David Fettig - Editor
Published June 1, 2002 | June 2002 issue
In the novel Hard Times, Charles Dickens' biting commentary on the Industrial Age, we meet Thomas Gradgrind, a personification of the era. Gradgrind is "A man of realities. A man of facts and calculations. ... With a rule and a pair of scales, and the multiplication table always in his pocket, sir, ready to weigh and measure any parcel of human nature, and tell you exactly what it comes to. It is a mere question of figures, a case of simple arithmetic." Later in the book, at the beginning of a scene that will lead to Gradgrind's redemption, we find our cost-benefit hero at home to partake of some leisure time.
He sat writing in the room with the deadly statistical clock, proving something no doubtprobably, in the main, that the Good Samaritan was a Bad Economist.
Now, an entire paper probably could be written about the economic reasoning of the Good Samaritan, and his less-good counterparts, and it would likely involve some pretty sophisticated mathematics to "weigh and measure any parcel of human nature." Indeed, as the story on the death penalty debate and the interview with Gary Becker in this issue of The Region reveal, economics has inculcated itself into other realms of the social sciences to comment on criminal behavior and punitive measures, altruism, marital choice, procreation, divorce and other issues.
While this research is new in post-World War II economics in its application of mathematical rigor, the intent of the research would not surprise Dickens or others of his age, who lived during the great era of classical economicsroughly 1790 to 1870which marked the transition of economics as a discipline of moral philosophy to one of political economy. Economists, who weren't economists as we understand the term today, often commented on matters seemingly unrelated to the dismal science; indeed, many, including Adam Smith and other thinkers of the Scottish Enlightenment who did so much to shape modern economics, were philosophers by trade. It wasn't until the late 19th century that economics became professionalized, mathematized and sanitized from value judgments about the way people ought to behave. The way people actually behave, though, is another matter, and one that is still hotly debated. Much modern economic theory is based on assumptions of human behavior, assumptions thatprior to the Enlightenmentwere left for philosophers, theologians and statesmen.
All of which is to say that while many important advances in economics have been made over the past century, especially following World War II, these are often specialized refinements to age-old questionswhich is true of most scientific research. This becomes abundantly clear upon reading The Ordinary Business of Life, the new book by Roger E. Backhouse, who holds a chair in the History and Philosophy of Economics at the University of Birmingham, and who has written other books on similar subject matter, including A History of Modern Economic Analysis, Truth and Progress in Economic Knowledge, and Economists and the Economy. He is also editor of the Journal of Economic Methodology.
In other words, he knows his stuff. You have to if you are going to profess to write A History of Economics from the Ancient World to the Twenty-first Century in just 328 pages (plus another 41 in back-page material). Backhouse deftly discusses the philosophical and political underpinnings of economic thought, beginning with an analysis of economic relationships described in Homer's ancient Illiad and Odyssey, and leading, for example, to Fynn Kydland's and Ed Prescott's recent contributions to real business cycle theory. That Homer's message is conveyed in an epic poetical style and Kydland's and Prescott's in an epic mathematical style speaks well to Backhouse's ability to decipher disparate texts and relate them in a comprehensive and often compelling manner. (For the curious reader: Prescott, a long-time adviser to the Minneapolis Fed, discusses his ideas in a Region interview.)
Backhouse's intent with this book is, broadly speaking, to explain "how economics got where it is today." This is different from just writing a history of economic ideas, which might simply rely on an accepted canon of important writings, or a history of great economic thinkers, which naturally means that a number of less-famous, but equally important, economists would be edited out. In both cases, such books would likely begin no earlier than the 14th or 15th century, and most likely with Smith in the 18th century, on the grounds that prior to that people were only concerned with issues of morality and justice when considering market exchanges and interest rates.
But the problem with excluding earlier thinking is that it is not possible to draw a line between what is considered "real" economics and what is not, according to Backhouse. Ancient or medieval arguments over the justice of commercial activities mean there was some sophistication about how the economy worked. "The view underlying this book is that economic ideas were present even in antiquity, and that those ancient ideas are relevant in trying to locate the origins of modern economics," Backhouse wrote.
Time for a pop quiz. Link the economic ideas below with an appropriate economist:
Scarce resources as the basic economic problem.
Wage and price controls.
Division of labor.
