Economics Is At Its Best As A Leisure Activity

I remember my professor of economic history David S. Landes often talking about Joel Mokyr, who won the Nobel Prize in economics earlier this month. They must have been good friends. Professor Landes was hilarious, and he was always making wry remarks about weird experiences he and his buddies in the profession were having. One remark had something to do with how, during a trip to Germany, he had conned his consequently beaming young daughter into thinking their family was rich as the Rothschilds. Everything in the country, and in Switzerland too, bore their name set in stone in fancy gothic lettering, thanks obviously to generous bequests from the family over the ages. Places like the Landesmuseum.

I have assigned Mokyr’s neat work over the years in class, and I certainly have assigned Landes’s unparalleled history of the industrial revolution, The Unbound Prometheus (which I wrote about in an obituary for Professor Landes in 2013 here). One of the themes of the industrial revolution, if you really study it, is that economics had next to nothing to do with it.

Yes, there is a baffling irrelevance of economics in the greatest episode of economic history, the industrial revolution of 1750-1910, including in the locus classicus of the event, Great Britain. You can point to Smith, Ricardo, Mill, Marshall, et al., but what a sideshow all of these collectively were. The industrial revolution had an unbelievably powerful dynamic that had approximately nothing to do with the study of economics. It developed and developed while, quite strictly on the side, people like Smith wrote stuff up, as in The Wealth of Nations (1776).

About the most you can say for economics propelling the industrial revolution is that its study provided, to a rather small corner of interested parties, an opportunity to practice talking about abstractions of the world of affairs—“supply and demand,” “marginal cost,” and so forth. This is probably the most useful economics has ever been. In places like colleges, economics can help youngsters, and visitors from the world of business, with the assistance of professors, develop a capacity to discuss principles of the efforts of getting and spending, indeed to become sophisticated about such natural and necessary activity.

In the British parliament in the nineteenth century, the heyday of the industrial revolution, upwards of two percent of members described themselves as economists, a term of less academic meaning than it came to acquire in the twentieth century. Modern American economics owes its existence almost wholly to the anti-tariff intellectual faction of the nineteenth century, a faction manifestly without influence in the practical world. American economic growth in the nineteenth century, achieved without the services of academic economics, was spectacular.

In the twentieth century, economics became the dominant social science and a queen of a waxing establishment of research universities. Economic performance in the twentieth century was nowhere near as good as in the nineteenth. In the United States, 1913 was the inflection point. Four percent growth (in GDP, an economics concept) before, three after (less than two has been the norm lately). The difference of a percentage point per year over the long haul is massive.

General equilibrium does not lie. Before economics, the economy was the best ever. When economics came on in glory, the economy got worse. Either economics was irrelevant or material to this transition. To the extent that economics has had any influence at all on the economy, it has been negative, in total.

The argument that things would have been worse without economics strains credulity. Economics utterly rolled over like a dog when it came to the rise of progressive income taxation after 1913. In the Depression, it made noises about the Smoot-Hawley tariff but was silent on the matter of massive income tax increases. Claudia Goldin, the 2023 Nobel laureate, and now newly a top-ranked professor, whiffed on contemplating the property tax connection to the Great Depression. Often, economics has proven worse than useless.

In the 1960s, academic economics cheer-led for ending the gold standard. It got its wish. When stagflation came, it changed the subject. It blamed the Federal Reserve and external shocks. Academic economics even said that it engineered the demise of stagflation, or at least the inflation part, via monetary economics in the journals that influenced Paul Volcker. In fact it was renegades from outside the profession—the supply-siders—who engineered the lion’s share of reform that came with the Reagan revolution.

As an abstract mater, it is clear why economics has to be irrelevant for the economy to do well. In the nineteenth century, home truths about economics were part of common sense. If you need a vast profession of professionals telling you how things are, you do not have what you need at the ready, in sensoria of the masses of personae in the economy, for there to be mass prosperity.

Economics especially in the mid-twentieth century was a fellow-traveler with Freudianism in psychology. The economy could not reach its potential without economic therapy, said the Keynesians, said the monetarists, said the behaviorists (including the novel ones in the twenty-first century). To the extent economists had influence, the economy waned. How economics has never come to grips with its rank culpability in ending the monetary system of the ages, the gold standard, is beyond me. That is a very big miss, and professional top-level economics remains completely complacent about it. I wrote a book about it once.

Which brings us to Mokyr’s Nobel. This Northwestern University historian wrote pleasant books that you could read at leisure about great deeds of the past. Sounds kind of classical, kind of Homeric, does it not? Reading or hearing about great deeds of the past is a base element of real civilization. This is economics at its best. Did we have an epic industrial revolution that brought greatness writ large? Tell the tale by the campfire, in the cave! The youngsters who hear about it will go out into the world, fortified.

Landes’s Unbound Prometheus is this kind of text. It rallies you. I tried to write my own Econoclasts that way. Economics is relevant in the real world, sure, but at its best, it is not part of the world of affairs, of actually doing things in the economy. It is properly the part of that great bequest of the industrial revolution, leisure time. You should read economics (not the preeningly mathematical stuff though) not so much because if you don’t hear the opinion of the experts you’re missing out but because it helps you groove with what you already know, that in a free society you can seriously make bank and bring prosperity to not only yourself but tons of others too in enterprise.