Taiwanese-born British-American economist Linda Yueh has written a book that explains the key thoughts of history’s greatest economists, men and women who changed the world. She begins with the Industrial Revolution in the late 18th century and ends in the present, showing how their ideas could help with the policy challenges that we face today.
STATE VS. MARKET
Yueh picks out twelve great economists, placing them on a scale based on the extent to which they believed the economy should be controlled by the market or by the state. On the right: free market economists Milton Friedman and Friedrich Hayek, who were the motivation behind Thatcherism and the Reagan revolution in the 1980s. On the left, Karl Marx, who believed that the capitalist system would inevitably lead to a demand for a more egalitarian system where the state decides everything.
NATURAL BALANCE
Most economists, however, are somewhere in between. Pioneering historic figures Adam Smith and David Ricardo believed the market drove the economy as people act rationally when making economic decisions. But the state did have a role in ensuring that the market is competitive; allocation of resources within an economy, they believed, helps the market find a balance between supply and demand.
ALL DEAD
Further to the left on Yueh’s scale, 1930s economist John Maynard Keynes caused a revolution in economics by contradicting the widespread belief that the economy would fix itself naturally in the long term. The state not only could but should intervene, he famously said, because “in the long run we are all dead.”
behind the numbers
In her book The Great Economists, Linda Yueh selects a dozen key figures from history and explains why their ideas on economics changed the world. But to really understand them, she says, we must look at the times in which they lived and the highs and lows of their own personal fortunes. In a presentation for her book, Yueh begins with the Scotsman known as the father of economics, Adam Smith, who was not in fact an economist.
Linda Yueh (American accent): He was a philosopher. During the Scottish Enlightenment, which was around the time of the European Enlightenment, he saw the Industrial Revolution and he created a framework to understand it. His [The]Wealth of Nations introduced us to ‘the invisible hand’. This is still the theory that governs economics. So having enough competition means that prices and quantities are determined by demand and supply.
THE PACIFIST
Smith took ten years to write his famous book The Wealth of Nations (1776). But, said Yueh, he timed its publication to send a message to the British government.
Linda Yueh: The great economists were heavily engaged in the policies of the day, so 1776 was when the American War of Independence was — depending on your perspective — won or over. He wanted Britain not to be wasting money on ruinous wars. He wanted Britain to see that an independent American colony would trade just as well with Britain. And he believed that if the state had to intervene, then it should do so in a non-discriminatory manner. So, if you had to tax on imports, you should tax the tipple of the rich the same as the tipple of the poor.
THE ENTREPRENEUR
David Ricardo is called the father of international trade. In the early 19th century, he played a role in Britain repealing protectionist laws that were advantageous to local landowners, and opening the country up to global trade instead. What’s more, said Yueh, he liked to gamble.
Linda Yueh: David Ricardo was actually a stockbroker, he never went to university. But he bet the right way on the battle of Waterloo (1815). He became rich. He became bored. And he was on holiday in Bath and he happened to pick up a copy of The Wealth of Nations. He taught himself economics, he later on became an MP and he became engaged in this debate around globalisation, and pushing back against protectionism.
THE REVOLUTIONARY
Karl Marx, a German in Britain, was inspired by industrialisation. He predicted that worker exploitation would lead to revolution. When it seemed that this would actually happen with the financial crisis of 1873, Marx was thrilled.
Linda Yueh: After the Panic of 1873 he became really excited. This was it! This was the crisis that was going to topple capitalism! His co-author Friedrich Engels got so hyped up, he started practising shooting on horseback. But there was no revolution. The world economy went back on a[n] upturn. So Marx changed his theory. He decided the crisis that was going to trigger a communist revolution was inequality.
THE CHAMPION OF THE POOR
Marx died disappointed that the communist revolution that he had predicted had not happened. Yet the string of revolutions across the world in the early 20th century were to inspire Joan Robinson, a former disciple of Maynard Keynes.
Linda Yueh: She started off the 1930s as the wife of a Cambridge don; by the end of the 1930s, she was the most prominent female economist — a great economist. She was one of the five Cambridge economists within Keynes’s inner circle, she was also married to one of the other ones and having an affair with another one. Later in her career she disavowed keynesianism and she began to admire communist regimes, so in her lectures at Cambridge she would turn up in Vietnamese peasant outfits.
THE UNLUCKY MATHEMATICIAN
If you’re wondering who made economics seem boring, explained Yueh, you can blame Alfred Marshall, who introduced the ubiquitous demand and supply curve in the early 20th century. But it was Irving Fisher, an American professor at Yale, who really made the subject technical. The first celebrity economist, Fisher’s reputation crashed in the 1930s.
Linda Yueh: Irving Fisher moved the headquarters of economics from Britain to America by introducing mathematics. He made the subject much more technical. He’s extremely influential. His debt-deflation theory is what central bankers — the head of the US central bank — relied on to ensure the great recession we just went through didn’t become like the Great Depression. But, he’s never mentioned in books like this one because in 1929 he predicted the stock market was on a permanently high plateau. And then after the crash he then predicted the economy was going to right itself really soon. And then, when the second recession hit in 1937, it destroyed his reputation and it destroyed him financially.