The rise of economics as engineering II: a case study

 

Looming behind the aforementioned narratives of postwar economics is a notion – economics as engineering – which at times appears as a metaphor and at times stands for a straight depiction of economists' professional milieu and practices. Also, it is used to characterize both highly theoretical undertakings element and some everyday engagement with policy making. As exemplified by Mankiw's remark that, all but one top selling macro textbooks from the 1980s as well as the 2000s wee written by MIT economists, MIT is one relevant site for the investigation of the nature and significance of the “engineering” comparison. And it is indeed a pervasive thread in many of the papers to be presented at the HOPE conference tomorrow, some filled with allusions the technical, modeling, applied, engineering, policy making, expertise and craft dimensions of MIT economics. As befits historial research, however, such thread is entrenched in narratives on Samuelson, Solow, Kindleberger, MIT graduates, black economists, economic historians, growth, OR, macro, money. Here are a few many questions on the common picture emerging from this collection of papers:

1) What does “economics as engineering” means?

It is yet not clear to what extent MIT economists themselves used the comparison with engineering, or whether it is later spread by reminiscing historians and metaphor-obsessed historians. Anyway, the comparison is deployed to characterize many features of MIT economics. What the logical complementarities, overlaps or contradictions of these dimensions are is yet to sort out.

-the use of mathematics and statistics

-economics becoming technical

-modeling in the sense of creating artificial tractable worlds (as described by Verena Halsmayer)

-modeling in the sense of simplying real world

-problem solving, applying

-technical expertise in policy making

 

2) How does this new style of doing economics relate to Tech culture?

One distinctive element in our stories is that economics was developed within the context of an engineering school, an uncommon feature in the forties and fifties. As my paper emphasizes, at the onset of the war, the department of social science (which also hosted psychologists until 1963 and political scientists until 1965) was a small “support” department, and its recruitment largely catered the need of engineering students' instruction in statistics, OR but also labor and relations. Although none of the papers survey the characteristics and evolutions of engineering principles and practices at Tech, the correspondance between Samuelson, on the verge of transferring to MIT, and Harvard mentor E.B Wilson show how Tech's culture was understood in the thirties (closed to applied problems, excellence in mathematics, interlocking interests between departments, as detailed by Roger Backhouse). The growth of the economic community was nurtured within those larger programs aimed at enhancing the humanities and social sciences training of engineers and scientists. Most conf papers repeatedly note that the tools MIT economists developed for research and teaching, “fit” the engineering context. Now, the problem is whether we can go from “fit” to “influence.” There are basically two claims that can be made :

  1. that the engineering setting influenced the content of the teaching and/ or the content of the research

  2. that the engineering setting enable the new style of doing economics (simple tractable models based on maximization under constraints applied to a wide range of issues) which had been crafted independantly (at Harvard, Rand, etc.) to thrive and spread to the rest of the academia

The papers provide serious evidence in favour of the second claim. The profile of MIT graduate and undegraduate students drawn to economics was bounded by the Institute's generic requirements for admission: one ful-year college course in mathematics (including at least a half-year of calculus) and one full-year college course in physics in 1954. As for undergraduates, there was simply no economic undergraduate program until 1965 at MIT. At best, students could take 50% courses in science/engineering and 50% in economics, and the success of such course XIV remained limited until the early 60s. Which means that, unlike what happened in most universities, MIT didn't had to wait for a next generation of economists to be trained in the new (and still challenged) techniques of differential calculus, convex set theory, statistics, OR ect. Also, from the fifties on, MIT economists made a sustained a concerted effort to spread the new economics throughout the acamic world, both through the attention given to placement and through Samuelson's careful revision of his Economics textbook every three years. As explained by fellow blogger Yann Giraud, it was a textbook written in 1947-48 to introduce unenthusiastic engineering students to economics 

As for the influence of the engineering setting on the content of research, it could have occured through graduate students' influence on their supervisors, through backward effects of teaching on research (as suggested in Verena Halsmayer's paper on Solow's growth model), or through their collaborations and dicussions with MIT faculty in other fields. Leads to be investigated more closely in the forthcoming days.

