Economics as the Victim of History – I

[This is the first of a two-part essay, the second half of which will publish on 28/08/2014]

“Divorced from history, economics is a rudderless ship, and economists without history have not much idea of where it is sailing to.” – Eric Hobsbawm

Hobsbawm’s above assertion is made on the basis that economics is fundamentally embedded in historical change, and therefore should not – perhaps cannot – be abstracted for evidential history. This is for fear of losing touch with reality, which is the ever-present fault of many social science disciplines. Hobsbawm argues that modern (even all) economics, drawing from the works of Alfred Marshall and Karl Marx through to Keynes and Schumpeter – and excluding, generally, the exploits of the German historical school – has removed itself from genuine evidence to the extent that its use as a practical discipline can be called into question. This is most apparent in the methodology used by neoclassical economists to derive value, as opposed to the Marxian theory that finds root in material reproduction and the socioeconomics of private property.

But just how does the field of economics connect with its evidential ancestry? And, consequently, how does a new contemporary economic theory avoid the same criticism made across time of Marx and Piketty: that conclusions drawn from mass data with gaping holes are equally unreliable as empty theory in the first place? This article attempts to debate the nature and role of history (but also of evidence in general) in the social sciences, specifically economics, discussing the intertwined relationships between disciplines and testing Hobsbawm’s further assertion that ‘economics has always been the victim of history’.

The Institutional Development of the Humanities

A brief overview of the institutionalisation of the aforementioned academic disciplines of history and economics sheds light on the origins of this very debate. Essentially, the modern and contemporary academic arts and sciences have been filling the gap left by the traditional study of theology since the late 18th century, in parallel with global philosophical developments in the study of humanity. Taking the University of Oxford as an example, academic practice before and during the enlightenment was traditionally split between Literae Humaniores, or Greats – i.e. the study of human literature, which generally harked back to the classical periods of Ancient Greece and Rome – and Res Divinae, or Theology, i.e. the study of God. As liberalism began to wear down the guise of religious teaching in academia, various new modes of study popped up to replace theology as a core discipline.

History appeared as a research and later examination discipline at the University in the early-mid 19th century, before the birth of what is today considered to be economics as a field, which itself did not emerge until the last few decades of the same epoch. Elsewhere, sub-fields such as politics were not considered to be independent academic disciplines at all, taught instead as a strand of contemporary history. In fact, it was only during and after the First World War that the University began to feel that the study of Greats, or Classics, was not fitting for statesmen – a judgment that the War probably proved, given the realist rationality of its narrative. It was then that the study of Modern Greats (later Politics, Philosophy and Economics) was born, drawing from the, then, contemporary equivalents to Plato and Aristotle; that is, plenty of Adam Smith, John Stuart Mill and Jean-Jacques Rousseau among others.

It seems that, even at the beginning of the 20th century, academia had a problem with the potential abstraction of the social sciences. The emphasis was far more on tried and tested evidential philosophy and history, with separate disciplines encompassing Theology and English Literature. Economics as an independent field failed to take precedence in modern academia until the late interwar period. Despite the apparent benefits of a revamped political-philosophical agenda, it seems that qualms with social sciences have travelled the full circle, returning to the fear that abstraction from evidence can lead to unreliable theory. Or at least, these are Hobsbawm’s qualms. This, in effect, is the narrative of institutional economics as the victim of history, although how this manifests in contemporary academia is less clear.

The Nature of History

Hobsbawm, partly as an excuse, but also as an explanation for the [apparently] limited academic practicalities of historical studies, tells us that history can never be an applied discipline – despite its apparent connection to evidence – because there is no method by which to change what has happened. This is fair enough, and thus historians must find meaning in how historical conclusions can be applied rather than the conclusions themselves. History is therefore useful as the backbone and general informant of a wider project, termed the social sciences, which aims to employ historical evidence through theory to inform, predict, recommend and, ultimately, change (what might have been). By this more philosophical assertion, history is actually the only practical academic discipline, because all theory – both natural sciences, where history takes the form of observable evidence, and in the social sciences – derives, or should derive, from historical practice.

Hence, the differentiation not only between social science disciplines but the various standpoints within them stems from particular abstraction from historical evidence and nothing more. No theory is arbitrary, it must be informed by some forms of evidence and not by others. Constructivist scholar of international relations Felix Berenskoetter comments that the perfect social scientist is effectively the perfect historian, as they would know and appreciate all of the evidence that could be contemplated, and would then draw theory and conclusion from such omnipotent privilege. This, in essence, is the eventual goal of the historian: to form objectivity from subjectivity and thus completely understand the social world. Therefore, are social scientists not simply impatient historians, jumping ahead of the game and drawing objective conclusions through theory without including all of the evidence they could or should? This, in essence, again, is the same critique of Marx and Piketty (and many other historical materialist scholars), that conclusions drawn from incomplete evidence are not trustworthy. This also brings methodology into debate, as scholars of idealism, beginning with Hegel and developing into the modern liberal political philosophy, critique the evidential dialectic of Marxism by focusing on history as a narrative of thought rather than material reproduction.

[To be continued]

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