History and economics: it was all there in the beginning …

<SelfIndulgenceAlert>Stuart MacIntyre was kind enough to suggest me as a discussant on a paper on financial deregulation in the 1980s in a workshop focusing on Australia and the Bretton Woods conference put on by Melbourne Uni History and Economic History. (Yes I know it’s a little unclear how the 1980s get involved but there you go – this was the unpicking of the institutions Australia built around the Bretton Woods arrangements). In any event, after reading a fair bit of history for the workshop and talking to historians,  economic historians and economists over two evenings I checked out some work I did for my PhD and was quite taken with it. I never know whether I’ll think something I’ve written in the past is good or not when I return to it years later. Anyway, dear reader, I was pleased with my trip down memory lane. I was also surprised at how little the basic tone of what I’d written had changed.

Anyway, I then thought I’d go back to my grad dip thesis, which I recall writing when I’d worked out a lot less. But one thing amazed me. For a long time I’ve been aware of the fact that, though I got some training in economics, the only education I ever got was in history. It was through doing history that I was first brought face to face with that thing that Steve Jobs mentions which is that at some stage in your life you realise that this vast info structure was built by other people just like you – just as fallible as you.

Of course it sounds obvious, but if it’s properly felt or experienced then it can have an impact. In any event I fell in love with the way in which, when it is good, history involves theoretical reflection on the practice of history in the process of practicing it. Any discipline could be like this, but few are. In virtually every discipline you do – whether in the social or the natural sciences – you can do the “philosophy of” course, but they’re usually pretty lame in my experience precisely because they’re an add on. In any event economics is about as bad as it comes in that regard.

Indeed it’s the only one I know of in which ‘theory’ doesn’t mean what it means as I’ve adverted to it above. It means formal models and the equivalent of ‘practice’ is empirical work. Reflection on questions like ‘what criteria determine what a good model is?’, ‘how much of economics is falsifiable in principle and how much is in practice, and what if very little of it is in practice?’. Is the analytical process of working out what the right economic policy is more like the engineering steps needed to get a person to the moon and back or working out how to win a football game (Hint: I think the answer is the latter, but that’s another post?). Well you can go and do a unit of ‘The Philosophy of Economics” but best of luck getting help with those questions.

I reflected a little on this in a speech I gave a couple of years ago. In any event, going back to the preface of my grad dip – written in the late(ish) eighties, it turns out that it was all there – way back then. To do economics using the skills that history had taught me, and that were vanishingly rare in economics. The zen of trying to open one’s mind. Anyway, the preface to my Grad Dip thesis – on my experiences in car industry policy is over the fold.

Oh, one more thing. The preface is my best answer to the pride that economists have in the aggressiveness of their intellectual culture. This is the idea that the stronger the competition – celebrated here – the better because it imposes stronger selection pressure in the market for ideas all the better to select the fittest ideas. I can only say I’ve never experienced that. It’s true that within some formally defined world one person can often by right, the other wrong. But most argument actually requires the skills of listening and searching for common understandings at least as much as it requires contest around disagreement. And that’s even true of a lot of argument about technical matters, which degenerate surprisingly often into some subtle misunderstanding.  

This paper would not be the way it is without certain influences.

My participation in formulating policy for the Australian automotive industry from 1983 till 1985 while working as private secretary to Senator John Button and consultant to the Automotive Industry Authority dictates the basic subject matter. Influences on my method have been less direct.

A degree of familiarity with some of the central ideas of the ‘theory’ of social inquiry and knowledge acquired as an historian showed me why the rationality with which one pursues inquiry and knowledge – particularly in the social sciences – is inescapably and profoundly problematic. The reason for this is quite simple. Any model and any analytic apparatus actively selects, and by describing, identifies and organises facts and associates them with each other in explicitly stated or metaphorically suggested relationships of various kinds. On this foundation measurement, analysis and interpretation proceed. While this is necessary to acquiring the benefits of analysis and improved understanding, the selection, organisation and description of facts in one way necessarily excludes alternatives.

Where the limitations of analysis go unrecognised, there arises the risk of what (I think)1 Veblen called ‘trained incapacity’, which, in this instance will take the form of an analytical training which provides the benefits of analysis at the (possibly heavy) price of blindness to the necessary limitations and inherent selectiveness – and so myopia – of a particular analytic system. In this sense the essay is a plea for methodological toleration and arises from my experiences in learning about the car industry.

