He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought…No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.
Such paragons were hard to come by, Keynes sighed: “Good, or even competent, economists are the rarest of birds.” But there can have been no doubt in his mind that the likeliest place to find them roosting was among the sandstone crenellations of Cambridge colleges. The Cambridge economics department, founded by Marshall and home to Keynes, was at that time the world’s leading school of economics. It not only taught bright young people from around the empire. It also made them into what its faculty thought economists should be: technically accomplished purveyors of policy advice, dispassionate but engaged.
The goal can be seen in the exam questions of the time. Students were expected to combine economic principles with a strong grasp of current affairs. In 1927, for example, one paper on public finance asked students to explain the size and reasons for the main areas of British government spending. They were expected to have the skills of an essayist, spending one three-hour exam on a single question such as the future of gold, the rights and duties of shareholders, or alternatives to democracy. Cambridge economics considered itself to be an analytical science but calculation was not of the essence. A module in statistics produced a page-long test for final-year students; all the other papers were bare of mathematical symbols.
Compare this with the exams of today. Charlotte Grace, a student in the third year of the economics tripos (as undergraduate degrees are known in Cambridge), says she could have passed all the questions she faced in her first year without reading a newspaper. And though the five-page final-year macroeconomics exam that was set in 2015 asked about some contemporary policy conundrums, like which features of the euro zone may have contributed to its sovereign debt crisis, most of the paper sought to test students’ knowledge of tricky, algebra-heavy models. Three-hour pontifications on a single topic have been ditched in favour of a compulsory dissertation in which original empirical analysis is encouraged.
These tests reflect changes in the discipline. Students must master the technical apparatus of a highly specialised field. The maths they need to know and apply is sufficiently taxing as to barely leave time for history. Evidence-based conclusions are preferred to arms-length analysis; economists should know the limits of their expertise, and shy away from political judgments as they think through the effects of whatever policy tweaks providence might throw at them.
The mathematical precision and rigour is appealing to some. On a bright day in October, the first day of lectures this academic year, Angus Groom, a fresh-faced 18-year-old, comments that his first lecture, on macroeconomics, was “the kind of stuff I’ve read about before, but really coming at it from a rigorous perspective.” He is grateful to get beyond the wishy-washy stuff he studied at school.
The structured discipline Mr Groom is studying is a long way from the messy stew Mr Marshall faced when he first conceived of the economics tripos. When he was appointed to the university’s chair of political economy in 1885 economics was nestled in the “moral sciences” tripos along with psychology, logic, ethics and other fields. Marshall argued that “a lad, coming from school to this large and heterogeneous mass of difficult notions entirely strange to him, is bewildered”, and would be left “unripe”.
“The status of economics...appears to have been at a rather low point,” Neil Hart writes in the forthcoming “Palgrave Companion to Cambridge Economics”. It was looked on as “a minor and disputed area of study, with many of its lecturers and professors recruited or ‘borrowed’ from other established disciplines.” Exam questions reflected the fuzziness of the field’s boundaries. One paper in 1871 asked students to consider whether political economy had more to learn from ethics or vice versa. As was the way of the times, economic issues were seen through the lenses of personal, national and, particularly, class advantage. For example: “If any one had private information that war was about to break out between England and America, what sort of changes in his investments might it be prudent for him to make?” And: “Examine the probable results, to the different classes of English society, if the anticipated decline and ultimate exhaustion of our coalfields were to commence at once.”
Not good enough, Marshall thought. The complexities of the first globalised economy and the accompanying intensification of social problems meant the empire needed more and better economists. Cambridge, he argued, should meet that need by producing professionals with “three years’ scientific training of the same character and on the same general lines as that given to physicists, to physiologists or engineers.” His textbook of 1890, “Principles of Economics,” offered a tidy blueprint.
The Principled stand
Marshall’s book established the use of diagrams to illustrate economic phenomena, inventing the demand and supply curves familiar to fledgling economists ever since. And it provided a view of the economy as a dynamic system akin to a physical one, so complicated that it was best broken into parts. Its partial equilibrium analysis, which held some bits of the economy constant to clarify movements in the others, gave economists a way to carve smaller questions from the complex whole. Along with David Ricardo’s “On the Principles of Political Economy and Taxation” and Karl Marx’s “Capital” it was one of the three most influential economics books of the 19th century.
