success of the tax cut,

economists (and especially Lampman) contributed to its design. As a result, the Office of

Economic Opportunity was created in 1964, and initially granted of 1.5 billion dollars. Its

4 Their conclusion shared ties with another poverty theorist, Paul Ylvisaker (Huret, 2008).

function was to coordinate various welfare programs. Among them, the Community Action

Program was enacted to fight poverty on a decentralized basis. It was made of a thousand

community action agencies, each one of them adopting their own strategies for assisting the

poor (Aaron, 1978, p. 29).

According to Jardini (1996), the War on Poverty was not solely designed to address a

domestic issue. It found its roots in the Cold War context. Decolonization movements made

some foreign countries subject to the temptations of the communist discourse. For American

leaders, social ills such as poverty or racism favored the growth of anti-imperialists or

communists ideologies in some regions of Africa, Southeast Asia, or Latin America.

Moreover, the racial tensions of the early sixties reminded that social unrest threatened the

American society as well. For Yarmolinsky, the War on Poverty was “one of our most

effective tools in the war against Communism. Democracy can grow neither at home nor

abroad in the shadows of hopelessness and deprivation. Our international stature will be

immeasurably enhanced if we succeed in becoming the first great nation to enter the anti-

poverty race” (Yarmolinsky to Hays Redmond, May 25, 1964, in Jardini, 1996, p. 310).

The emphasis on poverty was a powerful way to address the growing social discontent

of the mid-sixties, which stressed the paradox between economic prosperity and social

despair. As Walter Heller said during the hearings before a legislative subcommittee on the

Office of Economic Opportunity: “clearly, we cannot rely on the general progress of the

economy-or on job creating programs alone- to erase poverty in America” (quoted in

Gallaway, 1965, p. 122). The 1964 report of the CEA tackled the problem of poverty by

underlining three major problems. The first was rooted in the way poverty was transmitted

over the generations. It was believed that a proper education would enable individuals to

overcome their cultural deficiencies. The second came from the failures of the social system,

such as the presence of discriminatory behaviors, which prevented a fraction of the Americans

to embrace the American creed.5 The last one stemmed from the failures of the economic

system. A fraction of the American population could not benefit from the economic growth, a

view later labeled “backwash thesis”. Heller had concluded that although the number of

individuals below the poverty line was significantly lower in 1956 than in 1945, the

decreasing trend had stopped since then. The rationale behind the Great Society programs

5 The "American creed” is Gunnar Myrdal’s wording used in his An American Dilemma (1944). The book showed the moral conflict between the values of freedom, equality of opportunity and justice (i.e. the “American creed”), and the segregation system in the southern States.

echoed the “opportunity theory” of Cloward and Ohlin. The members of the CEA considered

poverty as the main factor that prevented certain individuals from equal access to jobs,

educational opportunities, and social mobility.

The various aspects of poverty such as bad health, delinquency and educational

deficiencies were identified by the 1964 report of the CEA as the “enemy” of the war. These

social ills were a burden to society for two reasons: they limited the economic and social

opportunities of individuals and they generated heavy expenses to prevent them. Thus, the

economic report emphasized the multidisciplinary nature of problem of poverty. It intertwined

economic and a social problems. Poverty stood at the boundary of economics and other social

sciences. Not surprisingly, economists of the CEA such as Selma Mushkin or Burton

Weisbrod were also interested in the use of economic tools outside of its traditional

boundaries, through their contribution to the subfield of human capital and the economics of

health.

Despite the multifaceted character of poverty-related problems, the war on poverty

conducted by many federal agencies had to be cost-effective. This was another aspect of the

spirit of Johnson’s Great Society. In consequence, the influence of economic reasoning

increased during the Johnson administration. The Planning Programming Budgeting System

(PPBS) was instrumental in such a development. Enacted in August 25, 1965, PPBS was a

tool designed to implement rational, cost-effective, public policies. The system was the

outcome of the operational research conducted at Rand Corporation in the fifties. Two rand

economists, Alain Enthoven and Charles Hitch, had previously implemented the system at the

Department of Defense, which was under the leadership of Robert McNamara, a former

president of the Ford Motor Company (Rand’s main financial support). The planning system

shared ties with the Policy Analysis also developed at Rand, and which was increasingly

taught in graduate schools.6

With PPBS, federal agencies had to compare the cost and the benefits of a specific

decision to the costs and benefits of all other alternatives when allocating resources and

budgets (Olson, 1969). They had to focus on their performances. Rational policy-making

implied the need to evaluate the efficiency of various decisions. PPBS was only one of many

illustration of the growing place of cost-benefit calculation in federal agencies. In 1965, the

Bureau of Budget created a special unit in charge of such analyses (Mass, 1966).

6 For instance, Schelling developed such a curriculum at the Kennedy School of Governement at Harvard, William Niskanen did the same at Berkeley, and Enthoven at Stanford (Amadae, 2003, pp. 74-75).

Such a rationalization called for appropriate data on the current state of the American

society. During the presidential campaign, Heller and Lampman had worked on the definition

of a poverty line, which was set at 3000$ a year. Based on their work, but also on Mollie

Orshansky’s studies at the U.S. Social Security Administration, the Office of Economic

Opportunity adopted a poverty line of 3000$ per year.7 However, an income definition of

poverty was necessarily incomplete: it couldn’t account for all the social issues faced by the

Johnson administration. For the economists of the CEA, poverty prevented the realization of

the “human potential”. It slowed down social mobility. But these economists were guided by

the belief that an appropriate welfare policy would restore the equality of opportunities.

However, this goal could not be attained without a precise set of social statistics. Moreover,

without such statistics, the rationalization of public policies promised by the Great Society

program would be hard to secure. As a consequence, in 1966, Johnson called for a set of

social indicators that would provide measurable goals for public policies, and criterions for

the evaluation of their efficiency.

The Secretary of HEW, John Gardner, appointed William Gorham and Daniel Bell to

lead a group of 41 scholars in order to work on the first social report to the president. Bell was

a famous sociologist, author of The End of Ideology (1960). He was also the editor of The

Public Interest, a journal in which economists and other social scientists interacted. Olson was

appointed Deputy Assistant to the Secretary for Social Indicators, but also assisted Bell in

supervising the panel of social scientists and the writing of the social report. Olson was the

author of The Logic of Collective Action (1965), which studied the relationships between

individual interest and group behaviors. The book as well as Olson’s presentations at the

Conferences on Non-Market Decision Making (the early Public Choice Society) testified for

his interest in interdisciplinary issues and his knowledge of sociology and political science.

The panels of social scientists had to work on a definition of the “social” that would be

measurable. The report was expected to deepen the notion of poverty and set the minimum

needs for the American society of the mid-sixties. Following the 1964 economic report of the

CEA, the “social” was defined in accordance to the various problems that stemmed from the

notion of poverty. Consequently, the social report was composed of seven chapters: health

and illness; social mobility; the physical environment (pollution); income and property; public

order and safety; learning, science and art; participation and alienation.

7 Orshansky’s definition was based on the 1955 Food Consumption Survey, “which measured the amount spend on food dureing a seven day period in the spring of 1955” (McNeil, 1976, p. 1).

