In one of my past posts, I said people can learn a lesson from history and economics. The example used to illustrate this point is about economic crisis and monetary policy. There is a great lesson we can learn from handling crisis in history. But in general, is learning history really useful for economics?
In about 6 to 7 years ago, I conducted a survey in my classes, asking my students -- mainly Year-2 or Year-3 economics majors -- for their opinions about economics teaching. One such question is concerned with history and economics. The question is this.
A) students reading news regularly
B) teachers mentioning news occasionally in lectures
C) learning to handle economic data with statistical skills
D) learning economic history
Students' answers can be summarized in the following table.
| top 1 | top 2 | top 3 | |
| 1) students reading news regularly | 24% | 42% | 55% |
| 2) teachers mentioning news occasionally in lectures | 33% | 51% | 61% |
| 3) learning to handle economic data with statistical skills | 33% | 54% | 68% |
| 4) learning economic history | 10% | 18% | 26% |
| others. | 0% | 0% | 0% |
To me, the most useful way to know what happens is to read news regularly. But this is not students' choice (only 24% think so). But I can understand the difficulty for students to read news themselves. They may not know which news is important and may not understand some jargon used in news. I also had this difficulty when I was a student. Thus, most students want their teachers to mention news occasionally (33%). They also express that statistics is important (33%). However, what they think least useful is history (10%). Perhaps this is due to the current economics curriculum that normally excludes history, and so they cannot see the importance of history.
However, this is not my impression about economics. When I was a student, many popular economists emphasize that knowing what happened in history is important for economics as economics must be built based on what happened and history is about what happened (see also some recent comments on why history is important for economics).
Furthermore, when I was a student, most high-school economics students would also take either Chinese or World History as most such students belong to the Arts Scream. I guess most economics students at that time can master certain basic knowledge in history. They would also have interests in history and wanted to know how economics help us understand history. Today, this is of course not true as most economics students belong to Business Stream, where history is not a subject.
Unfortunately, when I was an undergraduate economic student, it would be difficult for me or other students to apply economics in history. There was a course known as Western Economic History, taught by an economist in the department, but it was NOT about applying economics in history. It was only about (economic) history. In other economics courses, history was rarely mentioned. Yes, some popular economists emphasize the importance of knowing history for economics. But the economics curriculum was not designed in this way. Neither is today's.
Today, I am an economics teacher. Though I do not know sufficiently about history, I sort of know what role history plays in modern economics. I mean "modern economics" or the economics that has been mathematized. The pre-mathematized economics is narrative and old-schooled. The old style of economics is much closer to historical studies but the modern style is not. How the two fields come together or help each other?
As far as I know, there are three areas where history and economics come together. The first area is exactly about monetary policy or money that has been mentioned in my past post. How money or monetary systems work in human history? This area is concerned with this issue. Milton Friedman's and Anna Schwartz' A Monetary History of United States is a representative and a pioneering work in this area. Nonetheless, this is a relatively narrow area. Even those who work in monetary economics may not be engaged in such a historical investigation, nor they must consider these historical facts very essential for understanding monetary policies. But there are some (important) economists working in this area.
The second area is related to institutional economics. It covers property-rights economics but perhaps covers more than that. Institutional economists believe that good (bad) institutions are a significant factor in determining economic performance. The most well known figure is the Nobel-prize winner economic historian Douglas North. After him, there is actually a subfield known as New Institutional Economics (NIE). The field is not necessary about history. It also emphasize theory. But to demonstrate the propositions suggested by them -- institutions matter to economic performance, they have to documented evidence. NIE often finds the evidence in history. Institutions develop over time and over a long period of time. Hence, the evidence should be found in a sufficiently long period of time. That's history. By assessing what happened in history, NIE can somehow demonstrate their claimed proposition.
The third area is related to development economics and the economics of growth. In fact, it is also related to NIE, the emphasis on institutions. But the New Growth Theory (NGT) has its own path. Economists lost much interest in the theory of growth until 1980 when a new theory emerge, the NGT. Initially, it is quite conventional in its method -- developing theories and testing the theories by data. After a while, it turns also to history as it turns to the idea that institutions matter to economic performance. Nonetheless, NGT economists emphasizes data. When they take history seriously, they dig out data in historical contexts. They are not narrative as traditional historians do.
In fact, NGT economists often use historical data innovatively: they use data that are not normally connected to growth but they can use highly technical econometric methods to demonstrate some connections.
One famous example is a study led by Daron Acemoglu, a famous MIT economist, on how different types of colonial systems affect the long-term economic performances. Unimaginably, the study uses disease data to demonstrate the point: When Europeans settled in a colony with disease environment not favourable to them, they will not establish good institutions there and so the economic performance in the long term is not good. The disease environment is not a long-lasting factor but institution is (once established, institution can't be easily changed). Meanwhile, how good a institution is can't be easily measured but disease data can be easily collected. Thus, they can use disease as a proxy for good/bad institution and demonstrate a proposition that can't be easily demonstrated: institution matters to long-term growth.
While NGT economists need not study history, many economic historians (those who work at economics department, not at history department) are mainly concerned with growth, using both historical data and other historical evidence for their investigation. I am not a regular reader of their works. I am only a occasion reader. But I feel that their works are very scientific in a way that I can't even usually find in other economics works: They often suggest an explanation for what happened. Take it as a hypothesis but then tried to refute their proposed explanation by inspecting various counter-arguments and potentially unfavourable data or evidence. They will (tentatively) accept their own explanation only after this process. Today history is still not a popular subject in economics. But I think their works are very respectable and valuable.
At this point, let me make some concluding remarks. I do think history is really important for economics especially when you are studying growth or development. Modern works on economic history are indeed very scientifically rigorous, and deserve our attention. Nevertheless, the methods used are usually not mastered by common economics students (be it at undergraduate or postgraduate level). This may explain why the field is still not a very popular field in economics and many students may not feel the importance of it. However, I think serious students should pay some attentions to these works. They can be a reader, though not a researcher, in the field.
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