The rise and fall of Economic History at MIT

Peter Temin of MIT looks at this topic in this nice paper. It is about how econ history as a subject rose and declined at MIT. It perhaps is the case for most econ depts across the world:

This paper tells the story of economic history at MIT during the twentieth century, even though roughly half the century precedes the formation of the MIT Economics Department. Economic history was central in the development of economics at the start of the century, but it lost its primary position rapidly after the Second World War, disappearing entirely a decade after the end of the twentieth century. I taught economic history to MIT graduate students in economics for 45 years during this long decline, and my account consequently contains an autobiographical bias.

The story begins with Davis Rich Dewey, older brother of John Dewey and Professor of Economics at MIT until 1940. He was one of several people who shaped the profession of economics, and the economics library at MIT is named after him. Best known for his writings non United States economic history, his professional career spanned fifty years during the formative period of the modern economics profession.

He says there are three legs of econ teaching much like a stool:

The economics department started its graduate program after the war. The education was constructed like a three-legged stool, resting on required courses in economic theory, econometrics, and economic history. But while the legs of a stable stool are equal, these required courses were not. Economic theory and measurement were in their ascendancy, and economic history needed to find a way to coexist with the new theories and econometrics to survive.

This problem can be seen more clearly by another analogy: Marxian class struggles.Marx identified three classes that can be associated with the legs of MIT’s three-legged stool. Aristocrats (landowners) are economic historians; capitalists (owners of capital) are theorists, and proletarians (owners of labor) are econometricians. Economic historians were being supplanted in economics as the aristocracy was in Europe after the Industrial Revolution. The question for power then was who the econometricians would support. One the one hand, like economic historians, they regarded facts and data as primary inputs to their work. Dewey had helped form both the AEA and ASA. On the other hand, econometricians also were interested in new statistical and econometric theories. In the early years of the MIT economics department, they went with the theorists.

Superbly put. The capitalists and proliteriats just dethroned the aristocrat. Taking the stool analogy further, it obviously became unbalanced over the years with one leg being their for just  namesake.

It all started to change as Samuelson joined MIT:

At the time of Dewey’s retirement in 1940, Paul Samuelson came onto the MIT scene. Receiving his PhD from Harvard in that year, he was snatched up by MIT when Harvard failed to make him a faculty appointment (Keller and Keller, 2001, pp. 81-82; Backhouse, 2013; Weintraub, 2013). From this event came both the birth of the MIT economics department, and a revolution of economics itself. Samuelson’s thesis, published as The Foundations of Economic Analysis, championed the use of mathematics in economics. He was hardly the first economist to use math, but he showed how math could be systematically employed to reformulate familiar and unfamiliar economic arguments. He was like Adam Smith, organizing various strands of existing economics into a new coherent synthesis.

Dewey was succeeded initially by Karl Deutsch, who was at MIT, albeit not in the economics department. Deutsch taught economic history during the late 1940s and then was followed by Walt Rostow in 1950. Rostow served in the Office of Strategic Services during the war and became the assistant chief of the German-Austrian Economic Division in the Department of State immediately after the war. He was the Harmsworth Professor of American History at Oxford in 1946-47 and the assistant to the executive secretary of the Economic Commission for Europe in 1947. He was involved in the development of the Marshall Plan and the Pitt Professor of American History and Institutions at Cambridge in 1949-50.

 The decline was challenged by some econs like North and Fogel who led to formation of cliometrics. But still it continued.

The relationship between economics and economic history had changed dramatically from Dewey, who was a leader of both, to Rostow, who was marginal to economists. Economics in this interval became a mathematical social science under the leadership of Paul Samuelson.MIT was at the forefront of this process, and it became the leading proponent of mathematical
growth theory under the leadership of Robert Solow in the 1960s. Solow’s seminal work was published while Rostow was at MIT, but Rostow by then was moving into politics.

One effect of the change in the focus of economics was to change the main mode of reasoning from inductive to deductive. This meant that papers in economics changed from being primarily narrative like Dewey’s papers and started with a model like Samuelson’s papers. Thenew economics papers progressed from a model to data and then hypothesis tests. Economic historians responded to this change in economics by embracing the new tools of economic theory and measurement in what became known as the New Economic History.This movement was led by the two recipients of the 1993 Nobel Prize in Economics, Douglass North and Robert Fogel.

The Economics Department at MIT participated in this re-orientation of economic history by hiring me to replace Walt Rostow in 1967. Like Deutsch in the 1940s, I had been teaching economic history in the economics department from outside the department for a few years while resident in MIT’s Sloan School. 

Economic history at MIT expanded in the 1970s as two economists already at MIT turned to economic history late in their careers and taught economic history during the years before they retired. They were Charles Kindleberger and Evsey Domar.