This definition of the social problems was not uncontroversial. It was the outcome of a

discussion among the social scientists of the panel. For Olson, certain issues, such as the

increasing amount of family break up, were not considered social issues. Some social

scientists of the panel expressed the desire to incorporate family problems in the list of social

issues, following the Moynihan report of 1965.8 Although a consultant for the Johnson

administration, Moynihan was an early critique of Great Society. For instance, he thought that

the job formation program, which was designed to promote the equality of opportunities, to be

insufficient. Many social ills stemmed from family disruptions, especially among African

American families. Excluded of the economic system, Black males were also emasculated by

their history of slavery and their cultural values, which, in turn, prevented them to fulfill their

potential. The matriarchal structure that characterized black families was so different from the

standard American family that it significantly slowed down the socioeconomic progress of

Black males, who depended extensively on welfare aids. This provided strong incentives to

family disruption. The report was very controversial. Among its critics, economists stood

against the implementation of a welfare program centered specifically on African Americans.

Echoing the opinion of several social scientists of the panel, Olson did not include much

family issues in the social report, as they considered family disruption to be “more a personal

or a small group rather than a social problem” (Olson to Eleanor Sheldon, march 11, 1968,

MOP, Box 71, folder “Bell”).

Social indicators were the cornerstone of the social report and would make the report a

most original piece of research. The approach was statistical. A social indicator was designed

to be a “direct measure of welfare and is subject to the interpretation that, if it changes in the

“right” direction, while other things remain equal, things have gotten better, or people are

“better off”” (U.S. Department of Health, Education, and Welfare, 1969, p. 91). Although the

relationship between social indicators and PPBS was debated among the proponents of social

indicators, because some of them believed the indicators would offset the economic bias of

PPBS, Olson’s approach betrayed his faith in economics. In Olson’s mind, the social

indicators were thought to complete the PPBS in the attainment of rational, cost-effective,

social welfare policies. Since PPBS was only implemented department by department, it

couldn’t evaluate a whole set of policies, such as educational policies, since they were

conducted at HEW and other departments at the same time. The social indicators would

provide the missing data for the evaluation of public policies.

8 Moynihan, Daniel Patrick (1965) The Negro Family: The Case for National Action, Washington D.C., Department of

Despite the fact that the social report shared strong ties with the creed of Great

Society, the work on the social report as not carried to its full potential. In 1967, Olson had

already complained to Gorham for the relative paucity of means allocated to such endeavor.

Although Gardner and Gorham were enthusiastic toward the project, they left HEW before

1968. Notably, Gardner left to protest against the war in Vietnam, which allocated resources

away from the Great Society welfare programs. An economist of the Brookings institution,

Alice Rivlin took Gorham’s position. Olson, who apparently occupied the lower rank of all

Deputy Assistants at HEW, repeated his complaints to Rivlin, but faced the same

unwillingness to hire more personnel (Olson to Rivlin, June 25, 1968, MOP, Box 90, Folder

“R”). Olson did not benefit from the replacement of Gardner by Wilbur Cohen as head of

HEW, as the latter showed a more conservative and less enthusiastic approach toward the

endeavor. In mid-1968, the development of social indicators was slow, and given the political

context, it was clear the actual team in charge of the social report would be changed by the

following administration. Thus, the report was finished in haste. A signe of relative failure,

the report, which was originally planned to be entitled The Social Report, was published in

January 1969 under the name Toward a Social Report (Swedberg, 1990). Despite this

development, the work on the social report illustrated the growing interest and contribution of

economists to the study of urging social problems.

III The Development of Economic Analyses of Social Phenomena

Under the supervision of Bell and Olson, the social report mobilized the work of political

scientists, sociologists, and, more importantly, economists. The report’s aim was to give a

general assessment of the “social health of the nation” (U.S. Department of Education, Health,

and Welfare, 1969, p. xii). Social indicators would provide a basis for judging its evolution in

time, its “social progress or retrogression” (ibid. p, xi). Economists contributed to every

chapters of the report. Its writing occurred meanwhile other economists were overstepping the

traditional boundaries of their discipline. The report sometimes used directly their work, some

other times only echoed it, but it demonstrated the growing dissemination of economic ideas

among the social scientists and the federal agencies.

As noted earlier, one of the many facets of poverty was the lack of education: as the

1964 report of the CEA wrote, “if children of poor families can be given skills and

motivation, they will not become poor adults” (CEA, 1964, p. 75). The 1964 and 1965

economic report of the CEA implicitly used the notion of human capital. The 1965 report

emphasized the importance of the returns on investment in education, of which evidence was

“mounting” (CEA, 1965, p. 157). Accordingly, the President granted one billion dollar for

the education of children of poor families. Other programs, such as the Neighborhood Youth

Corps Work Training and the Work Study Program, completed the picture.

The notion of human capital had been previously studied by two CEA economists,

Weisbrod and Mushkin.9 They had attended to the first conference on the topic, entitled

Exploratory Conference on Capital Investment in Human Beings held in December 1961 at

the Carnegie Endowment Center in New York. Gary Becker had presented the core

microeconomic framework that would be at the heart of his subsequent book, Human Capital

(1964). Another champion of human capital analysis, Jacob Mincer, presented a model of job

training. Weisbrod had presented a cost benefit analysis which studied the external effects of

investment in education. Mushkin’s contribution paralleled the investment in health to an

investment in human capital and measured its impact on the economy. Among others, Victor

Fuchs, Rashi Fein (another member of the CEA), Evsey Domar and Robert Solow attended

the conference.

Interestingly, the way in which economists of the CEA became interested in human

capital analysis echoed the story of Becker, and of another pioneer of human capital analysis,

Theodore Schultz. Both of their work illustrated the links between poverty-related issues and

education. In the early 1950s, Schultz had studied poverty among farmers, and developed the

concept of human capital as a tool to analyze the modernization of the agriculture (Teixeira,

2005; 2007, p. 25). According to Huret (2008, p. 111), when W. Lee Hansen, a student of

Kuznets in the late fifties, came to Chicago for his postdoc, he met Schultz and worked on

estimating various returns on investment in educations. At this occasion, Schultz put him in

contact with Heller. On the other hand, Becker was part of a research project led by H. Gregg

Lewis at Chicago in the mid-fifties, to study income differences between minorities in

America. In his Ph.D. dissertation and the subsequent book The Economics of Discrimination

(1957), Becker had hypothesized that, beyond discriminatory behaviors, differences in human

capital explained some of the differences in income between Whites and African Americans.

After Becker left Chicago for Columbia and the NBER in 1958, he maintained strong ties

9 Mushkin took part in the social report enterprise.

with Lewis’ and the Chicago labor workshop. Becker became interested in the study of the

returns on investment in education.

Early human capital theory initially faced criticisms. Some economists, such as Harry

G. Schaffer (1961), believed that economic rationality didn’t apply to choices of education.

Individuals couldn’t properly assess the returns on their investment in education. Others

criticized the term “human capital”, which implied an analogy between men and durable

goods (see Teixeira, 2005). This echoed the criticisms of Duesenberry against Becker’s theory

of fertility at the 1960 NBER conference.10 After the publication of Becker’s Human Capital

(1964), the book was considered for the Woytinsky prize. George Katona, one of the members

of the prize committee, expressed the same kind of skepticism toward Becker’s approach

(Katona to the committee, May 12, 1965, JMA, Box 194, Folder “Woytinsky”).11

Eventually, the book got the prize, which paralleled the growing acceptance of the

economic approach to such a social phenomenon among the economics profession. Jacob

Marschak, another member of the prize committee, strongly supported the book. Becker’s

results had “obvious implications for estimating the effect of education upon national

productivity…” and were “of direct importance for domestic educational policies” (Marschak

to the committee, April 14, 1965, JMA, Box 194, folder “Woytinsky”). More generally,

human capital theory gave a scientific foundation to the idea of “human potential” which

grounded the creed of Great Society and was stressed by social scientists such as Bell as well

as economists of the CEA. The 1969 social report also restated that “if talented individuals do

not get a full education, the Nation is obviously not developing its capacities as much as it

could” (U.S. Department of Health, Education, and Welfare, p. 69).

