Thinking About Economics

As part of my fall teaching load, I will be teaching what economists sometimes refer to as “History of Thought” but which is more correctly termed the “History of Economic Thought” or perhaps “Evolution of Economic Theory and Analysis”. 

I originally prepared the course over a decade ago and will be teaching it again after a considerable absence making it very much a substantial prep.  The last time I taught the course, I made an effort to provide a survey of the economic history and environment of the time period a specific economic thinker lived in as part of the exposition. 

As part of getting ready for the task, I started reading a new history of economic thought book by Agnar Sandmo titled Economics Evolving (Princeton University Press, 2011).   Very early on, Sandmo addresses the question as to why we might want to study the evolution of economic thought given that “It is clearly undeniable that economics has many of the features of a cumulative science.”  He provides three reasons, which can be briefly summarized as follow:

1. It is fun.
2. As part of the liberal education of an economist.
3. A better understanding of the discipline as something that is subject to change rather than set in a final form.

Well, the first reason is certainly something I concur with.  I do find it fun particularly when the personal lives of past economists are delved into.  Tales of Thorstein Veblen hosing down the dishes in his sink, Adam Smith sleep walking through the Scottish countryside or the undergraduate pranks of John Maynard Keynes are definitely amusing, even for the Facebook generation. 

The second reason is something I had not considered in those specific terms – liberal education for economists.  I suppose I’m old enough to have studied economics from more of a social science perspective and my undergraduate education had a wide range of electives.  Economists going into the field primarily from math or engineering might need more broadening but I have no statistics on how many now go in with those backgrounds.   Moreover, in my experience, the average engineer sometimes seems to have a broader range of reading interests than the average undergraduate in economics.  Sandmo also uses the concept of ‘liberal education’ as useful for an economist in the sense that many economics terms are associated with the individuals who pioneered them and “A well-educated economist clearly ought to know something about the persons that the terms refer to.” eg. Pareto optimum or Pigovian tax.

The third reason for understanding the discipline as something that is subject to change rather than set in a final immutable form is also important thought I suspect that this is something best reserved for economics majors and graduate students who have some depth in the subject rather than undergraduates taking casual electives.  I do recall the first time teaching the course that there was a rather large contingent of business majors in the class who came to the conclusion that mercantilism was the best way to shape your national economic policy - completely free competitive markets simply got in the way of private profit making.  I often wonder what became of them but probably have to look no further than the banking, resource and retail sectors.

Finally, I would like to add a fourth reason that summarizes all three reasons.  A History of Economic Thought course can also be viewed as a capstone course in that it can be taught in a manner that summarizes the discipline of economics and the issues it addresses both at a point in time and over time.   For an undergraduate student, a history of economic thought course overviews the discipline and the ways of viewing fundamental issues like value or the sources of economic growth.  It is in some respects a “citizenship” course for economists that creates knowledge of what the discipline is and what it does and how it fits in to society.

Comments

[Stephen Gordon]

I do recall the first time teaching the course that there was a rather large contingent of business majors in the class who came to the conclusion that mercantilism was the best way to shape your national economic policy - completely free competitive markets simply got in the way of private profit making. I often wonder what became of them but probably have to look no further than the banking, resource and retail sectors.

Hah!

[Nathan Tankus]

"I do recall the first time teaching the course that there was a rather large contingent of business majors in the class who came to the conclusion that mercantilism was the best way to shape your national economic policy - completely free competitive markets simply got in the way of private profit making. I often wonder what became of them but probably have to look no further than the banking, resource and retail sectors." smart business majors.

[Kevin]

Reason #1 reminds me of a funny story I heard about Frank Ramsey. Apparently in an undergrad philosophy course he proposed an idea, thinking it was original. His professor told him that it sounded a lot like the ideas of the German philosopher Kant. Apparently Ramsey, not knowing a word of German, sat down with Kant's work and an English-German dictionary. A few weeks later he returned to the professor and said, "I think Kant is close to being right, but....". Hard to imagine any undergraduates doing that in the age of the internet, where most seem more intent on looking the answer up online.

As for #2, I think a lot of people with a math background are drawn to economics because they perceive there to always be a "right answer". However, it is important to learn that economics is very much a social science in the sense that there are shades of grey.

And finally, I think that it is important to trace the roots of economics to understand how it interacts with other social sciences: particularly psychology and political philosophy. Psychology is obviously regaining prominence through behavioural economics and the study of things like herd behaviour. However, I think that economists are not in a good position to make welfare judgements. To quote Amartya Sen: "A society can be pareto optimal and still be perfectly disgusting". The point is, economists should have more to say about welfare than just efficiency criterion. The classical economists, such as Smith, Ricardo, Mill, etc. were very concerned with these issues.

[Simon van Norden]

A good history of economic thought course sounds like it would be unusually useful these days. Please be sure to teach about Gold Standards....and please teach Bagehot. Some very old monetary economics may be more relevant for your students than it has been in a while.

