J Econ (2013) 108:299–300DOI 10.1007/s00712-012-0326-0

BOOK REVIEW

Colombatto, Enrico: Markets, Moralsand Policy-MakingX, 285pp. Routlegde, New York, 2011, Hardcover £ 80.75

Andreas Freytag

Published online: 7 December 2012© Springer-Verlag Wien 2012

The book by Enrico Colombatto starts with the observation that economics seems tobe on the retreat. During and after the world-wide financial and economic crisis, theprofession had to face many allegations, it was remarked that the economic scienceneither forecast the crisis correctly nor came up with unanimous policy recommenda-tions. Thus, not much credit is given to economic analysis. Against this backgroundColombatto wants to make the point that mainstream economics has failed to see thebasic foundations of an economic analysis, namely uncertainty, permanent change andlimited rationality.

As a consequence of the financial and economic crisis as well as the shortcomingsof the economics profession, Enrico Colombatto argues that the general confidence inthe state and its capacity to solve the enormous economic and social problems in theaftermath of the crisis has increased. By the same token, he claims, economists haveaccepted that role for the state without questioning the alleged market failure as causeof the crisis. Colombatto himself locates the causes of the crisis in the central banksand governments of the West; a view, which is shared by the reviewer.

The widespread uncritical view on the state in the profession, so the argumentgoes further, is the result of a lack of moral foundations in economics and a misplacedfocus on rational behavior and equilibrium analysis. Utility maximizing agents act likerobots and search for steady state equilibria without considering moral foundationsand transaction cost. Therefore, the book “Markets, Morals and Policy-Making” is aplea for individualism, working judiciary and free markets, mainly from a historicalperspective. It is also a plea for modest economics, not engaged in social planning butin explaining the case for freedom.

A. Freytag (B)Friedrich-Schiller-Universität Jena, Jena, Germanye-mail: A.Freytag@wiwi.uni-jena.de

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In ten chapters the author develops this plea, mainly by showing the flaws of differentschools of economics. After an introduction, the second chapter gives a brief account ofthe history of economic thoughts. Chapter 3 deals with mainstream economics, viewedvery critical by the author. In chapter 4, new institutional economics is analyzed andcriticized. Chapter 5 does the same with constitutional economics. In chapters 6 and7, respectively, the law and economics school is scrutinized, again rather skeptically.Chapters 8 and 9 discuss the policy conclusions for entrepreneurship and povertyreduction respectively. The author comes to the conclusion that the best policy can dois to maintain freedom. The economics profession is left with almost no function, itsanalysis is regarded incomplete and its advice mostly seen useless.

The book contains a rich analysis of the history of economic thoughts against thebackground of historical events. The author benefits from his enormous commandabout the economic and philosophical literature as well as his vast knowledge ofthe history of theorizing and policymaking. This wealth is applied to the theory ofeconomic policy and offers a severe and understandable warning to social scientists.

Unfortunately however, the book is not easy to access and difficult to read since thestructure is not clear and the arguments are often repeated. In addition, the messageis hidden under a massive number of normative statements. Finally, the criticism ofmainstream economics shines through in every section. This problem is widespreadamong so-called heterodox economists: they do not seem to believe that they have apoint in itself, thus they often if not almost always contrast their perspective with (per-ceived or real failures of) mainstream economics. As a consequence, their argument isweakened and only those who have already been convinced will believe the message.The criticized mainstream will probably not listen at all. That is a pity.

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