Human capital analysis provided powerful tools to rationalize public policies.

However, many criticisms emphasized the difficulty to isolate the effect of education on

individuals’ productivity. Olsons’ work on social indicators can be understood as

complementary research devoted to refine the measures of the returns on investment in

education. Olson was looking for an aggregate indicator that would provide an idea of the

“stock” of knowledge, in order to answer the following question: do children learn more today

than before? This would, in return, provide useful data on the efficiency of public spending.

As the report recalled: “It is generally assumed that an increase in the length of schooling and

10 Becker had compared children with consumer durables. 11 Katona was professor of economics and psychology at the University of Michigan and program director of the famous Survey Research Center. His approach of economics, oriented toward the empirical analysis of consumer behavior, stood far from Becker’s approach, as presented in Becker’s “Irrational Behavior and Economic Theory” (1962), in which irrational consumers behaved “as if” they were rational.

expenditures on education have brought about an increase in the amount children have learnt.

There is, however, no direct evidence on this point…” (U.S. Department of Health,

Education, and Welfare, 1969, p. 66).

Human capital theory was also instrumental in articulating the study of other poverty-

related questions. The first national conference on health economics held by Mushkin in 1962,

and attended by Weisbrod, was an illustration of those links (Fox, 1979).12 As Becker wrote

in his 1962 seminal paper on human capital, “the many ways to invest include schooling, on-

the-job training”, but also “medical care” and “vitamin consumption” (Becker, 1962, p. 9). As

it happened with the study of education, the nascent subfield of the economics of health

gathered economists of different tradition. Mushkin or Weisbrod reflected the Wisconsin

tradition associated with John R. Commons’ colleagues, Edwin F. Witte and Arthur

Altermeyer, who had developed strong ties with medical researchers through their work on

the social security programs of the 1930s and 1940s (Fox, 1979). On the other hand, the

microeconomic foundations developed by Becker and Mincer opened the door to the study of

public health questions. Moreover, their institutional network was also instrumental in the

expansion of the scope of economics to the study a wide range of social phenomena. Becker

and Mincer held the Labor Workshop at Columbia, inspired by the Chicago workshop system,

which provided fruitful discussions and inspirations for the study of human capital and other

labor economics problems, such as health, crime, the allocation of time, even family behavior.

Moreover, Becker and Mincer’s influence at the NBER strengthened. In 1966, Mincer became

director of the Labor Research Program, while Becker’s intellectual influence grew through

the work of his colleagues and students.

Fuchs is an illustration of Becker’s influence at the NBER. In the early 1960s, Fuchs

had recently graduated from Columbia. As Program Associate at the Ford Foundation, he

supported six research projects in health economics, among which were Arrow’s 1963

“Uncertainty and the Welfare Economics of Medical Care” and Herbert Klarman’s The

Economics of Health (1965). Upon Fuchs’ arrival at the NBER as Research Associate in

1962, he wanted to create a specific health economics research program (Newhouse, 1992;

Fuchs, 1994). He recalls that Arthur Burns, then head of the NBER, criticized this project

12 Fox (1979) argues that before the 1950s, economists were not so much interested in health care issues. However, the 1950 decade witnessed an increase of the studies of the optimal allocation of medical and other health care resources. It is interesting to note with Fuchs (1999, p. 218) that before the 1960s, contributions by economists to such a field were published in non-economic journals such as the New England Journal of

Medicine, the Journal of the American Medical Association, the Milbank Memorial Fund Quarterly, or Health

Affairs.

(Fuchs, 1994). Becker, on the other hand, encouraged Fuchs to persevere. When the program

was launched in 1966, Fuchs hired Michael Grossman, a student of Becker who worked on

the demand for health (Grossman, 2004, p. 631). Interestingly, Fuchs also personified the ties

that the notion of poverty shared with the problems of health care. In 1965, as a consultant for

the Task Force on Economic Growth and Opportunity, he proposed to set the poverty line at

one half of the median income. Contrary to the CEA definition, Fuchs’s did not set any

absolute level. It’s only a matter of luck that his poverty line was set to a level so close to the

CEA proposition, since the median income in the mid sixties was precisely 6000$.13

In the mid 1960s, public health was an especially important political issue the United

States. The 1964 report of the CEA underlined the links between poverty, illness,

malnutrition, and chronic handicaps, since poverty prevented individuals to benefit from

proper medical care. In this respect, the creation of Medicare in 1965 was an important battle

in the war on poverty that stimulated a growth of the demand for research on health care

problems, inside and outside federal agencies (Rice, 1974; Frentzel and McCreadie, 1979;

Feldstein, 1995). According to Fox, “[b]etween 1962 and 1968 a larger number of

professional economists, supported by increasing public and foundation funds, worked on

problems of the health sector than ever before” (1979, p. 323). The funding came mostly from

the National Institutes of Health (NIH) and the Division of Community Health Services

(DCHS) of the Bureau of State Services in the Public Health Service. By the late 1960s, the

influence of economists had come to an unprecedented level (ibid.).14 Moreover, judging from

the second national conference on health economics, it seems that economists had a “higher

level of interest in public policy” (Klarman, 1970, p. 9).

Based on the work of economists and other social scientists, the social report drew a

rather negative picture of the American health care system. The health and illness section of

the 1969 social report recalled that 20% of the families below the poverty line had never

received any dental care. The costs of prenatal care were borne by individuals, which led to a

high rate of infant mortality (U.S. Department of Education, Health, and Welfare, 1969). As

with education, the picture of the American health care system depicted in the report did not

match the country’s international stature. Compared to other countries, the United States

13 According to Huret (2008, pp. 142-150), Orshansky did not agree with the relative definition of poverty, since poor people did not experience poverty by a simple comparison of their conditions of living to others. Her definition of poverty was based on families’ budgets for food. 14 Fox (1979) takes as a symbolic example the policy conducted by the Bureau of the Budget regarding kidney diseases, which came directly from the results of a cost-effectiveness analysis by Klarman and Gerald Rosenthal. Fox also claims that later, “the Congress accepted their recommendation that dialysis be financed by a variety of programs, with "major reliance" for operating costs on Title XVIII of the Social Security Act” (ibid., p. 323).

ranked only 16 in terms of the average life expectancy, a result of the high infant mortality.

Olson’s social indicator, “the expectancy of healthy life”, which subtracted the average days

spent in hospital beds to the average life expectancy, confirmed the general assessment: it had

not significantly increased, since the 1950s.

