James Buchanan (1919 - 2013)

Economist James Buchanan has passed away.  Buchanan, along with Gordon Tullock, won the Nobel Prize for Economics in 1986 and is known for his work on public choice theory.

You can read his Nobel Prize lecture here.

I had several opportunities to hear Dr. Buchanan speak over the last few years. I was always struck by his brilliance and clarity of thought. I count myself among those fortunate enough to have come to know him and to learn from him.

An Enlightend Life

Almost a year ago, I linked to a review of Adam Smith: An Enlightened Life by Nicholas Phillipson. Twice more I linked to other reviews and even added it to my carousel at left as a result of the reviews. I received a copy and added the book to my “to be read” pile – and moved it up as a result of some of the reviews. I finally got to the book this month. I’m only sorry to say I didn’t get to it sooner.

While I’ve read many good biographies of Smith, this one stands near the top.  I don’t say that because it revealed some interesting piece of trivia previously hidden.  Rather my statement is based on the intellectual ground that is covered. This book reveals Smith’s intellectual foundations. It covers familiar ground about Smith’s debt to Hume and the French philosophers and economistes. But it also makes clear Smith’s grounding in his geography and time. Glasgow and Edinburgh had an effect on his world view, politics of England and Scotland social and intellectual climate in which he was raised. As such, much of his work takes on new meaning.

If you would acquaint yourself with the foundation of economics and the mind that helped shape it, I encourage you to consider this book. While not a beach read (it’s getting late for that anyway) the length is not daunting. And if, like me, you like to mark significant passages, you may find yourself stopping frequently to do so.  For this volume offers much to think about and much to learn. Please share your thoughts.

That Which Is Not Seen

I know I'm not posting as often as I should. I promise to get on track in the near future. There are a lot of things hanging in the fire right now and, as we all know time is a scarce resource and opportunity cost is an operative concept.

Anyway, James Grant had an excellent article in this this past weekend's edition of The Wall Street Journal. It's about Frederic Bastiat and a new edition of some of his work. I always enjoy what Grant has to say, even when I don't agree with him. Fortunately, I agree with him about Bastiat.  I've added the book to my carousel. Now I just need to find room for it on my growing "to read" pile.

Changes in Economic Thought

I know not everyone shares my interest in and enthusiasm for the history of economic thought. But for those who do, here is an article freom the most recent issue of Region Focus, published by the Federal Reserve Bank of Richmond. (HT to Cafe Hayek)

The author examines how the most recent crisis caught the economics profession napping, and suggests how the crisis may change the profession. It provides some basic insights into how economics has changed over the years as a field of study. And for those of you who regularly seem to have students who are enraptured by the subject, this might be something to share with them. I hope you find it as interesting as I did.

Keynes vs Hayek Rap, Part 2

The second installment of the Keynes vs. Hayek rap video is here courtesy of Russ Roberts and John Papola at George Mason University. For more information, visit Econstories.

On an Enlightened Life

I recently received a copy of Adam Smith: An Enlightened Life, and while I have not yet started reading, this review in the American Conservative (HT Arts & Letter Daily) may have helped me decide where it belongs in my "to-be-read" pile.

I have often told students that those who choose to stereotype Smith as an advocate unbridled greed and enemy of the state need to read him; just as those who label Keynes as an "undercover socialist need to read him.  The two had more in common than many would believe.

This review discusses Smith's distrust of big business and his belief that government had a role to play in a market system. I encourage you to read this review - even if you have a problem with the source. You may choose to read or not read the book as a result of the review. I know my choice.

The Krugman

Here's something for those of you seeking a link between Keynesian macroeconomics and a classic piece of American literature.

And for those of you who don't fit into the category, you might want to look at anyway. It’s fun and imaginative and might offer a springboard to introduce fiscal policy. (HT to Economics & Ethics.)

Ronald Coase & Externalities

Yesterday was the 100^th birthday of Ronald Coase who gave us the Coase Theorem.  I missed it (for which I apologize), but EconGirl, Jodi Biggs, did not. She put up a truly superb post explaining Coase’s importance and providing a great example of the Coase Theorem at work. 

I suggest you add this to your arsenal for discussion of externalities. It is clear. It is interesting. And it is real. And it’s hard to find examples that meet all those requirements.

On Friedrich Engels

About 15 months ago, I posted a link to a review of a then new biography of Friedrich Engels, Marx's General by Tristram Hunt. In the interim I received the book as a gift and just finished reading it. It was excellent.

I am not endorsing the book merely as one who studies the history of economics and the lives of economists. I also applaud the book for its historical and personal insights. Engels was a tireless, committed worker in the fields of the socialist movement of the mid-19th century. And he was a paradox.