 

3) A distinctive style of policy making?

MIT economists are pictured is several papers as pushing forward a “technical expertise” approach to policy-making, whether in the early years or in the sixties. The idea seems to be that the techniques they had developed enabled them to provide policy advice without bearing on any side of the political debates. At the same time, they are described as convinced Keynesians, the fights with monetarists are described, and emphasized is placed on Samuelson's willingness to appear as a “middle-of-the-road” economists (his words, quoted by Yann Giraud). My problem here is how do we go from technicality to detachment, impartiality, and eventually objectivity. One element missing from dicussions of MIT-style policy making is how they handled values. Using sophisticated techniques doesn't shelter from the need to work with some ends/evaluation and decision criteria. And the nature, relevance and implementability of such criteria, whether Pareto optimality, surplus analysis, social welfare functions, social choice functions were hotly debated in the forties and fifties. Welfare economics was then looking for new foundations, if not disagregating, and Samuelson was a major player in these transformations. MIT policy-making style is therefore related to the applied tradition there, in particular the postwar development in development economics and public economics.

 

4) How about the development of a similar or different engineering culture elsewhere? Carnegie? Others?  

The rise of economics as engineering I : setting the scene

 

The rise of the economist as engineer is, economists and historians say, an essential characteristic of the development of economics in the postwar period. In 2006, Greg Mankiw wrote a much commented paper in which he argued that one brand of macroeconomics (neokeynesian) is akin to engineering, by which he meant “solve practical problem,” and “help policmakers devise better policies to cope with the Business Cycle.” Another brand is rather done by (new classical) scientists, he explained, and is about “propos(ing) and test(ing) elegant theories.” He traced the first tradition to Keynes, its theoretical reformulation by Hicks and Modigliani, to the large-scale applied macromodels of Klein, Eckstein and Ando-Modigliani, and to the neo-keynesians. The second stream of course reflects the Lucas-Sargent-Wallace-Kydland-Prescott family tree.

Historian Mary Morgan takes a broader view and explains how the development of measurement (index numbers, time series, panel data) in response to growing public demand, mathematical formalization, a scientific method based on modeling and the application of a toolbox to a wide range of theoretical hurdles and practical issues, tranformed economics into a science of engineering:

“Understanding twentieth-century economics as a science in the mold of engineering is to see that the economics profession came to rely on a certain precision of representation of the economic world along with techniques of quantitative investigation and exact analysis alien to the experience of nineteenth century economics when the extent of such technologies of representation, analysis and intervention were extremely limited. The engineering metaphor also suggests that twentieth-century economics is best characterized as a science of applications and implies a technical art...”

She also emphasized the somewhat complex relationships of economists have forged with goverments in the wake of the Great Depression, the Keynesian Revolution and the war effort, and their gradual recognition as “technical experts,” some able to provide advice concerning policy design:

 

“From the point of view of economic policy, the engineering notion embodies elements of both the operation and design of systems and is subject to different interpretation at different times in the practice of twentieth-century economics. In terms of operating the economy, control engineering notions were explicitly discussed during the 1950s experience of the “managed” economy. The picture of the macroeconomy was constructed in a way that implied the economy was subject to governmental control. At the same time, under the influence of cybernetic thinking, the economic behavior of each individual was pictured as controlled by personal feedback loops. More flexibly, in the 1960s, governments were thought to have the economic powers only to “fine-tune” the macroeconomy or to nudge the economy back on path.”

