How Economics Forgot History

Rating:
Summary: Another example of the Antinomian Fallacy
Review: Hodgson(H)bases his entire argument on a version of the Antinomian fallacy(see D H Fischer's Historian's Fallacies,1970,Harper and Row,pp.94-97).This fallacy infects all of H's work on the interface between macroeconomics and institutions.Briefly,the antinomian fallacy argues that all events in history are unique.All inductive generalizations are false.It is impossible to learn from experience.Thus,no general theories are possible in the social sciences or liberal arts since institutions are constantly evolving over time during each specific historical period.H's version of the antinomian fallacy is that all periods of history are unique(specific).Period replaces event.This type of fallacious argument is endemic among "Cambridge Keynesians"(Joan Robinson,G L S Shackle,Tony Lawson,Geoffrey Hodgson,Victoria Chick,etc.)and American Post Keynesians(P. Davidson,D.Vickers,etc.).H incorrectly claims that Keynes's correct analysis showing that,due to technological change,advance and innovation over time,the study of the determinates of fixed investment in long lived ,physical ,durable capital goods is not homogeneous over time means that"...Keynes is inconsistent since this implies that economic theory must be related to historically specific material."(Hodgson,p.223)This simply does not follow,which explains why Keynes correctly ignored the historicists and institutionalists when it came time to write his General Theory in 1936.This is because the problem of investing in costly, fixed ,industry specific capital(factories,plant and equipment,etc.),which is irreversible and irrevocable once it is in place,has been a major decision problem since the dawn of history.The threat of technological obsolescence to the presently existing stock of capital by future innovations has occurred in the past and present and will occur in the future.Of course,there will be similarities and dissimilarities in different periods of history.Keynes has a general theory that explains why the private capital stock in every period of history will be suboptimal.It is suboptimal because investment is suboptimal in the private sector due to the uncertainty,ambiguity(D. Ellsberg's term)or lack of evidential weight(Keynes's term)of a sufficient amount of information upon which to plan such projects over a multiperiod future.This insufficiency then leads to involuntary unemployment.Of course,all this is far beyond the intellectual grasp of H.A similar conclusion applies to V.Chick,who H approvingly cites:"Chick's argument underlines the fact that the General Theory was not,in truth,a general theory(since) it applied to a historically specific set of capitalistic institutions".(p.224).Chick's fallacious statement is a very good example of the antinomian fallacy .

Rating:
Summary: Excellent Treatment of Historical Ideas in Economics
Review: This is a very good historical overview of economic thinkers of the 19th and 20th century. The author appears to believe that modern neoclassical economics has veered into a hopeless cul-de-sac of elaborate mathematical formulations. The underlying theory concerning human behavior in the "market" is a vast over-simplification--without reference to historical specificity and human institutions. The traditional underlying philosophical assumptions of neo-classicist thought about "economic man" appear to be extraordinarily naive.

The author, however, is not calling for the total overthrow of all neoclassical thought. Rather, its integration into a fuller, more realistic, and accurate accounting of what is involved in "economics"--defined as human provisioning activities. He also wants a more scientifically based economics to more carefully consider the legacy of German historicism and American "old" institutionalism. And to integrate those historical insights into a more effective body of economic thought. He would also glean that which is valuable from the work of Karl Marx as well.

The author is not a purely empiricist economic historian that has no use for theory of any sort. Far from it. He elaborates in a very systemic fashion precisely what is necessary to compose a logically coherent system of economic thought. No truly meaningful economic work can really be done without reference to overlying theory--in the author's view. He also makes the point that any meaningful systemic thought about the human condition has to make reference to some metaphysical assumptions. It's impossible--in his eyes--to create a system of thought that stands entirely on its own deductive logic. Ultimately, all writers make appeals to their readers' own experiences or beliefs. I thought his powers of reasoning were quite impressive and saw no evidence of fallacious reasoning in his arguments.

I was introduced to the works of Thorstein Veblen as a young college student over 30 years ago. It's nice to see some restoration of his reputation. Veblen made the wealthy of his era--and their toadys--very uncomfortable with his iconoclasm. He was, however, a brilliant American original and is--even with the shortcomings the author points out--extremely worthy of resurrecting.

Hodgson's breadth of learning is quite impressive. I would wholeheartedly recommend buying the book except for the price. Hopefully, it will deflate to a more reasonable level.