The son of a wealthy manufacturer, Engels spent time on the barricades in the uprisings in the mid-1840s. But he would return to the world of commerce in order to finance Marx's writing. After Marx's death, Engels continued to move the socialist agenda forward, continuing to support members of Marx's family. All the while, his own life-style seemed to more closely parallel the bourgeoisie than the proletariat.

In fact, a quote from the epilogue may describe his view best:

"Neither a leveler or a statist, this great lover of the good life, passionate advocate of individuality, and enthusiastic believer in literature, culture, art and music as an open forum could never have acceded to the Soviet communism of the twentieth century, all the Stalinist claims of his paternity notwithstanding."

If you are looking for an interesting read to start off the New Year, I would recommend Marx's General. If you're still hesitant, I would suggest you might want to listen to a podcast of a lecture by the author on the London School of Economics (LSE) podcast series in April 2009.

For those of you who want go more deeply, here's Friedrich Engels' Conditions of the Working Class in England. I read it as a graduate student some (mumble mumble) years ago. It provides insights, not only into the impact of the Industrial Revolution in 19th-century Manchester, but provides a framework for The Communist Manifesto, of which Engels was a coauthor.

I welcome comments by anyone else familiar with Hunt’s book.

The "Non-economist's Economist"

The Wall Street Journal contained an excellent piece on economist John Kenneth Galbraith this weekend. What made it better was that it was written by James Grant. The piece marks the publication of the Library of America's collection of Galbriath' major works. It looks like an impressive collection. And Grant does a very good job explaining why Galbraith was popular, as well as what was wanting in his work.

Of additional worth is the excellent reading list Grant provides on related topics - particularly the Great Depression. I highly recommend the article if you would like an introduction to "the non-economist's economist." And if you would know Galbraith better, I would think the collection would be a good place to start.

Deflation and Fisher Equation

Many of us use the Fisher Equation: Real interest rate = Nominal interest rate - Inflation rate. Many more of us don't know that Fisher was thinking about a specific market.

This article in the October issue of Monetary Trends by the Federal Reserve Bank of St. Louis provides some historical context. But more importantly, it puts the equation into current context by providing another view of the complex challenge the Fed faces as it deals with a slow economy coupled with the possibility of renewed inflationary pressure. I strongly recommend it for that section on monetary policy in your macro sections.

And share your thoughts. Is this usable with your classes? Or too "high-end"?

More Reviews of Smith Biography

Last week I pointed to a review of Adam Smith: An Enlightened Life. Here is another collection of reviews, courtesy of Marginal Revolution. I'm adding the book to my carousel at left. So if you think you're interested in the book and would like to help support this blog, I encourage you to either click there or on the title above.

History of Economics

I know I come at this topic from a position of bias, but I think Dr. Bruce Caldwell of Duke University makes some excellent points in this article (HT Division of Labour).

Over the years, I've said many of these things to people who ask why I'm interested in the History of Economic Thought, but I don't recall stringing all of these together and certainly not as eloquently as Dr. Caldwell has.

In a related item, here's a review in The New Statesmen of a new biography of Adam Smith that looks promising. Titled Adam Smith: An Enlightened Life, it takes a broad look at the man who became the father of modern economics.

Is it worthwhile to learn about the great economists? I think so. I've gained much insight from reading biographies and the master works of thinkers such as Smith, Keynes, and Schumpeter - certainly more than I would have gained by reading only biographies or only the master works.

Do you integrate the economists and their ideas into your class or do you "stick to the facts"? I look forward to your comments.

Hayek vs. Keynes

When the most recent downturn was a few month old, and it was not going to be followed by a quick rebound, interest in the theories of John Maynard Keynes and the role of stimulus started to rise.

But as the recovery has drawn out, and some would even say begin to falter; people are looking for other explanations. Among the names mentioned of late, Friederich Hayek is gaining popularity. And leading the wave is George Mason economist Dr. Peter Boettke.

There is a good introduction to Dr. Boettke and simplistic explanation of the Austrian School in yesterday's edition of The Wall Street Journal. (Subscriber content, but put the headline in your browser, I'm willing to bet you find something.)

You'll find it an interesting expose of an economist and ideas worth knowing more about. Please share your thoughts.

Belated Birthday Recognition

Yesterday, July 31, was the anniversary of the birth of economist Milton Friedman. He won the 1976 Nobel Prize for Economics for his work on monetary theory among other things. He was also the author of the book Free to Choose and the TV series by the same name.

When I first started teaching economics, it was among the first supplemental resources I used that seemed to engage the students and generate a lot of discussion. The students actually looked forward to their sessions with "Uncle Milton", as they referred to him. I got to know more about him (secondhand) when I worked at the Fed with an economist who had him as his graduate advisor at the University of Chicago.

