History is normally expected to improve understanding of the past. The historiography of Economic History illustrates neatly that this is not always the case. For instance, the 'New Economic History' or cliometrics, from its inception in the 1950s in the United States, aims to construct narratives of the past that is compatible with neoliberal ideology. Dissatisfaction with this turn has spurred a number of critiques, such as neo-Schumpeterian perspectives, stressing 'new institutionalist' approaches. However, questions arise whether American dominance in the field has resulted in undue economic and ideological impact on economic history to the detriment of sociological/anthropological approaches. For alternatives, mainly springing out of Europe, see historical dimensions of economic sociology and anthropology.
Economic theories are applied to present day problems, but they are equally influential in explaining economic history, thus the historiography of economic thought overlaps with economic theory more generally. There are different ways of approaching economic historical analysis. One way is to take a narrative approach - the account is grounded on facts and sources more than on theories. A second way is to see economic historical analysis as a way of validating a specific theory, or an assumption of human nature. It is this approach that cliometrics take for instance. A third approach could be to stress the fertilisation of economics by history. Here one uses the models and theories created in historical studies, to explain economic phenomena.
Questions: Can it possibly be assumed that private property is a universal aspiration of mankind in all periods?
History and development of Economic Theory
Major schools include the Classical School, the Austrian School, Marxism and Radicalism, the Chicago School, Marginalists, and Neo-institutionalists.
Name invented to cover Ricardo and James Mill and their predecessors, that is to say for the founders of the theory which culminated in the Ricardian economics. Keynes : “I have become accustomed, perhaps perpetrating a solecism, to include in "the classical school" the followers of Ricardo, those, that is to say, who adopted and perfected the theory of the Ricardian economics, including (for example) J. S. Mill, Marshall, Edgeworth and Prof. Pigou.”
- David Ricardo Note his focus on distribution of wealth not creation of it : Vide Ricardo's letter to Malthus of October 9, 1820: "Political Economy you think is an enquiry into the nature and causes of wealth--I think it should be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation. No law can be laid down respecting quantity, but a tolerably correct one can be laid down respecting proportions. Every day I am more satisfied that the former enquiry is vain and delusive, and the latter only the true objects of the science."
- Adam Smith 1776 Wealth of Nations constitues the birth of economics.
- John Stuart Mill
The theory argues that markets operate properly only when they are unfettered by government regulation and intervention. It holds that the government should not have a central bank or dictate economic or monetary policy. Once the government begins any economic planning, such thinking goes, it ends up making all the economic decisions for its citizens, essentially enslaving them. The walls of Mr. Paul’s Congressional office are devoid of the usual pictures with presidents and other dignitaries. Instead, there are portraits of Ludwig von Mises and Murray Rothbard, titans of the Austrian school.
The Chicago School
- Milton Friedman - begrundete den Monetarismus. Märkten f Scharf attackiert wegen der Finanzkrise, aber vindicated with regards to the collapse of the Euro area with Greece problems. Before he died he was adamant that the Eurozone could not work.
- Eugene Fama, entwickelte die Hyptothese von den effizienten Finanzmärkten; mit weitreichenden Einfluss auf die Reulierungspolitik der Regierungen. Er war von dem Mathematiker Benoit Mandelbrot beeinflusst.
- John Cochrane, Physiker, Wirtschaftswissenschaftler, Finanztheorie an der Booth School fo Business in Chicago. Teil der “Chicago School”, von Fama beeinflusst.
- Robert Lucas, - 'Theory of rational expectations' – schuldenfinanzierte Konjunkturprogramme wirken nicht, weil die Menschen wissenm dass die Defizite von heute die Steuern von morgen sind und deshalb ihren Konsum einschränken.
- Richard Posner, judge focus on the Economics of Law. New Republic article 2009 where he embraced Keynes. http://uchicagolaw.typepad.com/beckerposner/
- Gary Becker, erschloss weite Gebiete der Soziologie für die ökonomische Analyse e.g. Verbrechen, Rassendiskriminierung und Altruismus.
Austrian, English and French School, marginal utility theory of value Austrian School Carl Menger, Ludwig Van Mises, Friedrich Hayek and others. Theory of value. A good's value is determined by subjective criteria, utility for the consumer. A planned economy is flawed as it cannot determine this subjective value objectively. French School and Leon Walras carried it to its mathematical conlusion with the demand and supply curves, and an equilibrium. This developed into an axiomatic theory neoclassical economics and thus seen to be applicable everywhere. (View shattered in stock market crash in 1929).
