Tag Archives: history

Unhistorical economics?

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It’s a university day for me and I was chatting over tea with my economic historian colleague Chris Godden about the new interest in economic history, as people try to understand the turbulent post-crash, perma-crisis times we seem to live in. We got to wondering, though, why there was less interest – including or especially among economists – in the history of economic thought. One might have expected reflection on what had gone wrong with economics, crisis-wise, to lead people to ask some questions about how we got here.

We got on to what books eager undergraduates should be pointed to. Reading the originals is sometimes heavy going – I wouldn’t point anyone to [amazon_link id=”0486434613″ target=”_blank” ]Ricardo[/amazon_link], for example. There are some excellent books around. Robert Heilbroner’s [amazon_link id=”0140290060″ target=”_blank” ]The Worldly Philosophers[/amazon_link] is still the best introduction, I think. An older book is Eric Roll’s [amazon_link id=”0571165532″ target=”_blank” ]A History of Economic Thought [/amazon_link](1st pub. 1956), which is better at rooting the individuals in the context of the intellectual currents of their time. More recent is Sylvia Nasar’s [amazon_link id=”1841154563″ target=”_blank” ]Grand Pursuit,[/amazon_link] a very accessible read. There’s also the more scholarly (and very good) [amazon_link id=”0691148422″ target=”_blank” ]Economics Evolving[/amazon_link] by Agnar Saandmo. There are also plenty of books about Keynes, notably Robert Skidelsky’s [amazon_link id=”0141043601″ target=”_blank” ]Return of the master[/amazon_link], and other individuals – there’s Thomas McCraw’s[amazon_link id=”0674034813″ target=”_blank” ] Prophet of Innovation[/amazon_link] on Schumpeter, Nicholas Wapshott’s [amazon_link id=”B005LW5K6G” target=”_blank” ]Keynes – Hayek[/amazon_link]. And more.

[amazon_image id=”068486214X” link=”true” target=”_blank” size=”medium” ]The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers[/amazon_image]   [amazon_image id=”0571165532″ link=”true” target=”_blank” size=”medium” ]The History of Economic Thought: Fifth Edition[/amazon_image]   [amazon_image id=”1841154563″ link=”true” target=”_blank” size=”medium” ]Grand Pursuit: The Story of the People Who Made Modern Economics[/amazon_image]  [amazon_image id=”B00DT696Q6″ link=”true” target=”_blank” size=”medium” ]Economics Evolving: A History of Economic Thought 1st (first) Edition by Sandmo, Agnar [2010][/amazon_image]   [amazon_image id=”B002RI99FU” link=”true” target=”_blank” size=”medium” ]Keynes: The Return of the Master[/amazon_image]   [amazon_image id=”B00MMQTSQC” link=”true” target=”_blank” size=”medium” ][(Prophet of Innovation: Joseph Schumpeter and Creative Destruction)] [ By (author) Thomas K. McCraw ] [November, 2009][/amazon_image]   [amazon_image id=”B00GSCVZX0″ link=”true” target=”_blank” size=”medium” ]Keynes Hayek: The Clash That Defined Modern Economics by Wapshott. Nicholas ( 2012 ) Paperback[/amazon_image]   [amazon_image id=”0486434613″ link=”true” target=”_blank” size=”medium” ]The Principles of Political Economy[/amazon_image]

But the striking thing about all this is how long ago the history of economic thought ends. So my question is which economists since the 1930s would have to feature in an update of any of the above books? Some names are obvious – Samuelson, Friedman, Becker. Are there others? Who post-1970s who has clearly influenced the direction of economic thinking?

Making the future happen

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Yesterday I spoke at Nesta’s Future Shock conference, focusing on the UK’s poor productivity record, and the part played in that by under-investment. You get the future you invest in.

This comment from Keynes, in a 1945 memo to the War Cabinet, went down especially well: “If by some sad geographical slip the American air force (it is now too late to hope for much form the enemy) were to destroy every factory on the North East coast and in Lancashire (at a time when the directors were sitting there and no-one else), we should have nothing to fear.” Keynes was, however, fearful about the country’s likely ability to export, and thus repay war debts, in the years ahead. He was all too well aware of what he called the ‘antiquated inefficiency’ of British factories.

The Bank of England’s recent working paper on productivity attributes about a quarter of the 16 point shortfall compared to the previous trend to measurement problems, the rest to low investment, ‘impaired resource allocation’, and fewer closures of inefficient businesses than is normal during a downturn.

