Author: E. Ray Canterbery
Publisher: World Scientific
As recently as 2007, eminent economists proclaimed that there would never again be a deep and lasting recession. After 300 years of economic thought, they had finally arrived at the "correct" model of the economy.
As Canterbery explains, this consisted of an evolution and refinement of ideas from Adam Smith's The Wealth of Nations into the more recent rigorous mathematical proofs that justified reliance on the market and resulted in numerous 20th-century Nobel prizes. By leaving markets to themselves, policymakers could ensure low inflation and low unemployment for ever more. The future was unhesitatingly bright. But what happened was the exact opposite - a global economy facing the greatest challenge since the Great Depression.
With mainstream economic theory shown wanting, we now need to look back at alternative economic ideas previously forgotten or marginalised in order to build a better understanding of the economy.
A Brief History of Economics therefore deserves to be read not just by students taking option papers in the history of economic thought, but by every student of economics. Insights include John Maynard Keynes' view of the inherent instability of capitalism, which has been sidelined by the IS-LM (investment saving/liquidity preference money supply) model.
According to Keynes, the future is "unknowable" and so there is little to anchor asset prices, which therefore move with the waves of optimism and pessimism of investors. Now more relevant than ever, the result is boom and bust: had more economists been taught this theory, perhaps they would have thought twice about deregulating financial markets, and the current crisis might have been avoided.
While the book is helpful in bringing such insights to the fore, it could have gone still further by connecting them with new ideas, such as behavioural economics. Furthermore, other historical ideas discussed in the book could be better connected to the current economic situation. Thomas Malthus' view that economic growth would be jeopardised, as it increased demand for scarce land-based goods, such as food and raw materials, pushing up prices and so pulling down the standard of living, is today as relevant as Keynes. Finally, when it comes to the history of economic policy, the book is almost entirely US-centric.
Despite its achievements, a future edition of the book is already needed. Until then, this edition could be useful in opening the eyes of the next generation. However, as we know too well, vested interests can persist. It will be unsurprising if the extant model continues to be taught and the history of economic thought remains displaced by ever more maths. The discipline will not move on - at great cost to those made unemployed in another economic crisis - until books such as this achieve a place on the core economics syllabus.
Who is it for? Undergraduates taking courses in the history of economic thought, and the more interested economics audience.
Presentation: There is less maths and more "artful" literature than one would typically find in an economics textbook.
Would you recommend it? A useful purchase to broaden the minds of our undergraduates.
Liquidity and Crises
Editors: Franklin Allen, Elena Carletti, Jan Pieter Krahnen and Marcel Tyrell
Publisher: Oxford University Press
Price: £95.00 and £40.00
ISBN 9780195390704 and 390711