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Economic Theory and Economic History

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An Economist’s Guide to Economic History

Part of the book series: Palgrave Studies in Economic History ((PEHS))

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Abstract

This chapter argues that the dismal science is in a dismal state. The problem is caused by the existence of very difficult methodologies, complicating the relationship between economic theorising and empirics. As part of a possible remedy, the author discusses how economic theorising could relate more productively to (economic) history. While analytic narratives can be used to explain the particular economic aspects of a historical episode, history can also provide insights about human economic endeavours that help formulate better general theories.

I thank Matthias Blum, Chris Colvin and Owen Sims for fruitful and elaborate discussions on the ideas presented in this chapter.

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Notes

  1. 1.

    Even the natural sciences can get carried away by their adherence to the fictional narratives that form the foundation of their theories (Smolin 2006).

  2. 2.

    An example is that of the unemployment rate. Throughout the past century, this figure has been (re)constructed from government data of unemployment benefits and related registrations. In the past decades, the unemployment rate has been redefined habitually by government agencies for the political benefit of political parties that are in government.

  3. 3.

    An example of this is the formulation of the theory of money and debt founded on the historical intervention of nation states from the nineteenth century through the monopolisation of monetary instruments, the regulation of banking and the establishment of national central banks to regulate the monetary and financial system. This has resulted in the economic theory of fiat money and its derivatives (Menger 1892; Mitchell 1944; Sargent and Velde 2002).

  4. 4.

    Historical examples for this theoretical perspective are, for example, the case of Henry Ford’s introduction of the semi-automated production of his T-model car and the case of the introduction of the compact disk to replace vinyl music recordings.

  5. 5.

    A prime example of such entrepreneurship is the case of Microsoft under the leadership of Bill Gates, using acquired software to provide IBM with an operating system for its Personal Computer in 1980.

  6. 6.

    This general perspective on institutional entrepreneurship allows one to consider political agents as economic entrepreneurs if their actions indeed affect the institutional foundations or matrix of the economy—such as is the case for Gaius Octavianus Augustus, Napoleon Bonaparte and Margaret Thatcher.

  7. 7.

    I refer to Sims (2017) and Gilles (2018, chap. 5) for details of the following conclusions and insights.

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Author information

Authors and Affiliations

  1. Queen’s University Belfast, Belfast, UK

    Robert P. Gilles

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  1. Robert P. Gilles
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Editors and Affiliations

  1. Queen’s University Belfast, Belfast, UK

    Matthias Blum

  2. Queen’s University Belfast, Belfast, UK

    Christopher L. Colvin

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Gilles, R.P. (2018). Economic Theory and Economic History. In: Blum, M., Colvin, C. (eds) An Economist’s Guide to Economic History. Palgrave Studies in Economic History. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-96568-0_4

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  • DOI: https://doi.org/10.1007/978-3-319-96568-0_4

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