Wednesday, January 06, 2016


Don Boudreaux posts (5 January, 2016)  on Cafe Hayek HERE
“Dale Benn asks, by e-mail, the following question:
Excepting economics what subject do you [Boudreaux] feel is most important for economists to know better?
This question is a good one, and if it weren’t for its opening clause I would have answered “economics.”  I’m not being smart-aleky.  Too few economists know – really know – basic economics.  A depressingly large number of economists, including even a few who boast Nobel Prizes, would learn a great deal of economics if they were to read and carefully study Alchian’s and Allen’s University Economics – or even if they were to take the time to read some classic articles by Alchian, Demsetz, Coase, Hayek, Buchanan, Yeager, and Vernon Smith.  (Topping off the reading of articles by these economists with the reading of books by Schumpeter, Knight, Mises, Hayek, Buchanan, McCloskey, and Higgs would only further, and greatly, enhance their economic education.)  These economists would encounter a method of analysis and way of thinking about the economy that, I’m quite sure, would challenge many of their core prejudices and significantly adjust, for the better, their perspectives.
But other than economics, the subject that I believe is not only most useful to economists, but indispensable, is history.  It’s an easy call.  The marginal intellectual return for a typical economist today to an extra month spent studying and pondering history would be multiple times greater than the return that that economist enjoys today by spending a month refining his or her technical expertise.
I agree with Professor Boudreaux that economists should study history. 
In short, they should adopt Adam Smith's approach of locating their economics in history, even if it is  modern history of the past 50 - to 100 years. This would be much more productive than hopelessly trying to predict the (near or distant) future, or worse, as moderns are wont to do, imagining that all people act like wholly rational beings who act like rational robots, maximising some invented self-interest shared by everybody else.

As for “basic economics”, which is fulll of imagined scenarios, perfectly formed functions, I am not sure that the economics they learn are of much use in trying to understand the real world. By all means learn about a rationally ruled world if you merely want to pass your exams. But don't expect to know much about the real world with real people interacting in it.
If you study Adam Smith's books, Moral Sentiments and Wealth of Nations, you will see how what we now call capitalism evolved in Northern Europe ('warts and all') and the extent to which human actions in all their variations eventually brought about the societies of today.


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