Kindleberger is much talked about. However realised this impossible trinity thing came from Domar:

Domar was less prolific, but he left economic historians with the “Domar model”: a trilemma that said you could not simultaneously have free land, free labor, and an aristocracy (Domar, 1970). This trilemma can be seen as an adaptation of the Marxian class struggle. Instead of foreseeing a winning combination of two out of three classes, Domar asserted only a combination of two out of three conditions he listed could exist in a world without capital. The idea of a trilemma has been used widely, and it has migrated into international economics to reveal that you can only have two of fixed exchange rates, free capital movements, and an independent monetary policy (Obstfeld and Taylor, 2004). The trilemma was illustrated tragically in 1931 when Weimar Germany abandoned free capital movements, Britain abandoned fixed exchange rates, and monetary policy in the United States was dedicated to preserving the exchange rate. The resulting deflationary pressure sent the world into the Great Depression (Temin, 1989).

Brilliant..He goes onto say Christy Romer was  the most famous econ history grad of MIT. Then finally he talks about the new recruits in MIT in 1990s – Acemoglu and Dora Costa.  Bit more of trivia there on appointments and resignations.

Finally, the decline of history:

The economic history paper was one of the legs of the three-legged stool supporting the economics department. The paper requirement began many years earlier when most field courses had term papers. It was by the turn of the century only a remnant of this pedagogical approach to graduate studies. The economic-history paper in the first year joined with the econometrics paper in the second year to help guide graduate students through the abrupt change from courses to thesis writing in the third year. We lack a test of the usefulness of these requirements as we have neither random assignment nor a good measure of output for such a test. I remain convinced of the usefulness of having students write papers throughout their education despite the absence of a rigorous test.

Then, in rapid succession, Costa moved to California, I retired, and the MIT economics department abandoned the graduate requirement of a course in economic history late in the first decade of the twenty-first century. The three-legged stool had collapsed. In terms of class conflict, the new had completely vanquished the old. Theory and econometrics joined to eliminate economic history as the capitalists and workers joined earlier to exile aristocrats. The economic-history paper vanished.

This is taking a toll as ignorance of history always is a huge error. Interestingly he takes on Why NAtions Fail:

What is the cost of not having economic history at MIT? It can be seen in Acemoglu and Robinson, Why Nations Fail (2012). This is a deservedly successful popular book, making a simple and strong point that the authors made originally at the professional level over a decade before (Acemoglu, Johnson and Robinson, 2001). They assert that countries can be “ruled by a narrow elite that have [sic] organized society for their own benefit at the expense of the vast mass of people” or can have “a revolution that transformed the politics and thus the economics of the nation … to expand their economic opportunities (Acemoglu and Robinson, 2012, pp. 3-4).” 

The book is not however good economic history. It is an example of Whig history in which good policies make for progress and bad policies preclude it. Only transitions from bad to good are considered in this colorful but still monotonic story. The clear implication is that if countries can copy the policies of English-speaking countries, they will prosper. No consideration is given to Britain’s economic problems over the past half-century or of Australia’s relative decline for a century. 

The book takes a shotgun approach to economic history, and many of the pellets go astray. In the areas I know about, their interpretations are out of date and misleading. For example, they quote research into the records of Hoare’s Bank to illustrate that “loans would be available to all” as a result of Parliament’s reform of finance after the Glorious Revolution (Acemoglu and Robinson, 2012, p. 195). This inference has two problems. It was taken from a paper by me and Hans-Joachim Voth about the microeconomics of what we called goldsmith banking (Temin and Voth, 2008). But Acemoglu and Robinson ignored our earlier paper that used the records of Hoare’s Bank to explore the macroeconomics of British economic growth (Temin and Voth, 2005). There we showed that financial changes in the early eighteenth centuryretarded the growth of incomes during the Industrial Revolution. In addition, goldsmith banks originated before the revolution noted by Acemoglu and Robinson. Their growth—like the country’s growth a century later—was shackled by Parliament’s financial actions after the Glorious Revolution.

Hmm. Super stuff. Need to read both Temin Papers.

He points how the AR duo ignored decline of US:

Acemoglu and Robinson also pluck low-hanging fruit in Africa, Asia and Latin America. They discuss China briefly in their discussion of current events, but they ignore the gorilla on the basketball court: the United States (Kahneman, 2011). The United States is in danger of becoming a failed state, and Acemoglu and Robinson miss the chance to relate their survey of human history with an important lesson about the present. The distributions of income and wealth have been getting worse since the 1970s, and political power has been concentrating more and more in the very wealthy. The income Gini coefficient for American families stayed under .38 and moved slowly downward from the end of the Second World War until the late 1960s when it began to rise. It has now reached .45, among the highest national income Gini coefficients in the world (United States Department of Commerce, 2012). This process has gone on for a generation and was widely noticed in the literature, including major contributions by Thomas Piketty, one of the young economists hired with Acemoglu in 1993 (Piketty and Saez, 2003, 2006).

Acemoglu has talked about inequality in US but perhaps nopt as much in his famed book.  Prof Temin does mention it but says the book should have covered much more.

Overall history is becoming even more important as so many econs are picking from historic events. So which one is a more correct interpretation? Who knows?

The three legged stool became a two legged fashionable stool. However, in the process, it  just destablised the stool. Despite many evidences on the need to fix the third leg, there is hardly any interest barring a  few places.

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One Response to “The rise and fall of Economic History at MIT”

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    The rise and fall of Economic History at MIT | Mostly Economics

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