At the risk of showing my age, back when I took a History of Economic Thought course "history" was defined as everything up to and including Marshall. How much more history would you teach? And do you include Marx in the course?

[Hal Morris]

History of ideas in general, if done well, teaches us a lot about thinking. E.g. I think I've learned a lot about how to think about evolution from Stephen Jay Gould's recounting of journeys of discovery, and also of confusing and delusion, but with often a great nugget of truth falling out from the craziest intellectual misadventure.

[Livio Di Matteo]

All the feedback was quite interesting. Just a quick response to Simon - I go up to Keynes and do cover Marx as a Classical economist who used "the model" to get a different outcome.

[Simon van Norden]

I continue to be impressed with the way that DeLong makes the history of thought relevant today. Check it out
http://delong.typepad.com/sdj/2011/08/alfred-and-mary-marshall-and-the-confidence-fairy-annals-of-the-history-of-economic-thought.html

[Rob Hailman]

I've often thought that a History of Economic Thought course should be mandatory for an economics undergrad, and taught very early on in the curriculum - possibly even as a first year course. It seems a lot of econ undergrads don't end up with much understanding of economics in historical perspective, which is a shame.

I came into economics after a few years as an International Development major, and was shocked that my economics classmates had little awareness of Marx, Ricardo, Smith, etc or their theories, (they all knew a lot about Keynes) and certainly hadn't actually read any of them, at least not as part of their course work.

[Bob Smith]

Livio, it's a judgement call given the obvious time constraints, but I wonder if you might think about going up to Nash and Neumann. If nothing else, their personalities were sufficient exotic to make for an entertaining final lecture. Granted, the personalities and lives of a lot of the great economists were often as "interesting" as their ideas.

Agree with you on Marx. In undergrad I had an economic history professor whose line was that "Marx was a great economist. A lousy communist, but a great economist".

[ca]

Understanding how economic thought evolves would help young economists understand what economics can and cannot tell us about the world. It would shed some useful light on the “economists didn’t see the financial crisis coming” narrative. Where they blind, or was the crisis unforeseeable? A bit of both, probably, but more of the latter than the layperson might expect.

A discussion by the Richmond Fed here: http://www.richmondfed.org/publications/research/region_focus/2011/q1/cover_weblinks.cfm

[Rock'n'Roll Economics]

Maybe I am too radical, but I would say that economics has very few features of a cumulative science, and I expect this to be even more correct in the future.
Therefore, analysing the history of economic thought is probably one of the best ways to structure a social science characterized by diametrically opposed views, shifting paradigms, and intellectual ups and downs.

[Jacques René Giguère]

Too many people thinks that economics is a mathematical science. No. It is science using mathematics to model peoples behaviour ( this is one thing Pierre Fortin taught us, see the CohC thread of August 2010). And people behaviour is based on beliefs,memories and whatnot. People making false analogies based on historical circumstances...
No one should be allowed into graduate econ without a thorough understanding of behavioral economics, economic history and history of econ thought.The only way to avoid the Kotcherlatoka syndrome.

[not Canada's fault can't emmigrate to low footprint]

"Culture of dependancy" merited a bit. Welfare distributed schizophrenically instead of for: education, HS/Uni-equivalent R+D, job search. And insulating existing housing stock, staffing with a nurse/guard; reno-ed institute opens up sane housing. EI for non-fatigued not-retraining non-danger-pay (truckers don't sleep) is perverse. Is why GAI is good; I'm earning less than welfare yet was 1st in city to get boss's cell. People start to distribute jobs like on the colony. In Cgy and from there living abroad they hire open jobs and form a tax base. Mansbridge clued me in with election point about traditional voting. Also means traditional hiring I assume based on making a family or good sex. "Nerd" comment clued me in. Thx. Payback is that preferential hiring is inflationary for spending (like mobbed construction and resource bubble inflation). Datamining Kijiji and Job Bank would expose churn that is clue of Communism. Also can measure open competitions private sector activity. Need India's Public Works (clawback welfare/EI) in town atmospheres at least. A warehouse/nursing-aide school training all min wages skills (forklift, inventory, tools) to anyone for free. A day labourer and placement Crown that adds open jobs as job searching (not churned help wanted ads) activity grows. Transit. If unutilitarian women have cells that intimidate my medalling hopes; for the sake of labour force efficiency hope discrimination is temporary problem.
Spreading clay and afforesting peat moss is (if R+D verifies and physics works) my 28MT/yr carbon sequester Public Works economic vision for Canada. Hard to get melting permafrost to a -15cm water table. GRACE-bog satellites and ground/air sensors is future green pork.

[Greg Ransom]

Harford's _Adapt_ gives another reason - history of thought provides widely expanded "adaptive" space of alternarive problems & causal explanatory strategies, adding to chance econ won't be "hhoked up" in a low adaptive peak with weak explanatory power compared to possible rivals in connceptual / explanatory space.

