Friday, December 23, 2011

Boudreaux and Rizzo on History of Economic Thought

The other day, after one of those longish back-and-forths over Keynes at Coordination Problem, Mario Rizzo said something that seemed basically right to me, but made me react by thinking "yeah - but who cares?". He wrote:

"The important point for today is that so many economists have little or no knowledge of pre-Keynesian theories of the business cycle and monetary theory. So they think that the macro-paradigm is the only way to analyze problems of inflation, cyclical unemployment and so forth.
This is what I understand some philosophers would call a [Thomas]"Kuhn loss" -- knowledge lost when the paradigm shifts

Of course what he meant was that economists that don't agree with him have little or no knowledge. But putting that aside, it wasn't immediately obvious to me from a scientific perspective why this even matters. From a historical perspective, sure. I have interest in older ways of thinking about the economy simply from a historical perspective. But paradigm shifts make older knowledge incommensurable for a reason: understandings of the world are bundled, and the new bundle of understanding overall seems to be more useful in describing the world than the old bundle, so any elements of the old bundle that can't be synthesize are better off left relatively ignored (again - for the scientist - for the historian it's different).

But then Don Boudreaux wrote something the other day that changed my mind at least slightly when it came to economics quoting Yeager (sorry - the website is down so I can only see it through my google feed but can't link to it right now):

"Cultivation of the history of thought is more necessary in economics than in the natural sciences because earlier discoveries in economics are in danger of being forgotten; maintaining a cumulative growth of knowledge is more difficult. In the natural sciences, discoveries get embodied not only into further advances in pure knowledge but also into technology, many of whose users have a profit-and-loss incentive to get things straight. The practitioners of economic technology are largely politicians and political appointees with rather different incentives. In economics, consequently, we need scholars who specialize in keeping us aware and able to recognize earlier contributions – and earlier mistakes – when they surface as supposedly new ideas. By exerting a needed discipline, specialists in the history of thought can contribute to the cumulative character of economics."

The first sentence doesn't bother me as much. It's not entirely clear growth even is "cumulative", at least in the sense that it is meant here, where we might worry about forgetting earlier discoveries. He continues to be concerned about "cumulative" knowledge throughout, but I think the bigger point is about the embodiment of economic knowledge. Good natural science is embodied in a host of new technology of course, but also scientific equipment itself. We may have a different way of thinking about sub-atomic particles when we have paradigm shifts further down the road, but we still have particle accelerators that actually produce something, so it's impossible to deny that something like a sub-atomic particle is a part of our experience. The same with telescopes or microscopes, right? We can't unlearn the knowledge that has been embodied in the observations from those instruments. We may interpret the observations differently in the future, but Yeager is right that economics doesn't really embody its knowledge in the same way.

Because the economy is so complex and multiple causes contribute to economic phenomena, economists are more prone to scrapping everything and starting over with a half-developed idea that they try to make work, ignoring even the good historical precedent for that idea that's already been worked into the discipline. Think of PSST or regime uncertainty, which both take points that all economists already agree on, and try to repackage them and promote them as a more totalizing theory than they actually are capable of being. These are usually singular, personal efforts, not the considered opinion of decades and decades of competing scientists.

In this environment, history of thought probably is good not just for the historians among us, but for the scientists among us. Don, I think, has convinced me to be less critical of the original Rizzo point.

I don't think this solves matters, of course. Our side sees these insights running back much earlier than Keynes, through Bagehot, Mill, Say, Malthus. I would go back to the mercantilists - some are less willing to do that. We see a deeper appreciation of history of economic thought as helpful in refuting old fallacies like Say's Law and austerianism. So the arguments don't end. But it is a good point.


  1. The various splits in this field are sociologically interesting; that is where their main value lies. Mostly the competition seems to be fought on the high seas of caricature and parochialism. So the question you always have to ask in these internal family squabbles is what the label someone attaches to themselves provides them with cover and justifies being ignorant of certain things.

    The dark side is strong in me for I am Sith!

  2. You mention the importance of the history of economic thought and Rizzo's observation that few economists have decent knowledge of the pre-Keynesian Revolution era. I agree with your position, Daniel Kuehn, that it's important not only from a historical perspective, but as a whole for the economics profession.