 

Such broad narrative can be supplemented by bringing into the picture those economists who explicitely considered themselves as engineers. French “engineers-economists,” from Jules Dupuis in the mid XIXth to Emile Cheysson and Clément Colson at the turn of the XXth, then François Divisia, René Roy, Jacques Rueff, and Maurice Allais, should be included. Trained in engineering schools such as l'Ecole Polytechnique and L'Ecole des Ponts et Chaussées, their civil servant status induced them to bring their engineering tools to bear on public good pricing, taxation issues, ect..., laying the foundations of micro in the process (see Hebert and Eckelund's book, Alain Beraud's paper. The French institutional context of the Xxth century is described in Marion Fourcade's book). More broadly, in the thirties, the “social engineering” zeitgeist became pervasive. When when advocating eugenics in America (see Tim Leonard's research) and Sweden, or discussing the possibility and benefits of economic planning in Europe, economists in the Progressive Era exhibited a stunning faith in the ability for their research to help “rationalize” or “control” citizens, firms, and states' behavior (it is yet unclear to me how these notions of control, planning and social engineering differ from one another). Gunnar Myrdal, for instance, conceived himself as a genuine social engineer, a stance he explained in ‘‘Socialpolitikens Dilemma’’ (The Dilemma of Social Policy), the program he wrote for the Swedish democratic party in 1934:

“[The new social policy ideology] is intellectual and coolly rational, whereas the old, still dominating, was quite sentimental . . .. It is to a great degree liberated from the inhibitions of liberal ideology. On the other hand, it is too technically oriented to lose itself in purely general and unworldly model constructions. This is so because it is oriented towards facts, its romanticism is that of the engineer ...”

 

This mixture of planning, control and engineering was brought to the US (where a distinct planning tradition existed) through emigration and was quickly put to test with the war effort. Although economists' success in organizing production efficiently, one warranted by Keynesian theories, increased their confidence, the outbreak of the Cold War and associated witch-hunting soon induced them to change their wording: “planning” disappeared from economists' writings, and “social” was separated from “engineering.” Whether these cosmetic changes reflected deeper transformations in economist' conception of their role requires further investigation (although Al Roth's use of the engineering metaphor in a paper aimed at defending the role of economist as market designers suggests that such is the case). Also, how engineering relates to notions such as technical economics, formalization, modeling, applying, expertise and policy making should be clarified (intense cliffhanger).

A chronology of economics at Carnegie (in progress)

To illustrate the previous post on the difficulties in putting together a chronology, here is tentative chronology of economics at Carnegie. It's still in process, and links, sources and entries will be updated as I read.

It reflects both my general interest in the subject, and my specific concern with a small cluster of economists who have so far remained in the background of the Carnegie picture. Must-read historical narratives featuring Carnegie which I use here include Rancan's just published paper, which wonderfully wave together the different early strands of thinking about expectations at Carnegie in the 50s; Augier and March's chapter on the GSIA from their book on business schools; Fourcade and Khurana's paper and Khurana's book on business schools, Augier's work on and Crowther-Heyck's extensive biography of Herbert Simon (see here and here), Sent who tied together her study of Sargent' rational expectations and her analysis of Simon as a cyborg scientist, and the witness seminar on rational expectations organized by Hoover and Young in 2011, Freitas's research on Lucas.

 

1946-1949

-Establishment of the GSIA (Graduate Schol of Industrial Administration) at the Carnegie Institute of Technology (CIT) by George Leland Bach

-Recruitment of Herbert Simon and William Cooper

1950

- Project on intra-firm behavior (funded US Air Force)

1952

-Arrivals: Modigliani (from Illinois, had been working on expectations and business fluctuations), Muth (graduate program)

-beginning of project on inventory planning (funded ONR): Holt Cooper Miller Muth Simon

1954

-Arrivals: Dreze (visiting that year), Miller (faculty, or 1953?)

-"The Control of Inventories and Production Rates: A Survey” by Simon and Holt (application of servomechanism to inventory and planning)

-”The Predictability of Social Events” by Modigliani and Brumberg

1955

A behavioral model of rational man” Simon

1956

Arrivals: Ando (graduate program)

1957

Arrivals: Meltzer (faculty)

1958

-Organizations by March and Simon

-“Elements of a Theory of Human Problem Solving” Simon-Newell-Shaw

-“The Cost of Capital, Corporation Finance and the Theory of Investment” Modigliani-Miller

1959

Ando graduates (dissertation subject?)

