Should economists know their own history

There’s been a recent fuss in various media arising from a tweet from economist Ben Golub regarding astonishment that economists haven’t “worked through” Smith and Marx. English professor Alex Moskowitz chimed in with a claim that economics can’t be a real discipline because economists don’t know the history of their own discipline. {long and somewhat wonkish response follows}

The claim that economists don’t read the classics is overstated as regards Smith. Every econ student gets the pin factory example of scale economies and the standard quote about the butcher, the baker and the Invisible Hand. And any moderately sophisticated economist knows that the Theory of Moral Sentiments refutes the vulgar self-interest theory of the kind of people who wear Adam Smith ties. There’s lots more interesting stuff on labour saving innovation, risk attitudes and other topics which still gets quoted.

As for Smith’s writing in support of free trade, it isn’t read much but not because economists now teach fancy mathematical models. Ricardo superseded him, not long afterwards, with the theory of comparative advantage. His example of Portugal, England, cloth and wine is still a standard illustration.

Then there are some things Smith wrote about that are just plain wrong, like the distinction between productive and unproductive labour. 19th century economists from Smith to Marx wasted a lot of time on this, but there’s no point in rereading it, except for the kind of history of economic thought rather brutally described as “the wrong ideas of dead men(sic)”.

So, it’s true that hardly anyone, except historians of thought, “works through” The Wealth of Nations, let alone Smith’s entire body of work. Like readers in many genres, economists reading Smith skip straight to the good bits.

Unlike with Smith, not many economists read Marx, or at least Capital, any more. That’s because not many economists do Marxist/Marxian economics any more, and the analysis in Capital has had almost no impact on mainstream economics.

Marx wrote lots that is still relevant, most obviously the Communist Manifesto, with which any educated person, and certainly any economist, should be familiar. The account of the rise of capitalism, the class struggle and the potential for crisis in capitalism was unequalled when it was written and still commands our attention. But it isn’t something that needs to be “worked through” to do economics.

The economic analysis in Capital is not part of the intellectual history of mainstream (neoclassical/Keynesian) economics. The micro-economic approach that stems from the marginalist revolution of the 1870s owes nothing to Marx, and was developed by economists who had probably never read him (the first published critique from a marginalist viewpoint was by Wicksteed in the 1880s).

Keynesian macroeconomics shares with Marx the recognition that capitalism is inherently prone to crisis, but doesn’t draw on his theoretical framework much.

Henry George, also little read today, is probably more relevant. His ideas on taxing appreciating land rents have been misappropriated by single-taxers but they remain valid and policy-relevant.

For a long time, Marxist economics was relevant as a rival to the dominant neoclassical/Keynesian program, but that is no longer true. There was still a moderately active literature on the “transformation problem” 50 years ago, but it seems to have died, or (according to Andrew Kliman) been resolved. Most leftwing critiques of the mainstream now draw more on Keynes and Minsky than on Capital.

Given that Marxist thought is still influential in lots of spheres, the decline of Marxist economics might well be a problem. But, if so, the answer is for Marxists to do more and better economics.

Coming back to mainstream economics, the lack of historical awareness is a real problem. But the problem isn’t a lack of appreciation of the classics of the long 19th century. It’s that the economics profession pays far too little attention to its relatively recent history, from the 1930s to the present.

Most glaringly, as Paul Krugman points out fairly regularly, there have been only the most cursory attempts to explain the success of Keynesian macroeconomic policies in the decades after 1945. The NAIRU model for short-term macro policy, followed by all central banks, rests almost entirely on the experience of stagflation in the late 1960s and early 1970s.

And the theoretical twists and turns that produced the currently dominant Dynamic Stochastic General Equilibrium model (the Lucas critique, new classical macro, various versions of “New Keynesianism”) have largely been forgotten. The result is that a theoretical-policy framework, centred on inflation targeting is presented as an eternal truth, when it is only about 30 years old and has had very limited success either as an explanatory/predictive theory or as a guide to policy.

The situation is not quite as bad outside macro. But, to the extent that macro theories are wrong, the results of most micro analysis can only be regarded as partial and provisional. And an awareness of intellectual history would lead to a much more cautious view of our current theories and tools, notably with respect to game theory.

I’m going to end with a tu quoque which may perhaps backfire on me. English literary criticism and modern economics can both be traced to the 18th century (or maybe the late 17th). Adam Smith and Samuel Johnson were contemporaries well known to each other. But I don’t get the impression that students of English literature are expected to read Johnson’s theories of literary criticism, or those of his predecessors like Dryden (as opposed to their literary work, if even that is still read). Am I wrong about this?