History of Economics

In the half-century following World War II, economics was so totally transformed that those who studied it before the war might as well have lived in another world. First of all, there was an enormous increase in the use of mathematics, which came to permeate virtually every branch of economics. Hand in hand with the spread of mathematical economics went an increasing sophistication of empirical work under the rubric of “econometrics”, comprising a combination of economic theory, mathematical modelling, and statistical testing of economic predictions. The post-war tendencies in economic thought were best exemplified, however, not by the emergence of new techniques but by the disappearance of divisive “schools”, but the increasingly standardized professional training of economists all over the world, and by the transformation of the science from a rarefied academic exercise to an operational discipline geared to practical advice.

In retrospect, this consensus within the economics profession reached a climax somewhere in the 1970s. Since then, there has been something of a sense of crisis in economics. At any rate, the confidence of economists in their own subject has been increasingly sapped, first of all by the appearance of “stagflation”—the simultaneous presence of unemployment and inflation—which contradicted the implications of Keynesian economics, and secondly by the proliferation of dissenting schools of thought within economics, such as Radical Economics, Evolutionary Economics, Austrian Economics, Post-Keynesian Economics, Sraffian Economics, Behavioural Economics; not to mention monetarism, the New Classical Macroeconomics, Neo-Keynesian Economics, Transactional-Costs Economics, and the New Institutionalism within the inner bastion of mainstream economics. The history of economics in the last quarter of the 20th century, when it comes to be told, will be a more complicated story than that of inter-war or immediate post-war economics.