By the latter decades of the nineteenth century, laissez-faire, in economic thought and in social and political influence, was in decline throughout Europe and the United States. Pareto was scarcely the only laissez-faire thinker in despair. Spearheaded by the welfare-warfare state developed in Prussia, academics and politicians alike scorned the ‘old fashioned’ tenets of laissez-faire and embraced the seemingly modern and ‘progressive’ advance of statism, state planning and welfare state measures. American academics, trained in Germany, the home of the Ph.D., came back from Europe singing the praises of the ‘organic’ Big State, scorned the idea of economic law and the market economy, and advocated class ‘harmony’ through Big Government. It is scarcely a coincidence that this new modern Big Government was desperately in need of academics, scientists, journalists and other opinion-moulding intellectuals, first, to engineer the consent of the public to the new dispensation of statism, and second, to participate in staffing, regulating, and legislating for the new planned economy. In short, the new dispensation meant a huge increase in monetary demand (by the state) for the services of pro-statist intellectuals, an important fact which did not go unnoticed among the ranks of the new progressive intelligentsia.
Throughout Europe, small associations of academics and businessmen dedicated to laissez-faire were replaced by larger organizations of mainly academics dedicated to professionalism and the promotion of their academic-economic gild. Not coincidentally, the new organizations were often explicitly statist and devoted to eradicating laissez-faire. Richard T. Ely, German-educated academic empire-builder devoted to institutionalism, statism, and Christian socialism, was the main founder of the American Economic Association, specifically excluding laissez-faire economists such as William Graham Sumner and Perry who had formed a political economy club; after this exclusionist policy was later rejected by Ely's colleagues as too extreme, Ely resigned from the AEA in a huff, and was only reconciled in later years.
Whereas laissez-faire thought was in decline, the tyranny of the British classical model, re-established by Mill in 1848, was ripe for collapse. The precedents for replacement of the classical model had already been worked out by past economists: by the scholastics, Cantillon, Turgot, and Say and the nineteenth century French; by Whately, the Trinity College, Dublin school, and Longfield and Senior, in Britain and Ireland. The next great advance in economic thought was the overthrow of the classical Ricardian paradigm, and the arrival of the subjectivist revolution (generally mis-labelled the marginalist revolution) beginning in the 1870s. The famous marginalist triad of Jevons, Walras and Menger and the Austrian School has been fortunately dehomegenized in recent years, inspired by the classic article of William Jaffé two decades ago,60 and it is now clear that the revolution against the classical school paradigm went far beyond emphasis on the marginal unit of a good or service, especially in the hands of Carl Menger and his followers. But that is the stuff of another volume.
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