1960

-Departures: (Modigliani, to Northwestern, then MIT in 62); Miller (to Chicago); Ando (to MIT)

-Planning, Production, Inventory and the Workforce by Holt, Modigliani, Muth, Simon

1961

Rational Expectations and the Theory of Price Movements” by John Muth

1962

-Arrivals: Rapping( faculty)

1963

-Arrivals: Lucas ( assistant professor), Lovell (graduate program), Prescott (graduate program)

-Williamson graduates (PhD Title: "The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm" )

-A Behavioral Theory of the Firm by Cyert and March (see Augier)

1967-1968

-Sargent is a research associate

-Prescott and Mortensen graduate. Prescott recruited at Penn, Mortensen at Northwestern

1969

-Arrivals: Kydland (graduate program, works on the assignment problem), Azariadis (graduate program, working on theoretical labor markets and implicit contracts)

-“Real Wages, Employment and Inflation” Lucas-Rapping

-In the wake of the Phelps conference on Microfoundations at Penn in January, Lucas writes a draft on expectations and the neutrality of money

-Phelps conference on Microfoundations at Penn

1970

-Arrivals: Cass (faculty, tranfered from Yale. Supervises Kydland)

1971

- "Investment under uncertainty" by Lucas and Prescott

1972

-“Expectations and the neutrality of money” Lucas

-"On capital overaccumulation in the aggregative, neoclassical model of economic growth: a complete characterization" Cass

-“Risk aversion and wealth effects on portfolios with many assets" Cass and Stiglitz

-Lucas and Prescott working on models of labor market search

1973

-Azariadis graduates (worked with Lucas and Prescott) and leaves to Brown

-Kydland graduates (dissertation title: Decentralized Macroeconomic Planning)

-First (?) Carnegie-Rochester conference on public policy, organized by Meltzer and Brunner. Theme: the Phillips curve and Labor markets

-Creation of the Shadow Open Market Committee by Brunner and Meltzer

-Lucas working on a draft of his critique of econometric policy evaluation

1974

departures: Cass (to Penn), Lucas accepts an offer by Chicago in January. 

-"Equilibrium search and Unemployment" by Lucas and Prescott

 

On the difficulty of assembling a chronology and other F....moments in history of economics research

This year, I'm sharing an office with an econometrician on Mondays and with a geographer on Fridays (you don't want to go into the subtleties of the French educational system). We're discussing the content of our research and the strengths and weaknesses in our respective methodologies, and, of course, joking and complaining about the sociology of our communities.

Except in those F... research moments. Those moments when, after months waiting for your data, weeks cleaning them up, tedious hours programming, you fail to reject the null-hypothesis (I haven't yet figure out on which basis a geographer feels he's having a F... moment). Those F.... moments are inevitably followed by the look. My colleagues, no matter what their specialization is, raise their eyes from the screen, and stare at me with that mute disbelief: “you have the same position as I do, and you spend your days assembling chronologies and writing down timelines. So unfair.”

Now, this is unfair.

First, archive-focused historians of economics have their deal of F.... moments. Those moments when:

  1. after months grant writing, getting half the money you need (the next year), fishing for a not-too expensive overseas flight and a cheap hotel (because, of course, the archive center is located in the middle of Beverly Hills), you open your 50th box of archives and realize that the conference proceedings you need have been lost forever. Or misfiled.

  2. or the archivist proudly informs you, on your last day, that only one box that you ordered has not reached the reading room: “correspondance : L.” Well, that's sad, because you flew these 10 000kms with the very purpose of checking the correspondance between your subject and Lucas. Maybe there isn't one after all. You will never know. Unless you write down another research project, ask for money....

  3. or after hundreds of documents dealing with flight booking, edition contracts, accounts, recommendations letters, schedules, you eventually stumble on this short telegram “really enjoyed the thorough discussion we had last week at your place on the policy implications of rational expectations. An essential subject.” Indeed...