Marshall was horrified to see Pigou in a Norfolk jacket with holes in both elbows: “So bad for the economics tripos!”
The independent tripos Marshall wanted finally got off the ground in 1903. Its courses were not all curves and equations. His first syllabus expected students to know about the British constitution and to opine on topics like “the use of the term ‘natural’ in economic writings” or “economic aims as a factor in international politics”. But it was already more practical. In a module from 1907 called “Advanced economics: mainly realistic” students were asked to “give some account of industrial arbitration in New Zealand.” The overall idea was to cultivate economics as no more, or less, than “a study of mankind in the ordinary business of life.”
In 1908 Marshall handed over the reins to Arthur Pigou. A shy 30-year-old and keen mountaineer, Pigou had something of the 19th-century polymath about him. He had started off studying history and had won the university’s poetry prize for his ode to Alfred the Great before switching to the moral-sciences tripos in 1899 to study economics and ethics. Known around Cambridge—unoriginally and, one imagines, rather unhelpfully—as “The Prof”, he had a reputation as one of the city’s worst-dressed men. Marshall was once horrified to see him in a Norfolk jacket with holes in both elbows: “So bad for the economics tripos!”
Whatever his sartorial shortcomings, Pigou’s academic brilliance made him an obvious heir to Marshall. And as the author of “The Economics of Welfare”, he furthered Marshall’s cause by helping economists turn nettlesome political controversies into technical problems. Before he came along, decisions to meddle in markets were seen as helping one constituency over another, at the cost of inefficiency. He himself railed against the protectionism and imperial preference of the time, worrying that they were bungs to a small segment of the population.
In other cases, though, he showed that when there are external costs to someone’s actions, a bit of meddling might improve on the market outcome. For example, those who ignore the effects of their pollution on others will pollute too much. A nifty tax to align the individual’s incentives with those of society can mean better outcomes for everyone. Armed with this idea, economists could argue for intervention on technical grounds of efficiency.
Marshall championed Pigou; but his favourite student was Keynes, who came to one of Marshall’s courses after taking his mathematics degree in 1905. In 1909 Keynes returned to lecture on monetary economics. When he spoke in his essay on Marshall of a master economist as “mathematician, historian, statesman, philosopher” Keynes could have been describing himself (and perhaps he was: modesty was certainly not part of the recipe). Hopping between roles as an academic, civil servant, government adviser and journalist, he took vigorous part on the biggest topics of the day; his pamphlet arguing against self-defeating economic reparations on Germany, “The Economic Consequences of the Peace”, made him rich and famous.
Like Pigou, Keynes emphasised that individually sensible decisions might be disastrous for society. He did not have the troves of data that economists have today, but could see that the mass unemployment of the 1930s was the result of a deep market failure: the queues of people on the dole were unwillingly unemployed. In defiance of the consensus that overall the economy would right itself, he thought that economies could end up trapped in deep and nasty slumps simply because of self-fulfilling losses of confidence. The solution was government intervention, in the form of an injection of public spending and confidence. His work justified policy intervention as an antidote to capitalism’s imperfections, to save it rather than to replace it; and it did so, as Pigou’s had, with the help of apparently dispassionate technical argument.
Technical fixers
Keynes and Pigou established economics as a toolkit to be used by policymakers, and pioneered the role of government economic advisers. Keynes famously remarked that “practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist”; his policy activism was designed to replace that unexamined received opinion from the past with explicitly stated apposite analysis from the present. When the British government created a Committee of Economists to advise it in 1930, Keynes and Pigou were both appointed to it. Meanwhile Cambridge strove to produce more of their ilk. Through the 1920s and 1930s Keynes delivered eight lectures a year on his work in progress, “The General Theory of Employment, Interest and Money”, and created an intellectual hub of economic disciples, known as the “Cambridge circus”. A group of younger members of the faculty began meeting in 1930 to discuss Keynes’s “A Treatise on Money,” published that same year. Specially selected undergraduates could go along too.
Students were by this time expected to take on board a lot more mathematics and theory than they had before. When he visited Cambridge in the 1940s, shortly before Keynes’s death, Harry Johnson, a Canadian economist, was struck by how much more demanding the tripos had become. Once, he wrote, all you had to do to pass the exams was read Marshall’s “Principles” over the course of the year and the Times at breakfast every morning; the rest of the day was free for being “out on the river with God”. By the time he arrived, finalists had to read Keynes’s “General Theory” from cover to cover, and digest intellectual debates such as those between Keynes and D.H. Robertson, a close collaborator who became an intellectual rival, on the “liquidity preference” and “loanable funds” theories of interest. (The heat of debate spilled over into exams: a student of 1947 asked to consider the criticism that “Lord Keynes’ doctrine of liquidity preference ‘seems to leave interest hanging by its own bootstraps’” might reasonably have wanted to know who the examiner would be before answering.)