I arrived on the scene a confirmed “Rattigan man”. Indeed it is not stretching the point to say that I was brought up as one! So the industry’s calls for assistance were all explicable to me as expressions of self-interest. Nevertheless, I made it my business to prick up my ears whenever I was surprised by something. Here, just as was the case with historical research, my surprises provided me with an opportunity to reflect on my assumptions. When a senior Toyota executive said to me that his company wanted to know what the government wanted so that Toyota could do it, that surprised me very much. That wasn’t quite how companies were supposed to express their interests. Given the state of the Japanese industry vis a vis our. own, I treated these ideas with respect. Slowly, I began to see things differently. When industry representatives argued for assistance of various kinds I began to see that, sure enough this was an expression of self interest, but that this was not the whole story. it was also a consequence of the practical conditions existing within what economists call ‘imperfectly competitive’ markets.

I started to see the ‘inside’ of a story in which I had previously been an outsider. The experience was not unlike the opening of interpretive doors in history. Bailyn had a similar sort of experience studying the pamphlets of the American revolution.

[T]hey are, to an unusual degree, explanatory.… They reveal not merely positions taken; they reveal motive and understanding. …  And I found myself viewing the[m] with surprise, for the ‘interior view’, from the vantage point of the pamphlets was different from what I had expected.2

I came more and more to see the ‘IAC line’ as a partial perspective on the economics of the industry. Industry’s view was perhaps even more so, frequently involving a simple failure to understand or listen to IAC arguments, or even to try putting itself in the place of a government which, whatever its motives, must seek some consistency and fairness in its decision making. There seemed to be a fairly desperate need to do whatever was possible to put the two views together, or at least to initiate some genuine dialogue between the two worlds. I have attempted that in this paper.</SelfIndulgenceAlert>

  1. You can tell this is before the world wide web!
  2.  Bailyn, B. The Ideological Origins of the American Revolution, Cambridge, Mass, 1967, p. vi. Emphasis in the original
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7 Responses to History and economics: it was all there in the beginning …

  1. Hi Nicholas, I assume you are talking about the navy man Alf Rattigan whose memoir, “Industry Assistance — the Inside Story,” is a good read, especially the hilarious incident where the wine waiter spilled a tray over Doug Anthony and Gough Whitlam in their dinner suits. A point made by Rattigan and conveniently forgotten by politicians was that before “restructuring” people out of their jobs, governments should have alternative employment lined up. Rattigan was influential with the early “Dries” such as John Hyde, Peter Shack and Jim Carlton. I like your mention of the competition of ideas producing the best answers. That was Milton Friedman and the market place going mad.

  2. Nicholas Gruen says:

    Thanks Jerry,

    Yes, the same Alf Rattigan. I didn’t know he was from the Navy. He was generally seen as Black Jack McEwen’s right hand man – a ‘safe pair of hands’ who’d do his bidding and then he got interested in the question of how he should do his job. It took him some years to get out of the intellectual fog the organisation was in and I don’t think he started off knowing any economics. From memory he plays down the wrong turns taken during the journey – like his signing off on a report in 1965 proposing local content schemes for car manufacture!

    My reference to being a “Rattigan Man” is a reference to Whitlam describing himself as one in a famous comment. Rattigan was one of the brave adventurers who wanted to do his job better and he encountered a profession that was ready to help guide him.

    My reference to the idea that the ‘marketplace for ideas’ will always promote the best argument is a negative one. It depends on the rules of the game, and if it’s simple aggression, it’s likely people who disagree will be talking past one another.

  3. Nicholas Gruen says:

    [I]n any society which recognized only external goods competitiveness would be the dominant and even ex- clusive feature. Alasdair MacIntyre, After Virtue, 1981, p. 196.

  4. I am and will always be Not Trampis says:

    Nick,

    Rattigan being McEwen’s right hand man???

    Have you gone mad. Rattigan got the job by mistake and Black Jack tried to hose him down at every opportunity.

    People forget that Whitlam’s program in 72 was quite economically rational. He was heavily influenced by the Vernon report although promising sewerage to everyone essentially was by far his most popular promise.
    Liberals I guess would say it was typical of Whitlam as he was full of sh-t

  5. Nicholas Gruen says:

    Homer,

    Have you read Rattigan’s book? I think I’m right in saying that McEwen appointed him as a functionary and ‘safe pair of hands’ which he tried to be for a while. But he became impatient with the intellectual fog he found himself and after some struggling, fell among economists.

    A dismal fate no doubt. The rest is history …

    But I’m happy to be corrected. It’s a long time since I read the book.

  6. I am and will always be Not Trampis says:

    Nick,

    No doubt why Black Jack appointed him however once Rattigan began spouting ‘free trade ‘sentiments Black Jack thought he was conned.

    We should remember protectionism was the all believing religion in both parties at the time.

  7. Nicholas Gruen says:

    In 1968 Max Corden wrote that protection was an academic issue in Australia and there was no prospect of it changing. Five years later tariffs were cut by a quarter.

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