On learning from (economic) history – Truths and eternal truths

A fascinating speech by Norges Bank  Deputy Governor Jan F. Qvigstad for history and economic history students.

He says most scientific fields have their set of truths:

All scientific and scholarly disciplines have a particular, and not immutable, set of truths. Mathematics and theology are possible exceptions, though for different reasons. As the late Professor Knut Sydsæter underscored when assisting me with this speech; in mathematics new results are proved on the basis of fundamental axioms and become new truths. Theology also relies on truths, even eternal truths. Even if logical proofs of God’s existence have long been an important pursuit, it is safe to say that the truths in theology today stem from faith.

The discipline of economics can readily be formulated in the language of mathematics, and economic models are usually tested empirically before gaining acceptance. Conflicts arise when theories that appear to be patently true are unsupported by empirical evidence, or when contradictory theories find support at the same time. In other words, we economists are in a borderland between faith and the strict proofs of mathematics.

These set of truths become paradigms. However, these paradigms could be forced to change:

The notion of learning from history cannot easily be explored without invoking the American physicist Thomas Kuhn. This year is the 50th anniversary of the publication of his groundbreaking work, The Structure of Scientific Revolutions.[1] According to Kuhn, disciplines progress within an established set of truths – a paradigm. Observations irreconcilable with the paradigm are tolerated as inexplicable. Eventually, however, the number of inexplicable observations can become so overwhelming that the paradigm breaks down. New truths have to be established – a paradigm shift occurs.

Such shifts can be painful. The old paradigm will usually be defended by those whose training lies in a more distant past, often persons in positions of leadership in academia and government bureaucracy.

He then starts to mention how the paradigms changed from free markets (in 1930s) to Keynesian (1940-70) to free markets  (1970-08) and Keynes coming back to fashion..

What lessons from history?

The answer to the normative question “should we learn from history?” is obviously “yes”.

And which lessons should we learn?

Allow me to venture to select three lessons on the basis of what I have said so far.

First: the simplest solution is often the best. Simple rules, whether for fiscal policy or banking regulation, will often prevent the worst errors. And when the yellow warning light starts flashing, action must be taken.

Second: confidence is essential, also for economic policy. Confidence is easily eroded and difficult – and costly – to restore. Confidence must be earned. The resolution of today’s crisis will also follow a smoother path if there is confidence in institutions – banks, central banks and governments. Borrowing costs will then decrease more quickly, the need for government cuts will diminish accordingly, and the good times will return sooner.

Third: we have no magic wand. If a country has real economic problems, real adjustments must be made to solve them. [25] Central banks cannot solve the problems, but what they can do is lend money when there is none available elsewhere, giving countries more time to implement necessary reforms. Deficits must be reduced.

Superb reading…Great reference list as well

One Response to “On learning from (economic) history – Truths and eternal truths”

  1. DRISS Says:

    Learning from history is essential for any individual,country or the
    world.in the area of growth and development,the late professor and
    laureate of the Nobel Prize in economics(1979)wrote a pathbreaking
    paper in 1984 in which he referred to various schools of thought.Each
    school of thought had its own interpretation of the”Engine of Growth”,
    starting with the Physiocrats who mentioned”agriculture,”,the Mercan-tilists”trade,”,the Classical School”markets”,the Neoclassical school
    “the entrepreneur,”the Fabiens”the government”,the stalinists”indus-trialisation”and the School of Chicago”Education.”The late professor
    Theodore Schultz,from the University of Chicago did share with the
    late professor Arthur Lewis,the Nobel Prize of Economics,even though their theories were opposite to each other.One can’t help
    but reiterate Emile Durkheim,the French eminent sociologist of the
    XIXth Century,his quotation was:”To better understand the future,
    you must study the past.”

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