[Greg Ransom]

Economic thought & science is massively complex -- and much of what is known is embedded in background assumptions about what doesn't work and what have been mistakes.

Students and even professors are ignorant of vast stretches of the background understanding assumed by their science -- and this ignorance often leads them to false choices based on radically false assumptions about these previously explored possibilities.

[Brian Ferguson]

When I teach History of Economic Thought I start with Aristotle and wind up at Ricardo, spending a good chunk of time on both Theory of Moral Sentiments and Wealth of Nations.

[policiespapers]

"It is clearly undeniable that economics has many of the features of a cumulative science."
When you have many prominent economists seemingly disregarding many of the developments in the field in the past century, it is difficult to say economics has many of the features of a cumulative science. . .Perhaps this is all the more reason to have a course on the history of economics.

[hosertohoosier]

Frankly, I think the fact that one has to justify the value of economic ideas from a standpoint of breadth (just about anything will give econ students breadth), is a sign that ideas are underused by the economics literature. The history of economic taught shouldn't just be learned, it should be studied as a dependent variable, and incorporated into prevalent models.

Can we quantify ideas, or at least, qualities of ideas? The answer is surely yes. For instance, you can use cite counts or content analysis to observe change over time. Can we make ideas endogenous to current models? Absolutely - for instance you could model the impact of particular ideational constraints on decisions of different actors. How would a federal reserve chairman that believed in the Phillips Curve differ from one that was a hardcore monetarist?

Because knowledge of economics changes the way actors act, understanding of how ideas change over time is valuable for robust economic theory. The answer may be that ideas don't matter, but I'd feel a lot more secure in knowing that the question had at least been asked.

[DavidN]

For those commentators suggesting history of thought should be compulsory in the economics curriculum: Having knowledge of history of your field is probably utility enhancing but I doubt it passes a cost/benefit analysis. Given the time available and the amount of subject material and methodological tools needed to train an phd economist I’m not surprised history of thought is relegated to the periphery in most curriculums. I don’t know the answer to this question but I wonder if mathematics, psychology, biology, etc. make it compulsory for their students to learn their respective history of thought? If not, I’m presume it doesn’t pass the cost/benefit test in those fields either. History of thought is something individuals do when they have spare time.

[Rob Hailman]

I don't know about mathematics or biology, but at my university, the psychology curriculum did include a great deal of the history of psychological thought. There was a "History of Psychology" course, which was optional, but also many of the core psych courses (especially in first year) had a large component of the history of the field. Even if you didn't take the time to take any specific history-of-thought courses, it was impossible to complete the curriculum without learning a lot more about the history than most economics undergrads get.

Regarding cost/benefit, do you mean of the faculty, or the student? There may be positive externalities of having historically-aware economists that should be taken into account.

I'm not sure that mathematics or biology have the same thing, but I would suggest that's part of the difference between a social science and a hard science. There's more value to "history of thought" in a social science.

[Barry]

"To quote Amartya Sen: "A society can be pareto optimal and still be perfectly disgusting". The point is, economists should have more to say about welfare than just efficiency criterion. The classical economists, such as Smith, Ricardo, Mill, etc. were very concerned with these issues."

Posted by: Kevin | August 18, 2011 at 09:36 PM

Daniel Davies (http://d-squareddigest.blogspot.com/) once pointed out that a society where one person owned everything was Pareto optimal.

[Genevieve Signoret]

How about so as to add value versus reinvent the wheel in your own research?

[DavidN]

Rob Hailman: I meant aspiring academic economists i.e phd candidates. I don’t dispute there may be positive externalities I just dispute the magnitude of it that justifies taking away time from learning core subject and methodological materials. For example I just don’t see how reading Smith, Malthus, Ricardo, Marx, would make economists better policy makers or more able to foresee the GFC as oppose to better theory. As you say there may be more value in having a historical perspective of a discipline for a social science but economics (for better or worse) has been a hard science methodologically for a long time now as much as it’s a social science by subject matter and I guess the evolution in the curriculum reflects this. I would argue this evolution is revealed preference that history of thought doesn’t meet the cost/benefit test. I just want to stress though that I do think their is utility in learning history of thought but that’s for each individual to make eg. grads can take history of thought as electives or read Heilbroner’s The Worldly Philosophers in their spare time.

[btg]

"business majors in the class who came to the conclusion that mercantilism was the best way to shape your national economic policy - completely free competitive markets simply got in the way of private profit making."

i recently read a book by ha joon chang, who noted that korea's economic miracle came about precisely because the economy was run by lawyers, engineers ans people other than economists - the same is true of china.

canada could have used more of this too - instead we are now moving backwards to being a resource economy because that is our natural advantage, but not necessarily the best way to a sustainable high level of income.