    I see the development of the history of economic thought as a non-linear process, instead of a linear, teleological phase. After all, when John Maynard Keynes launched his Revolution against the Classics, we need to keep in mind that this was the same man that Bertrand Russell and Alfred North Whitehead praised for the mathematical prowess of his 1908 Fellowship Dissertation and the Treatise on Probability. We also need to keep in mind that John Maynard Keynes alluded to Albert Einstein's General Theory of Relativity in one passage.

    Keynes applied his probability theory in the GT to demonstrate the non-linearity of decision-making in the real world, in essence paralleling Einstein's achievement - but in the social sciences! See the following link to a working paper for more information.

  3. So,a friend of mine made an observation the other day that noone of "our generation" even studies history of economic thought any more in a serious way (i.e. publishing papers etc)

    Anyway, I've been wondering if that's true. I don't suppose you can think of anyone under, say, 45 who has done serious work on this history of economic thought.

    Also, maybe you can point to some Austrians but I don't think they count since I don't consider what they do history of economic thought so much as argument by authority and quoting biblical verse.

  4. Also, maybe you can point to some Austrians but I don't think they count since I don't consider what they do history of economic thought so much as argument by authority and quoting biblical verse.

    Hear hear. Somehow to them there is an unbroken line between Adam Smith and Hayek except for that 175 year gap.

    There's also a lot of economic history the Austrians don't want brought up, like libertarianism in South Africa, Hayek and Pinochet, neoliberalism in general, where Hayek and Buchanan got their funding, the Mont Pelerin Society etc.

    Invisible Backhand

  5. It's been a long time since I've read something more ridiculously wrong than Anonymous' comment above.

    Hayek and Chile, btw:

  6. Part of the problem here is that you're all too afraid of complexity. In my opinion you all need a few courses on the ideas of modular design from computer science to sort that out.

  7. @Jonathan & Lord Vader

    I won't descend to insults since Daniel prefers to keep the tone elevated around here, but if you want background you can click the link above. I'll create the link again for you:

    Invisible Backhand

    Should you prefer more authoritative sources, I can recommend The Road from Mont Pelerin by Mirowski, Unholy Trinity: The IMF, World Bank and WTO by Peet, and chapter 5 of The Wrecking Crew by Frank.

  8. @ Jonathon

    Hayek and Chile, BTW:

    Still, the fact that both the Mont Pelerin society and leaders of the free-market right like Thatcher and Reagan gave their enthusiastic support to this mass murderer should be remembered when they, and their followers, try to claim the moral high ground as against the moderate left.

    Invisible Backhand

  9. Mont Pelerin Society, pah. I get *my* funding from the Illuminati.

  10. Anonymous,

    It wasn't just your comment on Hayek/Chile and Mont Pelerin (whatever you mean by that) that I found ridiculous.

    Austrians do not believe that there is "an unbroken line between Adam Smith and Hayek." In fact, Mises usually disliked connecting Austrian economics with the classical school (see the introduction to Reisman's book Capitalism, since Reisman's economics is like a Ricardian/Misesian synthesis). Rothbard considered the economics of Adam Smith as a useless deviation from the progress of prior economists such as Richard Cantillon (something I do not agree with, and many other Austrians do not).

    Austrian literature on the history of economic thought is actually very rich. I think the Austrians actually tend to be more meticulous in their historical research (in the history of economic thought; unfortunately, not as much with regards to historical research into data concerning economic events) than most other economists.

    Austrians do tend to discuss neoliberalism more than others, because Austrians like to distance themselves from it. There is a lot of literature on "neoliberalism"; especially on the fact that neoliberal policies were hardly ever "liberal" (jusat look at "neoliberalism" in Nigeria).

    So, I really have no idea what you're talking about in your original comment. It just seems to be the product of a poor grasp of Austrian literature.

  11. I get my funding from the Sith.

    Anonymous Idiot,

    You have as yet to say anything of substance.

    And the reviews on Amazon of the first book in your selection are illuminating:

    Sounds like a lot of axe grinding.

    I didn't look at any of the reviews of the other books; didn't seem like it was worth the time of a Sith Lord.

    I'm certain Hayek said some stupid stuff in his life; I'm not sure how that fits into any grand narrative about the guy.

