There have been times in the history of economics in which there has been a strong tendency towards integration. Schumpeter identified two such ‘classical situations' in the subject. The first emerged after 1890, based on Smith's Wealth of Nations. The second emerged from the innovations made by Jevons, Walras and Carl Menger after the controversy with the historical school had settled down: ‘the leading works exhibited a large expanse of common ground and suggest a feeling of repose, both of which created, in the superficial observer, an impression of finality – the finality of a Greek temple that spreads its perfect lines against a cloudless sky’.1 In such situations it was natural for economists to adopt attitudes such as ‘It's all in Marshall.’
It can be argued that the period around 1960 – the age of the ‘neoclassical synthesis' – also constituted such a classical situation. Keynes had provided a framework on which macroeconomics could be based, and Hicks, Samuelson, Arrow and Debreu had shown how microeconomics could be built around general-equilibrium theory. Patinkin had synthesized micro- and macroeconomics, and the Cowles Commission had shown how theoretical models could be tested against the rapidly growing quantity of statistical data.
In a time of integration, it becomes easy to view the past from the point of view of the present. McCulloch and many nineteenth-century economists were able to take the view that Adam Smith had established the basic framework of the subject and that all that remained was to fill in the details. In similar vein, Schumpeter was confident that there was one general-equilibrium system and that Walras had discovered it. This enabled him to make remarks such as: as far as pure theory is concerned, Walras is in my opinion the greatest of all economists. His system of economic equilibrium… is the only work by an economist that will stand comparison with the achievements of theoretical physics. Compared with it, most of the theoretical writings of that period – and beyond – look like boats beside a liner, like inadequate attempts to catch some particular aspect of Walrasian truth.2
For Schumpeter, Walrasian general-equilibrium theory provided the integrating framework within which all economics could be understood. The history of economic theory was the history of attempts to perceive what Walras was the first to see clearly. For the economists of the neoclassical synthesis, influenced so strongly by Walras, the classic history was Economic Theory in Retrospect (1962) by Mark Blaug (1927–). This resolutely sought to appraise past ideas from the perspective provided by contemporary economics. Past economists' ideas were recast using modern theoretical tools.
However, this period of integrative tendencies during which one might have said ‘It's all in Samuelson [or Keynes, or Hicks, or Arrow, or Patinkin]’ did not last. It has been followed by a proliferation of schools. In macroeconomics there are Keynesians, post-Keynesians, New Keynesians, traditional monetarists, real-business-cycle theorists, and others. In addition, there are econometricians whose approach is inductive, and applied economists who spurn both abstract theories and technical econometrics. In microeconomics there are game theorists general-equilibrium theorists, transaction-cost theorists, experimental economists sceptical about rational-choice theory, Paretian welfare economics, social-choice theory, and various non-Paretian approaches to welfare. ‘New' fields (including new growth theory, new economic geography and new trade theory) proliferate. The emphasis is on the originality, or at least partial originality, of ideas.
In such a world, appraising the past from the perspective of the present becomes much more difficult. There are too many modern theories to choose from, each of which may give a different perspective on the past. History starts to matter much more, because it is the only way to get a sense of where the subject is going amid the welter of competing claims. It becomes important for the professional historian of the discipline to expand and correct the partial and often biased histories that economists create in order to justify and explain what they and their colleagues are doing.
In a classical situation, when economic theories are being integrated into a generally accepted framework, it is common to write the history of economics as one of progress. The story can be told by tracing the history of central economic ideas from their inchoate origins in the ancient, medieval or early-modern worlds through to their present-day incarnations. For example, the history of supply and demand in competitive markets can be traced from the ancients, through the scholastics and early-modern writers, to Adam Smith. After Smith, the story becomes one of increasing precision and mathematical rigour, culminating in the work of Arrow and Debreu. Although it may exhibit numerous detours and false trails on the way, the story is one of progress: economic theories become more refined, more rigorous, and more clearly focused on specifically economic problems. Alongside this runs a story of improvements in the data and statistical techniques available to economists.
Such histories, however, conceal as much as they reveal. Behind the facade of increased mathematical rigour and precision lie fundamental changes in the meanings that have been attached to central concepts and in the ways in which economists have understood what they were doing. For Adam Smith and his contemporaries, competition was a process: people competed with each other in the same way that horses competed on the racecourse. Smith spoke of the system of ‘natural liberty' or of ‘free competition’, in which one man could bring his capital into competition with that of any other person. As the concept of competition became formalized and mathematized, however, this concept of competition became lost. Following the lead of Cournot, the profession moved towards a theory of ‘perfect' competition. Perfect competition was a situation in which buyers and sellers were so numerous that no buyer or seller had any influence on price and in which no producer was able to earn more than normal profits. Competition had ceased to be a process and had become an end-state a situation under which no firm had any incentive to engage in competitive activities. As late as the 1930s, economists were still aware of this distinction. Chamberlin, for example, wrote: One never hears of ‘competition' in connection with the great markets [i.e. commodity markets], and the phrases ‘price cutting’, ‘underselling’, ‘unfair competition’, ‘meeting competition’, ‘securing a market’, etc. are unknown. No wonder the principles of such a [perfectly competitive] market seem so unreal when applied to the ‘business' world where these terms have meaning.3
However, by the 1960s the earlier, dynamic, concept was virtually lost. The economics profession failed to understand Hayek because it failed to realize that he was working with the older, process, version of competition.
This example raises doubts about whether the concept of progress itself may be misleading. What constitutes a ‘detour' is crucially dependent on what one takes to be the true story against which progress and regress are to be judged. In a period of proliferating schools, it is easier for economists to understand these problems. Different schools will construct their own histories, picking out those ideas that provide a route into their own, while being aware that other stories can be told. The role of the historian is to bring these stories together, correcting and amplifying them where appropriate, showing where they fit into a larger story. The history that is written ceases to be either conservative (celebrating the achievements of modern economics) or revolutionary (revealing its fatal errors in order to overthrow contemporary orthodoxy) . It serves to provide economists with a vision of where their own work fits into a wider story.