What is economic imperialism, in the context of the study of economic history?

by benjaminikuta

"In recent decades economic historians, following Douglass North, have tended to move away from narrowly quantitative studies toward institutional, social, and cultural history affecting the evolution of economies.[7][a 1] However, this trend has been criticized, most forcefully by Francesco Boldizzoni, as a form of economic imperialism "extending the neoclassical explanatory model to the realm of social relations."[8]"

What is economic imperialism, in the context of the study of economic history?

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The neoclassical explanatory model in economics is a group of ideas about how to explain people's economic decisions, using a number of assumptions, including:

  1. People are rational utility maximisers.

  2. People have complete knowledge.

  3. Prices are set by the interaction of supply and demand, and more specifically marginal supply and marginal demand. (Ignoring government intervention for the moment).

  4. People act independently.

  5. The idea of an equilibrium, to which markets and people's actions tend to converge.

The full necolassical model is generally dated to a textbook published in 1890, called Principles of Economics, by Alfred Marshell, an Englishman, whose textbook was the dominant in England for the next generation. Note though that there are many interpretations of what neoclassical economics is, and words like "rational" have many meanings.

Since Marshall's textbook there have been many extensions of neoclassical economics, including modeling of decision-makers with incomplete knowledge. And economists started extending the neoclassical principles to areas outside economics' tradtional material of markets and prices. Lazear (2000) defines economic imperalism as:

the extension of economics to topics that go beyond the classical scope of issues ... The most aggresive economic imperalists aim to explain all social behaviour by using the tools of economics. Areas traditionally deemed to be outside the real of economics becuase they do not use explicit markets or prices are analysed by the economic imperialist. For example, discrimination against particular groups, traditionally thought of as a perhaps irrational social phenomen, has been addressed by economists during the past 40 years.

Gary Becker is one of the key figures in expanding economics into other social sciences, and won a Nobel Prize in Economics for this work, though his focus was more on sociology than history. For example, Becker modelled crime as a rational behaviour, he says this was initially prompted by him trying to find parking and balancing the odds of getting a fine if he parked illegally, versus having a longer walk and charges from a legal parking spot.

But it wasn't just Becker, Leamer(2000) also reports economists getting involved in modelling religious behaviour, behaviour inside firms (instead of the early 19/20th century assumption of profit-maximising firms, finance, and accounting, law, politics (eg Buchanan and Tullock modelled governments as being run by self-interested politicians and bureaucrats, rather than the optimal agency implicitly assumed in neoclassical economics works like Pigov's on environmental taxes.

Lazear doesn't mention history in his paper,  possibly because economists have always been involved in economic history. 

Deirdre McCloskey [nee Donald McCloskey] (1995) discussed how neoclassical tools can get applied to historical analysis. She identifies the key tool as being choice:

Neoclassical economists are fond of preaching that to take one road in a yellow wood is to sacrifice another. ... The businessperson must choose between markets at home and abroad; the consumer must choose between buying in the village or in town; the male laborer must choose between a factory or an apprenticeship; the female homeworker must choose between making homespun or entering the market.

McCloskey identifies the main alternative view as that led by Marxists as being that what matters is the institutional setting, not individual choices. To which McCloskey the economist's reply, is that while wide reforms and revolutions and their possibilities are important, so are the individual choices which when aggregated can be very powerful. I recommend reading all of http://www.deirdremccloskey.com/docs/pdf/Article_106.pdf for more detail. 

McCloskey mentioned one big difference between an economist's view of history and an opposing one. Another one is opportunity cost: economists with an interest in history tend to regard the European empires of the 16th to 20th centuries as a bad thing not just to their victims but also to the European economies, that the Europeans would have been better off if they had traded mostly peacefully with other countries, like they did with the USA post-revolution. Many non-economist historians meanwhile attribute European prosperity to the empires. 

So in the context of history, economists can come across as coming from a very different view point to the traditional historian.

Just as an addendum, I want to say something in defence of the economist's use of rationality as an assumption as I know it gets attacked a lot. No economist thinks that humans are perfectly rational. But there are two reasons I have for defending rationality.

 Firstly, we are descended from generations who managed to survive in a hostel world at least long enough to raise a generation of kids to the point where they could raise a generation of their own. It is hard to imagine how that could work if we generally were irrational. And we've gone beyond mere survival, it is somewhat bizarre to read an article about how people are irrational delivered to me over a complex network of wires and computers, powered by machines ceaselessly running, the article written and edited and proof-read and returned, how did all that happen if people are irrational? 

Secondly, if persons are irrational and you are a person, then logically you're irrational too. So if you see someone behaving in a way that you think is irrational, then some modesty is in order: perhaps you are the one who is misunderstanding the situation. An assumption of rationality guards against our own tendencies to irrationality, it forces us to search for alternative explanations rather than just take the easy way out. 

So, in summary, economics imperialism is a particular way, or ways, of seeing the world, which economists have been applying outside of their classic subject matter. Economic imperialism is not confined to history, but perhaps history was the first victim. 

Sources:

Peter J. Hammond, Rationality in Economics, https://web.stanford.edu/~hammond/ratEcon.pdf

Edward P. Lazear, Economic Imperialism, The Quarterly Journal of Economics, Volume 115, Issue 1, 1 February 2000, Pages 99–146, https://doi.org/10.1162/003355300554683, pdf at https://core.ac.uk/download/pdf/6822322.pdf 

Nobel Prize on award to Gary Becker https://www.nobelprize.org/prizes/economic-sciences/1992/becker/facts/

Interview with Gary Becker: https://www.minneapolisfed.org/publications/the-region/interview-with-gary-becker

Deidre McCloskey, "Counterfactuals," article in Eatwell, Milgate, and Newman, eds. The New Palgrave: A Dictionary of Economic Thought and Doctrine (Macmillan, 1987). http://www.deirdremccloskey.com/docs/pdf/Article_97.pdf

Deirde McCloskey (nee Donald): The Economics of Choice: Neoclassical supply and demand, http://www.deirdremccloskey.com/docs/pdf/Article_106.pdf, Thomas Rawski, ed., Economics and the Historian (Berkeley and Los Angeles: University of California Press, 1995): 122-158. 

Note, you may also be interested in this contrasting view on economic imperialism by Justin Fox in the Harvard Business Review at https://hbr.org/2013/01/the-end-of-economists-imper.html, though it covers matters outsise the 20 year rule.