  12. Daniel

    I have never read any of your comments on the work of Steven Keen, whose INET interview is here

    I have recently read as much of his work as possible and this take of events, past and future, seems very reasoned and reasonable to me:

    What are your thoughts about the role of private debt in growth and of the Lesser Depression

  13. I need more funding.

    Current and Lord Vader - do you know if the Sith or the Illuminati are taking applications right now?

    I'm surprised there hasn't been more discussion of the point I was really struggling with myself - and the reason why I thought Rizzo was expressing concern (at least his tone seemed to be concerned to me) over nothing. I don't think anyone promotes the idea that science is linear progress through falsification, right? I don't recall anyone here being a proponent of that naive view. To what extent you agree it's paradigmatic may vary, but insofar as you embrace that ideal at all, why should history of thought even matter to a scientist (except insofar as that scientist personally wants to be something of a historian)? I still think it's a tough question, but Boudreaux moved me a little closer to Rizzo on it.

  14. Is that Thomas Kuhn of the Copenhagen School, author of "The Structure of Scientific Revolutions?" I'll be able to say more about this in coming months, but my understanding is that Kuhn rather unwittingly promoted a view that "leaps" in science are not the result of a reasoned process, but rather being in the right place to make the right observations at the right time ("Kuhn was widely understood to argue in Structure that the shift from one theory [...] is irrational and that the realities that scientists study are constructed by and so relative to the paradigm." - As quoted in "Philosophy of Science: An Historical Anthology").

    The "shoulders of giants" are the vantage point from which all scientific revolutions get their start, so Kuhn would be at least somewhat misleading if that was the character he ascribed to scientific progress - since his argument undermines (on a valid basis, actually) the importance of logic and the rational process.

    This presents a problem for Mario Rizzo, since Kuhn's argument is that paradigms are essentially lords of their own investigative fiefdoms. However, the strong argument against Kuhn here - that the theoretical virtues do, in fact, consistently provide a good guide to good design of scientific theory, if only in cases viewed retrospectively - does not mean that Kuhn was of a mind to say that old theories were merely different. I know he would agree that Newtonian physics were a better theory than Aristotle's, and likewise Einstein's relativistic and space geographical theories are a leg up on Newton in turn.

    Perhaps I've missed a good application of Kuhn to this argument, but the one I know of doesn't quite seem to fit, for the simple reason that (despite a description of scientific revolutions as being merely a "best guess," and perhaps misleading in what they seem to offer) Kuhn still would see newer theory as more inclusive than older theory.

    Perhaps he somewhere addresses this very point - I'll be interested to find out if he does.

    It is worth pointing out that Kuhn's argument is right in line with Copenhagen School (of quantum mechanics) thinking - essentially, we can predict and model things, but we may never understand why they came to be. Currently the newer generation of scientists is striving to move beyond any apparent limitations to knowledge (and the indolence such a belief tends to foster) and to provide actual explanations for how quantum mechanics could work - and many scientists would furthermore argue that, as tempting as it is to see Kuhn's theory as right, that there is really no reason to abandon the approach to science that assumes that understanding, not merely predictive accuracy, is still an ultimate goal, and that the traditional thinking is still useful in taking each step towards that goal.

  15. Daniel,

    Sorry I was a bit harsh on you on that other thread, but you kind of said something outlandish.

    There can only be two members of the Sith at a time; so you can become a member of the Sith if either I or the Emperor croaks.

    Excuse me, but I have to go threaten some blockhead architect who says a moon sized space station is an impossibility.

  16. Edwin -
    I would not say that Kuhn suggests that scientific project proceeds "irrationally", but many people do see it that way. People will also call him a "relativist". It's an accusation he's discussed extensively. Unfortunately, I have yet to see anyone who calls him a relativist lift a finger to engage his response to the accusations.

  17. Daniel,

    There is an ongoing discussion of the matter in the sociology of knowledge, etc., so it is there for you to look at if you want.

    If Kuhn wasn't a relativist then he was in fact his own worst enemy on the matter - particularly given the sort of language he liked to use - "conversion experience," etc.

  18. Some arguments don't end.....very true statement. Especially when it comes to issues such as this. Better off to just move on to bigger and more important disagreements.


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