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What is Economic History (1).docx

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Jack Leach

What is Economic History? • the study of long-term changes & transformations over decades or even centuries People study economic history because they want to know about the past. Ex: How did the native population live before the arrival of the Europeans? • many questions open up including institutional change, technical change, the formation of values Others study economics because they are intrigued by how past has affected present day. Ex: Why is Canada among the richest and most economically advanced countries in the world today? Economic History versus Economics • economic agents as managers maximizing subject to constraints – Deal with the constraints and manage by being inside the box • entrepreneurs looking for ways to change constraints – Think outside the box Economic History & Path-dependency • economic history embraces complexity • economic historians tend to argue that how an economy functions in the current state is a product of how it got to that state in the first place Path dependence explains how the set of decisions one faces for any given circumstance is limited by [1] the decisions one has made in the past, even though past circumstances may no longer be relevant. In economics path dependence can refer to either outcomes at a single moment in time or to long run equilibria of a process. In common usage, the phrase implies either: [2]  (A) that "history matters"—a broad concept, or  (B) that predictable amplifications of small differences are a disproportionate cause of[3]ter circumstances. And, in the "strong" form, that this historical hang-over is inefficient. The first usage, (A): "history matters" is trivially true in the explanatory context; everything has causes. Path-dependency • you cannot understand “x” by simply observing its characteristics • you need to understand how we got from “non x” to “x” • capabilities & tipping points Economic theory loses its history • the real world is messy and not easily subject to mathematical analysis • solution starting in the 1870s was to build “model” economies based on assumptions and predict how they work • universal system rather than a particular system • the theory was ahistorical and built around abstract individuals • the features and institutions of a specific economy were lost • emergence of Real-World Economics “Mainstream economics truly is the economics of nowhere.”(p. 37)Complexity Economics • critical of equilibrium concepts implicit in traditional economic theory • traces this back to Walras’ work in the 1870s • to make models work they assumed self-interest, perfect information, notransaction costs• see the economy as always in transition and moving • the path is as important as the forces towards equilibrium • traditional theory assumes an economy exists but how they are created • assumes wealth exists but how it is created“ It is important to note that the key behavioral assumptions of Traditional Economics were not developed because anyone thought they were a good description of real human behavior; they were adopted to make the math work in the equilibrium framework.” E.Beinhocker, The Origin of Wealth, page 118.Responses to Neoclassical Theory • anthropologist offered evidence that societies do not create unlimited wants • in some earlier societies the problem was unlimited resources and scarcity of wants • rejected idea that humans are driven by greed and insatiable needs Behavioral economists The Selfish Pig Experiment John offers to give Bob and Mary, two st
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