history of economic thought

History of Economic ThoughtECON 311-001

Boise State University

Spring 2005

Prof. D. Allen Dalton

Course Introduction

Why should one study the History of Economic Thought?

A.Isn’t modern economic theory (as found in textbooks and taught in courses) the apex of the progressive development of the science?

B.As a positive science, don’t economists shed false theories and adopt true theories?

If A and B are true, why study the mistakes of the past?

Why should one study the History of Economic Thought?

“Come to appreciate that most modern ideas have long histories - that there is ‘little new under the sun.’

Recognize that many theories are short-lived and that they often reflect the concerns of a particular time period, and thereby come to a critical understanding of contemporary theory.”

- Bruce Caldwell, Syllabus, History of Economic Thought, EC 555, Fall 2003, UNC-Greensboro.

Why should one study the History of Economic Thought?

“There are works in the past from which we can still learn important ideas which are useful for addressing the problems we find pressing today. Intellectual errors are made all the time, knowledge gained in one period can be lost due to the fads and fashion which govern the world of ideas, and as such there are genuine intellectual entrepreneurial profit opportunities for readers to discovery and exploit…”

- Peter Boettke, “Why Read the Classics in

Economics?” February 24, 2000,

www.econlib.org/library/Features/feature2.html

Why should one study the History of Economic Thought?

“Kuhn demolished the…theory…that scientific thought progresses patiently, one year after another developing, sifting and testing theories, so that science marches onward and upward…[E]conomics can and has proceeded in contentious, even zig-zag fashion, with later systemic fallacy sometimes elbowing aside earlier but sounder paradigms, thereby redirecting economic thought down a total erroneous or even tragic path.”

- Murray Rothbard, Economic Thought before

Adam Smith, Edward Elgar, 1995, pp. ix-x.

How should one study the History of Economic Thought?

•Great Books Approach

•Most Important/Representative Thinkers

•Topical

•Schools of Thought

•Catholic

•Eclectic

The Notion of Schools of Thought

“A school within a science is a collection of affiliated scientists who display a considerably higher degree of agreement upon a particular set of views than the science as a whole displays… A school must have a leader, because the consensus of its members will normally be achieved and maintained by major scientific entrepreneurs.“

- George Stigler, The Economist as Preacher, Basil Blackwell, 1982, p. 116.

The Notion of Schools of Thought

“…a genuine school in our sense: there was one master, one doctrine, personal coherence; there was a core; there were zones of influence; there were fringe ends.”

- Joseph Schumpeter, History of

Economic Analysis, Oxford

University Press, 1954, p. 470.

What is “Economic Thought?”

A. Economic Analysis

B. Institutional Justifications/Defenses

C. Statecraft

D. Philosophical Concerns

E. Major Policy Debates

Answer varies from person to person and also varies as general history unfolds...

Working Definition of HET

The study of the development, progression, and regression of human understanding of

how humans do and should act in “the ordinary business of life”

Working Definition of HET

• Broad definition

• Raises question of historical development of what economists think they are doing!–Israel Kirzner, The Economic Point of View

• What constitutes progression and regression in human understanding?

-study of epistemology and methodology

Context!!

Economic Thought occurs in the context of political, social, religious, and scientific

relations and thought.

Class Focus

Beginning with Ancient Civilizations we will progress historically (at least as far as we are able) to the present day…

taking a broad view of what constitutes “economic thought,” e.g., a mixture of institutional, philosophical, policy-oriented, and “purely” theoretical…

Class Focus

within the general historical context of human affairs (political, religious, social, and scientific)…

noting major ideas and thinkers…

emphasizing some thinkers (e.g., Cantillon, Wicksell, Hayek) more than is common…

Class Focus

while sometimes “going off the beaten track.”– French Liberal School– Hamilton v. Jefferson on government in the American system – Currency School v. Banking School Debate– Anti-Corn Law League– British Anti-Ricardians (esp. the Dublin School)– The secret history of “the dismal science”– Henry George

Syllabus

• Texts

• Expectations of Students

• Grading - Tests - Papers

• Resources• Websites• Textbooks• Classic Texts - Building your own library

• Course Outline and Readings

My Biases

• Politics– Individualist Anarchist

• Economics– Austrian Eclectic

Epistemology, Methodology, and the Philosophy of Science:A Very Brief Introduction

Epistemology

• The “Science of Knowledge”

• How do we know what we know?

• Three central questions– What are the sources of knowledge?– What is the nature of knowledge?– Is our knowledge valid?