The report did not blame the state of biomedical research, nor the amount of per capita

public spending. It stressed the question of the allocation of resources. To use Olson’s

terminology, one could say that the latent group fell short of providing the optimal amount of

collective goods. But was health a traditional (public or private) good, as it was sometimes

implied in the 1969 social report? This was an interesting question since the prices of medical

care were growing faster than inflation, as the 1966 Gorham Report emphasized.15 Medicare

provided additional support for old and poor people, but was far from sufficient. Following

the recommendations of the Gorham Report, the National Conference on Medical Costs was

held in June 1967 in Washington D.C. Fuchs, who was initially a social scientist of the social

report’s panel, presented “The Basic Forces Influencing Costs of Medical Care”.16 The paper

underlined the need for focusing on individual’s behavior, not only the supply of medical

care.17 To put it another way, assuming that health was only a commodity like any other,

theoretical orientations had to focus on lifestyle, a conclusion also reached in the social

report.18

This question was debated in America and abroad. Arrow (1963), for instance, thought

that health could not be approached like this, for behaviors were not always motivated by self-

interest (see Fontaine, 2002). In England, these criticisms deeply influenced Richard Titmuss’

attack on the economic analysis of the British health care system of Dennis Lees (1961) and

John and Sylvia Jewkes (1961). Titmuss criticized their belief in market efficiency. He also

attacked the American health care system, which he saw as the “citadel of free enterprise

medicine” (Titmuss, 1963, p. 18). Martin Feldstein, another champion of health economics,

had witnessed the debated with interest. After the completion of his Bachelor at Harvard,

Feldstein had moved to Oxford. During his studies in England, he analyzed the efficiency of

the British National Health Service, and met Fuchs, who was also interested in the topic. He

15 The Gorham Report was commissioned by the Johnson administration to understand the recent growth of prices of the medical sector. 16 However he eventually turned them down (Olson to ref?). We wonder if it is the outcome of Stigler’s influence on him (see below). 17 “the greatest potential for improving the health of the American people ... is to be found in what people do and don't do to and for themselves” (Fuchs, 1967, p. ). 18 “Perhaps more important than environmental factors, however, is the American way of life. For the vast majority of the population, health me be adversely affected by rich diet, smoking, lack of exercise, and the pressure of business and professional life” (U.S. Department of Education, Health, and Welfare, 1969, p. 8).

got acquainted with the books of Lees and the Jewkes, and took part in the debates on the

economic analysis of the health care system. His 1963 paper underlined the limitations of

their approach, but still advocated the use of economic theory to study such an issue.

Criticizing the emptiness of an idea of a “universal need for health care”, he believed that

although “an accurate determination of the optimal allocation of resources within the health

services and between health and other wants of society may be impossible… thinking of

problems of choice in terms of optimal allocation instead of the elusive concept of “meeting

needs” will produce better decisions” (Feldstein, 1963, p. 26). Consequently, his 1967 Ph.D.

dissertation was an economic analysis of resource allocation in the health service. After

graduation at Oxford, he took a position back in the United States, at Harvard, where he

developed the field through the supervision of many Ph.D. dissertations.

Feldstein’s analysis of bed scarcity in British hospitals made him a perfect candidate

for the social report’s panel of social scientists. Based on an implicit analogy between the

hospital and a firm as a health producer, the 1969 social report criticized the set of economic

incentives generated by the actual health care system. It favored curative treatments at the

expense of preventive care, which increased the cost borne by society (U.S. Department of

Education, Health, and Welfare, 1969, p. 11).19 Reimbursements policies of insurance

companies led to use primarily hospitals, which was most costly compared to other solutions

(ibid.). Finally, reimbursement of hospitals on the basis of their cost did not provide the

appropriate incentive to rationalize the practice of physicians and surgeons. Thus, although

the economic approach to health care issues was still debated in the late 1960s (see, for

instance, Grossman, 2004), economists’ insights on the efficiency of the public spending in

the health care system met the social engineering spirit of Great Society.

But health and education were not the only facets of poverty on which economists

shed new lights. Economic analyses of crime were also developing, mostly through the

NBER-Columbia network. Since the mid-1960s, the rise of riots and other public disorders

made the issue a major social concern. Crime was also a symbolic political question: during

the Kennedy administration, the understanding of crime as a social pathology, following the

work of Cloward and Ohlin, had offered the basic approach of poverty-related issues of Great

Society. In 1965, Johnson commissioned a report to study the phenomenon, which

19 The report argued that physicians had little financial incentive to “avoid providing unnecessary care” (U.S. Department of Health, Education, and Welfare, 1969, p. 11). The report compared this system to the Chinese ancient society, which was viewed to provide better incentives, since physicians were paid when people were not sick.

conclusions supported the “opportunity theory”. Experts concluded that “we will not have

dealt effectively with crime until we have alleviated the conditions that stimulate it”, a

conclusion restated by Johnson in his address to the Congress in January 1967 (The

President’s Commission on Law and Enforcement and Administration of Justice, 1967, p. 15).

This approach of crime was typical of the “penal-welfare paradigm”, as labeled by David

Garland (2001): criminologists of the 1960s identified as the main determinant of crime the

gap between criminals’ hopes, nurtured by the apparent prosperity of American society, and

their poor socioeconomic conditions.

Compared to this “penal-welfarism”, the position of the social report was ambiguous.

As an economist, Olson acknowledged the importance of the individuals’ rational calculation.

In 1967, he asked the economist Simon Rottenberg to send him his manuscript entitled “The

Economics of Crime and Law Enforcement” (Olson to Rottenberg, December 1, 1967, MOP,

Box 20, Folder “R”). An assistant professor at the University of Chicago during the fifties,

Rottenberg published in 1968 an economic analysis of the distribution of heroin, in which he

considered the organized criminals as profit-maximizing companies.20 Among different

possible criminal activities, the rational criminal would choose the one that maximizes his net

revenues. However, Olson’s interdisciplinary enterprise could not neglect the influence of the

socioeconomic background of individuals. One way to make the self interest model fit the

opportunity theory was to underline the benefit side as opposed to the cost side. For instance,

the 1969 social report argued that the effects of the War on Poverty on education and social

mobility would increase the value of legal activities.

This approach was reminiscent of the early econometric analyses of crime by the labor

economist Burton Fleisher. After completion of his Ph.D. at Stanford in 1961, Fleisher was

awarded the grant No. 62216 from the HEW, to work on the “economics of delinquency”.

The grant covered the period 1962-1964, during which Kennedy’s administration had

expressed concerns about the rise in juvenile delinquency. From 1961 to 1965, Fleisher was

assistant professor at the University of Chicago. His 1963 and 1966 papers had benefited from

the comments from H. Gregg Lewis, Becker’s Ph.D. supervisor at Chicago, and other

participants of the Research Group in Labor Economics.21

20 Organized crime was but one of many aspects of crime. The report of the president’s crime commission had

stated that “the extraordinary thing about organized crime is that America has tolerated it for so long” (U.S. President’s Commission on Law Enforcement and Administration of Justice, p. 209). 21 Becker’s correspondence with Lewis shows that the former always kept in touch with the work of the latter, and his supervision work. The close relationship between Becker, Lewis and Stigler created a strong network that linked the labor economics of the NBER with Columbia and the University of Chicago. Although Fleisher and Becker do not mention each other in their work, there is a clear institutional connection between them.

