Grand Pursuit: the Story of Economic Genius
Sylvia Nasar
Fourth Estate, 558pp, £25

Assessing the state of economics as he found it in the work of one of its most prominent practitioners, the Chicago economist George Stigler wrote: "There really isn't a great deal to economics, considered as a logical structure based on a few indisputable axioms about the world. If one cuts oneself off from two generations of immensely varied and instructive empirical research, and if one thinks economic history has no relevance to economic theory, then one is indeed left with a hollow discipline." Writing in 1963, Stigler reached this judgement in a review of Joan Robinson's book Economic Philosophy. Robinson, whom Stigler described as "a superior logician", fused the "indisputable axioms" of economics with the ideological prejudices of the time. An unshakeable believer in the superior efficiency of central planning, she visited Moscow towards the end of the Stalin era and praised the "oriental lavishness" of the dinners she was given; she also travelled frequently to Maoist China in the 1950s and 1960s without noticing any signs of hunger or distress. As her one-time student Amartya Sen later commented, she "failed utterly to detect the biggest famine in modern history".

Robinson formed her view of the world by carefully avoiding any engagement with the messy actualities of human experience. She was far from being alone in this. Starting from quite different methodological and ideological premises, a later generation of economists displayed a similar penchant for unreality. For the neoliberals who began to acquire political influence from the late 1970s onwards, the market was not a fallible human institution like any other, but the very embodiment of rationality. Recurrent booms and busts had nothing to do with the nature of capitalism, which would be entirely harmonious in its workings if only governments would stop interfering. These free-market doctrinaires closed their eyes to history just as much as did the crypto-Marxist Robinson, writing off the human casualties of their theories as stragglers in the grand march
of progress.

Citing Stigler's remarks, Sylvia Nasar notes that Robinson was always "looking for the next Great Leader and, of course, the next worshipful audience. She relished her celebrity, her junkets, the VIP treatment and bully pulpits. She liked playing the fearless outsider speaking truth to power. Perhaps the Moscow bank account, friendships with cold war spies and the need for veiled allusions and careful elisions gave her a kick as well." Earlier in Grand Pursuit, Nasar relates how the independent-minded young Robinson overcame the stifling conventions of male-dominated Cambridge in the 1920s and became a member of J M Keynes's inner circle, at the same time as she found solace from a dull marriage in a series of colourful lovers. This finely drawn portrait is only one of many subtly balanced descriptions of leading economists in an exceptionally original book.

Combining a novelist's eye for vivid images with a historian's sense of the contexts in which ideas are produced and disseminated, Nasar presents, in Grand Pursuit, a drama of the shifting patterns of economic thought over the past two centuries which abounds in arresting vignettes. Recounting how Marx and Dostoevsky viewed the Great Exhibition of 1862 with similar contempt and disbelief (the gloomy novelist denounced the event as a "prophecy from the Apocalypse being fulfilled before your very eyes"), she tells how Marx was reduced to applying for a job as a railway clerk, only to be rejected because his handwriting was poor and he couldn't speak English.

Conjuring up the Hotel Majestic in Paris, where Keynes stayed during the negotiations surrounding the Treaty of Versailles after the end of the First World War, Nasar cites Harold Nicolson's report of seeing Marcel Proust pass through the lobby, "white, unshaven, grubby, slip-faced, wearing a fur coat and white kid gloves". And she notes how Keynes, reduced to despair by the chaos of the conference and the participants' indifference to human suffering, took to his bed and wrote to Lloyd George resigning from the British delegation because, he told the prime minister, "the battle is lost".

Twenty-five years later, Keynes would cross the Atlantic on the Queen Mary, en route to Bretton Woods in New Hampshire, and use his spare time on board to lounge in a deckchair reading Plato's Republic and F A Hayek's Road to Serfdom, praising the ferocious attack on collectivism by his chief rival in the economic debates of the interwar years as an account of the values needed "for living a good life".

The contrast between the shambles at Versailles and the reconstruction of the world economy that came out of Bretton Woods in 1944 is at the heart of Grand Pursuit. The story Nasar tells of the passage from disaster to new world order is gripping and, at times - as when she details the pivotal role played in the negotiations by Harry Dexter White, later accused of being a Soviet agent - disturbing. It is also a story that undermines the inflated claims she makes in the epilogue for economics as a discipline that provides intellectual "instruments of mastery", ideas that "could be used to foster societies characterised by individual freedom and abundance instead of moral and material collapse". After the crisis of 2008-2009, she writes, the "world financial system did not collapse. There was no second great depression . . . Returning to the nightmare of the past seems increasingly impossible." Strikingly triumphal in tone, this assertion is sharply at odds with the rest of the book.

It may also prove to be a premature judgement. Nasar gives one reason for this herself when she comments that those who convened at Bretton Woods understood that "no system was spontaneously generated or self-regulating. It would require the sole remaining superpower in the west and the once-powerful but now-humbled European empires to create one." Bretton Woods succeeded where Versailles failed because the meeting in New Hampshire was presided over by a hegemonic power, which could, in the last analysis, dictate the terms in which the new world order would be framed. But now, America, having forfeited its primacy by the implosion of its financial system, there is no hyperpower of that sort today. The international scene has more in common with that of the interwar years - not least in Europe's inability to govern itself.

Another reason it may be premature has to do with the pretensions of economics as a discipline. As Nasar demonstrates, the subject has been shaped as much by ideological fantasy and overweening theoretical constructions as by empirical inquiry. Few economists anticipated the financial crisis or believed that a dislocation on the scale the world has suffered was even remotely possible. Equally, because history - even the history of economics - is no longer seen as central to the profession, very few economists have had anything of interest to say about how to deal with the difficulties that have followed. This only confirms the continuing accuracy of Stigler's indictment of a hollow discipline. When you are struggling to stave off a global disaster, there isn't a great deal to economics.

John Gray is the New Statesman's lead book reviewer. His latest book is "The Immortalization Commission: Science and the Strange Quest to Cheat Death" (Allen Lane, £18.99)