Embedding Theories in History

Based on my analysis of Polanyi’s methodology, I have come to the conclusion that a radical economics textbook for the twenty first century can be based on a single CORE principle, which REVERSES conventional methodology. Conventional methodology, both heterodox and orthodox, considers economic theories to be a means to understanding economic events. INSTEAD, we should look at how theories emerged as people searched for explanations for emergent historical events. In particular, different theories would favor different group interests and the dominance of one theory over others would be dictated by the political power of the different groups For example, Polanyi shows how theories are generated by historical process — the emergence of the possibility of large scale production led to the emergence of market friendly theories.

This idea was lost from view because of the empiricist illusion that the facts by themselves are sufficient to determine theories. A great deal of creative energy goes into weaving a narrative around any given collection of facts, leaving a great deal of room for human agency, and for blending in class interests into a theory. Instead of using theories to understand economic processes, I would like to use historical context to understand the formation of economic theories. For example:

Raising levels of production vastly beyond subsistence made trade much more important. This led to the rise of Mercantilism, which advocated selling products for gold. This favors the merchant class, but may or may not be aligned with the interests of the labor class.

The controversy over corn laws versus free trade, reflects the battle between landed aristocracy and the newly emerging trading classes, with eventual victory to the latter. The doctrine of free trade emerged in England, when it had a fifty year lead in the industrial revolution over the rest of the world. The doctrine of infant industry emerged in Germany (Friedrich List) when it needed protection from English imports in order to develop its own industry.

The Great Depression led to the creation of Keynesian economics, which is based on a certain analysis of GD 29,

Krugman “Peddling Prosperity” discusses the relationships between popular economic theories and interest groups.

It is not national interest, but narrower class/group interests which are protected by economic theories. For example, Mian & Sufi, in House of Debt, talk about the emergence of the “banking view” which was the basis of policy-making in aftermath of the Global Financial Crisis — this held that allowing banks to fail would collapse the entire economy, and hence bailouts were needed. They argue instead that protecting the mortgagors would have both prevented the crisis and prevented the Great Recession. The emergence and dominance of the banking view was due to the power of the financial lobby. At the same time, the lobby worked hard to popularize the idea that “irresponsible households” should not be bailed out, to prevent the natural solution.

I have only provided barebones outlines of an idea, because I do not have the training required to provide the details. My knowledge of economic history is superficial, wherease a good analysis along the lines proposed would require substantially deeper knowledge.However, I think the project is important, and I would like to invite readers who have the required knowledge to provide textbook style sketches of the analysis of emergence of theories as responses to changes in economic context, and the relationship of these theories to the interests of the various social groups. A brief summary in posts, and links to more detailed expositions would be very welcome,.









  1. The process of developing scientific knowledge (including that of macroeconomics) involves a number of steps including the subsequent observation and hypothesis (theory) for explaining it. So in fact what Asid is claiming as something new, that is a backwards approach, actually is already in use. However,this subject of the growth of knowledge is not quite that simple.

    The process of learning about how something works requires a number of prior stages in the thinking process. First we need to decide what it is and how to appreciate it in quantity and/or quality. This may not be realized in our minds, before the stage is reached of first observation and hypothesis.

    Near the start, we need to be sensitive to the change in the particular phenomenon. We must have already defined what it is and how to get a measure about at least one of its properties. These prior thoughts imply axioms, assumptions and definitions, before any serious observations are made, recorded and hypothesized about. The intuitive approach used by many thinkers in the Humanities tends to jump over these steps, but they are there, for all that. It is not important which we see as coming first, observation or theory–as far as the scientific knowledge is concerned, they might well occur together, but without either one of them we are simply guessing without cause.

  2. I am very sympthetic to your CORE pedagogical value of “embedding theories in history”, but there are other types of history beside the Polanyian one (notably Mirowski’s on developments in theorising in “More Heat than Light” and “Machine Dreams”): the need – given the problem of so-called theorists (usually modellers) treating history as redundant – being not to obscure the real theory by burying it in its political history.

    To complement the likes of Veblen and J K Galbraith generating imaginative understanding of motivation via narratives, one needs the likes of W W Sawyers’ “Prelude to Mathematics” (on its different types) and C E Bell’s “The Development of Mathematics”. However, these, like Mirowski, need radical revision in light of Shannon’s 1938 discovery of electric circuit logic, his war-time work alongside Turing on decoding encrypted messages and his subsequent “Mathematical Theory of Communication” which, by measuring information capacity in terms of distinguishable differences rather than force or meaning, and spawning deeper insights into languages and how grammars generate and control meaning, created a new fundamental science complementary to physics, and communications paradigms for social science and economics far more human and appropriate than physical determinism. The history of this could preface and justify the new approach being taken in the text-book you envisage.

