Why is the History of Economic Thought Important?

1. Why is the History of Economic Thought Important? 1. So you don’t 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. It’s fun

2. 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

3. 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?

4. Early Preclassical (800 BC-1500) • Chinese-Guan Zhong • Greek Hesiod, Xenophon, Aristotle, Plato • Arab • Indian • Scholastics-Aquinas

5. Quotation fromQuan 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.

6. Mercantilists--Mun, Petty, Mandeville, Hume, Cantillon (pictured) Physiocrats –Quesney Pre Classical (1500-1776)

7. Smith Ricardo Say Malthus Babbage (pictured) Mill Marx Classical (1776-1870)

8. Classical method vs. Classical theory vs. Classical policy • Classical strict separation • (The economist’s) 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)

9. 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

10. 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.

11. 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.

12. NeoClassical (1870-1990s) • Jevons • Menger • Walras • Wicksell • Clarke • Fisher • Marshall • Hicks • Samuelson • Arrow

13. Walrasian vs. Marshallian • Neoclassical method vs. Classical method

14. Historical and Institutionalists German • List • Schmoller English • Leslie • Toynbee • Bagehot US • Veblen • Commons • Mitchell US modern • Friedman • Hayek • Keynes • Schumpeter • Galbraith

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

16. Modern Heterodox • Austrians • Post Keynesians • Feminists • Radicals • Institutionalists • Public Choice