Samuel Brittan reviews Economics, a New Introduction, Hugh Stretton, Pluto Press, 25 paperback, 60 hardback, 896pp published in Economic Affairs, June 2000

There is a surprising shortage of books either explaining how economic systems work or attempting to explain analytically real world events such as the Asian crises, the travails of post-communist economies or even parochial matters such as the ferocious disputes about British exchange rate policy.

On the one hand there are strictly academic books which concentrate on quantitive techniques and mathematical relationships on which students can be examined, but which do not answer very directly the questions that practitioners of history or government have about the economy. On the other hand there are numerous voices from other disciplines, or no discipline at all, which make strident assertions about the effects of globalisation or "the rich getting richer and the poor getting poorer", picked up from a few media headlines. Through their insistence on being "scientific" and value-free, many economists have left the ground open to these others.

This new book is an alternative textbook which tries to fill the vacuum. It treats economics as a running controversy, more akin to politics, philosophy or history than to physics, but which still requires an effort at understanding. In accordance with his precepts the author states at the beginning his own values, which are egalitarian, environmentalist and to some extent feminist.

His conclusions are unlikely to appeal to readers of Economic Affairs. He regards the retreat from controls and intervention of the 1945-73 variety as retrograde. He is very sceptical about the advocacy of freer trade and the liberalisation of capital markets by even middle-of-the-road economists to emerging or former communist countries. And he has a great deal to say in favour of the fixing of wages by public institutions (eg by the courts in Australia), minimum wages and even work-sharing.

He is however very far from being any kind of left wing moderniser, insisting that in many societies there are more important purposes than maximising measurable growth. He is far too eclectic to believe in Gosplan-type planning. And although he pays tribute to Samuelson for providing the best of the neo-classical textbooks, he has none of the mainstream Keynesian optimism about achieving full employment by sufficiently expansionary financial policies. Along with other post-Keynesian writers, he emphasises the need for pay and other controls if such policies are to work.

But even for those who would dispute his vision of the world or his policy positions, the book has many engaging features. It is full of information, anecdotes and case histories in a way reminiscent of John Stuart Mills Principles of Political Economy. And at all times he warns the student to be aware of counterarguments.

I was particularly entertained, for instance, by the treatment, very early on in the book, of Ralph Waldo Emersons saying: "Make a better mousetrap and the world will beat a path to your door". Stretton shows how a person who adopts this advice too uncritically may well go broke instead. Some firm may come up with an effective mouse poison: or Friends of the Earth may persuade the government to declare mice an endangered species - to name but a few possibilities.

There are many subjects on which the author has something new and important to say. Above all he emphasises that the economy consists not just of two sectors, the private and the state, but also a third equally important one, namely the household sector which is so rarely discussed except in terms of stylised utility function.

By and large, a student will pick up from the first four fifths of the book dealing with micro matters most of the conventional textbook apparatus of demand and supply, investment theory and the like. The order of the exposition is unusual. For instance, the discussion of the forces behind demand, which borrows from market research literature, comes before the formal exposition of the downward sloping demand curve. This is very much a matter of taste.

It is only the last part of the book covering macroeconomics that the deficiencies become glaring. The author refuses to put forward any general theory of inflation other than the struggle for income shares, so familiar from writers in his camp. This enables him to downplay monetary policy and demand management in general, but at the expense of leaving readers at a loss to understand why such struggles lead to high inflation in some circumstances and not in others. And readers in his own camp might be disappointed that his crucial concept of bargaining power is left in its usual fuzzy state rather than as something sufficiently sharp to measure even approximately.

But even in this last part there are many points that should be of interest to the open minded reader. He or she should learn quite a lot from the chapters explaining why Chinese move away from a totally planned system to a more market oriented one should have been more successful than the Russian. He does mention the political repression and other human costs of the Chinese road. But not all good or bad things go together.

Two conclusions suggest themselves. One is that Stretton should write a much shorter book outlining his alternative to free market economics in a form suitable for the non-student reader or for the student who prefers to read something concise. Although there have been hundreds of books ferociously denouncing market capitalism, globalisation and the like, there are very few written in as good tempered a way as his textbook, willing to concede that some questions are open and that the other side may occasionally have a case.

Secondly somebody in the market economy mainstream should write a textbook with the same emphasis on institutions, diversity, and real world applications, as well as the exercises in techniques which are presented in so many modern introductions.