If you want to know more about him, check here and here. Regardless, I thank you "Uncle Milton."

A Birthday Observation

Today is the anniversary of the birth of Thorstein Veblen. He is not well-known now, and he wasn't particularly well-known when he was alive.  Nevertheless, his idea of "conspicuous consumption" is something that many of us understand.  Think of it as "signalling". 

You and I often buy products to send information to others about our status, our class, our likes and dislikes. We do this because it adds value (or at least we think it does).  And it's a concept your students understand.  When they make purchases because something is in, hip, cool or whatever the current term is...conspicuous consumption.

July 26 Birthdays

There are two birthdays to recognize today.

First, we extend birthday wishes to Jagdish Bhagwati. Professor Bhagwati is at Columbia University and is one of the leading international economists today. His work is very accessible, one of my favorites being In Defense of Globalization. For a sample of his work, look here.

The second birthday we recognize is that of Alfred Marshall. If you aren't sure why we should recognize Marshall, look at the supply and demand graph you most recently drew. It was Marshall who emphasized that price was the result of BOTH. He was also the thinker behind price elasticity and consumer surplus. For a more complete bio, check here.

Origin of Moral Sentiments

A couple of days ago, Don Boudreaux at Cafe Hayek had this very interesting post linking to a recent New York Times op-ed on moral rules.

What was perhaps most interesting to Don (and to me) was that much of the recent research cited in the Times piece comes to the same conclusion Adam Smith arrived at in 1759 in The Theory of Moral Sentiments.

I've said it before on this blog and I'll repeat it, if you're teaching economics and you've only read An Inquiry into the Nature and Causes of the Wealth of Nations, you're only half-way there. If you've not read either, you owe it to yourself and your students to read both. You and your students will gain much from it.

Economists vs. Economics

For me, one of the more interesting aspects of economics is the interest in economic forecasts. People frequently ask me what I think of some recent event. Sometimes I can offer an opinion. Lots of times I can't or won't. In those cases it's usually because there's not enough information to base even an opinion on.

It's more interesting because people will also ask me what I think is going to happen (forecast). While I'm flattered they think I might know, I frequently tell them I don't. It's the truth. I don't have any special power to divine the future. I have a different way of looking at things than many of them. Doesn't mean it's right or wrong, just different. And when people ask, I often tell them about something I remember Louis Rukeyser writing many years ago. He was talking about calling the market, but it applies to the economic forecasting just as well. Rukeyser said something like, "If you're going to tell them a direction, don't tell them when or by how much. If you're going to tell them when, don't tell which direction or by how much. And if you're going to tell them by how much, don't tell them when or which direction."

That came to mind when I ran across this post on EconLog earlier today. Paul Samuelson may be one of the most influential economists of the 20th century, if only because so many people learned economics out of his textbook. (I think I'm one of a few in my generation who didn't.) He made some predictions about the shape of the post World War II economy that I found startling. They were all the more so because the largest ramifications didn't happen.

This was further reinforced when I was speaking about Irving Fisher to a group of students recently. While I think Fisher's crowning achievement is the equation that appears at the top of this blog; some of the students only knew that he had predicted a "permanently high plateau" for the U.S. stock market shortly before the 1929 crash. (As in so much of life, timing is everything.)

So what's the point? This article from The American Spectator (HT to Cafe Hayek) brought everything together. The gist of the article is that while economists may "fail", economics still has value. It tells us much about human behavior, both on a micro and a macro level. It is often more difficult to understand the macro level, but I think it's because we ascribe too much "knowledge" to economists. Economists know much. They understand a lot about human incentives and response. But like anyone else, it's really hard for them to see into the future.

I welcome your thoughts. I also hope you have a nice weekend.

Keynes vs. Hayek (continued)

Last Sunday (July 4), I posted on a pair of recently discovered newspaper clippings that featured a real time debate between John Maynard Keynes and Friederich Hayek on the nature of the biggest problem of that time - the Great Depression.

Now here's a follow-up. It's an article that appeared in both The Wall Street Journal and on the Cato Institute web site. (HT to Cafe Hayek for the pointer). In the article, by former Dallas Fed vice-president Gerold O'Driscoll, Keynes and Hayek debate the nature of savings, particularly in a downturn. According to the article (and the clippings), Keynes thought a dollar spent was a dollar spent. Therefore, prime the pump and let the spending do the work. Hayek was actually a bit pickier. He believed some dollars - those spent on investment - as more powerful.

There are a couple of other points Hayek and his colleagues made, but these countering views have much to suggest to us about "proper" (whatever that is) fiscal policy in the current environment - at least as Keynes and Hayek might have seen it.