In Praise of Economic History
It is our view that a knowledge of history in general, and economic history in
particular, is important to understand how societies and economies change.
Since contemporary economic historians are primarily interested in the longrun
development of economies, they seek to understand the fundamental
causes of economic growth, the determinants of technological progress, the
evolution and impact of institutions, and the historical origins of current
economic problems. With respect to the determination of technological
progress, which is now at the forefront of endogenous growth theory, Wright
(1997) argues that if economists wish to take technology seriously then
economics ‘will have to become a more historical discipline’ (see also Mokyr,
2002, 2005). In his influential 1986 paper, William Baumol also advises
economists interested in long-run growth to pay more attention to the ‘brilliant
insights’ and ‘powerful analysis’ of economic historians.
Before the 1960s, even though large amounts of invaluable quantitative
data were produced by economic historians, much of their analysis tended to
be atheoretical. The traditional approach to the study of economic history
was largely descriptive. This situation changed dramatically during the 1960s
as formalization and analytical rigour spread from mainstream economics to
the field of economic history. From the early 1960s scholars such as Nobel
Memorial Laureates Robert Fogel and Douglass North pioneered the ‘new’
quantitative approach to economic history, or ‘cliometrics’, defined as ‘the
application of economic theory and quantitative methods to the study of
history’ (Goldin, 1995).
During the last four decades the ‘cliometric revolution’ has demonstrated
that economic historians have much to gain from a knowledge of economic
theory and methodology. The ‘new’ approach has emphasized the need for
scholars to be precise and explicit about which hypotheses are being tested in
order to connect the historical investigation with quantitative analysis. However,
economists also have much to gain from a greater knowledge of history,
in particular economic history (Snowdon, 2002c). Indeed, one of the main
developments highlighted in this chapter is how in recent years economic
theorists appear to have followed Goldin’s (1995) advice that ‘only the oblivious
can ignore history in modern economics, and only the unenlightened
would chose to do so’. Goldin’s recommendation is especially relevant to
those economists interested in the long-run issue of economic growth. Not
only does the past provide a gigantic laboratory for testing various hypotheses
in economics; history also contains many lessons that can provide useful
information for contemporary policy makers, not least those in the developing
countries and transition economies. Because the past shapes the present it
must also influence the future. As Goldin argues, the ‘remnants of the past,
which shape the realm of the possible today, are always with us, norms,
structures, institutions, and even people’. While history rarely repeats itself
exactly, it does offer guidance, broadens our stock of knowledge, highlights
what may be important in determining outcomes, and ‘enables us to identify
and read signals’ (Horrell, 2003). It is worth noting that several prominent
macroeconomists have, in recent years, made important contributions to growth
analysis by engaging in quantitative economic history (see Lucas, 2000b,
2002; Hansen and Prescott, 2002; Parente and Prescott, 2005; and section
11.21).
It is our view that a knowledge of history in general, and economic history in
particular, is important to understand how societies and economies change.
Since contemporary economic historians are primarily interested in the longrun
development of economies, they seek to understand the fundamental
causes of economic growth, the determinants of technological progress, the
evolution and impact of institutions, and the historical origins of current
economic problems. With respect to the determination of technological
progress, which is now at the forefront of endogenous growth theory, Wright
(1997) argues that if economists wish to take technology seriously then
economics ‘will have to become a more historical discipline’ (see also Mokyr,
2002, 2005). In his influential 1986 paper, William Baumol also advises
economists interested in long-run growth to pay more attention to the ‘brilliant
insights’ and ‘powerful analysis’ of economic historians.
Before the 1960s, even though large amounts of invaluable quantitative
data were produced by economic historians, much of their analysis tended to
be atheoretical. The traditional approach to the study of economic history
was largely descriptive. This situation changed dramatically during the 1960s
as formalization and analytical rigour spread from mainstream economics to
the field of economic history. From the early 1960s scholars such as Nobel
Memorial Laureates Robert Fogel and Douglass North pioneered the ‘new’
quantitative approach to economic history, or ‘cliometrics’, defined as ‘the
application of economic theory and quantitative methods to the study of
history’ (Goldin, 1995).
During the last four decades the ‘cliometric revolution’ has demonstrated
that economic historians have much to gain from a knowledge of economic
theory and methodology. The ‘new’ approach has emphasized the need for
scholars to be precise and explicit about which hypotheses are being tested in
order to connect the historical investigation with quantitative analysis. However,
economists also have much to gain from a greater knowledge of history,
in particular economic history (Snowdon, 2002c). Indeed, one of the main
developments highlighted in this chapter is how in recent years economic
theorists appear to have followed Goldin’s (1995) advice that ‘only the oblivious
can ignore history in modern economics, and only the unenlightened
would chose to do so’. Goldin’s recommendation is especially relevant to
those economists interested in the long-run issue of economic growth. Not
only does the past provide a gigantic laboratory for testing various hypotheses
in economics; history also contains many lessons that can provide useful
information for contemporary policy makers, not least those in the developing
countries and transition economies. Because the past shapes the present it
must also influence the future. As Goldin argues, the ‘remnants of the past,
which shape the realm of the possible today, are always with us, norms,
structures, institutions, and even people’. While history rarely repeats itself
exactly, it does offer guidance, broadens our stock of knowledge, highlights
what may be important in determining outcomes, and ‘enables us to identify
and read signals’ (Horrell, 2003). It is worth noting that several prominent
macroeconomists have, in recent years, made important contributions to growth
analysis by engaging in quantitative economic history (see Lucas, 2000b,
2002; Hansen and Prescott, 2002; Parente and Prescott, 2005; and section
11.21).
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