As early as 1963, Fleisher had proposed an econometric study that demonstrated the

positive effect of unemployment on juvenile delinquency. Although Fleisher’s work was

grounded in the self interest model, his econometric conclusions emphasized the “community

problem” of unemployment. The subsequent 1966 paper was an econometric analysis of the

relationship between income and delinquency, which referred without many details to a

rational calculation made by individuals. The paper was interesting in isolating the

“economist’s view” of delinquency: Fleisher believed that the “decisions to engage in

illegitimate activity seem interconnected with decisions about schooling, labor force

participation, and even occupational choice” (Fleisher, 1966, p. 118). The demand for

illegitimate activities depended on individual’s preferences and the values of other activities,

whereas the supply of “delinquency opportunities” was given by the social environment. To

account for the propensities to engage into criminal activities, Fleisher used a concept of

“taste for delinquency”, which synthesized personality traits and family characteristics. He

believed such a taste was close to the sociological concept of anomie. This approach was very

close to Becker’s 1957 analysis of another social phenomenon, discrimination, in which the

“taste for discrimination” was a key concept, close to the psychological notion of “prejudice”.

The econometric analysis used different variables (race, family disruption, unemployment

rates) to measure the influence of the “taste”, i.e. the impact of the socioeconomic background

on delinquency. Yet, his results showed the significant effect of economic variables linked to

individuals’ income. In some areas, a 1% increase in income would lead to a 2.5% decline in

crime rates. For Fleisher, low income youngsters took their family income as a proxy of their

long-run legitimate income. Such a low income reduced the opportunity cost of getting

caught, but raised the benefits from robbery and other assaults on property.

While Fleisher was interested in econometrics, Becker was working on a theoretical

framework. As early as 1965, Becker thought of using a taste-based approach similar to

Fleisher’s and to his own study of discrimination (Stigler to Becker, May 10, 1965, GSP, Box

6, Folder “Becker, Gary S.”). This year, a grant from the Lilly Endowment enabled Becker to

spend the summer at UCLA, where he presented his draft and benefited from the comments of

Armen Alchian, Roland McKean, Jack Hirshlifer, and Grodon Tullock (Becker, 1968, p. 169).

He also participated in seminars at the University of Chicago. George Stigler, who had been

an early supporter of Becker’s analysis of social phenomena, liked the endeavor, but thought

an analysis devoted to show in which conditions crime would pay would be far more

interesting (Stigler to Becker, May 10, 1965, GSP, Box 6, Folder “Becker, Gary S.”). Initially

influenced by the surrounding context, which emphasized the importance of the

socioeconomic background of criminals, Becker progressively moved toward the analysis of

the economic factors motivating criminal activities.22 In the meantime, he supervised Arleen

Smigel Leibowitz’s Master thesis entitled Does Crime Pay? (1965), which was an

econometric analysis of the effects of prison sentences on the criminals’ choice of activities,

and Isaac Ehrlich’s Ph.D. thesis, The Supply of Illegitimate Activities (1967), in which Ehrlich

formulated the economic choice of individuals between illegal and legal activities, as the

result of a comparison between the expected utilities of both activities.

Yet, Becker’s 1968 paper was not entirely focused on individuals’ rational choices.

The main orientation was a macro analysis of society’s losses induced by criminal activities.

It answered to a fundamental question raised by the Great Society programs and echoed by

the 1969 social report: “how many resources and how much punishment should be used to

enforce different kinds of legislation?” (Becker, 1968, p. 170). Becker’s conclusions,

supported by Leibowitz’s and Ehrlich’s econometric analyses, which stressed the deterrent

effect of punishment. Moreover, regarding public expenditures, the most efficient response to

crime was to fine individuals, which maximized compensation for the losses stemming from

criminal activities.

The cost-benefit analysis of the 1969 social report didn’t neglect the deterrent effects

of harsher punishments: « Just as higher wages should attract more labor, so harsher

punishments and greater probabilities of apprehension and conviction should deter more

crime » (U.S. Department of Health, Education, and Welfare, 1969, p. 61). But ultimately, the

major cause of crime was socioeconomic depravation. The interdisciplinary enterprise implied

to consider the criminals in their complexity. As a pathology, criminal behaviors might be

positively motivated by the punishment. Olson was not the only author of the report, which

could explain the reluctance to rely exclusively on an economic theory of crime. 23

22 In his 1968 paper on crime and punishment, Becker stated that “some persons become ‘criminals’ therefore not because their basic motivation differs from that of other persons, but because their benefit and cost differ” (Becker, 1968, p. 176). Here, we see that Becker’s approach is different from his 1957 analysis of discrimination, in which individuals had different “tastes for discrimination”, i.e. different basic motivations. This is an evidence of Stigler’s influence on Becker’s thought. A decade later, in 1977, they wrote “De Gustibus Non Est Disputandum” in which they claimed that all human behavior could be analyzed with the assumption of stable preferences. They described the work of the economist as the long and frustrating search “for the subtle forms that prices and income take in explaining differences among men an periods” (Becker & Stigler, 1977, p. 76) 23 In another paragraph, the report’s criticisms against a policy solely focused on punishment can be read as social scientist’s criticisms of an economic approach to crime: “a crime prevention strategy that focuses only on punishment, prosecution, and policing is therefore not only insufficient in terms of the theory that is used to justify it, but in addition, neglects the cultural factors that must also be taken into account” (U.S. Department of Education, Health, and Welfare, 1969, p. 63).

The subsequent literature influenced by Becker’s research did not necessarily fit into

the “opportunity theory”. Whatever side of the cost-benefit calculus was emphasized,

economists such as Olson or Becker considered that the main goals of any public policy were

to shape the set of economic incentives faced by any individual. Economists had proved their

ability to deal with such a complex social issue. In this development, the connection between

Columbia, Chicago, and the NBER proved useful. While Becker was working on the

theoretical model, Stigler and Fuchs were analyzing a related topic, the effects of the vehicles

inspection on mortality, in reaction to Robert Buxbaum and Theodore Colton (1966)

pioneering analysis (Stigler to Fuchs, March 27, 1967, GSP, Box 9, Folder “Victor Fuchs”).

In the early seventies, Stigler studied the optimal enforcement of laws, and co-authored

another paper on this topic with Becker in 1974. As crime remained an important social

concern for the Nixon administration, the subfield of the economics of crime developed

alongside with the economic analysis of the law.

The social engineering spirit specific to the Great Society period provided a favorable

context for the developments of economic analyses of social phenomena. This development

changed the way social scientists looked at their colleagues’ ventures into new territories.

Paradoxically, economists gained the trust of their peers by extending the same kind of

reasoning Becker had initially used when comparing children and durable investment goods;

economic analyses made health or education a traditional good, and made participation in

illegal activities subject to the same constraints as other “regular” activities. The need for

rational policymaking made economics an important discipline to address social issues. The

use of the economic reasoning in many sections of the first social report in the history of the

United States illustrated Olson’s and other economists’ belief that economics was a powerful

tool to study such questions, and that economics and the other social sciences were not

separated by a permeable boundaries. This question was particularly debated in the late 1960s.

