Prior to reading more of David Hume’s work, I hadn’t really thought a great deal about his contributions to economics outside of his price-specie flow model (and even that had its antecedents in the Salamancans – Navarrus, in particular), but I’ve apparently underestimated his economics. I also hadn’t realized the extent to which the South Sea and Mississippi Bubbles impacted scholarly discourse; they were, according to Wennerlind, major ruptures that brought up serious questions about the stability of the emerging commercial world.
Cato’s letters / Mandeville’s defense of greed generated lots of responses that were doubtful of the link between private vice and public virtue. Hutcheson, for instance, says mankind is not selfish alone, so we have to look at our mental makeup to recognize certain faculties that are congenital and that allow us to move beyond self-interest. We have a moral sense that operated similar to our universal aesthetic sense, a capacity that operates alongside selfishness. In short, both self- and public-interest drive us (note the origins of the impartial spectator here). Hume enters this discourse, trying to find middle ground between Mandeville and the moralists, asking whether we can devise mechanisms that merge wealth and virtue. The basis for society is utility – happiness in humans (this is Hume’s proto-utilitarianism). But he then switches to industry as the key to utility. And luxury is the best spark to industry – men respond to incentives and the dangling of luxury goods in front them prompts them to action.
Most interesting in my view was the idea that Hume’s price-specie flow model must be framed in the context of the jealousy of trade argument; it wasn’t merely an economic model to counter the mercantilist misconceptions, but rather one aimed at maintaining peace (recall the context of the times: continual warfare). Trade is a way not to eliminate but to substitute for war. Trade is competitive, but it allows people to fight it out in the economic realm rather than on the battlefield. Thus, Hume believed we might be able to move conflict into a space that has beneficial rather than disastrous consequences.
To the best of our knowledge, Smith was born on this day in 1723 in Kirkcaldy, Scotland. Despite Schumpeter’s claim that Smith “never moved above the heads of even the dullest readers,” he remains the most famous economist of all time and the intellectual father of the discipline.
Here are just a few of the great online resources about Smith:
The Library of Economics and Liberty’s Concise Encyclopedia of Economics entry.
Jacob Viner’s classic “Adam Smith and Laissez Faire” (by the way, I just saw today that there’s a new volume out, edited by Douglas Irwin and Steven Medema, that compiles detailed transcriptions of Jacob Viner’s Economics 301 class at the University of Chicago)
MRUniversity videos on Smith
In the Tuesday morning session, Bruce Caldwell provided an overview of mercantilist thought from which I got a number of very helpful ways to teach this material. Many interesting points from the discussion of Thomas Mun’s well-known England’s Treasure by Foreign Trade and Viner’s “Mercantilist Thought” (Caldwell pointed to one of Viner’s many great phrases: “Mercantilism was essentially a folk doctrine, evolved in the light of the prevailing historical circumstances and values by simple inference from the apparent facts.”) And, Caldwell pointed out that state intervention can be successful in promoting certain industries – England may well have been saved (vis-a-vis Spain) by Elizabethan mercantilism.
Carl Wennerlind (Columbia University) argued that the mercantilists have been mischaracterized as a confused rag-tag group of self-interested merchants. The paper around which the discussion centered was by Steven Pincus (“Rethinking Mercantilism: Political Economy, The British Empire and the Atlantic World in the 17th and 18th Centuries“), who argued that there was no consensus that we can call mercantilism. Instead of consensus, there was vigorous and widespread debate about optimal imperial economic policy. If nothing else, Pincus gives us a great example of how the history of ideas frames the questions in my own field of economic history: “Scholarly faith in a long period of mercantilist consensus, in which everyone believed that trade was a zero-sum game based on competition over the natural endowment of the land, has unnecessarily narrowed the interpretative range available for telling the history of the British Empire or of colonial America.” Economic historians, Pincus argues, have been snared by the trap of a mercantilist “consensus”: the Findlay and O’Rourke reference to the 1650 to 1780 period as the “age of mercantilism” and the Robert Allen high-wage story of British industrialization, for instance (at the risk of oversimplifying, Allen argues that British success in international trade under mercantilist policy created a high-wage/cheap energy economy that fueled the Industrial Revolution).
I found Wennerlind’s discussion of the Hartlib Circle and the intellectual currents in northern Europe to be especially interesting, mostly because I knew little about it beforehand. There were three important “isms” to the Hartlib Circle: (1) Baconianism (2) Millenarianism, and (3) Paracelcianism. Briefly, the Hartlib Circle was the intellectual heir to Francis Bacon, seeking to turn Bacon’s scientific method into practice; they were hard Puritans who believed that to study nature was to know God; they based their work on alchemy/mysticism under the view that physical transformations of things were possible (could transform anything in nature into anything else with appropriate alchemist techniques, complex though they may be). The combination of these three elements led to the view that radical improvements (mostly in agriculture) were possible. But if science/alchemy could transform the physical world, we needed a new political economy to accompany it.
In the end, if Pincus and Wennerlind are right, Mercantilism might be the undeserving Rodney Dangerfield of the history of economic thought world. Wennerlind argued that there were ongoing debates among the mercantilists rather than monolithic thought, and that (I think this was perhaps the most important point) we must be sensitive to the context in which they wrote. The mercantilists were responding to specific events of their times and must be understood as such. Thomas Mun, for instance, may have argued that England needed a higher money supply not as a matter of permanent policy but rather for the particular economic conditions of his time. His argument may have been to re-establish a proper level of money stock given the conditions in which he wrote; in other words, it was a crisis theory, not a general theory.
