How history can contribute to better economic education

Coen Teulings

The financial crisis and the Great Recession have led to calls for more economic history in economic education. This column argues for a much broader use of history in economics courses, as a device for teaching both the logic and the empirical relevance of economics. A proposed curriculum would include the rise of agriculture, urbanisation, war, the rule of law, and demography.

Historians tend to stress the particularities in history. Each event is unique, caused by a set of conditions that will never reproduce themselves again. In turn, each event causes new events, which therefore are equally unique and equally irreproducible. Hence, historians conduct painstaking research into the details of these conditions to understand the course of history.

Diamond’s superb book Guns, Germs and Steel (1997) leaves its readers with exactly the opposite impression. The reader is surprised not by the particularities of each episode, but by the strong regularities. At some higher level, human history is highly predictable. Diamond’s book opens with Pizarro’s well-known encounter with the Inca emperor Atahuallpa at Cajamarco in 1532. The Spaniards’ stunning victory over the Inca Empire was the conclusion of the biggest natural experiment in human history. Some 11,000 years ago, bands of hunter-gatherers crossed the Bering Strait from Siberia to Alaska. The subsequent rise of the sea level separated these bands from the evolution in Eurasia. Some 10,000 years after, Spain sent out Columbus to rediscover America. Surprisingly, the societies discovered by the Spaniards were not that different from those known in Eurasia. These societies had agriculture, had cities, had religion, had empires with armies, had monumental buildings, and had huge income inequality – more or less similar to what had been the case in Ancient Egypt.

However, these societies lagged behind the most developed Eurasian societies by some 2,000 years. On encounter between the two, this lag of 2,000 years turned out to be fatal. Both the Aztec and Inca empires were overthrown by their European invaders. But the fact remains that the evolution of human societies in Eurasia and America were strikingly similar.

Explaining the divergence

Diamond goes to great lengths to explain the cause of this Eurasian lead. In his book(s), he discusses many more examples of societies that developed largely in isolation from the rest of the world for a long time – often with much more dramatic time lags compared to the Eurasian social and technological frontier (e.g. Easter Island, Hawaii, the aboriginals in the Australian desert, the papoeas in New Guinea, and small tribes in the Amazon rainforest or the African savannah). The regularities are striking. The level of development is roughly determined by three factors:

geography

scale

time

First, geography, because some types of environment offer better opportunities than others. For example, the ice-covered landmass of Greenland offers far less prospect for development than the Fertile Crescent in the Middle East – the first location where agriculture was practiced. This aspect is reflected in economics in Gallup et al. (1999).

Second, scale, because scale allows for a higher degree of specialisation and hence innovation, but also because a larger scale allows a larger army. This is reflected in economics in the effect of population size on technological progress, as in Kremer (1993). But it is also reflected in Romer’s (1986, 1990) endogenous growth theory and in Fujita et al.’s (2001) analysis of the economics of agglomeration and cities.

And third, time, because both social and technological evolution take time.

The search for a unifying theory

Diamond combines insights from many sciences to obtain a broad picture of the evolution of mankind: geology, archaeology, genealogy, biology, history, anthropology, epidemiology, demography, and economics. He weighs the evidence, points out the lacunas in our understanding, reports unresolved disputes, and then combines all the pieces of evidence in a unified analysis. Undoubtedly, specialists will disagree with parts of this analysis, and even worse, they will prove Diamond to be wrong in some cases. But the general project – combining insights from different disciplines to a make story about the general evolution of human societies – has turned out to be fruitful.

Diamond is not the only author adhering to this research programme. There are many others – each with their own point of departure, but all with the same ultimate goal, and more or less similar conclusions. Edward Wilson (1998) is probably most explicit in his quest for a single unifying theory of everything. For him, two theories on one topic are just a sign of inconsistency. They offer a challenge – find the unifying theory that encapsulates both, just like Einstein’s general relativity has to be squared with Heisenberg’s uncertainty. Darwin’s theory of evolution is an indispensable tool for this project of unification.

This research programme has an interesting feature – its outcome looks familiar to economists. Most authors in this line of research do not like economics at all – it remains the dismal science – but the unifying theory with which they come up looks very much like economics, or like evolutionary biology for that matter. These two disciplines are close relatives anyway. Evolutionary game theory is similar to the game theory with rational, self-interested agents that is applied in economics.

Daron Acemoglu and James Robinson’s book Why Nations Fail (2012) fits in this same project. Acemoglu and Robinson have suggested a contradiction exists between their theory, which explains history from the evolution of institutions, and Jared Diamond’s theory starting from geography. This distinction might be somewhat artificial. Institutions like religion, politics, war, the state monopoly of violence, and the rule of law do play an important role in Diamond’s analysis. Diamond’s research programme offers a broad understanding of these institutions. If the evolution of human societies provides so much flesh and blood to economic analysis, why don’t we use this evolution more routinely as an aid when teaching economics?

