"Renaissance Florence also understood the need to prevent speculation, a skill which is obviously lost today. In Florence transporting food out of the city was prohibited, as this could feed speculation [...]. Renaissance cities also managed to create what John Kenneth Galbraith dubbed a balance of countervailing power. The Florentine government – the signoría – consisted of nine members, representing different professions, and only one of them represented the financial sector. Renaissance cities also frequently rotated their elected administrators to prevent corruption, and Florence specifically cultivated its urban culture – of manufacturing and trading – by keeping the producers of raw materials, the big land owners, away from any political power".
|Unemployment rate in Great Britain between 1855 and 2011,|
plotted by Chris Dillow with data from the Bank of England.
"The idea that free market policies can generate sustained full employment lacks any historical foundation, unless you want to argue that there were severe labour market regulations that caused mass unemployment in the 19th century".
"In 1928, the top 10 percent of earners received 49.29 percent of total income. In 2007, the top 10 percent earned a strikingly similar percentage: 49.74 percent. In 1928, the top 1 percent received 23.94 percent of income. In 2007, those earners received 23.5 percent".
Those facts are unrelated, but they have two characteristics in common:
- I was absolutely not aware of them, and I would suspect that many competent economists weren't either.
- As observed by Chris with his example, they seriously undermine some of the policy recommendations derived from the neoclassical framework.
But, still, you would believe that an economist who would be aware of such historical facts would pay more attention to income disparities than the theory does, would question the reason that made Florence so wary of finance, or would not so easily buy some of the arguments of very serious people (Krugman's words for supply-siders). Econometricians should also pay more attention to 19th century data. As the economy might have been more simple then, data would be supposed to better fit the economic models.
The point is that the more knowledge an economist has of economic history, the better economist he will be.
|Soul or economics,|
in Chicago it's the same lyrics
Economic history is part of economics to the same extent models are. And it is not enough to have people who specialize in either specialty. Economists should have a general knowledge of historical economic facts. Harold James (referring to an observation of Paul Krugman) could not make the point more relevant when he says that "the supposed German history lesson is chronologically false. It was not the famous hyperinflation of the early 1920’s that destroyed Germany’s fragile Weimar Republic and gave rise to the Nazi dictatorship. Rather, democracy was killed a decade later by depression and deflation".
I'm not saying that economic history should replace models. But both should be considered as essential and complementary elements of economics.