Sunday, June 10, 2012

Classical economists did not notice the leap while it was happening

We're still discussing Bourgeois Dignity: Why Economics Can't Explain the Modern World. One brief point about humility. We saw in the last post that nineteenth century thinkers were often wrong about the history. In fact, many classical economists failed to notice the biggest change in economic history was happening at all at the time.

The economists, in other words, did not notice that something entirely new was happening from 1760 or 1780 to 1860. As the demographer Anthony Wrigley put it a while ago, "The classical economists were not merely unconscious of changes going on about them that many now term an industrial revolution: they were in effect committed to a view of the nature of economic development that ruled it out as a possibility."'
Compare our worry about the present recession and crisis-strewn world.

In the late 1940s Joseph Schumpeter was already scornful of the classical economists for their failure to see what was happening. T. R. Malthus (1766-1834) and David Ricardo (1772-1823) "lived at the threshold of the most spectacular economic development ever witnessed.... [yet] saw nothing but cramped economies, struggling with ever-decreasing success for their daily bread."' Their student Mill (18o6-1873) even in 1871 "had no idea of what the capitalist engine was going to achieve."
Current environmentalists are just as wrong as Malthus, McCloskey argues.

The radical environmentalists do not realize that gradually after 1800 natural resources became no longer the main scarcity. Nowadays (it is wisely said) there are no natural resources, only human resourcefulness. Yet Malthus told a great truth about earlier history. In medieval England, for example, during the two centuries before 1348 a rising population had become poorer, and in Elizabethan England the impoverishment happened again
What changed?

Land fell dramatically in its power to constrain humans. The fact was contrary to every prediction of the classical economists, and fits poorly with the analysis of many of their successors down to the present.
So what should we take from this for this blog? Well, economic experts are not always attuned to changes in the economy, for one thing (although we knew that.) But it's also an illustration that if some of the underlying constraints are falling away, then relying on past economic experience is not a reliable guide.Material production of stuff in general is increasingly not a constraint. And we have to think through what that means for the economy. Hence this blog (with suitable humility.) There's also a deeper point. Expert judgement very often fails. I think making the right policy call is more usually a matter of correct perception than correct parsimonious theory. Internally consistent theory is the easy bit. What you see is the mark of the true expert - as we saw in the discussion of Gary Klein v Daniel Kahmenan.


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