Why economics needs history

Published: August 25, 2013
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History offers a kaleidoscope to the present and its blend with economics encompassing both qualitative and quantitative elements are of crucial importance to academics and policymakers alike. CREATIVE COMMONS

History offers a kaleidoscope to the present and its blend with economics encompassing both qualitative and quantitative elements are of crucial importance to academics and policymakers alike. CREATIVE COMMONS

AL AIN: 

1348-50. Black Death pandemic wipes out between 75 and 100 million people globally. 1750-1850. Industrial Revolution originates in Britain having a profound effect on the social, economic and cultural environment of those times. 1757. British add India to its vast empire, establishing sovereignty over the region. 1914-18. Four long years of war engulf the whole world. September 4, 1929, fall in stock prices in USA marked the beginning of the Great Depression.

Global historical episodes related to medicine, technology or war and conquest shaping the social, economic and cultural milieu raise countless questions that are worth pondering over. Why was the Industrial Revolution British? Why was it the Europeans who conquered the world? What explains the difference in the growth trajectories of nations? Is the current financial crisis deeper than the Great Depression?

History offers a kaleidoscope to the present and its blend with economics encompassing both qualitative and quantitative elements are of crucial importance to academics and policymakers alike.

According to a recent blog post by the Institute for New Economic Thinking, post-crisis there is a growing concern among employers that there is little understanding of events of the distant past that can have particular relevance for today.

As Stanley Fischer, Governor of the Bank of Israel between 2005 and 2013, has said, “I think I’ve learned as much from studying the history of central banking as I have from knowing the theory of central banking and I advise all of you who want to be central bankers to read the history books.”

Economic history offers a historical perspective on analysing some of the real world problems that we face today.

The study of history in economics is important in understanding present day economic and policy performance of nations. The nature of policy and hence economic performance has also led to financial stability and crisis, and these episodes can reoccur making its study worthwhile to draw lessons for the future.

Moreover, the study of economic history also makes one appreciate the context for setting the right policy, for example. It is clear through studying institutional economics that ‘path dependence’ or the effect of historical economic institutions still persists today, making the study of economic history all the more important.

Solely employing data or sophisticated quantitative techniques would give half-baked solutions to real world problems.

It is sad that we never pay attention to history and hence never learn from it. Economic history as a subject is virtually absent in Pakistan. Not only is our understanding of the subject in reference to this region poor, the sad part is that we attach little importance to knowing it.

As Machiavelli said, “Whoever wishes to foresee the future must consult the past, for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who ever have been, and ever shall be, animated by the same passions, and thus they necessarily have the same results.”

The writer is an economist and ex-central banker

Published in The Express Tribune, August 26th 2013.

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Reader Comments (5)

  • Aug 26, 2013 - 9:17AM

    What if the history is made available with distortion and taught accordingly.?

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  • Ahmed Jamal Pirzada
    Aug 26, 2013 - 5:28PM

    @p r sharma: all the history is ‘distortion’ or to be more polite ‘a perspective.’ In short you have various stories woven around the factual events which took place in the past. and they are all likely – maybe some more than the other depending on how you look at it.
    for example, there is no consensus as to what was the primary reason for the recent financial crisis. was it the decade of cheap money from the central banks? was it poor regulation? was it the financial sector? was it the irrational consumers? most likely, it was all these but there is no agreement as to which played the primary role. To top it all up, the right solution to deal with it is even more debated. So what will be the history of the financial crisis? will it be the view which survives due to socio-political reasons? or will it be one of the many books which will be picked up from the book stores? the view of which Nobel Laureate and which Historian is to be adopted more than the other? and why so?
    As exciting as the history might sound, to me it is the study of various perspectives knitted around the historical facts. ultimately, i may come to believe in one more than all others without disregarding others as a ‘distortion.’

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  • Aug 27, 2013 - 12:30AM

    History is event and facts which will remain the same irrespective of perception and or various reasons put forward by different persons for its happening. selective narrative with deliberate concealment of certain facts is distortion which is when made has serious consequences because we fail to learn from the history.

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  • Ahmed Jamal Pirzada
    Aug 27, 2013 - 4:37AM

    events and facts are simply dots on the drawing board. they help build the historical narrative but are not the narrative themselves – hence the different narratives.
    yup, concealment of certain facts and events is the main issue which can drain oxygen from the more plausible narratives consequently leading to wrong conclusions.

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  • A.A Malik
    Aug 27, 2013 - 12:21PM

    History is damn important to read and to learn for wrestling with present day challenges.But I feel had this aritcle been written to connect lacking historical element in present day economic policy making with concrete example would have better hit the topic.

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