Why do we bother to learn about the history of economic thought? Mark Blaug, one of the best economic historians, reports that the “study of the history of economic thought is held in low esteem by mainstream economists and sometimes openly disparaged as a type of antiquarianism”. If you want to find good economic theories, the thinking goes, there is no need to look at Ricardo’s Principles of Political Economy or Bernard Mandeville’s Fable of the Bees–just look at the latest edition of the best-selling undergraduate textbook. Jean-Baptiste Say put it best: “The more perfect the science, the shorter its history… what would we gain by collecting absurd opinions, doctrines which have been discredited and which deserve to be so?”
Historians of economic thought have often done a poor job of justifying why they exist or what they do. One defence, often used in books such as these, sounds something along the lines of “the economists of old can teach us something about today”. This is vague and almost always wrong. There is only a handful of examples where stuff written by long-dead economists is rediscovered and turns out to be genuinely helpful to the modern era–Alvin Hansen’s concept of “secular stagnation”, revived by Larry Summers in 2013, is one of the few. Adam Smith’s view of poverty as simultaneously relative and absolute also falls into this bracket. But does anyone really believe that, if only we read Ricardo closely enough, he will reveal to us something about the world that no one living today has thought of?
There are, however, three extremely good reasons for understanding the history of economic thought. The first, outlined in the Introduction, is that the people mentioned in this book are important. You can barely open a newspaper without someone quoting Adam Smith or John Stuart Mill to support an argument. Understanding what the great economists of the past really said is useful cover against being taken in by sophistry. As we have seen, many people in this book–not only Smith and Mill, but Malthus, Quesnay and Engels–are frequently misrepresented. Smith was a long way from being a laissez-faire zealot, and did not ever use the term “invisible hand” in the manner with which it is associated with him today. Mill, who today has a reputation as another high priest of capitalist accumulation, in fact foresaw a situation in which economic growth would cease and where people would have to turn to “higher” pursuits instead.
The second reason for reading about economic thought is that it is a good way of understanding history. To get your head around Ricardo’s theory of rent, you need to have a good understanding of the Corn Laws. To understand what Smith was really arguing against in the Wealth of Nations, you need to have a sense of how trade and government operated in late 18th-century Scotland. To appreciate Karl Marx’s ideas requires an understanding of what British real-wage growth was doing in the 1850s and 1860s. The economic theories of the past are a window into the world as it once was.
The third reason concerns economics today. For outsiders, economics is a forbidding discipline. Its practitioners claim great authority over all matters. The message of Freakonomics, perhaps the best-known economics book of recent years, is clear: economics can explain everything! Economists assert that their methodology–with its reliance on precision, quantification and emphasis on trade-offs–is the best. Sometimes they are right. But they are fallible.
That fallibility comes across very clearly in a study of the development of economic thought. In their day the classical economists must have felt like masters of the universe: they believed that they had discovered the laws of the human world. But look how much stuff they got wrong. It is quite hard to explain, for instance, how Smith, Ricardo and Marx all subscribed to the labour theory of value (with only superficial differences between them). How could they have blundered so catastrophically? It is also remarkable how much they missed out in their writings. Some have pointed to the lack of interest in gender relations. Others accuse them of ignoring colonialism (Dadabhai Naoroji being the obvious exception). And many of them were too bogged down in the minutiae of theory to bother looking at the world around them. The point is that the great economists of the past were imperfect thinkers. If that is true of them, then it is probably true also of economists today.
The battle over economic theory is far from over. Just as in Adam Smith’s day, economists continue to tear up assumptions that have held sway for decades. Not long ago few economists were interested in the people who had been “left behind” by free trade, assuming that they could be compensated by the winners. More recently, however, researchers have marshalled convincing evidence that shows significant, long-term costs of free trade for a minority of people. Other economists are recognising that the growth of huge “superstar” companies, such as Facebook and Amazon, could have significant effects on everything from wage growth to the cost of the weekly family shop. Two centuries from now, someone will write a book looking at all these questions and more, and puzzle over how economists back then could have been so myopic. Even the most enlightened lives of today may look benighted by the standards of tomorrow.