The flatter world
The Cambridge faculty, though still impressive, has inevitably fallen back from the dizzy heights it occupied from the 1920s to the 1940s. Keynes shook up the settled consensus, codifiable in the textbooks of Marshall and Pigou. The next time a consensus settled within economics, it was forged in a different Cambridge, that of Massachusetts. A post-war intellectual backlash against Keynesianism relegated the original Cambridge to a dissident backwater, condemned to critique the mainstream from outside.
Today the faculty no longer nurtures its own school of thought, but it still suffers from the post-imperial shift towards America’s high-paying universities. Yet even among them, none towers as the Cambridge of Pigou and Keynes once did. The general success of the profession, and the institutional growth that has gone along with it, have made it hard for any single school to achieve true pre-eminence. Nor are battle lines drawn as once they were. Economists have largely fulfilled Marshall���s aim of rising from muddy ideological debates; the biggest fights today are between methodologies, not ideologies.
Keynes and Pigou transformed the discipline with new grand theories of how the economic system works while taking an active part in policy and encouraging others to do the same. The role for economic advice thus created has remained. But in Britain, in particular, the settled opinions of the broad church mean that such advice has been to some extent commoditised. Philosophers and grand debaters have been replaced with specialists building ever more intricate models and finding increasingly sophisticated ways of drawing lessons from data.
Hamish Low, a Cambridge professor who works in applied economics, does not mourn the loss of philosopher kings’ grand intellectual debates. “Now we need to be much more evidence based”, he says. But the discipline’s development has come with a cost. The specialisation associated with expertise can encourage narrow thinking. “Disciplines are now defined too much by methods rather than by questions”, Low says. This narrowness feeds through to policy advice, which too often applies established models to current circumstances, rather than considering fundamental reinterpretions of the issues. Economists can give you an estimate of how much revenue a tax increase will raise, the income loss associated with Brexit, or the employment effects of a minimum wage rise. It calls to mind another aphorism from Keynes about economists being at their best as “humble, competent people on a level with dentists”, using their technical skill to solve pressing problems within a limited area of expertise.
Underlying this intellectual timidity is a bigger failing. After his enjoyably rigorous lecture on macroeconomics, Mr Groom’s second taste of his department comes from Ha-Joon Chang, author of popular books such as “23 Things They Don’t Tell You About Capitalism”. At the heart of Marshall’s desire to separate economics from politics, Mr Chang explains to his rapt audience, lay a contradiction: “Economics is about economic policy, whose making is political.” The new space Marshall carved out for economics, and his new way of teaching it, left the discipline better equipped to inform politics disinterestedly. But the politics were always already there. As the discipline focused more and more on technicalities and models this persistent presence slipped from view. But though it was hidden, its power remained—all the more pernicious for being unseen and thus unquestioned.
As Mr Chang explains to his students, seeing politics as an external factor affecting how economic theory translates into policy can be a useful approximation. But that approximation ignores the rest of the system—the part where economic theory and politics influence each other’s evolution. So, for example, economists have busied themselves constructing models of preference without asking through what exercise of power those preferences were formed. While some spotted the colossal rise in income inequality that took place in Britain and America from the 1980s, they have, until quite recently, tended to dismiss it as primarily a political issue. They are all too often silent on just the sort of questions the tripos used to see as crucial: the rights and duties of shareholders; alternatives to democracy; the effect of the exhaustion of fossil fuels; the meaning, if any, of the word “natural”.
If economists really were dentists, this might be fine; no one needs a political ideology of cavities to perform a root canal. And living without dentistry is a dreadful thing. But Keynes at best only half believed his dentist conceit. He also wanted the “mathematician, historian, statesman, philosopher”: aloof; earthy; purposeful. Not every economist can be all those things, nor could they ever. But if the old aspiration to try and be so is lost, so is part of Marshall’s original dream of economists seeking not merely to apply their ideas in a worldly way, but to produce both better ideas and, in the end, a better world.
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