Unlearning the History of Thought

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.

For example, during the recent Keynes-Hayek debate, Jamie Galbraith alerted us to this comment by Keynes:

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.

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  1. #1 by Mandos on November 21, 2011 - 7:26 pm

    Mandos, commenter at Worthwhile here. I’m so glad I finally clicked through. I love your blog! Over There, I have been asked to defend my position critical of monetarism even under the assumption that the NAIRU biz were true…

    • #2 by Unlearningecon on November 21, 2011 - 7:33 pm

      I like Nick Rowe but he is an example of a guy so deep in a neoclassical hole (see my first post if you haven’t already) that I find it hard to engage him at all. Sumner is similar.

      I do plan to do a post on NGDP targeting eventually but its a big topic.

  2. #3 by Gene Callahan on November 23, 2011 - 3:27 pm

    “Furthermore, what is taught is a combination of unquestioned sermonising – Adam Smith said this so it’s true…”

    Example? I have never seen this.

    • #4 by Unlearningecon on November 23, 2011 - 3:37 pm

      In my first classes Adam Smith was credited as the father of economics, and we were shown a demand supply diagram and told that this was his ‘invisible hand’ in action. For a while, I was certainly instilled with a feeling that finding Adam Smith said something it was a trump card.

      • #5 by Gene Callahan on December 4, 2011 - 7:51 pm

        That is a FAR cry from your initial claim!

      • #6 by Unlearningecon on December 4, 2011 - 8:03 pm

        I don’t see how – ‘Adam Smith said there is an invisible hand and there is’ is pretty much what I said.

      • #7 by Gene Callahan on December 4, 2011 - 8:14 pm

        You’re joking, right? “Einstein said the speed of light is a constant, and it is” is very different than the statement “Einstein said the speed of light is a constant, and BECAUSE HE SAID IT, it is.”

        What you first claimed is the second formulation. Then you back of and say you heard the first. Then you say the first is “pretty much” the same as the second!

        Econ professors do admire Smith, but no one says “This is true BECAUSE Smith said it.” Look, you exaggerated. Just admit it.

    • #8 by Unlearningecon on December 4, 2011 - 8:26 pm

      I will concede that my professors probably haven’t said the exact words ‘Adam Smith said this so it’s true’ but I stand by the general characterisation of economic teaching. Adam Smith is seen as some sort of guru and their is an air of mysticism about the whole experience.

      • #9 by Gene Callahan on December 4, 2011 - 8:34 pm

        OK, so you can’t give a single actual example, but there is an “air” of this about.

        In providing evidence for a contention, that is called “massive fail.”

      • #10 by Unlearningecon on December 4, 2011 - 9:05 pm

        I was giving you some ground because I hate engaging with Austrians, for reasons you have demonstrated.

        I said they didn’t say the exact words. What they did do was say things like ‘Adam Smith described the invisible hand of the market, how everyone’s self interest leads to superior outcomes’, approvingly and without question. To me, that is sermonising.

      • #11 by Gene Callahan on December 4, 2011 - 9:11 pm

        1) I am not “an Austrian.”
        2) But, what, you hate engaging with them because they blow up your gross exaggerations? (The attitude you express, “This is correct *because* Adam Smith said it,” just does not exist. You can point to *zero* evidence that it does exist, except that it is “in the air.” You should have aditted you exaggerated, but now you have backed yourself into a corner and have to start name calling (“You damned Austrians!”) even though the name doesn’t apply.

      • #12 by Unlearningecon on December 4, 2011 - 9:24 pm

        I believe you write for Mises.org so inferring you were an Austrian was not unreasonable.

        You haven’t blown up my gross exaggerations. Please reread what I wrote – I did provide an example. In any case you are splitting hairs and distracting from the main thrust of my post.

      • #13 by Gene Callahan on December 4, 2011 - 9:26 pm

        Used to be one.

        I hate engaging with unlearning economics people, for reasons you have demonstrated.

      • #14 by Unlearningecon on December 4, 2011 - 9:47 pm

        At this point I think you are arguing for the sake of it. If you are genuinely interested in an issue and not just muddying the waters, please tell me exactly what you’d like me to show that I haven’t already.

  3. #15 by jumpitup on November 23, 2011 - 7:52 pm

    Hi, Daniel says you have a good blog, thought I’d take a look

    Invisible Backhand

    • #16 by Unlearningecon on November 24, 2011 - 5:59 pm

      Thanks. I’m aware of your page and I find it quite amusing.

  4. #17 by Martin on December 4, 2011 - 9:18 pm

    Every single person on this planet who has brains knows the Laffer Curve. So, no surprise here, Keynes — though he may have been a bad economist — certainly had brains.

    • #18 by Unlearningecon on December 4, 2011 - 9:22 pm

      This was a constructive comment. I think you’d fail rhetoric 101.

      • #19 by Martin on December 5, 2011 - 11:50 am

        I think it was. Why are you so astonished that Keynes understood that there is a revenue curve for governments almost the same as there is for every firm?

      • #20 by Unlearningecon on December 5, 2011 - 2:31 pm

        a) You threw out a generic Keynes insult with no substance, and for no real reason.

        b) You referenced the Laffer Curve as if it were some sort of unquestionable truth, when in fact the empirical relationship is the opposite of what Laffer theorised.

      • #21 by Gene Callahan on December 6, 2011 - 1:22 am

        “You referenced the Laffer Curve as if it were some sort of unquestionable truth, when in fact the empirical relationship is the opposite of what Laffer theorised.”

        Riiiiight. Taxes can be raised to 100% and revenues will still go up.

        There is a reason that nonsense was published on a blog rather than in a refereed journal.

      • #22 by Unlearningecon on December 6, 2011 - 8:17 am

        ‘Riiiiight. Taxes can be raised to 100% and revenues will still go up.’

        I didn’t say that – did you not follow the link? Or does empirical evidence irritate you?

        ‘There is a reason that nonsense was published on a blog rather than in a refereed journal.’

        If you continue with comments like this I will simply block you.

      • #23 by Gene Callahan on December 6, 2011 - 8:52 am

        “If you continue with comments like this I will simply block you.”

        Oh my God, my life would be so empty without being able to comment on dim-witted remarks about empiricism and Adam-Smith worship!

  5. #24 by BobbyFlint (@BBFlint) on December 6, 2011 - 10:15 am

    Gene: Oh come on. Your last few comments have been devoid of any semblance of logic, let alone intellectual honesty, yet you play the victim? Ridiculous. How about you actually respond to the points raised, rather than hiding behind ad hominems, false misrepresentations, and various other rhetorical devices? That way, you might actually say something constructive.

    Oh, and if you want a journal paper on the Laffer-curve, try this: http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.25.4.165


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