Why is the History of Economic Thought Important?

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Why is the History of Economic Thought Important?

• 1. So you dont have to reinvent the wheel
• 2. To gain a broader perspective on problems and
  issues
• 3. To add a neat quote to a paper that might
  increase probability of acceptance
• 4. To sound like you know what you are talking
  about
• 5. Its fun

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Standard Organization of Economic Writing

• Early Preclassical (800 BC-1500)
• Pre Classical (1500-1776)
• Physiocrats Mercantilists
• Classical (1776-1870)
• NeoClassical (1870-1990s)
• Historical and Institutionalists (1800-2000s)
• Modern

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Classifications are generally after the fact and
not to be taken seriously.

• Who created the term Classical?
• Who created the term neoClassical?
• Where did Schumpeter classify Adam Smith?
• Is modern economics neoClassical?

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Early Preclassical (800 BC-1500)

• Chinese-Guan Zhong
• Greek Hesiod, Xenophon, Aristotle, Plato
• Arab
• Indian
• Scholastics-Aquinas

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Quotation from Quan Zhong (700 BC)

• At the sight of profit, no one will ever refrain
  oneself from going after it at the sight of
  danger or disaster, no one will remain at the
  spot without running away. This is human nature.
  Why would a merchant make a non-stop trip day and
  night, trying to double his speed, without
  considering a thousand miles a long distance? It
  must be the case that there is profit ahead
  awaiting him. Why would a fisherman go out to the
  sea that is hundreds of miles away and thousands
  of fathoms deep, sail against the tide, and
  venture his life on the dangerous voyage day and
  night? It must be the case that there is profit
  in the water awaiting him. Therefore, if the
  profit is believed to be in the mountain, no one
  would hesitate to climb up even if it is
  thousands of meters high. If the profit is
  believed to be in the water, no one would hold
  back from penetrating the water even if it might
  be unfathomable. Thus, a wise governor would take
  advantage of people's interests in seeking
  profits, by just allowing people to do what they
  want to do freely. Consequently, his people by
  themselves will be satisfied and content. They go
  forward to pursue their interests without
  anybody pushing them they come along to pursue
  their interests without anybody pulling them. In
  that case, the governor will have no worries or
  troubles at all, while the people are getting
  richer and richer by doing things they opt to do.
  This is just like a bird hatching its eggs --
  sitting on them silently, relaxed, and expecting
  the fledglings to come out.

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Pre Classical (1500-1776)

• Mercantilists--Mun, Petty, Mandeville, Hume,
  Cantillon (pictured)
• Physiocrats Quesney

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Classical (1776-1870)

• Smith
• Ricardo
• Say
• Malthus
• Babbage (pictured)
• Mill
• Marx

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Classical method vs. Classical theory vs.
Classical policy

• Classical strict separation
• (The economists) premises consist of a very few
  general propositions, the result of observation,
  or consciousness, and scarcely requiring proof,
  or even formal statement, which almost every man,
  as soon as he hears them, admits as familiar to
  his thoughts, or at least as included in his
  previous knowledge and his inferences are nearly
  as general, and, if he has reasoned correctly, as
  certain, as his premises.
• But his conclusions, whatever be their
  generality and their truth, do not authorize him
  in adding a single syllable of advice. That
  privilege belongs to the writer or statesman who
  has considered all the causes which may promote
  or impede the general welfare of those whom he
  addresses, not to the theorist who has considered
  only one, though among the most important of
  those causes. The business of a Political
  Economist is neither to recommend nor to
  dissuade, but to state general principles, which
  it is fatal to neglect, but neither advisable,
  nor perhaps practicable, to use as the sole, or
  even the principle, guides in the actual conduct
  of affairs. (Nassau Senior, 1836 2-3)

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Lost Art of economics

• We are, accordingly, led to the conclusion ...
  that a definitive art of political economy, which
  attempts to lay down absolute rules for the
  regulation of human conduct, will have vaguely
  defined limits, and be largely non-economic in
  character (p. 83)...
• Again, while economic uniformities and economic
  precepts are both, in many cases, relative to
  particular states of society, the general
  relativity of the latter may be affirmed with
  less qualification than that of the former.
  'Political economy,' says Sir James Steuart, and
  by this he means the art of political economy,
  'in each country must necessarily be different'
  and, so far as practical questions are concerned,
  this is hardly too strong a statement. On such
  questions there is nearly always something to be
  said on both sides, so that practical decisions
  can be arrived at only by weighing
  counter-arguments one against another. But the
  relative force of these arguments is almost
  certain to vary with varying conditions.... We
  are not here denying the relativity of economic
  theorems, but merely affirming the greater
  relativity of economic precepts. Unless the
  distinction between theorems and precepts is
  carefully borne in mind, the relativity of the
  former is likely to be over-stated (pp. 63-65).
  J.N Keynes
• 3- part division
• In his admirable book on The Scope and Method of
  Political Economy, John Neville Keynes
  distinguishes among "a positive science ... a
  body of systematized knowledge concerning what
  is a normative or regulative science ... a body
  of systematized knowledge discussing criteria of
  what ought to be ... an art ... a system of
  rules for the attainment of a given end"
  comments that "confusion between them is common
  and has been the source of many mischievous
  errors" and urges the importance of "recognizing
  a distinct positive science of political
  economy." Milton Friedman

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Who Said This?

• In the first place my attention is fixed by the
  inquiry, so important to the present interests of
  society What is the cause of the general glut of
  all the markets in the world, to which
  merchandise is incessantly carried to be sold at
  a loss? What is the reason that in the interior
  of every state, notwithstanding a desire of
  action adapted to all the developments of
  industry, there exists universally a difficulty
  of finding lucrative employments? And when the
  cause of this chronic disease is found, by what
  means is it to be remedied? On these questions
  depend the tranquility and happiness of nations.

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Who Said this?

• How selfish soever man may be supposed, there are
  evidently some principles in his nature, which
  interest him in the fortunes of others, and
  render their happiness necessary to him, though
  he derives nothing from it, except the pleasure
  of seeing it. Of this kind is pity or compassion,
  the emotion we feel for the misery of others,
  when we either see it, or are made to conceive it
  in a very lively manner. That we often derive
  sorrow from the sorrows of others, is a matter of
  fact too obvious to require any instances to
  prove it for this sentiment, like all the other
  original passions of human nature, is by no means
  confined to the virtuous or the humane, though
  they perhaps may feel it with the most exquisite
  sensibility. The greatest ruffian, the most
  hardened violator of the laws of society, is not
  altogether without it.

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NeoClassical (1870-1990s)

• Jevons
• Menger
• Walras
• Wicksell
• Clarke
• Fisher
• Marshall
• Hicks
• Samuelson
• Arrow

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Walrasian vs. Marshallian

• Neoclassical method vs. Classical method

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Historical and Institutionalists

• German
• List
• Schmoller
• English
• Leslie
• Toynbee
• Bagehot
• US
• Veblen
• Commons
• Mitchell
• US modern
• Friedman
• Hayek
• Keynes
• Schumpeter
• Galbraith

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Modern Mainstream

• Econometrics approach
• Changing from rationality, greed, and equilibrium
  to reasonable, enlightened self interest, and
  sustainability

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Modern Heterodox

• Austrians
• Post Keynesians
• Feminists
• Radicals
• Institutionalists
• Public Choice