Jonathan Levy, professor of history at Sciences Po, Paris, invites us to explore a provocatively simple question—“What is the economy?”—from the perspective of critical history and theory. This collection of essays is premised on Levy’s assertion that neoclassical economics “simply chose method over subject and got over it,” meaning that the discipline of economics has constricted its focus to methodological and measurement questions—“an entirely mathematical affair”—rather than continue to refine its central subject of exploration (pp. 7, 2). However, as Levy continues, if economists have relegated themselves to the parochial, then “historians and allied members of the interpretive social sciences and humanities [offer] no theory of the economy” either (p. 13). Thus, he explains, The Real Economy seeks to “start over again” in both the critical and constructive sense and rediscover “traditions of literary economic theorizing” (pp. 1, 3).

And yet, Levy concedes that there is “no final determination of what the economy is, really, for all times and places…. The real economy must be a plural subject, for there is always movement or, to invoke a word that will appear many times across this volume: process” (p. 17). Indeed, “process” takes on a double meaning here. The Real Economy is an eclectic collection of nine essays, the first six of which are unrevised article reprints. Those reprints compose the first section of the book, entitled “Critique.” The following section, “Construction,” offers three new essays. There is no concluding chapter. “Process,” therefore, refers to Levy’s own intellectual journey “as it evolved” as well as the stocks and flows of economic activity that compose an economy (p. 17).

The book begins with Levy’s definition. The real economy is “a bounded spatiotemporal order of demand-constrained production, determined by logical accounting relationships among the different stocks of wealth in the economy that generate the different flows of income” (pp. 21, 201). To readers of this journal, this will feel familiar. In many ways this echoes traditional neoclassical accounts: Paul Samuelson emphasized scarcity as a defining attribute of “an economy”; macroeconomists have long emphasized the distinction between stocks of wealth and flows of capital; accounts of post-Bretton Woods financial globalization have noted that creditor nation’s run trade deficits and poor countries actually lend to rich ones as they accumulate “safe haven” reserves.Footnote ¹ Levy builds on these accounts to theorize the flow of capital as the basis of conceptualizing the real economy, which must also account for the historical accumulation of stocks of wealth, from which investment initially derives.

Typically, in the news and in the classroom, the real economy refers to what is happening in terms of production, consumption, and labor. It is often contrasted to financial markets, such as stocks, bonds, currency values, etc. The real economy is tangible, whereas financial instruments, for example, can sometimes balloon without real effects on output or employment; though when balloons burst, the real economy invariably responds. Regardless, the two—real and financial economies—are interconnected in so far as financial markets allocate capital through loans and investments toward (one hopes) productive ends, fueling the real economy. Capital shortfalls constrain growth, and abundant capital spurs inflation.

Levy’s real economy relies on John Maynard Keynes’s The General Theory (1936) in that he focuses on both demand-constraints, rather than material constraints, and the interconnectedness of the real and the financial to think about commercial activity. Importantly, institutional antecedents to economic growth—such as the rule of law, openness to trade, reliable transfers of political power, and a stable banking sector—play a vanishingly small role in the story.

The first of the new essays, Chapter 7, does so through the lens of Irving Fisher and his foil Thorstein Veblen, and also Keynes. In the 1890s, Fisher theorized both the importance of the flow of capital as guided by desires, or marginal value, which always included risk and uncertainty, as well as the historical importance of accumulated wealth. Nevertheless, it was Keynes, writing before and during the Great Depression, who synthesized the two positions into a coherent whole by noting that “Wealth owners hold and value different capital stocks. These stocks are outlets for the investment of their desires, given their expectations of the future” (p. 188). Rather than economists’ preferences to measure return on investment, money multipliers, or elasticity of demand, Levy argues that Fisher’s “desire” captures the more basic human condition that motivates “all economic life,” conscious and unconscious (p. 186).

Keynes’s General Theory then formalized that insight in his novel explanation of the liquidity trap, wherein the preference to hold money creates shortfalls of investment and consumption and “the macroeconomy suffers from that lack” (p. 191). This is standard macroeconomics, except for Levy’s choice to exclude deflation—real or expected—from his explanation of 1930s liquidity preference, which seems to obscure both history and theory. Yet, the choice must be intentional because the final section of the chapter then addresses Robert Lucas, Jr.’s famous query from the late twentieth century: why is there an “observable lack” of investment from rich to poor countries (p. 194)? While Levy provides a thoughtful and pithy overview of the conventional account, he settles on “an uptick in liquidity preference—at once precautionary and speculative—by global owners of wealth” (p. 198). Yet, it remains unclear why wealthy, developed-world investors are “not investing productively [in] long-term anything” or what that means for a theory of the economy (p. 198). Without arguing that wealth-holders are necessarily rational actors or that markets are necessarily efficient allocators of capital, it would have been fruitful to inquire as to why some countries receive a disproportionate amount of investment relative to others, and perhaps even what role government institutions play in those allocation choices.

The following chapter reverses the chronological order—starting with Keynes’s General Theory and then folding back to the seventeenth century to further illustrate the necessity of investment to spur aggregate demand. This chapter explains Keynes’s idea of the money multiplier and the problem of leakage; however, since we are now focused on money as the means of investment and the mode of hoarding, Levy extrapolates to a more general meaning of money that can include less liquid assets, such as commodities, as a store or stock of wealth accumulation. Nevertheless, the transcending problem across time and space is “Keynes’s Law”—the marginal propensity to consume is constrained and forever threatened by the marginal propensity to hoard; thus, “the fundamental economic problem [is] the weakness of investment—Keynes’s Law” (p. 216). By going back to seventeenth-century England, Levy explains that by “domesticating an external source of demand” from colonies and trade partners “it was empire that was the phenomenon most responsible for activating” greater investment to reach newly stimulated demand (p. 221).