IV The Social Report and the Relationship between Economics and

the Other Social Sciences

Regarding the role of social scientists as policy advisers, the 1969 social report had many

significations. Echoing the point of view of some social scientists, Bell saw in the report a

political opportunity for the discipline of sociology to advise directly the president on social

issues. Moreover, the social report and the social indicators would offset the economic bias

underlying the PPBS (Olson, 1969, p. 93). In a 1967 memorandum in which he separated the

“economic” from the “social”, Bell paralleled the creation of the social report with the

creation of the economic report of the CEA. Bell echoed Heller’s desire to go beyond the

economic indicators such as the GNP. The social indicators would provide a way to evaluate

welfare policies. In his mind, the CEA and its Economic Report were not born out of a

specific evolution in economic knowledge, but of a political will to embrace values such as

government intervention to maintain full employment. Bell and other social scientists

embraced the values of the equality of opportunities, which were at the heart of any social

policy. For Bell, the social report would identify the barriers to realization of the “human

potential”.

Olson’s stating point was similar: the limits of traditional economics indicators. The

GNP did not take into account all the social costs that came from negative externalities. He

wanted to introduce the social report by referring to the recent upsurge of riots, in order to

show that there was a growing disconnection between economic indicators and social

discontent. The report’s main contribution was to provide measurable criterions in order to

evaluate public policies. But, as an economist, the efficient allocation of resources was central

to the analysis. Olson heavily criticized the fuzziness of the term “human potential”, which

wasn’t grounded on a specific definition or a specific set of concepts (Olson to Bell,

September 8, 1968, MOP, Box 71, folder “Bell”). In his Ph. D. dissertation, which was later

published as The Logic of Collective Action (1965), Olson had demonstrated that externalities

generated the free rider problem, which prevented individual group members to behave in

accordance to their common purpose and objectives. Olson believed that such concepts

grounded the theoretical analysis of the “social”. Social indicators would serve as empirical

data to test its predictions. They would inform on the Pareto-optimality of any given policy.

Thus, as Olson advocated the economic approach to social phenomena, social indicators were

interesting complements to the PPBS in order to rationalize the social policies.

This debate gained momentum when Senator Walter Mondale submitted to the

Congress the Full Opportunity and Social Accounting Act. Mondale called for the creation of

a Council of Social Advisers (CSA) that would produce an annual social report to the

president. Many social scientists approved the project, because they envied the privileged

position of the economists of the CEA. The debates concerning the Act took place in a context

of redefinition of the position of social sciences in the scientific landscape. Indeed, the

problem had been already addressed in 1966, when the Congress discussed the proposition of

Senator Fred Harris to create a National Foundation for the Social Sciences. According to

Larsen (1992, p. 74), the 1966 hearings brought for the first time numerous social scientists to

testify before Congress on disciplinary matters. Among the recommendations featured the

“improvement of the relationship of social sciences and public policy” (ibid.).24 The Mondale

Bill and the proposition for a CSA was an unprecedented political opportunity that

acknowledged the contribution of social scientists to policy-making and social engineering.

Among the team in charge of the social report at HEW, the debates didn’t go

unnoticed. In a 1968 memorandum sent to Bell and Olson, Rivlin explored the implications of

such an Act, and compared the creation of a CSA with the extension of the CEA to include

social scientists.25 Olson stood against the creation of a CSA. He considered that economists

had something to say about social policies. For Olson, the term “social” was the opposite of

“individual”, not “economic” (Olson to Bell, august 15, 1968, MOP, Box 89, folder “E”).

Poverty was an interdisciplinary problem that sociologists had a legitimate right to study, but

it was also an economic problem. As he wrote: “if poverty is not an economic problem, then

nothing is” (Olson, 1968a, p. 97). The creation of a CSA raised the question of the division of

labor between social scientists. In Olson’s 1968 memorandum he asked the following

question: “should advice about the problems of poverty come from a Council of Economic

Advisers or a Council of Social Advisers? (Olson, 1968, p. 3, MOP, Box 89, file “E”). On

such matters, the disciplinary boundaries were only the outcome of historical and institutional

evolutions within each social science. Fundamentally, Olson thought that “there is not and

cannot be any non-arbitrary distinction between economic and social problems” (ibid.).

Olson’s opinion echoed Marschak’s, who also thought it was impossible to separate

the “economic” from the “social” (Marschak to Katona, July 16, 1965, Box 194, folder

“Woytinsky”). Indeed, Olson thought that many economists shared his point of view, and

24 For instance, it was recommended to hire a full time social scientist assistant in the staff of each senator and member of the House (Larsen, 1992, p. 74). 25 Alice Rivlin, “Memorandum”, September 10, 1968.

would be offended by the idea of such a separation, which was alien to the economist’s habits

of thinking (Olson to Bell, September 8, 1968, MOP, Box 71, Folder “Bell”). In his 1968

paper on the differences between economics and sociology (see below), Olson listed eleven

economists who had contributed to the literature in the fields of political science and

sociology. Notably, the list featured his fellow colleagues of the early Public Choice Society:

James Buchanan, Anthony Downs and Gordon Tullock, who had pioneered in using

economic tools to study the democratic process and the formation of constitutions. 26 Gorham

agreed with Olson, and expressed his opposition against the Act and the creation of a CSA in

a letter to Mondale in which he criticized the ill-conceived separation between economic and

social problems, between economists and the other social scientists (Gorham to Mondale,

October 30, 1969). Eventually, despite Mondale’s insistence, the project was not voted by the

Congress, which indirectly supported Olson’s view concerning the important role of

economists in addressing social problems.

Olson’s contribution to the social report contributed shaping his perception of the

relationship between economics and the other social sciences, a problem he had already

addressed in his doctoral dissertation. Supervising other social scientists allowed him to

experience the differences in their center of interests. For instance, during the writing of the

last section of the report (“Participation and Alienation”), each type of social scientists had

urged Olson to give more space to their domain of expertise. Sociologists under the influence

of parsonian analysis underlined problems of integration and alienation of individuals into the

social structure. Structural functionalists studied the influence of norms and culture on

individual behaviors, which made society a stable system. The political scientists Sidney

Verba and Bertram Gross wished to emphasize the very topic of political participation. Verba

represented the new trend in political science, behavioralism, characterized by empirical

analyses of the political process.27 The economists Melvin Reder and Selma Mushkin

emphasized the analysis of individual freedoms. Finally, Olson and Gorham wished to push

26 Interestingly, Olson did not mention Gary Becker explicitly. A detailed historical analysis of this apparent omission would require another paper. Some elements are developed in my Ph.D. dissertation (see Fleury, 2009). It seems that the developments of the early Public Choice analysis shaped a specific use of the tools economic analysis outside of its traditional boundaries, i.e. to political phenomena. This specific definition of “non-market decision making”, institutionally supported by the meetings of the early Public Choice Society, excluded the economic analysis of social phenomena and, more generally, the relationship between economics and sociology (see also Swedberg, 1990, p. 4) 27 His 1963 book, The Civic Culture, co-authored with Gabriel Almond, epitomizes the empirical aspects of the behavioral “revolution” in political science. Note that this type of behavioral studies shared ties with the theoretical framework of structural functionalism, since they focused on the study of values and norms that made democracy a stable political regime (see also Barry, 1970).

forward the analysis of bureaucracy and the relationship between individual and group

behaviors (Olson to Bell, April 5, 1968, MOP, Box 71, Folder “Bell”).