A. Hesiod (Greek poet, 8th century B.C.E.)
Diocletian (Roman emperor, circa 300)
Xenophon (Greek philosopher, student of Socrates, 5th century BCE)
During the course of reading this book, it becomes impossible to consider the work of modern economic thinkers without recalling their antecedents. Smith, often cited as the father of economics, was obviously influenced by the work of those who came before him, including his Scottish colleagues and, notably, French thinkers from the previous century and beyond. After all, the term laissez faire is French for a reason; it had been in use since a critic of Louis XIV published a document in 1695. A century prior, in the Discourse on the Common Weal, we find a discussion of a primary Smithian theme: the interdependence of various sectors of the economy. Still, Smith's contribution was the crowning achievement of his era and paved the way for modern economic methodology. A book like The Ordinary Business of Life reminds us that all of Smith's work didn't just spring from his head, a priori, but represented the best ideas known at the time (including his own), carefully chosen and formed into a structure that changed the way people thought about the world.
Also, it becomes difficult when reading this book, after considering economic problems from the perspective of people who were concerned about fairness and justice, not to attach such reasoning to present-day economics. Modern economists, for good reason, scoff at such normative notions as justice and fairness in their work, but Backhouse maintains that when peopleeconomists includedprescribe one policy over another they are engaging in a process that, like it or not, often becomes hard to distinguish from those earlier debates about what should be done. At the very least, Backhouse asserts, it is useful for economists to understand how their specialized ideas fit into the broader story.
And that story, for Backhouse, begins in Ancient Greece and the Old Testament, not because that's necessarily the beginning of the story, but because "it is necessary to start somewhere." (Robert Heilbroner begins his famous survey work, The Wordly Philosophers, with the memorable clause, "Since man came down from the trees ..." but then he quickly finds his way to Adam Smith, after which his treatment follows the great economist model of economic history.) From Homer and Hesiod, Backhouse guides us through Xenophon (whose work Oikonomikos, gave us the words economics and economist), Plato and Aristotle and so forth, with diversions along the way to note other contemporary influences. Those diversions are prevalent throughout the book and prove valuable; Backhouse has apparently left few stones unturned in his attempt to tell a story about the development of economic ideas.
Backhouse begins each chapter with a helpful description of the forthcoming historical era (the book moves chronologically) and ends each chapter with a conclusion that not only encapsulates the main advances in economic thinking, but reestablishes those ideas within the context of other historical influences. Science, politics, history, religion, psychology and other academic currents come into play, highlighting the multidisciplinary nature of economic studies throughout history.
These subthemes don't just make for interesting stories; they are fundamental to understanding why we have the economics that we have today. For example, when Irving Fisher, the first American full-time economist with a strong background in mathematics, used the concept of utility in his work, he meant that "each individual acts as he desires." Period. Fisher stripped away any other psychological or ethical meanings to utility that were prevalent at the time, including links to pleasure or pain or the underlying desires for different goods. Such an approach allowed Fisher to make generalizations about behavior and construct mathematical models, but it was thought at the time that "special genius was needed to be able to handle economics mathematically without being led astray into making unjustified speculations." So mathematics was shunned for a time. Even Alfred Marshall, a trained mathematician who used mathematics to great success in his economic career, was cautious about its application. "[T]he use of mathematics made it very easy to derive results that had no foundation in reality. If mathematical results could not be translated into English, he was suspicious of them," Backhouse wrote.
Over time, of course, the ideas of Fisher and like-minded economists gained the upper hand, and mathematics is now the cornerstone of modern economic theory. But the debate about quantifying utility didn't begin and end with Fisher and the dawning of mathematics in economics. Did it begin with the 19th century French mathematician Augustin Cournot who made assumptions about producer maximization and gave us the supply-demand curves so prevalent in economics textbooks? Or with the philosopher Jeremy Bentham, who came after Smith and gave us utilitarianism? Or with Smith himself, who made assumptions about human behavior? Or with the 14th century's Ibn Khaldun, who considered choices between consumption and capital accumulation? Or with Aristotle, or with ... you get the point. The list goes on, all the way back to those early profit maximizers climbing down from the trees.
Which brings us to a final point. This book reminds us that it is useful to think about economics as a response to fundamental problems that have existed for centuries. This approach leads to an understanding of how economic reasoningat a fundamental levelapplies to all sorts of issues, from how markets work, to taxation and to trade and, with all due respect to Dickens, even to good and bad behavior.
The promotional material for The Ordinary Business of Life suggests that the book "can be read with profit not only
by economists but also by a variety of noneconomists, such as
historians, philosophers, sociologists, and so on." Well,
this reviewer places himself firmly in the "and so on"
club, and for all you other proud members, there is much in this
book to recommend. You don't have to be an economist or social
scientist of another stripe to benefit from this instructive,
well-reasoned and tightly written synthesis of economic thought.
if you were an economist, your reading would be that much richer.
As a bonus, and almost worth the price of admission on its own, Backhouse has included an annotated reading list ("the best suggestion for further reading is to read the original sources," he rightly advises) conveniently divided by economic era.