The Institute Blog

The Future of Economics: Bruce Caldwell on History and the Dismal Science

Your average economics textbook presents the neat image of a discipline with many useful conceptual paradigms for viewing the world. But it almost never gives any sense of how these ideas developed.

And as it turns out, the actual history of economics, like that of every science, is much messier.

That was Bruce Caldwell’s message in his recent address to the Southern Economics Association in November. (Click below to download a PDF of the speech as prepared for address).

Caldwell – an INET Advisory Board member, Director of the Center for the History of Political Economy at Duke University, and one of the world’s foremost Hayek scholars – makes the case that the study of the history of economics should be an essential part of training future economists.

“Ideas matter,” he says. “They have consequences for how we see the world and organize our practice.” And understanding how those ideas developed should be an important part of the program.

Caldwell uses the case of the a long-discredited philosophy of positivism and it’s still-lingering affects on economics to demonstrate his point.

Many economists in the 20th century claimed the mantle of a positive science, Caldwell suggests, “to defend the proposition that the social sciences are, really truly are, scientific,” even though positivism was no longer accepted in philosophy of science.

And even worse, many staked out positivist positions without knowing they were doing so. The lack of self-awareness and historical perspective were both a symptom and a cause that still persist in the discipline today.

The problem with the positivist approach was one that Hayek himself identified in his criticism of economics. “For Hayek,” Caldwell says, “scientistic doctrines (the adjective was a pejorative for him) claimed the mantle of science, but were in reality unscientific.” And positivist economics was no exception.

Over time the influence of positivism has faded in economics as more diverse approaches to the dismal science have been accepted. But economics’ positivist residue remains evident as it has kept one key part of the discipline out of the citadel: economic history and the history of economic thought.

Caldwell argues that this omission is a serious mistake, especially in the wake of a financial crisis that economists missed despite the obvious historical precedents. And this mistake can’t be attributed to a lack of demand, as economics students are now practically beating down the door to have access to courses in the history of economics.

The future of the profession, Caldwell suggests, lies in a return to these more context-sensitive approaches that understand history is essential. And at Duke, he is leading the charge.

The good news is that more and more of the economists of the future seem to agree.

Of Positivism and the History of Economic Thought.pdf211.72 KB



Regarding macroeconomics, either theoretically or empirically, the work of Leijonhufvud could be described as one analogue to that of spectral decomposition of a linear operator or matrix in math: a reduction of a matrix to its axes, these being eigenvectors defining disjoint subspaces.

In a rather austrian-like reserve-currencies competition world (21th century world economy), quite dissimilar from, say, that one of the Gold standard, etc., textbook macro (take Keynesianism or Monetarism...) hardly makes any sense save for the case in which you let in nominal disturbances arising from the reserve-currencies changing parities, and so on...all this easily driving you towards such a sound framework like that of the Swedish Flag devised by A.L., taking account of BOTH real (i.e.: intertemporal) and nominal shocks propagating through the world economy in a given period, provided that certain anchors were at work at the (analytically) starting point.

So that you can put within a one to one correspondence the Swedish Flag and a subset of (either traditionally or historically taught) macro (sub)theories.


The history of macroeconomics is so messy and filled with such a multitude of politically motivated and/or biased ideas, that it is much too difficult to follow in an historical manner. Far better would be to develop a theory of macroeconomics which is based on what can be learned from all of these attempts and blunders to present what the presenter wants us to believe is going on.
By making a comprehensive and balanced assesment of all of what is out there it is possible to arrive at an absolute truth about what really is applicable and is true. This is what scientific analysis is all about, but unfortunately for macroeconomics it has not yet managed to find its way out into the common state of knowledge of the subject.
This subject is not impossible and my work in looking at the whole shebang as if it were one system, in an engineering way, does yield an unbiased and fully comprehensive model which is sufficiently complete as to cover the whole subject whilst being sufficiently simple as to be suitable for understanding by the average person.
An illustration of the model that I use is provided in Wikipedia Commons under Macroecomomics and DiagFuncMacroSyst.pdf
This model should be carefully examined because it is the only one I have seen that includes all of the factors of production as envisaged by Adam Smith (in 1767!) That no other idea for modelling how our system is build (or how it works) should be a cause of extreme embarisment to the whole macroeconomic academic community, who seem to be far more concerned about not causing their colleges and universities to fall-out which their financial supporters than sticking to the whole and actual truth about how our system actually works!
So I for one do not see much point in studing the whole of its history, lets get on with what can be said about what is REALLY out there in the actual macroeconomics world.


I'm not an economist, although I studied both micro and macro in grad school nearly fifty years ago, and I've tried to keep up (somewhat) since.

My thought, then and now, is that economists become fixated on models, most of which try to explain too much based on money values and monetary flows. They spend too little time questioning the assumptions of their models.

For instance, the answer to nearly all problems is that GNP should grow. Really? That means always having a bigger pie so everyone can have a sliver, which ducks the political problems of redividing the pie.

Nearly all models use money (or utile equivalents). But human valuation at its very base is a flakey thing. Why do we assume that we are rational? What's rational to one of us isn't to many others, so why do we assume that another model will magically reconcile us?

What's efficiency, for instance? Interpreted just as minimum cost, then if half of us worked (whatever that is) without pay, we'd be more efficient. Sure.

For that matter, assuming that markets are efficient is self-referencing tripe. Trying to assign "externalized" factors like environmental degradation a meaningful cost is an exercise in futility. What's the value of an aquifer? Of topsoil?

Economics as practiced is having more difficulty answering basic questions. It keeps trying to prop up systems of living that, when seen from outside, seem more and more hopeless to sustain.

Time to rethink the whole field of thought.

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