I’m spending 3 weeks at Duke University for the NEH Institute in the History of Political Economy (HOPE), so I thought I’d post here some of the goings-on (sort of a live blogging exercise, though not exactly in real-time). I probably won’t be doing this daily, but I’ll do my best to keep up regular posts while I’m here.
Monday’s discussion was on Roy Weintraub’s paper, “How Should We Write the History of Twentieth Century Economics?” Oxford Review of Political Economy, vol. 15, Winter 1999, pp. 139-52. The discussion actually ended up centering less on this paper and more on Weintraub’s interesting overview of how and when economics became “professionalized.” For those who are familiar with his work, this effort to identify how and when economics was transformed into a mathematical discipline has long occupied his attention (for a book length treatment, take a look at How Economics Became a Mathematical Science). In his view, the culprit was really the necessity of centrally planned resource allocation during the 2nd World War.
The connections between the ideas and the events of the time (the history of thought and the economic history that provides some context) were clear in the talk, and there were some fascinating anecdotes about the formation of the Cowles Commission (which apparently moved from Colorado to Chicago – where Schultz was working on mathematical agricultural economics next door at the University of Chicago – because of Colorado’s imposition of a state income tax) and the formation of the NBER. The sorts of data collection for which NBER in particular is known plays a prominent role in Weintraub’s narrative of how and why economics professionalized. We also start to see the influence, by the 1930s, of the increasing calls for economics to become “more scientific” and to split from the other social sciences (it was notable that not even 10 signatories could be found worldwide for the formation of the Econometric Society until 1930, despite an earlier effort).
I had not been aware of the importance of the early role of various business cycle research institutes in building a cadre of like-minded professional economists and statisticians to collect data in an effort to explain business cycles. Nor had I been aware of the prominence of Karl Menger (the famous Austrian economist Carl Menger’s son) in recruiting Abraham Wald for the business cycle research seminars, which also attracted none other than John von Neumann. All three ended up in the U.S. (Wald ended up at Cowles because U.S. universities were closed to Jewish faculty until the late 1940s).
As I noted earlier, the big impetus for professionalization of economics came partly in the Depression, as FDR’s New Deal brought a lot of these new technical economists to Washington for policy work and, importantly, from the resource allocation problems of the Second World War.
Post-WW2 saw the G.I. Bill and the returning soldiers who now had access to college educations, but things had changed – these folks were not interested so much in learning “the classics,” but had the more immediate concern of obtaining marketable skills. Economics (and the newly forming business schools) turned to providing such skills. The professionalization of the discipline was largely complete and, as they say, the rest is history.
Just when you thought those in-flight shopping magazines had nothing useful, I just saw a tee-shirt in one of them with the following print:
Let’s Eat Grandma
Let’s Eat, Grandma
Commas Save Lives
A similar sentiment – but more substance – can be found in this book.
By the way, that flight took me to Durham, NC for the Duke University History of Political Economy Summer Institute that I’m attending this year.
Suppose someone tells you: “The government should know everything and foresee everything in order to manage the lives of the people, and the people need only let themselves be taken care of.”
Answer: “Is there a government apart from the people? Is there any human foresight apart from humanity? Archimedes could have gone on repeating every day of his life, ‘Give me a fulcrum and a lever, and I will move the earth’; he would never, for all that, have been able to move it, for want of a fulcrum and lever. The fulcrum of the state is the nation, and nothing is more senseless than to base so many expectations on the state, that is, to assume the existence of collective wisdom and foresight after taking for granted the existence of individual imbecility and improvidence.”
Who needs accuracy in our modern world of non-stop 5-second soundbites? Not even the “pundits,” apparently – not terribly surprising, but new research suggests that confidence is more important than accuracy for the professional pundit class:
It would be nice to think the pundits we see yelling on TV and squawking on Twitter are right all the time. It turns out they’re wrong more often than they are right.
Their hypothesis: Pundits have a false sense of confidence because that’s what the public, seeking to avoid the stress of uncertainty, craves.
Adam Smith had it right when he wrote about this very desire for certainty (though the grand old Scotsman probably would not have appreciated the whole concept of a “Tweet”):
Philosophy is the science of the connecting principles of nature. Nature, after the largest experience that common observation can acquire, seems to abound with events which appear solitary and incoherent with all that go before them, which therefore disturb the easy movement of the imagination; which make its ideas succeed each other, if one may say so, by irregular starts and sallies; and which thus tend, in some measure, to introduce those confusions and distractions we formerly mentioned. Philosophy, by representing the invisible chains which bind together all these disjointed objects, endeavours to introduce order into this chaos of jarring and discordant appearances, to allay this tumult of the imagination, and to restore it, when it surveys the great revolutions of the universe, to that tone of tranquility and composure, which is both most agreeable in itself, and most suitable to its nature.
The History of Astronomy
The first question we ask is [when seeing someone in distress], what has befallen you? Till this be answered, though we are uneasy both from the vague idea of his misfortune, and still more from torturing ourselves with conjectures about what it may be.
Theory of Moral Sentiments
[HT: Marginal Revolution]