    Envisioning the incorporation of this in text-book material for the uninitiated, it is helpful to consider starter-level electrical circuitry, i.e the simple mathematics of channelling of flows of energy through serial and parallel circuits, and the use of electric circuits not only for power distribution but telephony. On this basis young electricians build their understanding of the calculus and circuit dynamics by familiarity with just four types of component, delivering energy derived from the past, present and future, and form derived from interfaces using any or all of these. A similar progression can be derived for Shannon’s information channels, the Algol68 (scientific) programming of them and SSADM circuit analysis in terms of relationships, resultant flows and the life histories of each. What seems to me a very significant comment by Larry Motuz at https://rwer.wordpress.com/2016/03/23/the-non-existence-of-economic-laws/#comment-107400, on defining utility in real terms before measuring it, strikes at the very heart of the malaise in monetary economics: the appearance of money being mistakable for the reality. In Algol68 terms it is unambiguously distinguished as a reference to utility, not the reality of it.

  3. Alan said:

    I agree with your broader point and agree about avoiding the “empiricist illusion”:

    This idea was lost from view because of the empiricist illusion that the facts by themselves are sufficient to determine theories.

    But is that really what’s going on in neo-classical economy?  They may believe their theories are determined by facts, but as someone trained in another discipline that has a quite different understanding of economics, their problem appears to be an almost complete lack of open engagement with “empirical facts” in social and historical context. For discussion see:
    Gregory, C. A. Anthropology, Economics, and Political Economy: A Critique of Pearson. History of Political Economy 32, no. 4 (2000).

    Fieldwork, [Malinowski] noted, must be theoretically informed but not overdetermined. In other words, the fieldworker must allow for the element of surprise, a sentiment that Adam Smith, too, held to be of crucial importance. It was this sentiment, it could be argued, that Frank Knight tried to kill off.

    Pearson’s equating of economics with the discipline of economy as a whole leads to the hoary old question of whether the concepts of marginal utility theory can be applied to an analysis of non-Western economies.The answer to this question is a simple one: yes, of course they can. Indeed, the theory has been applied to everything from the economics of extramarital affairs to the economics of the adoption of babies. But why would one want to apply marginal utility theory in this way? It reduces the intellectual endeavor to the mechanical process of grinding out much the same answer again and again. How boring! Economic anthropology, a fieldwork-based discipline concerned primarily with the description of the social and cultural substrate of economic activity in particular situations and its analysis in comparative context, has shown little interest in mindless “theoretical imperialism” (Harcourt 1982) of this kind. (emphasis added)

    The human being is a very complex character who not only works in a factory, shops, and gives generously upon occasion; he or she also does many other things of economic significance. How can one theory of value hope to grasp the complexity of these daily actions? The complexity of the human condition calls for a large dose of theoretical humility, but this, alas, is hard to find, especially in the dominant marginal utility theory paradigm. Value theorists need to perceive the limits to the generality of their particular theory. This requires them to accept that the economy, both market and nonmarket, has varied over time and place, and that ideas about the functioning of the economy reflect this geographical and historical variation. Whenever one group or another claims universality for their particular theory of value there can be no dialogue.

  4. chdwr said:

    How about the raised/actualized consciousness historical perspective? Over 2000 years ago the concept/experience of Grace evolved the Judaic legalism/formalism of its time. (Grace here is most basically consciousness/cognition itself…no matter who one cares to attribute its origin from, either God or one’s conscious Self.) Reflectively the concept of Grace as in the free monetary Gift integrated into the debt based monetary system is the only valid way to approach equilibrium in an economy inherently in a state of disequilibrium of total individual incomes and total costs and so prices, and increasingly so as the disruptive forces of innovation and artificial intelligence pick up speed and further erode aggregate individual demand. As such, Economists are like Paul on the road to Damascus….and only one cognition away from economic transformation and redemption from otherwise inevitable collapse and likely a rhyming war in an era of modern weaponry.

  5. Silwyson said:

    “This idea was lost from view because of the empiricist illusion that the facts by themselves are sufficient to determine theories.” – a straw man. This does not mean that theories can contradict facts or that empiricism is not essential in science.

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