For Levy, the solution to “Keynes’s Law” is government interventions to induce investments, which might flow to productive capital assets or public debt instruments, such as bonds, which fund public expenditures. For example, Levy gives high praise to the Bank of England’s late seventeenth-century expansion of monetary and fiscal capacity, “driven by episodes of inter-imperial warfare” (p. 226). Indeed, such expansion helped fuel investments—both private and public—toward greater productivity. Yet, as a historical matter, it remains unclear why England was so successful—both in terms of its ability to borrow and its productive allocation of capital—where others were not. Is this an endorsement of export-led growth? And, as a matter of theory, if Levy’s emphasis is on capital allocations toward various types of productive investments, how and why does the liquidity preference change? The liquidity of an asset—currency, equities, bonds, fixed capital assets—has a wide range and the preference to hold some types over others changes over time and space.

The final chapter asks a different question, largely setting aside Keynes’s emphasis on government and inducing investment until the final paragraphs. Through Veblen’s The Higher Learning in America (1918), Levy interrogates the place of the modern research university in the economy, asking “Is the modern research university part of the economy, or does it sit outside of it as a nonprofit cultural institution?” (p. 228). Readers will be unsurprised that it is both, but that does not seem to be the point really. Levy demonstrates that many of Veblen’s ideas—e.g., the paradox of thrift—anticipated Keynes’s contributions; however, Veblen centered the modern business corporation as the “device for achieving the preeminence of pecuniary values” over and above industrial or cultural values (p. 239). Indeed, Veblen circles back to the tension between pecuniary gain and workmanship that animated his The Theory of Business Enterprise (1904) when he describes research professors as caught “between pecuniary predation and idle curiosity” (p. 242). In short, emulation of the business corporation from its board of businessmen trustees to its accounting practices and wage structures corrupted and displaced the idle curiosity that had motivated professorial ambition within research universities. Business schools were the worst, of course, though law schools followed close behind. Predators all.

While there is no concluding chapter, the final section of the last essay—Socialism or Barbarism?—may stand-in for one. If the hegemony of pecuniary employments led inextricably toward the creation and recreation of both a commercial aristocracy and warlike ambitions, then, according to Veblen (and maybe Levy too), “‘the abolition of the academic executive and of the [university] governing board’” might overcome barbarism by igniting “new habits and thoughts [that] would have to move out from the university to the wider world where, allying with other institutions, a broader transformation would secure the ultimate decay of business enterprise” (p. 251).

Maybe. As a historian, and not a theorist, context matters to the critique. Although I am certainly sympathetic to Levy à la Veblen’s critique of the modern research university, one wonders what lessons to draw, and if those lessons are for everyone. As Levy notes, Veblen wrote Higher Learning from a place of considerable institutional grievance about his own place in the academe. Idle curiosity is an ideal theory, not without beauty and wonder but, especially in Veblen’s day, also not without exclusion and privilege. The democratization of higher education, incomplete as it is, was achieved largely by public expenditures that helped produce large-scale public university systems. Those funds have required accountability. States are not neutral actors, but rather a different species of political. In other words, the question is always in whose interests is the institution shaped and through what mechanisms. The current populist moment is arguably more coercive than donor-influenced because it implicates state power. Thus, while we may agree that an audit culture shapes faculty research and culture, making idle curiosity more distant, analytically, the challenges we face today require a more inclusive accounting that identifies a wider variety of political valences and leverage points for change.

In some ways, The Real Economy is more theory than history per se. Levy dashes through time and space less concerned with explaining how or why productivity occurs in a historical setting and more fascinated with a certain continuity of ideas cutting across some of the most incisive critics of modern capitalism and classical economics. This volume is filled with fascinating historical details and unusual insights into the lives and influences of economists. It provides a useful and at times thrilling account of how lives lived influenced the theories made. The real economy is not simply a measurement of productivity and those inputs that make it up. In other words, it is not Y = C + I + G + (X – M) or (S – I) = (X – M). (Though it certainly helps if you already understand those identities.) But rather, the real economy is an accumulated stock of wealth that by various means is provoked to be spent—hopefully on things that are not totally wasteful, or conspicuous consumption—on investments that fulfill the wealth-holders anticipation of some pecuniary value in the future, or an income stream. The puzzle is that that is still thoroughly neoclassical, if paleo-Keynesian and critical. More recent heterodox economic theories might have proved particularly useful—from Hyman Minsky’s financial instability hypothesis, which extended Keynes’s analysis, to W. Brian Arthur’s complex and adaptive systems approach to economies, which Veblen anticipated.Footnote ² For historians, these heterodox approaches demonstrate how aggregate historical outcomes are more than the sum of individual intentions and actions—context, history, and institutional specificity matter.

It is certainly true that an “imperialism of microeconomic approaches to human behavior” has reigned across the social sciences and humanities—indeed, Levy seems to repackage neoclassical concepts and apply them in fascinating ways but not, as it were, to reconceptualize or overturn the ideas themselves (p. 9). As Levy notes, the imperialism has everything to do with method and not subject matter. Economics may be everywhere and at once nothing, but, as The Real Economy illustrates, it is the language and conceptual clarity characteristic of economics that continues to control, sometimes even in its more heterodox forms.