If you want to return to your economics classroom to get a refresher on macro-economic theory or want to know what all these theories are about, you should pick up Linda Yueh’s book The Great Economists.
If you want to return to your economics classroom to get a refresher on macro-economic theory or want to know what all these theories are about, you should pick up Linda Yueh’s book The Great Economists. It is true that almost all subjects today are explained with jargon, which makes the specialist and practitioner important, as only they can explain the finer aspects. But Yueh shows that you can do it yourself in this excellent book, where she takes us through the theories of 12 major economists. What makes this book special is that it is simple to read and understand. It follows a fixed pattern, where there is an introduction of the economist and a write-up on their early lives and how and why they became what they are now known for.
There was evidently inherent excellence in them that led to some remarkable achievements and breakthroughs in economic thinking. More importantly, all these theories are relevant today and one can actually match the present environment with their ideology. Next, she explains what their statements and theories were all about. Here, the reader gets to know what these economists stood for and the various debates they engendered along with the elements, which became the foundations of their theories. The third part is probably the most exciting, where the author takes you through how the current economic situation, starting from the financial crisis and other contemporary developments, can be understood based on their theories. Interestingly, these economists had answers to all the issues.
These three elements on various economists make this book a great one. It does not prolong the discourse and gives the reader enough to tell you how their lives and theories turned out, including some personal details. Most theories were formulated against the background of the environment in which they lived. You get to know that John Maynard Keynes and Joseph Schumpeter lost lots of money in the stock market at the time of the Depression in the 1930s. Most of them were well-off individuals who ventured into the subject of economics out of sheer passion and belief. Probably the least discussed economist today is Douglas North, who had a deep impact on a subject, which we talk of today, but never relate it with an economist—institutions.
North had spoken of the importance of institutions in bringing about growth and this is where one can relate to the concept of governance. Africa is a very good example—even though it has shown signs of growth in some pockets, it’s been an underperformer because of poor governance. This has meant that growth has been uneven across nations, where institutional development lags. If we look at India and the progress made in the last quarter-century following reforms, it becomes clear that strengthening them has made a difference. Robert Solow, who became famous for his theory on factor productivity as a means to growth, is relevant today, with the concept of technology catching on in a different way. Artificial intelligence is something that would have puzzled this economist.
The conflict is that when we bring in too much technology, which becomes labour-displacing and does not create jobs, can we say technology has brought about growth or has it only substituted labour? This is a question worth thinking over. Schumpeter became popular for his theory on creative destruction, besides his famous book on capitalism, socialism and democracy. His argument was that it is a natural order that countries go for an overhaul when existing structures are uprooted and replaced by new ones. The financial crisis was an example of how the financial system was changed completely, as institutions crumbled and the structure changed. David Ricardo and his free trade theory get questioned when we talk of the recent Brexit issue or the rather inward-looking policies followed by the US. Would this be something that Ricardo would have agreed to? Today, countries are all moving against the dictates of the WTO, while forging free trade agreements elsewhere. Therefore, countries are becoming closed and open at the same time based on political motivations.
Ricardo, on second thoughts, would still be right, as benefits of free trade are much larger than the loss of freedom. The great Adam Smith would never have agreed to services being the driver of the economy, which is the case in most countries today. For him, the manufacturing sector mattered, as this was where production took place along with innovation. Countries moved ahead because they produced goods. Therefore, can one say the financial crisis was inevitable when this sector was out of sync with the industrial sector’s progress? The fact that several countries decided to go back to manufacturing post the crisis, in the form of rebalancing their economies, would be a vindication of the Smith doctrine. Closer home, our government, too, is trying to get manufacturing back on the growth map.
Keynes, the ‘big boss’ of economics, always remains relevant, as pump priming is considered most proper globally. Joan Robinson’s theory on low wages can be linked with her stance on imperfect competition, where factors of production are not mobile nor is there perfect information, which is what most economic theories assume. Milton Friedman became more politically oriented for a large part of his later career, but he is relevant from the point of view of open markets and less government interference. Inflation is always a concern and when we see the RBI and the MPC always talking of these numbers, we realise that Friedman was spot on and is even today working in everyone’s mind. The Great Economists is extremely engaging and serves a grand five-star buffet meal with all the starters, main courses and desserts. Each chapter can be read independently and the sequencing of the three sub-courses, when writing on an economist, makes this book even more delectable.
Madan Sabnavis is chief economist, CARE Ratings