The critics, German School for instance argued the need for social specific studies, institutionalists including Thorstein Veblen or more recently John Kenneth Gailbraith, who want institutions to develop norms and rules that minimise transactions costs of capitalism.
New Economic History and Cliometrics
An attempt at rewriting economic history through the prism of neoliberal ideology.
une approche néo-institutionelle celle qui privilégie la dimension contractuelle dans l'analyse économique, par opposition aux thèses néoclassiques et monétaristes qui favorisent la dimension monétaire. Cf. prix nobel 2009 Oliver Williamson.
Daniel Cohen La mondialisation et ses ennemis.
Douglass North Concept of institutional economics, where institutions are rules and norms. Modernity characterised by the birth of impersonal transactions, that are governed by formal institutions - a formula for development. Such institutions cannot however be build in a few years. E.g. US had 150y of common law before the 1776 revolution. North wants to construct a general theory of the rise of social institutions (see also Organisational Studies).
Finance and mathematical models
Robert Rubin brought Fischer Black to Goldman Sachs in 1984. Fischer Black together with Scholes, devised the Black-Scholes formula that promised to determine a rational price for market risks. This is the founding doctrine of a new field, quantitative finance, that uses maths to calculate risk. In the 1980s many physicists "quants" joined Wall street called POWs. The quantitative finance helped spurn hedge funds. including Long Term Capital Management, one of the biggest that collapsed in 1998.
The collapse spurned research in correlation - how different banks were linked together, in order to explain likelihood of one defaulting when another has already done it. Using this theory, David Li's Gaussian copula, collateralised debt obligations (normally spreading their risks into commercial mortgages, student loans, credit card debts, and subprime debt), felt safe not to diversify, to not have all eggs in one basket, but could calculate the risks for each and every basket, and could then focus on only one. CDOs built solely of subprime mortgage debt became very popular : "using the magic of the Gaussian copula correlation model, and some clever off-balance-sheet architecture, high=risk mortgages were re-packaged into triple-A-rated investor gold." Many investors put money in debt in early 2000s, debt became incredibly cheap, fuelling the house price boom and turbo-charging the world's economies.
But the Gaussian copula was too simplistic, it worked in actuarial science, in binary calculations (life and death scenario) of insurance clients and the "broken heart" theory, but not in the unknowable interrelatedness of markets. Nassim Nicholas Taleb, in the book The Black Swan, was a voluble critic of quantitative finance and Li's formula : "Anything that relies on correlation is charlatanism."
For present-day following of quantitative and automatic and algorithmic trading issues see http://www.battleofthequants.com.
- Keynes - Shattered idea that capitalist systems automatically engender equilibrium with full employment. Three independent demand systems can be manipulated to reach equilibrium with supply : consumer, investment, and government demand. John Maynard Keynes , The General Theory of Employment, Interest, and Money. Uncertainty Keynes 1937 article on uncertainty that cannot be reduced to statistical probabilities, and the impact this has on panics and bouts of exuberance and how it primarily accounts for the instability of market economies. Say's Law The doctrine saying that income is automatically spent, i.e. that supply equals demand. Rejected by Keynes in 1936 in his concept of thrift, and hoarding; in a monetary economy, people can accumulate cash rather than real goods. When everyone is doing this, like after the collapse of Lehman Brothers in September 2008, the result is an end to demand, which produces a severe recession. This insight is at the core of the discussion on appropriate government policies, including how much to spend to combat a recession. “It is better that a man should tyrannize over his bank balance than over his fellow-citizens”, “madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”), “the two most delightful occupations open to those who do not have to earn their living [are] authorship and experimental farming.”
New Economic Thinking
INET founded in 2010 to sponsor research outside the rational-expectations paradigm. ; sceptical to mathematical formalism and the view of 'market economy as a mechanical system' ; network theory, mathematics of radical uncertainty Philosophy of Mathematics, Psychoanalysis of financial traders. Solutions' Mieux considérer les risques. La mathématique a contribué à créer un virtuel financier, avec des produits et des techniques extrêmement sophistiqués, comme la fameuse titrisation : on découpe les risques et comme ça personne ne sait où ils se trouvent.
Attempt at seeing economic developments through the lens of micro-decisions on individual and household level. It had the Annales school as its catalyst.