The quotation comes from Donald Moggridge’s [amazon_link id=”0415127114″ target=”_blank” ]Maynard Keynes: An Economist’s Biography[/amazon_link], and I think it is also in the Roy Harrod volume, [amazon_link id=”0393300242″ target=”_blank” ]The Life of John Maynard Keynes[/amazon_link], rather than the better-known Robert Skidelsky one – I can’t find it paging through Volume 3, [amazon_link id=”0333779711″ target=”_blank” ]Fighting for Britain[/amazon_link]. My favourite recent book about Keynes isn’t a conventional biography but a biographical reflection on his relevance today, [amazon_link id=”0674057759″ target=”_blank” ] Capitalist Revolutionary[/amazon_link] by Roger Backhouse and Bradley Bateman.

[amazon_image id=”0415127114″ link=”true” target=”_blank” size=”medium” ]Maynard Keynes: An Economist’s Biography[/amazon_image]   [amazon_image id=”0333779711″ link=”true” target=”_blank” size=”medium” ]John Maynard Keynes: Fighting for Britain, 1937-1946 v.3: Fighting for Britain, 1937-1946 Vol 3[/amazon_image]   [amazon_image id=”0674057759″ link=”true” target=”_blank” size=”medium” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_image]

Policy pickles redux

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History repeats itself, with variations; as the famous Reinhart and Rogoff book on sovereign debt crises argues, [amazon_link id=”0691152640″ target=”_blank” ]This Time is Different[/amazon_link] – not! I’ve just been reading a fascinating book by Bill Allen on UK macro policy history, [amazon_link id=”113738381X” target=”_blank” ]Monetary Policy and Financial Repression in Britain, 1951-59[/amazon_link]. The 1950s were preceded by a period remarkably like today’s context in important ways. The Bank rate – the key policy rate of the period – had been kept at 2% for nearly two decades, to combat the Depression, finance the war, and keep the economy growing in the post-war years. With a new government in 1951, monetary policy was ‘reactivated’.

[amazon_image id=”113738381X” link=”true” target=”_blank” size=”medium” ]Monetary Policy and Financial Repression in Britain, 1951 – 59 (Palgrave Studies in Economic History Series)[/amazon_image]

The author – formerly a senior Bank of England director and now at Cass Business School – argues that the 1950s have highly relevant lessons for today. The Bank’s key rate has been at 0.5% for more than five years and will stay there for some time longer. With short-term government debt outstanding amounting to £342bn at the time he wrote (just over 20% of GDP), “This means that any increase in short-term interest rates would entail an immediate and substantial increase in government expenditure.” Yet, he continues, it is inconceivable that interest rates can stay so low for ever. The only way is up.

What possible paths are there out of this situation? Either higher interest rates will lead to a big increase in the fiscal deficit or (much) more austerity; or nominal GDP will have to rise substantially either via real growth or higher inflation to reduce the fiscal impact of higher interest rates; or banks will have to be forced to bear some of the cost of rising interest rates – as in the 1950s – by a requirement to hold very large non-interest bearing deposits at the Bank of England. The first option is unappealing, the second unlikely given present economic trends. “One fine day there will have to be a new reactivation of monetary policy, and the authorities will have to manage exactly the same problem that faced their predecessors.”

There are of course some very important differences between now and the 1950s, including the fact that the amount of private debt outstanding now is so much greater (141% of GDP vs 16% of GDP in 1951, the much lower liquidity ratios of banks now). Still, the parallels make this history extremely interesting. The bulk of the book consists of a chronological account of monetary policy and description of the techniques used and decisions made over the decade. The final chapters cover four themes: monetary policy tools, financial repression, power and influence, and an overall assessment of the monetary policy chosen.

The power and influence chapter is especially interesting. This was long before Bank of England independence so the Chancellor of the Exchequer took the policy decisions and was in principle answerable to the House of Commons. In practice, secrecy prevailed, and there was almost no communication about policy – quite a contrast to today’s situation of ample, and perhaps even excessive to the point of confusion, communication. The book places the blame for the prevailing secrecy on the dire state of Britain’s financial problems both in the 1930s and again after the war. “Formal post-war default by the UK would have been technically possible but politically poisonous.” Commentators on policy had to apply guesswork to figure out what the Bank of England had already done, never mind what its future actions might be – the book uses archive material to fill in the blanks.

One result was that academic discussions diverged from practice, a damaging divorce. For those who understood the institutional reality of money and those who developed theories about monetary policy on the whole stopped speaking to each other – something we arguably paid the price for in the recent crisis, by which time the non-institutionally grounded theories had reversed themselves into central bank thinking too. (I find the institutional detail explained in this book far more interesting than the abstractions of macroeconomic models, I must say. It brought back to me memories of reading parts of the Radcliffe Committee Report in my undergraduate days, and being intrigued by the practicalities of monetary policy – an interest thoroughly destroyed by subsequent exposure to real business cycle theories and representative agent models.)

