The uses of the past

Many years ago the famous economist Axel Leijonhufvud gave an unpublished paper at the History of Economics Society Meetings at Harvard, entitled “The Uses of the Past”. According to a 2002 interview with Brian Snowden (PDF):

I talk about the history of economics as a decision tree. When I teach students about the Keynes-classics controversy I try to explain to them what the quarrel was about and what the choice was that the mainstream made. Errors in that decision tree were sometimes apparent only a long time afterwards. That’s exactly why those who are working at the frontier of the subject should know.

The paper was published last year as an economic discussion paper by the Universita'deglia studi di Trento. The Uses of the Past (PDF) makes a strong case for studying the history of economic thought:

The argument of this essay can be put in today‘s parlance: If you cannot think outside the box, how do you know you‘re in the right box? It is all very well to know your way around a broad class of models and be able to play with the assumptions and get more or less new results. But this only amounts to rearranging the furniture in the familiar box. It does not give you a view from the outside. For that wider perspective and the measure of intellectual independence that it brings, the History of Thought is your best bet. At the very least, it will tell you how you got into that box in the first place. If successive decisions have narrowed the options to the point where the box gets claustrophobic, back tracking reopens lost vistas.

Also worth reading are the papers given last August at a UCLA Conference in Honor of Axel Leijonhufvud

Comments

[Alex M Thomas]

Very valid post. In fact universities and student dont consider History of Economic thought as very important, probably because they feel that it is lacking in math.

[sakthi]

"The uses of the post",excellent article.Being a management student i always give much importance to the economics and its history..I believe history of economics gives you the real time knowledge about how to deal under critical circumstances with financial issues and also lead you to take better decisions.
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[marketreflections]

"If you cannot think outside the box, how do you know you‘re in the right box?" This is great, and I had a post on the similar thought.

051707 Has Bill Gross's clock slowed?

marketreflections.com

Between an ideologue and a chartist, as one of my postings titled, I struggle everyday.

But, let start with Bill Gross first.

Bill Gross, uneasily sitting on the rising front end of the yield curve, with his huge bet on 2Y T to go up in price as Fed cut rate per his ideology, is now asking “Mnestro” Greenspan for a little help, with cost unknown(reuters.com).

An admirer but not a believer of Bill Gross on his almost 2 year old bet, I nevertheless often make my own ideology-based and money-losing trades, and I am going back to Professor Gedanken for help, free, revisiting “moving light clock” (see my previous postings). Please assume I actually understand it and correct me.

http://www-atlas.lbl.gov/QuarkNet/Wo...#300,13,Moving Light Clock”

Assume Bill Gross is doing the well-known elevator “thought experiment”:

Bill stands inside of an elevator in a free-fall or accelerating upward, holds two mirrors with his two hands, perpendicular to direction of motion of light pulse, and observes light pulse bouncing between those two mirrors, with light speed=c, the distance between the two mirrors=d, the time light pulse moves from one mirror to another (one way) =t.

To Bill Gross, and in his reference frame as he stands inside of the moving elevator, t=d/c.

To an observer outside of elevator in a different reference frame, light travels actually a LONGER PATH between the two mirrors (still one way), because gravity warps space resulting light traveling in a CURVED path (D), opposite to the straight line (d) as observed by Bill Gross inside of elevator.

Whether inside or outside of elevator, light speed is still constant at c, but T =D/c for the observer outside of the elevator, and t=d/c for Bill Gross inside of the elevator. Since D>d, T>t, Bill's time clock has slowed significantly to the observer outside of the elevator.

Back to Bill Gross’s bet on Fed’s rate cut.

Standing inside of his “housing and debt” elevator and thinking in his reference of frame, bonds yield =< growth rate of GDP, GDP growth rate =< 2%, Fed rate <5.25%, with CPI=2-2.5%, almost for 2 years.

For the Mr. market standing outside of Bill’s “housing and debt” elevator, Fed’s rate may or may not go below 5.25%, depending on the “curving ” of GDP growth path obviously. And as far as Mr. market and almost everybody else in the world of reality and outside of Bill Gross’s world of ideology, Fed probably would not cut the rate for the foreseeable future.

Has Bill Gross's clock slowed? Betting on that, wolfs jumped on with huge short positions built up recently on 2Y T (see my previous postings). They always do and like that.

One of the differences between an ideologue, very often of bears and bulls, and a chartist, very often of wolf types is:

Bears and bulls often lock themselves inside of their own world of ideology or FA and refuse to come out, wolfs travels between and visits those two worlds, and the marketplace, with only one ideology in mind: pursuing profit.

I better write this on the wall of my computer room.

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