LSE to Host Debate on What Type of Economics Should Be Taught?

|Peter Boettke|

On January 20th, the LSE will host a debate that includes Geoff Hodgson and Tim Besley as well as others on how the teaching of economics should change in light of the financial crisis of 2008.  Hopefully we can get a report on this from either Tony Evans or Paul Lewis (or both).

I am not sure what the upshot will be of all of this soul-searching among economists over how they understand the object of their studies and how they communicate knowledge to their students (undergraduate and graduate).  To me we need to reconnect again with the core ideas of exchange and the institutions within which individuals engage in exchange.  In a very simple way it is about understanding the positive sum games of free exchange on the market, and the zero and negative sum games of political interference with the market.  Ultimately, it boils down to understanding the rules of the game that promote peaceful social cooperation under the division of labor so that societies realize generalized prosperity and avoid conflict, poverty and squalor.

If I were to email over to Tim Besley what I would hope the LSE would reaffirm in economic education is the great tradition of Robbins, Hayek, Plant, and Coase (among others, see Buchanan's various discussions of the LSE opportunity cost tradition), and to emphasize the focus on, as O'Driscoll summed up in his classic work on Hayek, economics as a coordination problem.  The coordination problem is the intellectual puzzle economists must solve, understanding the role of the price system and the entrepreneurial market process is the solution; the mechanism through which the entrepreneurial market process works to coordinate economic activities through time is economic calculation and the institutional pre-requisite for economic calculation is the private property order and sound money.

If economics taught that basic message clearly and spoke truth to power forcefully with that basic message, then I don't think we would be in the mess we are in.  Unfortunately, that message is not taught as clearly as it should be, and economists more often than not compromise their message when speaking to those in positions of political power. And as for an explanation of the crisis, I think blame should be placed squarely where it belongs.  It is the deviations from a private property order and a market economy driven by profit and loss, as well as the deviations from sound monetary policy (often caused by fiscal irresponsibility) that are the cause of the crisis.  Don't blame the phatoms in the air of 'utopian economics'.  The flawless precision of mathematical economics did not usher in an era of laissez faire that has run afoul of economic reality.  It was instead the lingering consequences of a Keynesian coup of economic thinking that impacted "conservative" and "liberal" economists and politicians for over 50 years.  Too much public debt, too loose of monetary policy, too big to fail mentality, too much government interference in the economy across the board.  I hope Tony and/or Paul will report that such a message was represented on the panel even if to be dismissed.  But somehow I doubt it will.  Too bad because I consider the LSE as historically one of the truly great centers for economic research and education in the world.*

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*One of the great thrills of my professional life was to give the 2004 Hayek Lecture at the LSE in the Old Theatre.

Comments

[liberty]

I will be there too.

[Peter Boettke]

Let me know what they say!

[liberty]

I certainly will. It won't be taped? I will take notes and report back.

[Richard Ebeling]

One of the great influences at the LSE in the early part of the 20th century had been Edwin Cannan. He was the teacher of such people as Lionel Robbins and W.H. Hutt.

What he helped to create was a climate of inquiry exactly along the lines that Peter is suggesting.

Robbins once said about him, "Cannan was a great teacher. He was a fine economist; he gave one a sense of the sweep and the power of the subject and its relevance to human happiness . . . I do not know anyone who sat under Cannan in those years who was not powerfully affected by his teaching."

What Cannan instilled in his students was a deep appreciation for the "miracle" of the market economy, which integrated a multitude of global participants in a spontaneous process of coordination.

In the open chapters of his book on, "Wealth," for example, he leads the reader to appreciate the importance of the division of labor, how it brings to our door the goods of the world, and how it all works without central direction, but by the simple motivatation of self-interested improvement.

He could explain that, "Modern civilization, nearly all civilization, is based on the principle of making things pleasant for those who please the market and unpleasant for those who fail to do so." The alternative, he pointed out, was command and control, a method far more unpleasant.

He could remind people of Adam Smith's emphasize that it is the market arena that helps generate the social habits and institutional behavior of trustworthiness, honesty, and reliability -- and all spontaneously because individuals first begin to act in such ways out of the self-interested benefits from doing so; they finally become the social routines and rules of life.

This is the type of legacy that it would be nice to see restored at the LSE.

Richard Ebeling

[Mario Rizzo]

There was also Harold Laski!
http://en.wikipedia.org/wiki/Harold_Laski

[Russell Nelson]

The key being profit and LOSS. Profits are great because they tell you when you're doing something right. If losses are eliminated, then you don't know if you're doing something wrong. Doesn't that describe the last year or thereabouts?

[Bogdan Enache]

Austrian Economics must be more than a restatement of the 1930s if it is to be a viable alternative.

[Richard Ebeling]

Two things.

First, Mario is exactly correct Harald Laski (a prominent socialist of the interwar period) was at the LSE. (The recent biographies of Ayn Rand both point out that Harld Laski was Rand's model for her Ellsworth Toohey character in "The Fountainhead.")

In fact, the LSE was brought into existence under the influence of the Fabian socialists. It was unintended consequences that made at least part of the faculty at the LSE in the 1920s and 1930s far more free market than any of the institution's founders would have planned or desired. (Hayek actually wrote an interesting monograph on the history of the LSE.)

And Bogdan is correct, also. The goal is not to go back and freeze Austrian Economics into some form that it represented at that time.

My point in mentioning Cannan and his influence, was to emphasize an approach and outlook with which to introduce and educate students about the nature and workings of the spontaneous market order. To show them the "wonder of it all," and that that appreciation should not be forgotten as one then develops more deeply an analysis of how the market process works in all its complex detail.

Richard Ebeling

[amv]

I may just drop the name of Lord Dahrendorf, who wrote the most comprehensive work on the LSE I know.