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Old but not stale news

An article by Orley Ashenfelter of Princeton University in the current issue of the Journal of Economic Literature mentions a survey published ten years ago that reported that only 13 of what were considered the top 62 graduate programs in economics at the time reported offering any course in the history of economic thought in the previous five years. As the current article mentions, it is likely that the numbers have shrunk rather than grown since the survey was conducted.

Ashenfelter goes on to offer some reasons for studying the history of economic thought, which he borrows from a recent book on the subject by Agnar Sandmo, Economics Evolving. They are that it can be fun; that it is part of a liberal education; and that it shows that economic analysis is not a static field but an evolving one. Ashenfelter and apparently Sandmo (whose book I have not read) omit the most important reason: sometimes the present has forgotten what the past knew.

Free banking is a case in point. Widely practiced until the early 20th century, a partial understanding of it was for a while part of the body of knowledge among economists. As the number of countries with free banking shrank, so did knowledge of free banking among economists. Thanks in particular to the interest sparked by Friedrich Hayek’s Denationalisation of Money (1976, 1978) and Lawrence H. White’s Free Banking in Britain (1984), much of the old knowledge has been recovered and new knowledge has been developed, but it is still not part of the corpus even among specialists in monetary economics.

Economics is in fact so neglectful of its past that its practitioners risk forgetting not only what past generations knew, but what they themselves once knew. A case in point is another article in the current issue of the Journal of Economic Literature, by Gary Gorton and Andrew Metrick. Writing on the global financial crisis of 2007-09, they term it “perhaps the most important economic event since the Great Depression.” Come on, fellows, even if you are not old enough to remember World War II and the great global inflation of the 1970s and 1980s (much worse in the Third World than in the United States, leading to a decade of lost growth in many poor countries), you are old enough to remember the collapse of socialism.