It will rarely, if ever, be the case in economics that an old account of the economic world will be shown to be simply wrong, like the mediaeval account of planetary motion, or the phlogiston theory of heat.
Ever since Archimedes jumped from his bathtub, scientists have hoped for eureka moments – confirmation or realisation of a momentous discovery. They have sometimes found them, as when Albert Einstein’s theory was verified during an eclipse or Francis Crick and James Watson discovered the structure of DNA. These eureka moments changed the way we see the physical world, with profound social, economic and political consequences. Relativity paved the way for nuclear energy and Crick and Watson made commercial biotechnology possible.
Stories of young scientists on the trail of path-breaking discoveries are riveting and inspirational. Mr Watson’s account in The Double Helix of young researchers having fun at the frontiers of knowledge is the best recruiting poster imaginable for a scientific career. In his recent book, Knowledge and the Wealth of Nations, David Warsh has attempted a similar narrative. “In 1980, the 24-year-old graduate student Paul Romer tackled one of the oldest puzzles in economics. Eight years later, he solved it,” burbles the publisher. Mr Warsh seeks to describe economic research with the same sense of excitement that Mr Watson conveys.
If only it were so. There are few eureka moments in economic research. The development of economic understanding and our appreciation of the world we have created are fundamentally different from the development of our scientific understanding and our appreciation of the world we live in.
Most economists would agree that the two most important books in their subject in the past century were John Maynard Keynes’s The General Theory of Employment, Interest and Money and Paul Samuelson’s Foundations of Economic Analysis. But neither presents new discoveries, in the sense in which Archimedes, Einstein or Watson made new discoveries. Both books, like Adam Smith’s Wealth of Nations , set out a new and productive framework for describing old problems.
Keynes effectively established the subject of macroeconomics. He introduced fundamental concepts such as effective demand and set the stage for the measurement and control of economic aggregates. Professor Samuelson provided mathematical foundations for the rational choice models that dominated theoretical economic research in the next 50 years. Prof Romer is a founder of post-neoclassical endogenous growth theory. Endogenous growth is a rather pretentious description of the idea that technological advance does not happen by chance but is the result of investment, is dependent on the scale of economic activity and needs to be embodied in new equipment. Prof Romer extended the standard description of economic growth processes to incorporate those well recognised features of the world. No eureka moment, but modestly useful.
Always in search of eureka moments and scientific analogies, Mr Warsh sees Mr Romer’s account of economic growth as competitive with other explanations, rather as Copernicus and Galileo offered an account of planetary motion that conflicted with accepted wisdom. Are differences in the growth rates and income levels of countries explained by endogenous technological changes, as described by Mr Romer’s model? Or are they the result of persistent differences in investment? Or does the explanation lie in differences in the structure of institutions? The likely answer is that economic growth is substantially affected by all these things, in an interacting manner and in proportions that vary with time and place and context.
It will rarely, if ever, be the case in economics that an old account of the world will be shown to be simply wrong, like the medieval account of planetary motion, or the phlogiston theory of heat. Empirical tests in social sciences are never decisive, as they sometimes are in natural sciences. Nor are new explanations of economic affairs ever so compelling that they exclude all others.
That is why economists will never encounter the smug certainties that Archimedes, Galileo, Einstein and Watson must have felt. They have the different excitement of piecing together partial explanations of a world whose variety and perpetual change mean that it will never be amenable to universal explanation.