Olson formalized his understanding of interdisciplinary work in “Economics,

Sociology, and the Best of All Possible Worlds” (1968a), published in the Public Interest. For

Olson, economists and sociologists differed in their approach to social phenomena. Economic

theory was “in a fundamental sense more nearly a theory of rational behavior than a theory of

material goods” (Olson, 1968a, p. 99). This restatement of Robbins’ 1932 definition, which

made economics a relevant discipline whenever there were scarce resources and competing

ends, conveys the feeling that economists themselves had forgotten this definition. Indeed,

Olson blamed the old generation of economists for not understanding the general applicability

of their approach, far beyond the mere analysis of market transactions. Although Olson

referred to economists whose work pertained to the early Public Choice approach, his

approach was reminiscent of Becker’s. During the 1967-1968 academic year, Becker was

teaching a course in price theory at Columbia in which he reminded the audience that

economic theory could be used to study sociological phenomena, an approach that could be

qualified as “economic imperialism” (Becker, 1971, p. 2).

For Olson, sociology and economics stood at the opposite sides of a continuum, and

political science stood in the middle. Political science was influence by the rational choice

approach and parsonian sociology. Talcott Parsons was the preeminent sociologist. His

framework was most influential among theoretical sociologists (see also Barry, 1970). But

Olson did not consider structural functionalism as a theory “in the sense in which that word is

used in some other disciplines [such as economics, or physics]. It [was] rather an

uncommonly rich and varied style of though” (Olson, 1968a, p. 103). Although Olson didn’t

express any animosity toward parsonian sociology, he emphasized their impossible

reconciliation. The divergence of the economic from the sociological approach led to

conflicting policy prescriptions. For the economist, the “ideal” society was characterized by

an optimal allocation of resources and the perfect mobility of individuals. Olson believed that

for the sociologist, the “ideal” society was one of perfect integration and stability. Olson had

previously studied the destabilizing forces of economic growth, which in turn, demonstrated

the conflicting positions of these ideals.

The publication of the paper, and the subsequent letters that reacted to its argument,

revealed the conceptions of many social scientists to the question of disciplinary boundaries.

Downs and Gorham agreed with Olson’s vision. David Riesman, another HEW economist,

shared Olson’s skepticism toward parsonian sociologists, as he thought their work showed “an

elitist bias” toward the masses. The sociologists’ opinions had to be tempered, for they were

in average less brilliant than economists (Rieseman to Olson, January 2, 1969, MOP, Box 89,

Folder “R”).

Considering the fact that Olson was an economist in charge of setting criterions for the

evaluation of public policies, one could ask the following question: what could be the

usefulness of such an irreconcilable approach as parsonian sociology in his task? Whatever

the answer is, it is unclear whether Olson’s 1968 paper was a disguised attack on sociology,

or if it was ambiguously written. Consequently, some social scientists reacted to Olson’s

partial depiction of sociology. Some, as Gregory Massel or Richard Eckert, reminded Olson

that sociology was not as devoted to the study of values as he believed (Eckert to Olson,

October 20, 1967, MOP, Box 89, Folder “E”; Massel to Olson, December 7, 1967, MOP, Box

89, Folder “M”). A political scientist and Olson’s colleague at HEW, Eckert’s comments

urged Olson to look individuals not only as economic men, but as sociological, political and

anthropological men as well. He emphasized the need to reconcile the specialized approaches

and results of political science, sociology, anthropology and economics. But Olson had a

simpler thing in mind. In his reply, he agreed that “we need to look at man as a whole. But do

we always need to look at all sides of him at the same time? How can science progress

without some attempts to take up complex problems a part at a time, and then try to

synthetize?” (Olson to Eckert, August 15, 1968). Reductionism was a significant part of

Olson’s approach, but a reductionism understood from the point of view of economics.

Olson’s portrayal of sociology betrayed his training as an economist: he thought that

the main problem in sociology was to maximize integration of its members, or, to put it

another way, minimize alienation. Although he was generally friendly to the economic

approach to social phenomena, Otis Dudley Duncan, a sociologist of the report’s panel of

social scientists criticized this depiction of sociological problems: “the notion you express that

all problems should be put in optimization and that Marshall et al. have perfected the theory

we need is precisely the reason why we [the sociologists] cannot leave the whole game to the

economists” (Duncan to Olson, July, 25, 1969, MOP, Box 1, Folder “D”). Among other

limits, the economic approach was unhelpful in choosing among various goals for society.

Rivlin also criticized Olson’s view of the social report. She didn’t think the report existed

only because of negative externalities (Rivlin to Olson, May 9, 1969, MOP, Box 89, Folder

“R”). Contrary to what Olson believed, Rivlin, as well as many other social scientists, argued

that the report originated in the presence of non economic phenomena.

All in all, Olson’s opinion about the relationship between economics and other social

sciences remained ambiguous. In many reply letters, he agreed with social scientists that there

existed non economic phenomena and that parsonian sociology was an interesting and rich

approach to study the “social” (Olson to Duncan, July 28, 1969, MOP, Box 89, Folder “D”).

But when corresponding with others, such as the psychologist Paul Halmos, Olson confessed

his total disagreement with sociologists of the parsonian type (Olson to Halmos, January 4,

1968, MOP, Box 89, Folder “H”).

According to Olson (1968), the lack of intellectual exchange between theoretical

economist and sociologists slowed the formulation of relevant policy recommendations.

Olson wished to build such a dialogue on the concepts of public goods and externalities.

Public policies influenced individual behaviors by shaping the structure of incentives. This

idea directly came from his The Logic of Collective Action, in which he had demonstrated that

any large group of individuals fell short of providing the optimal amount of public goods

unless the group developed a system of selective incentives and coercion to eradicate free

riding. In the late 1960s, Olson initiated a research program in order to deepen the study of

questions raised by the social indicators, and related to the concept of “quality of life”. An

untitled manuscript dated by the Olson’s archives of the late1960s, and related to this project,

reveals Olson’s opinion of the structural-functional approach in sociology (MOP, Box 83).

Compared to sociologists, economists had a most powerful tool to analyze and ultimately

shape the set of incentives that any individual faced: the concept of opportunity cost, which

opened the door for quantifiable recommendations. Social indicators were the statistical data,

which measured these opportunity costs. This was the root of economics’ power over the

other social sciences, and explained why the economists were an important asset for the

decision-maker:

« The principal point is rather that they [the social issues] cannot be assessed

intelligently without either explicit or implicit use of the concept of opportunity

cost, and therefore cannot be properly understood in terms of at least most

structural-functional paradigms » (p. 20).

Thus, even if parsonian sociology shed an interesting light on social phenomena by

studying the social function of institutions, it was useless in terms of rational policy-making.

Taking the example of the study of the role of superstition in a primitive society, Olson

argued that « superstition may be functional in a tribe, because it increases tribal solidarity, or

whatever. But what is the cost of this superstition in terms of the erroneous understandings of

cause-and-effects relationships that it creates?” (ibid. p. 20). It was precisely his will to study

the efficient allocation of public resources that made him push the parsonian sociologists

away from the policy-making.

