Pioneers of Financial Economics: Das Adam Smith Irrelevanzproblem?

Article excerpt

Abstract: This paper is a contribution to the debate surrounding the steady decline in importance of the history of economic thought within the economics curriculum. The relevance of the history of financial economics to this debate is examined and a 'histories of economic thought' strategy is suggested to improve the future prospects of the subject. In the process, Das Adam Smith Irrelevanzproblem is identified and discussed. Das Irrelevanzproblem is concerned with the question: why do Adam Smith and other classical political economists continue to play such a central role in traditional thought when the relevance of these thinkers to modern economics, particularly new additions such as financial economics, is so limited? This paper demonstrates that the history of financial economics commences at least a century prior to The Wealth of Nations and is largely independent of the traditional thought which commences with the role of Adam Smith as the leading Enlightenment thinker on issues relevant to political economy.

1 Introduction

The steady decline in importance of the history of economic thought is well known (Cardoso 1995, Barber 1997, Blaug 2001). The subject has largely disappeared from the graduate economics curriculum. Important history of economic thought journals are excluded from citation indexes commonly used to measure scholarly output, threatening the future well-being of scholars working in the area. Job prospects for junior scholars specialising in the history of economic thought are bleak. While the decline is evident, the causes are less clear. For example, Roger Backhouse (2002) attributes the decline to dramatic institutional changes in the modern university while Blaug (2001) identifies 'the philosophical overhang of positivism' and the 'economics of economics' as reasons. Faced with a falling demand, the subject has experienced dramatic pressures for 'revisioning' from within. This has generated lively and sometimes acrimonious debate over whether the history of economics is part of the much wider 'history of ideas' or 'history of science' (Schabas 1992; Hands 2001). The detractors argue that the history of economic thought is most appropriately aligned with economics. As Blaug (2001) observes: 'No history of ideas, please, we're economists'. This paper examines the relevance of the history of financial economics to this debate and suggests a 'histories of economic thought' strategy to improve the future prospects of the subject. In the process, Das Adam Smith Irrelevanzproblem is identified and discussed.

Das Adam Smith Problem is concerned with the consistency between the two major works of Adam Smith, The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776) (WN). (2) 'Das Problem' epitomises the central importance of Adam Smith in classical political economy. This importance is amplified by the hallowed role that classical political economy has in the traditional approach to the history of economic thought ('traditional thought', hereafter). In contrast, Das Irrelevanzproblem is concerned with the bias introduced by static chronicling of the history in terms of individuals and associated texts, rather than by an evolutionary approach to history that reflects the germination and propagation of ideas used in modern economics. In traditional thought, the same specific individuals and texts, such as Adam Smith and the WN, constantly play a pivotal role. This static approach to the history resists the evolutionary approach based on chronicling 'the genesis of ideas and the evolution of methods' (de Roover 1974, p. 366). The perspective of 'Das Irrelevanzproblem' leads to substantively different questions than those addressed in 'Das Problem'. In particular, why do Adam Smith and other classical political economists continue to play such a central role in traditional thought when the relevance of these thinkers to modern economics, particularly new additions such as financial economics and econometrics, is so limited? …