ECON 109History of Economic ThoughtWF 10 – 11:30

Laarni Escresa

Why study the history of economic thought?

Why study the history of economic thought?Why study the “wrong opinions of dead men”?

– attributed to Anthony Pigou

1. Parallel with natural sciences.

- There is no need to read the classical theories of the past in order to understand economic problems and theories.

- The more perfect the science, the shorter the history (Whitehead)

2. Darwinian logic: the current work will preserve whatever is useful and discard those that are not

3. Practical aspect: HET not vocationally useful

Why study the history of economic thought?1. Economics is a social science

- Ideas are shot through the heritage of the past and has a link intrinsically to the subject and extrinsically outside of it. (Robbins)

- Not involved in the discovery of an objective reality, such as the discovery of a star.

2. Pedagogical advantages (Schumpeter)

- Difficult to understand contemporary developments without understanding of how they developed

- Knowledge would lack direction and meaning if no minimum historical aspects no matter how correct, original, rigorous and elegant

Why study the history of economic thought?3. To make well rounded economists: math, policy, theory

“(The economist) must be a mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words… He must study the present in the light of the past for the purposes of the future. No part of man´s nature or his institutions must lie entirely outside of his regard.” – Keynes

- Consequences: “The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood... Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

4. Source of new ideas, new thought experiments (Schumpeter, Robbins)

5. Insights into the ways of the human mind (Schumpeter)

How to study the history of economic thought?• Philosophy of science without history of science is empty;

history of science without philosophy of science is blind – Kant

How to study the history of economic thought?1. Absolutists (vs relativists)

- For the absolutists, economic science progresses in a linear fashion (Zamagni, Blaug)

- possible to separate the idea or theory from the social and historical context, slow and continual growth in knowledge

- Economic theory: perpetual inventory of analytical tools. - Basic tenet of mainstream economics is whether a particular piece of analysis is being found useful in practical application.- For Niehans, history will then have to be rewritten by each generation

- Building analogy

- looking back at science with what we are equipped today

- HET is a history of truths or history of mistakes

- Blaug, Knight, Stigler

•What is science and nonscience?

•Science • 19th century answer• Use of induction• Observation and experiments universal laws

•But what is the problem? Compare two statements• The sun rises every day.• All swans I´ve seen are white. • No amount of observation can allow inference that a swan is white. But a single observation of

black swan is enough to refute that conclusion.

•One can never prove or demonstrate that anything is materially true but one can demonstrate that some things are materially false.

•Karl Popper• Science is body of propositions about the real world that can be falsified by empirical

observations• Science is characterized by its method of formulating and testing propositions• Not defined by subject matter• Claim to certainty

• Observation generalization: Induction is a myth• Selection of observation, among the infinite number of possible ones, entails possession of a point of

view which is in itself is a theory• No brute facts, all are theory laden

All theories are provisionally true until we falsify them

Pierre Durhem

No individual scientific hypothesis is falsifiable Testing of hypothesis is conducted based on auxiliary statements

If auxiliary statements are falsified, did we falsify the theory?

No conclusive disproof of a theory can ever be produced

Ex. Galileo freely falling bodies

Popper: Methodological rules

normative

How to study the history of economic thought?2. Relativists

“Scientific analysis is not simply a logically consistent process that starts with primitive notions and adds to stock in a straight line fashion… It is not simply the discovery of an objective reality. Rather, it is an incessant struggle with creations of your own and predecessors´ minds and if it progresses at all, in a criss-cross fashion.” – Schumpeter

- Methods, problems and results are historically conditioned requires reference to historical background

- Relationship between economic theory and real socioeconomic structure

How to study the history of economic thought?Kuhn´s theory of scientific revolution

- evolution of knowledge pass through periods of revolution from one “scientific paradigm” to another

- Scientific paradigmGeneral metaphysical world outlook“entire constellation of beliefs, values, techniques and so on shared by the members of a given community”Choice of problems and techniques

Sharp breaks in development of science- accumulation of anomalies that can not be reconciled with the prevailing dominant paradigm

Normal science – problem solving in context of an orthodox theoretical framework rule Form a community where individuals agree on problems that require solution and general form of the solutionOnly judgment of colleagues is regarded as relevant in defining problems and solutionsCumulative process of puzzle solving within a common analytical framework

Revolutionary science – overthrow of framework by another as a consequence of repeated refutation and mounting anomalies

exception Proliferation of theories and appearance of methodological controversyNew framework offers a decisive solution to neglected puzzles

Long recognized but previously ignored

Conversion to the new approach takes on a nature of religious experience “Gestalt”

Is it a revolution?

Ptolemy

Copernicus

How to study the history of economic thought?4. “Political demand” of economic ideas

- events stimulate creation of political solution and demand for theories that scientifically justify these solutions

- Myrdal: evolution of scientific communities, younger generation replace old because politically important and more responsive to society´s needs

5. Role of society (Zamagni)

- Theory as a means to self-understanding and self representation of a subject

- society as a whole determines cultural climate and limit choices available to scientists and scientific community

- society as a whole establish importance and hierarchy of problems and eventually decides which choices are correct

- No problem if society is homogenous but it is not

How do we proceed?1. Historical reconstruction

- Historical context

- Biography, individuals

- Theory

2. Rational reconstruction

- Models