Economic history is dead; long live economic history?
Although economic-history departments are in a bad state, economic historians are needed more than ever before
By C.R. | TELFORD AND CAMBRIDGE
TWO years ago, in a very interesting paper, Peter Temin bemoaned the decline of economic history as a research topic at universities. He took the example of what happened at the Massachusetts Institute of Technology (MIT) to prove his point. There, the subject reached its peak in the 1970s, when three members of the faculty taught economic history. But from then it declined until economic history vanished both from the faculty and the graduate programme around 2010.
But is economic history really dead? Last weekend, Britain's Economic History Society hosted its annual three-day conference in Telford, attempting to show the subject was still alive and kicking. The economic historians present at the gathering were bullish about the future. Although the subject's woes at MIT have been echoed across research universities in both America and Europe, since the financial crisis there has been something of a minor revival. One reason for this may be that, as we pointed out in 2013, it is widely believed amongst scholars, policy makers and the public that a better understanding of economic history would have helped to avoid the worst of the recent crisis.
However, renewed vigour can be most clearly seen in the debates economists are now having with each other. In particular, three big questions in economics over the past few years have become battles over economic history, rather than theory in its own right.
First, this can be seen in arguments about Carmen Reinhart and Kenneth Rogoff's recent work on the relationship between debt and growth. In 2010, using two centuries' worth of economic data around the world, the two economists from Harvard University argued that countries experience a sharp slowdown in growth when their public debt-to-GDP ratios hit 90%. Politicians immediately grasped their conclusions to justify austerity policies over the next few years. But that did not mean they necessarily got their history right. In 2013, three economists at University of Massachusetts Amherst found that spreadsheet errors had skewed the results, which in fact did not show a sharp slowdown around the 90% debt-to-GDP mark. And in 2014, research by economists at the International Monetary Fund noted that when anomalous periods, such as the second world war, were excluded from the data, the relationship between debt and growth that Ms Reinhart and Mr Rogoff identified could not be found.
Arguments over correlation and causation in relation to the historical patterns they identified are still ongoing between economists. It is not the only area where arguments over economic history are dominating economics. The recent debate between Thomas Piketty and Matthew Rognlie over whether rising wealth inequality in the rich world is due to rising returns on capital in general, or housing in particular,is a battle over economic history as much as it is economics.
The same trend be seen in practical policy-making in Europe. Debates between economists and policy-makers over the best reponse to the euro area's debt crisis have also been dominated by two different interpretations of history. On the one side, those opposing quantitative easing have emphasised the negative role of inflation in history, for instance, emphasising the risk hyperinflation has posed to democracy and the benefit stable prices had in Germany after the second world war. Advocates of expansionary monetary and fiscal policies, on the other hand, point to the Great Depression by arguing that deflation, mass unemployment and low demand posed a far greater risk to democracy than inflation in the 1930s. In short, almost more than ever before, economic debates between policy makers have historical undertones.
And as was pointed out at this year's Tawney lecture, given by Martin Daunton of Cambridge University at the Economic History Society's recent conference, economic historians also have a role to play in shaping global economic governance today. The institutions now dealing with the aftermath of the Great Recession—the IMF, the World Bank and the World Trade Organisation—were the products of the Great Depression. One lesson that can be drawn from the modern Great Recession, Mr Daunton argues, is that the international institutions created in the 1940s have prevented the return of beggar-thy-neighbour policies and a collapse of the world economy akin to that seen in the 1930s. One of the major problems of today is how to ensure that these institutions are able to deal with self-interested policies, such as trade protection or foreign-exchange reserve hoarding, that might still threaten global economic recovery. There were many contested options designed to avoid this that were marginalised when the system was set up in the 1940s. Although they have since been overlooked, they may now need to be re-examined.
In order to investigate these, as well as the historical claims of economists over issues as varied as the impact of high public debt and the causes of inequality, the contribution of historians—who have in fact mostly stayed away from these debates—is desperately needed. Economic history may well be dead as a subject studied in independent academic departments, as it was at universities in the 1970s. But as a subject that is needed as part of the study of economics and the making of public policy, economic history is—and should be—very much alive.