  4. or you eventually unearth that uncensored debate on the relative merits of adaptative, rational and implicit expectations. Dated 1998. While the debates were raging at Carnegie in the sixties. Ex post

  5. or you spot that 1933 written exchange on economists' value-neutrality between your subject and his (future ex) best friend and colleague. At least it seems. Because it's written in Swedish.

  6. Or you have set to write the history of urban economics because you believed you would find out that urban economists in the sixties and seventies were all influenced by the representation of cities in DC Comics books (and that you would consequently show maps of Gotham city and chuncks of Batman movies during you next talk). Then you realize that you're simply going to try to understand which methodological and theoretical evolutions led to Mill's aggregative model of resources allocation in a metropolitain area and Meyer, Kain and Wohl's The Urban Transportation Problem.

  7. Edit. And yesterday morning F-moment, when the archivist tells you that the boxes of very-important-and-busy-Nobel-Prize economist has just arrived, but that you need to get the permission of the great man in person before seeing them. Send him an email?

 

Second, assembling a chronology is far less easy than it seems. It's a preliminary to writing down the history of something (MIT/ Carnegie/ public economics/ the notion of expectations/ growth theory/ randomized trial experiments/ policy evaluation/ economics and biology, etc.). Yet, at this early stage of your research, the boundaries of your object are not set. Thus, you don't know what to include in your chronology. In some case, you don't even know what to look at.

Take the history of economics at MIT/Chicago/Carnegie ect. What do you include? The research of the department of economics? But why exclude other departments, schools, and the wealth of Institutes created in each university after the war? Growth theory and development economics were researched at the Center for International Studies as much as at the econ department at MIT. Chicago price theory was applied at the Business School, where Stigler was recruited in 1958, and at the Law School, the realm of Director, Coase and Posner. There were huge tensions between economists from the department (Friedman) and the Cowles (Marschak, Koopmans) on the design of macroeconomic models and their testing, and the writing history of general equilibirium requires bringing into the picture the Chicago department of mathematics as well. Also, how many characters should you include? Focusing on a priori key players is biased and restrictive (Chicago= Friedman+Stigler+Becker, MIT=Samuelson+Solow+Modigliani), it leaves out other crucial characters who haven't been canonized the same way: for instance Director, Mincer or Ted Schultz at Chicago, Kindleberger, Frank Fisher or Ed Kuh at MIT. Yet, if you consider the research of, say each generation of 20 faculty and 25 graduate students who made MIT in the forties, sixties and seventies, you may end up with an untractable story. Unless you use quantitative methods. Finally, why focus exclusively on research? Teaching, organizing curicula, advising goverments, wiriting journal chronicles, looking for funds matter.

Now, take the history of one of those fields which institutionalized in the seventies: public economics. What are the lower and upper time boundaries of such a project? And given that the use of the word “public economics” might not be stabilized even yet, which work do you include? All that is labeled “public finance”? But then, how do you treat stabilization policies, included in the field by Musgrave in his Theory of Public Finance (1959), then excluded from the practices of public economists in the seventies? And what if “public economics” emerged in the sixties as a notion with altogether different meaning and coverage in European and American communities ?

Finally, take “rational expectations.” The definition issue surface in the panel discussion held of the 50th anniversary of Muth's paper. After Kevin Hoover had outlined the emergence of the word in economics publications, Lucas argues against including such work in the story: “Muth’s idea of rational expectations...no one had said anything like this before. It was his simultaneous determination of people’s behavior which produced a time series and a time series which led people to form expectations that affected their behavior. It’s that simultaneity that neither the statisticians nor the economists of the day had . . . and Jack had it.” Yet, during the discussions, many definitions of rational expectations surface, and the possibility that it was an idea used under a different name in game theory, and that will still be used in economics under a different name in the future is raised.

The scope of a historical narrative depends on the chronology outlined. Yet what the chronology looks like is predicated upon the boundaries of the historical object considered. A chronology, which looks as a raw history building block, is thus always emminently subjective.  