My sole criticism of this fascinating account of the reality of a decisive decade in UK monetary history is that it’s priced for institutional libraries (£70); but anybody at all interested in how we might find a way out of the present policy pickle would do well to borrow a copy.

All the way from the Stone Age and back again?

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There’s a growing genre of books, the long sweep of human history from a social science perspective. The ur-text must be Jacob Bronowski’s [amazon_link id=”1849901155″ target=”_blank” ]The Ascent of Man[/amazon_link] (the DVD of the series is still available and, I think, still fascinating despite being so old-fashioned.) I suppose the recent wave started with Jared Diamond’s [amazon_link id=”0099302780″ target=”_blank” ]Guns, Germs and Steel[/amazon_link] (1997), and more conventional economic histories such as David Landes in the [amazon_link id=”0349111669″ target=”_blank” ]Wealth and Poverty of Nations[/amazon_link] (1998). More recent contributions have come from Ian Morris, with [amazon_link id=”1846682088″ target=”_blank” ]Why the West Rules – For Now[/amazon_link] (2011) and [amazon_link id=”0691155682″ target=”_blank” ]The Measure of Civilization[/amazon_link] (2013), and Diamond again with [amazon_link id=”0241958687″ target=”_blank” ]Collapse[/amazon_link] (2005).

[amazon_image id=”0563104988″ link=”true” target=”_blank” size=”medium” ]The Ascent of Man[/amazon_image]

The latest is Yuval Noah Harari’s [amazon_link id=”1846558239″ target=”_blank” ]Sapiens: A Brief History of Humankind[/amazon_link], just published in the UK with a lot of publicity razzmatazz. I’ve not read it, just this extract in The Guardian. It touches on how we measure progress, and is happiness a better aim than GDP. It isn’t entirely clear to me what the conclusion is – that we were happier in the Stone Age? To which the answer is surely the economist’s sceptical revealed preference argument: see how many voters want to revert to a hunter-gatherer society. Or is Harari instead arguing for giving evolution a bit of a boost?

“Humans are not adapted by evolution to experience constant pleasure, so ice‑cream and smartphone games will not do. If that is what humankind nevertheless wants, it will be necessary to re-engineer our bodies and minds. We are working on it.”

[amazon_image id=”1846558239″ link=”true” target=”_blank” size=”medium” ]Sapiens: A Brief History of Humankind[/amazon_image]

The education of an economist

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In the Financial Times this morning Deirdre McCloskey has a tantalising curtain-raiser for her forthcoming book, Bourgeois Equality: How Betterment Became Ethical, 1600-1848, and Then Suspect. Her argument is that it isn’t the accumulation of capital but rather innovation that is the engine of wealth, collective and individual:

“Taxing the rich, or capital, does not help the poor. It can throw a spanner into the mightiest engine for lifting up those below us, arising from a new equality, not of material worth but of liberty and dignity. Gini coefficients are not what matter; the Great Enrichment is.”

McCloskey has been on an anti-Piketty tour – see for example this by Evan Davis in The Spectator, and McCloskey herself speaking recently to the IEA. It’s intriguing that two of the economists most admired by progressive, anti-free-market, reforming economics people – McCloskey and Piketty – are in such disagreement.

The forthcoming book is the final volume in McCloskey’s trilogy, The Bourgeois Era, preceded by Vols 1 [amazon_link id=”0226556646″ target=”_blank” ]The Bourgeois Virtues: Ethics for an Age of Commerce[/amazon_link] and 2 [amazon_link id=”0226556743″ target=”_blank” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_link] (I reviewed the latter for the New Statesman.)

[amazon_image id=”0226556743″ link=”true” target=”_blank” size=”medium” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_image]

Occasionally I might disagree with Prof McCloskey, but I love her books. One of my all-time favourites is [amazon_link id=”0472067443″ target=”_blank” ]How to Be Human (though an economist)[/amazon_link] and of course her book with Stephen Zilliak, [amazon_link id=”0472050079″ target=”_blank” ]The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives[/amazon_link].

[amazon_image id=”0472067443″ link=”true” target=”_blank” size=”medium” ]How to Be Human: Through an Economist[/amazon_image]   [amazon_image id=”0472050079″ link=”true” target=”_blank” size=”medium” ]The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives (Economics, Cognition & Society)[/amazon_image]

I love even more the reading lists for her courses. Just look at the instructions for Economics 326: The History of Economic Thought, 2006, for example, or the graduate seminar Economics 263, or Economics for Humanists. It’s clear one would have to really work, but who wouldn’t want to be taught economics like this?