Economics needs history
By David Boyle, nef fellow
In the week that the banks failed – that strange week in October 2008, where everything seemed to be unravelling – I ventured into the City Business Library, in its familiar, slightly unkempt building off London Wall.
I used to spend quite some time there, when I was writing about the history of money. I remembered it – perhaps wrongly – as a font of hidden knowledge. By 2008, it certainly wasn’t that.
Where were those decades of back issues of obscure American business magazines? Where were those strange 1960s books of business predictions?
I asked at the desk and was informed that it was the library’s policy to dispose of most material after three years, and all of it after five years.
It was rather a strange discovery. Wall Street and the City of London had allowed the banking system to collapse because their risk software had little or no memory beyond ten years – barely longer than the business cycle.
Most of those taking day to day decisions about risk in the City were in their twenties and had little memory of the great rises and falls of the market. Their lack of history had hampered their ability to see events for what they really were.
I don’t suppose the City Business Library’s decision to bin anything dog-eared contributed to this historical vacuum – it was symptom not cause.
Nor was the last government’s strange blindness to history (heritage was one of the only areas of government funding to go down under New Labour), but neither of these can have helped.
Yet the excision of history from business commentary and corporate life – and its replacement by marketing mush – was definitely one of the major causes of the current miserable economic climate. That is why Andrew Simms and I wrote Eminent Corporations.
Now, George Soros’s Institute for New Economic Thinking (INET) has organised a whole series of interviews of leading economists under the title ‘How economists were made’, and it is fascinating how they also urge the importance of history – and especially Irwin Collier.
He says that, without philosophy, politics and history, economists can’t ask interesting questions. They can’t tell reality from illusions. They are lost, in other words, in the unreal world of quantitative data, formulae and economic theory that may or may not be related to the real world.
This is important. When the Post-Autistic Economics movement first made this point during the Sorbonne revolt by economics students in 1999, it seemed a revolutionary idea. Now that INET has taken up the cause, it may be that the days of autistic economics – the strange soulless rule of econometrics, may finally be coming to an end.
Not before time. Because the last thing we want is for public policy to be dictated by an ivory towered elite who are innocent of the world, or real people and how they really work.