Keynesianism, neoliberalism and the 'Dissemination' of Economic Ideas: That's the Way of the World.

It is often argued that in recent years the question of the 'dissemination' of economic knowledge has been increasingly addressed by historians of economics. However, as our buddy Tiago has noted on the previous version of this blog quite some time ago, historians seem to not really know what they're talking about when they talk about 'dissemination'. In fact, I would argue that most accounts of the history of science - and therefore, of economics - should deal with the question of dissemination, as science itself is "a form of communicative action" (Secord, 2004). Read more

Voth vs. Ferguson: And How Austerity Leads to Worse Outcomes

At dinner yesterday Niall Ferguson made the argument that China (or the East) were perhaps no longer looking to how Western countries had built their social institutions and formed their empires, and were instead now doing their own thing as the Western approach was shown to be flawed. Hans-Joachim Voth pulled Ferguson up on this in a seeming contradiction, as Ferguson is apt to argue that the legacy of empire - particularly the British - is the basis of most of the good institutions in the lucky ex-British colonies. So which is it? Read more

Japan's Money Base Will Be 45% of GDP: US and UK is 19%-21%

Japan is going to double its money supply, according to today's front page of the Financial Times (5 April 2013), and a salient question might be what we should compare that to. It sounds like a lot, but is it?

Grabbing our trusty GDP yardstick, we grabbed some quick monetary base numbers from the US, UK and Japan, doubled today's Japanese figure, picked up the exchange rate from Google, and projected a 2% growth rate on the Japanes GDP figures. And the answer is yes, it is a big deal: Read more

I like IKE

Imperfect knowledge economics, or IKE to their friends, is popular with all the popular kids. George Soros, Bill Janeway and Anatole Kaletsky were in attendance as Roman Frydman and Michael Goldberg - or more properly, their students - showed the latest work in progress. Read more

Where the World Economic Association Started

Having lunch next to Edward Fullbrook he told me the story of how the post-autistic economic review got its start, leading to what we today know as the World Economic Association and all the great work coming from this community.

Back in 1999 Edward was at a conference in Cambridge and talked to attendees about the French movement to bring economics back to a more realistic starting point, and the great success the French students had in getting media attention. Attendees were not, as it turned out, convinced that this was even happening. Not to be dissuaded, Edward set up an anonymous e-mail address after the conference and wrote an anonymous e-mail to the 99 conference attendees informing them again about what had happened in France. Read more

A New Psychology: "Mimetic" Preferences

One of the new things at this year's INET is a way to look at the psychology of agents, namely Rene Girard's theory of 'mimetic' preferences, or rather that one consumer copies another's preferences in order to keep up socially. (I am grossly simplifying here, as a two hour panel on Girard will substantiate, but this seemed to me to be the gist). Read more

Great Hospitality or Chance to Innovate?

some personal touches to hospitality at the INET conference, although I feel for the people who have been holding that sign all day.

with thanks to an anonymous commenter for pointing this out, although they might just have run out of poster stands.

Kuhn vs Lakatos: it is not the institute of anything goes...

In his opening remarks, Robert Johnson said that this "is not the institute of anything goes" with INET now getting to a point where it needs to stop criticising the mainstream and should instead "create a new vision."

Outside the main hall of the conference there is even a poster setting out the core institutions needed to affect change in economics. That poster, and indeed the 'old' approach of INET is very Lakatos. Accept the core and work to modify the periphery.

Read more

I Have to Act Like an Adult in Hong Kong

The INET conference in Hong Kong is serious business. Students will be wearing suits for the first time since their cousin's wedding only to bump into senior public servants with buffed cuff-links who in turn are mingling with billionaires and Nobel Prize winners. It's seriously adult stuff.

It's just a shame that I will probably be too giddy to notice. In fairness I will try not to gush at people; like I may have done with Axel Leijonhufvud last year, or Richard Koo, or Robert Skidelsky, or... well... that's not really the point. Read more