In the late 1960s, while working on various projects related to the concept of “quality

of life”, Olson worked on a theory that would incorporate the results of sociology into a

broader framework based on the notion of externalities. His contribution to the social report

had vindicated him in the belief that there was a possibility to analyze human behavior with a

single framework (Swedberg, 1990). Olson recalls that in 1972, he had completed a first draft

of a manuscript entitled “An Encompassing Economics”. Editors were interested in the

project, but Olson himself felt that he “didn’t have the necessary theorems” (ibid.). His

framework could study separate political, social or economic questions, but could not

understand the reality as a whole. Eventually, the manuscript was never published in

English.28

Despite Olson’s will to see economics ground the theoretical approach to social

phenomena, his view was criticized by an “imperialist”, Stigler. In reaction to Olson’s 1969

paper in the Public Interest, which introduced the challenges of developing social indicators,

Stigler sent a very critical letter to the journal’s editors, Bell and Irving Kristol. Stigler

attacked any project of social indicators as well as Olson’s view that economic indicators such

as the GNP did not take into account the effects of externalities. The precise subject of debate

was a paragraph from Olson’s 1969 paper, which said:

“The most notable limitation of the national income statistics is that they do not

properly measure those ‘external’ costs and benefits that are not fully reflected

in market prices. They neglect or misstate the costs to society of those actions,

such as the generation of pollution that does not show up in the expenses of the

offending firm or individual. They similarly neglect or misstate much of the

benefit to society of those undertakings, such as basic scientific research, that do

not bring the sponsor’s profits proportional to society’s gain” (Olson, 1969, p. 8;

Olson to Stigler, January 6, 1971, GSP, Box 11, Folder “Olson”).

28 A book authored by Olson and entitled Umfassende O ̈konomie was published in 1991. The translation of this title in English is very close to the wording “an encompassing economics”, but we have not read the book.

Stigler thought the GNP was an unbiased measure of welfare, which did not misconstrue or

neglect externalities, as Olson believed. Stigler argued that, in the case of a factory that

generates soot, any expenses paid by the owner of the factory in order to eliminate the smoke

would be understood as a “legitimate part of the input” of the economy (Olson, 1971, p. 3).

Likewise, if this cost was borne by the neighbors, it would also be properly measured by the

national accounts. Thus it would be a matter of indifference, “as far as the national accounts

are concerned, whether the costs of dealing with the soot are paid by the factory owner of the

neighbors” (ibid.). At first, Olson did not wish to react. Stigler was infamous for his harsh

referee reports, and more generally, his provocative stands. Olson thought that Stigler’s

arguments were another expression of his idiosyncrasy, but after discussing with other fellow

economists, soon realized that Stigler’s position was widespread among them (Olson to Bell

and Kristol, January 2, 1971). His reaction took the form of a letter in which he offered a

demonstration that the economic indicators couldn’t properly measure psychic costs and were

limited to the measure of marketed goods. Stigler stood for a different view of economics, in

which prices and output were adequate indicators of social phenomena. Stigler’s Chicago-

oriented approach to political and social phenomena differed from Olson’s, since it

emphasized the role of prices under free market conditions as opposed to externalities and

other public goods problems.

In the early 1970s, Becker was Stigler’s colleague at Chicago and shared the belief

that market and shadow prices were the relevant tools to study social phenomena. He was not

as pessimistic as Olson regarding economics and its ability to provide a unified framework to

study all human behavior. He interpreted the recent developments of economics outside its

traditional boundaries as a sign of its universal validity. As he introduced his theory of

marriage:

« In recent years, economists have used economic theory more boldly to explain

behavior outside the monetary market sector, and increasing numbers of

noneconomists have been following their examples. As a result, racial

discrimination, fertility, politics, crime, education, statistical decision-making,

adversary situations, labor-force participation, the uses of "leisure" time, and other

behavior are much better understood. Indeed, economic theory may well be on its

way to providing a unified framework for all behavior involving scarce resources,

nonmarket as well as market, nonmonetary as well as monetary, small group as

well as competitive » (Becker, 1973, p. 814).

For the first time, Becker adopted a reflexive point of view about his work and the work

of many economists of the 1960s. Contrary to Olson, Becker considered that the framework

that he had developed at Columbia and Chicago, which was based on his “A Theory of the

Allocation of Time” (1965), could address any problem involving human behavior and

scarce resources. This view was formalized in 1976 in his book The Economic Approach to

Human Behavior, which became the reference book for any work addressing the question of

economic analysis outside its traditional boundaries. Thus, although there were different

opinions among proponents of the use of economics outside its traditional boundaries, the

work of economists in the 1960s paved the way for a redefinition of economics as a method

of inquiry.

V. Conclusion

The writing of the first social report of the history of the United States is telling example of

the growing influence of economists on the traditional fields of inquiry of the other social

sciences. The report was designed to provide a specific definition of the “social”, which was,

for political and other reasons, directly related to the notion of poverty. Interestingly, this

novel task was given to a sociologist and an economist. The latter had a specific agenda for

the development of a theoretical framework to study social problems, which relied on the

economic notions of externalities. As the use of economics outside its traditional boundaries

was developing, the social report and controversy generated by the project of a CSA, showed

that politicians as well as scientists refused to separate the domain of economics from the

domain of the other social sciences. This supported Olson’s and Becker’s endeavors to study

a wide range of social phenomena.

Although Bell and Olson rushed to complete the 1969 social report, the work on

social indicators was carried on by Raymond Bauer, a Harvard psychologist and early thinker

on the concept. Bauer’s influence was greater than Bell’s and Olson’s, since he reported

directly to President Nixon. Moreover, the idea of a social report caught the attention of

American states and cities, as well as European countries (in France, Jacques Delors was

especially interested) and international institutions such as the OECD, all of which solicited

Olson’s experience regarding social indicators. Similarly, social scientists remained

influential in the shaping of social policies. For instance, Nixon appointed Moynihan as his

urban affairs adviser. This shows that the spirit of Great Society did not fade away when

Johnson left the White House. Although supported by the “silent majority”, the first Nixon

administration maintained a busy agenda of social programs and reforms. During both Nixon

administrations, public spending in these programs raised from 28 % to almost 40 % of the

federal budget (Troy, 2005). Moreover, the “movement” of the 1960s, which epitomized the

social discontent of the period, only vanished after the first signs of economic slow down in

1973-1974 (see Anderson, 1995). Finally, economists remained interested in poverty-related

problems, as shown by the program of a 1972 conference organized by McKean and Anna

Schwartz for Milton Friedman’s sixtieth birthday. Becker, Schelling and Tom Sewell

presented papers on discrimination, Becker and Tullock presented papers on public order

issues, while Buchanan and Martin Bronfennbrenner addressed directly the notion of poverty

(Richard T. Selden to Stigler, May 15, 1972, GSP, Box 12, Folder “S”). .

Many studies on economics imperialism argue that the expansion of economics

outside its traditional boundaries stems from Robbins’ 1932 definition of the discipline as the

study of the allocation of scarce resources among competing ends. However, they fail to

explain why economists waited almost thirty years to use the tools of microeconomics to

study various social phenomena. Our approach suggests a different interpretation.

Economists extended their center of interest as a result of the expansion of the domain of

government intervention. Economists’ ability to formulate cost-effective policy

recommendations fitted into the creed of Great Society, based on rational policy-making and

scientific inquiry. In return, this development stimulated its main protagonist to think about

the definition of economics. Becker and Olson adopted a definition of economics very

similar to Robbins’ because they believed it described better what economists were doing at

the time. Thus, we suggest that Becker’s “economic approach” that he developed in his 1976

book was as much an a posteriori definition of economics as a programmatic one.

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