Broad-brush history as a teaching device

What I propose is different from economic history as it is usually taught. Economic history is practised as history, stressing the particularities at each stage. That is great and very informative, but the use of history that I propose is more broad-brushed. It ignores the residuals specific to each observation. Instead, it stresses the regression coefficient connecting these observations. It deals with the general laws of the evolution of human societies, ignoring many subtle details that may or may not explain why individual societies do not fit exactly to the regression line. I propose to use history as a device for teaching both the logic and the empirical relevance of economics.

What historical phenomena should be covered in such an economics programme? First of all, I would go into great depth on the consequences of the Neolithic Revolution – the transition from hunter-gatherer societies to agriculture. It has occurred several times at different places in human history. Each time, what happened was more or less the same – a huge increase in population density, the emergence of cities, a transformation of politics, and a rise in income inequality. In his splendid book on cities, Paul Bairoch (1988) provides a simple physical analysis showing why hunter-gatherer societies cannot sustain cities. The low population density in hunter-gatherer societies means that travel times are excessive for more than 100 people to convene at one place. The hundred-fold increase in population density due to agriculture is equivalent to a fall in transportation costs between two neighbours by a factor of ten.

Azar Gat’s (2006) book on war provides an analysis of the implications of this increase in density for warfare. Larger groups of people can meet more easily and coordinate their violence to subdue single individuals, families, or bands. An economist would say that the use of violence and the exercise of power exhibit strong economies of scale. Starting teaching economics from history would probably cure a main defect in current economic teaching – the little attention we pay to the economics of robbery and theft.

I would also teach the introduction of the rule of law. In his seminal books History of Government, S E Finer (1997) locates this transition at Moses’ descent from Mount Sinai carrying the Ten Commandments. The Egyptian pharaoh was god, king, lawmaker, and judge all at the same time. The Ten Commandments provided the people direct access to the law, independent from the king’s judgement. From now on, the king’s power was constrained by the Ten Commandments and Pharisees’ claim to be the guardians of these commandments. King Solomon had to face this new reality when he had an affair with a beautiful woman. All this is reflected in Daron Acemoglu (2012)’s great insight that politicians have limited ability to sign credible contracts since there is no superior power that can enforce them.

Finally, I would teach the Industrial Revolution and its demography. Paul Bairoch (1988) shows how the industrial revolution goes hand-in-hand with a rapid increase in urbanisation. First Belgium in the 15th century, and afterwards my home country, The Netherlands, in the 17th century were the first countries where more than 30% of the population lived in cities. In that sense, The Netherlands pre-empted the Industrial Revolution. For about 150 years, wages in The Netherlands were twice as high as elsewhere in Europe – a clear example of the economics of agglomeration.

Using history as a guide for theory

Currently, much of the thinking on how to change teaching in economics is motivated by the failure of the discipline to forecast – or even better, prevent – the financial crisis and the Great Recession. There too, history is a useful laboratory, as shown by Reinhart and Rogoff’s This Time is Different (2009) – this time wasn’t that different after all. My claim in this column is that history can be used in a much broader context as a frame of reference for our teaching in economics – well beyond the perils of the financial crisis.

I would like to use history in the teaching of economics, not as a replacement of the careful work of economic historians, but as an aid to explaining to our students how a broad-brushed economic history can help us to understand the main mechanisms taught in our classes on economic theory. Teaching economics this way is likely to change what we teach. We shall teach those parts of economic theory that are most useful in understanding real-life institutions. I suspect that this will produce better economists.

References

Acemoglu, Daron (2012), “Institutions, Political Economy and Growth”, speech at the Nobel Symposium on Growth and Development, 4 September.

Acemoglu, Daron and James Robinson (2012), Why Nations Fail: The Origins of Power, Prosperity and Poverty, New York: Random House.

Bairoch, Paul (1988), Cities and Economic Development: From the Dawn of History to the Present, Chicago: Chicago University Press.

Diamond, Jared (1997), Guns, Germs and Steel: A Short History of Everybody for the Last 13,000 Years, London: Random House.

Finer, S E (1997), The History of Government, Part I, II, and III, Oxford: Oxford University Press.

Gallup, John Luke and Jeffrey D Sachs, with Andrew D Mellinger (1999), “Geography and Economic Development”, Center for International Development Working Paper 1, Harvard University, March.

Gat, Azar (2006), War in Human Civilization, Oxford: Oxford University Press.

Kremer, Michael (1993), “Population Growth and Technological Change: One Million B.C. to 1990”, Quarterly Journal of Economics, 108(3): 681–716.

Fujita, Masahisa, Paul Krugman and Anthony J Venables (2001), The Spatial Economy: Cities, Regions, and International Trade, MIT Press.

Reinhart, Carmen M and Kenneth Rogoff (2009), This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.

Romer, Paul (1986), “Increasing Returns and Long-Run Growth”, Journal of Political Economy, 94(5): 1002–1037.

Romer, Paul (1990), “Endogenous Technological Change”, Journal of Political Economy, 98(5): S71–S102.

Wilson, Edward (1998), Consilience, London: Abacus.