Little is taught in the way of the history of economic thought nowadays. Furthermore, what is taught is a combination of unquestioned sermonising – Adam Smith said this so it’s true – combined with caricatures of what thinkers actually said, as Robert Vienneau notes here. The fact that the history of thought is not given much attention explains many of the failings of neoclassical economics, as ideas that are deemed new are often simply dredged up old ones.
The Conservative belief that there is some law of nature …that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his brain fuddled with nonsense for years and years…
This was made 40 years before Phelps and Friedman are credited with ‘discovering’ the NAIRU. Keynes was also no stranger to the so called Laffer Curve:
Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.
Neoclassicism has also done a good job of losing many key insights from the past – Brad Delong had a post a while ago that showed the 19th century economists coming to many ‘Keynesian’ conclusions long before Keynes. And as I highlighted here, Keynes’ main policy prescription, low interest rates, was also advocated by Adam Smith 150 years prior. Actually, the importance of low rates had been realised some time before Smith, as shown by Josiah Child in 1668:
The Profit That People have received, and any other may receive, by reducing the Interest of Money to a very Low Rate.
This in my poor opinion, is the CAUSA CAUSANS of all the other causes of the Riches of that people; and that if Interest of Money were with us reduced to the same rate it is with them, it would in a short time render us as Rich and Considerable in Trade as they are now…
In fact, although Adam Smith is often credited with ‘inventing’ economics, Joseph Schumpeter remarked that:
..the Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776.
In a similar vein, Dani Rodrik notes in his book that Henry Martyn produced an argument for free trade in 1701 that has strong echoes of Ricardo and Adam Smith about it, but was of course written long before they were born.
Furthermore, various examples of ‘enlightened’ policies of trade date back incredibly far; the Middle East are said to have been engaging in such practices in the 10th century. Empires throughout history have also used land taxes to fund their states, an important principle that has naturally been forgotten by neoclassical economics, and one that even modern day enthusiasts tend to credit to Henry George.
There is a point here: economics is not difficult. Low interest rates, trade and land taxes have been recognised as key to prosperity for centuries and even millennia. However, it seems these things are systematically unlearned – perhaps as the discipline is subverted by vested interests for financial gain, perhaps because people are, quite simply, that stupid. In any case, learning neoclassical economics would only equip you with the idea that ‘trade is good’ – it completely fails to mention land, lumping it together with capital, and marginalises the role of interest rates. The fact that it misses probably the two most important macroeconomic insights – ones that have been known for centuries – should surely raise serious doubts of its efficacy.
I should note that I am not a free trade zealot but do believe that trade is fundamental to creating prosperity.