The Sources of Knowledge

• What are the sources of knowledge?– Testimony as a Source: Appeal to Authority

• Secondary source - used when we cannot directly investigate

• Useful tests of qualification: recognition by other authorities, agreement with other authorities, special competence

• Danger: surrender independent judgment and make no effort to discover what is true or false

The Sources of Knowledge

• What are the sources of knowledge?– Senses as a Source: Appeal to Perception

• Empiricism-what can we can see, hear, touch, smell, taste

• Pragmatism-the mind selects and molds experiences in accordance with purposes and interests

• “Scientific” Modeling-method of science; hypothesis testing

• Danger: selective choice of facts, prejudice and emotion

The Sources of Knowledge

• What are the sources of knowledge?– Thinking as a Source: Appeal to Reason

• Rationalism-mind has ability to discover truth by itself, or by comparing ideas with ideas; sensations are raw material of knowledge; knowledge is found in concepts, principles, laws

• Danger: no connection to reality

The Sources of Knowledge

• What are the sources of knowledge?– Insight as a Source: Appeal to Intuition

• Direct apprehension of knowledge not the result of conscious reasoning or of immediate sense perception

• Danger: unsafe to use alone; must abandon claim to certainty or infallibility

The Nature of Knowledge• What is the nature of knowledge?

– Naïve Realism• Reality exists and we perceive reality as it

exists

– Subjectivism/Epistemological Idealism• That which we perceive does not exist

independently of our consciousness of it

– Objectivism/Epistemological Realism• That which we perceive exists independent of

our consciousness of it; we perceive sense data not the objects themselves

The Validity of Knowledge

• Is our knowledge valid?– Correspondence Theory

• Test of agreement with facts (realism)

– Coherence Theory• Test of consistency of judgment (idealism-

strictly speaking there are no facts)

– Pragmatic Theory• Test of utility or verification; since we can only

know experiences (empiricism)

The Connection to Economics

• Historicism, Logical Positivism, and Aristotelian/Kantian Realism

• The Historical School, Neoclassical “Mainstream,” Austrian School

Historicism

• the view that there are no universal and general laws of economics

• the humane sciences are experiential

• we can, however, interpret people’s actions in terms of goals and desires (verstehen)

Logical Positivism

• Logical Positivism (Neoclassical Mainstream)– Milton Friedman, “The Methodology of

Positive Economics,” Essays in Positive Economics, 1953.

– Karl Popper, The Logic of Scientific Discovery, 1959.

Logical Positivism

• the view that there are two types of scientific propositions– empirical: statements about world that are

in principle falsifiable– analytic: do not give info about world, but

are true by definition

• scientific explanations have structure of predictions that are testable

Logical Positivism

• tests confirm or falsify hypotheses (predictions) but never verify

• science progresses by improving hypotheses through falsification

• no such thing as statements that are necessarily true and give us information about the real world

Aristotelian/Kantian Realism

• Aristotelian/Kantian Realism (Austrian School)– Carl Menger, Principles of Economics,

trans. Dingwall and Hoselitz, 1981 (1871).– Ludwig von Mises, The Ultimate

Foundation of Economic Science, 1962, 1978.

Aristotelian/Kantian Realism

• There exist statements that are necessarily true and give us information about the real world

• Kant’s “synthetic a priori” statements

• In reference to economics, we have a priori knowledge of the general pattern of human action; we don’t have knowledge of particular actions

Realism v. Logical Positivism

“The quantity demanded of a good is inversely related to its price, ceteris paribus .”– statement about the reality of the world– Logical Positivism says this statement

must be tested to discover whether it is verified

– Realism says that this is a statement that is necessarily true

Philosophy of Science

• How does knowledge grow?– Popper’s view (logical positivism and

improvement of hypotheses by falsification)– Thomas Kuhn, The Structure of Scientific

Revolutions, 1970.– Imre Lakatos, The Methodology of Scientific

Research Programmes, 1978.– Larry Laudan, Progress and Its Problems,

1977.

Kuhn and Scientific Progress

• Science is characterized by periods of continuity and progress (normal science), leading to the recognition of an anomaly (crisis) and the possibility of discontinuity (revolution)

• Science develops then by successive transition from one monopoly “paradigm” to another

Kuhn and Scientific Progress

• Communication failures exists between paradigms

• Paradigms are not surrendered lightly or until a viable alternative exists

Lakatos and Scientific Progress

• Attention is on series of theories “genetically” linked together

• Research programs are characterized by “hard core” (set of fundamental statements about world)

• Hard core cannot be tested directly but testable theories are built around it

Lakatos and Scientific Progress

• Research programs can be either progressive or degenerative

• A research program is progressive if it predicts “novel facts” and empirical evidence corroborates such novel facts

• Emphasizes competition among rivals and fluctuating fortunes

Laudan and Scientific Progress

• Problem-solving orientation

• Progress is measured in terms of increasing empirical support and elimination of conceptual difficulties

• Value of research tradition depends upon how many problems it solves relative to competitors

Laudan and Scientific Progress

• Solved problems are “assets,” unresolved problems are “liabilities”

• Each research tradition provides guidelines for development and methods of inquiry

• Research traditions endure and coexist with rivals in environment of continuous appraisal and evaluation

HET and Scientific Progress

• Is economics characterized by…

• Kuhnian revolutions?

• Lakatosian progressive and degenerative research programs?

• Laudanian research traditions?

Elements of each?