Steven G. Medema - The Economics Book: From Xenophon to Cryptocurrency, 250 Milestones in the History of Economics

When asked to define economics, the great economist Jacob Viner once quipped: Economics is what economists do. In this age, when economists analyze topics as diverse as sumo wrestling and baby names, that definition encompasses the study of pretty much everything. Contemporary economics ranges over anthropology, biology, family life, geography, law, politics, religion, sociology, sports, and beyond. It offers explanations for, and analyses of, behavior across the spectrum of life, consistent with the modern definition of economics as the study of choice in a world of scarce resources. Oh, and yes, economists also study the economy, teach economic theory and methods, provide policy advice, and engage their fellow citizens as public intellectuals.

Viners one-liner assumes the existence of a person called an economist, but the role of the professional economist dates back just to the late nineteenth century. Those writing on economic topics prior to that time, including the famed Adam Smith, were educated in other subjects and, at times, not educated at all. These writers were artists, businessmen, government officials, journalists, natural scientists, novelists, philosophers, poets, theologiansvirtually anyone capable of writing down his or her own thoughts. Their ideas remain with us not just as topics in university courses but in the principles of modern economics itself.

The history of economics covers much more than the path from past to present. It tells the story of how societies and individuals grappled with the pressing problems of life. For some, that meant trying to understand how to enrich a nation and its people. For others, it meant the pursuit of justice or a reasonable standard of life. For still others, it meant dealing with environmental problems, urban decay, or crime. If economicsbroadly definedis what economists do and have done, then economics has been a variety of things over the centuries.

The earliest economic writers spent relatively little time trying to understand and explain the economy. They focused instead on how to order economic affairs properly. Some, such as Aristotle and Aquinas, analyzed pricing practices to inform their readers of what did or didnt satisfy the dictates of justice according to natural law or Gods will. Others, including Thomas Mun and Adam Smith, prescribed ways to increase the wealth of a nation, whether in terms of gold and silver stocks or the production of goods and services. These writers often considered humanity an impediment to its own progress. Unchecked self-interest led to troubles that required firm boundaries on individual action. In the mid-seventeenth century, however, people began trying to understand how the economy works: how markets function, what determines prices and incomes, the role of money, what forces cause economic growth and decline. These topics remain at the beating heart of modern economicseven if the explanations for them have changed significantly over time.

Indeed, more than just the explanations have changed. Following a collective desire to make economics more scientific, this once-literary discipline has become highly mathematical, quantitative, and technical. Mathematics allows us to specify more precisely the relationships between variables by creating models to describe them. We derive conclusions from these models, demonstrating that under particular conditions, certain results logically follow. Quantitative methods allow us to test theories with data, probe causal links, measure the magnitude of relationships, and forecast the potential effects of policy changes. Economists have become prognosticators.

Despite their many benefits, however, these tools capture only those factors and forces that lend themselves to mathematical specification or quantification. In many instances, this situation doesnt pose a problem. In others, it results in limitationseither because a model doesnt encompass important facets of reality, or because relevant issues that are difficult to specify in a mathematical framework go unaddressed. Some, including 1991 Nobel Prize recipient Ronald Coase, have suggested that economists ditch the mathematical pyrotechnics and focus on the nitty-gritty of economic reality. But that would be throwing out the baby with the bathwater. Economic reality is as complex as social reality. It requires the use of abstract models to isolate the most important variables that come into play for a given problem. These models, in other words, help economists make sense of the real world. You will encounter a host of these models as you move through this book. Each represents an attempt to capture some aspect of real-life economic or social conditions. What makes an economy grow? How does the number of sellers of a product affect its price? How do laws governing intellectual property affect research and development? How does a change in the money supply affect economic activity? For all their limitations, mathematical models have helped economists find more precise answerswhich often influence policymakingto these questions.

Despite its mathematical precision, there is little that is unambiguous in economic reasoning. U.S. President Harry Truman once demanded that he be sent a one-armed economist, frustrated by the fact that his economic advisers would begin their advice with On the one hand... only to introduce an entirely different insight with But on the other hand... soon after. A theory is only as good as the assumptions that underlie it, and economists sometimes disagree about which assumptions pertain to a given situation and thus the conclusions to draw from a particular theory. As a result, the history of economics tells the story of battles over ideas, with implications that ripple through the details of economic theory and the organization of economic activity itself.

The essays youre about to read offer an entry point to this history, allowing you to connect with more than two thousand years of economic insight with minimal effort and to jump from topic to topic as suits your interests. One volume cant do full justice to these individuals, ideas, and events, so the Notes and Further Reading section at the end of the book provides a wealth of additional resources should you want to wade more deeply into the history of economics or into specific topics.