To understand what will happen in the future, it’s first necessary to understand the past. History is like a train. It is propelled forward in a certain direction with a great deal of momentum. It can’t turn on a dime. If you can see where it’s coming from – and how quickly – then you will have a pretty good idea about where it is going, at least in the short term. In this blog I am going to write about (and recommend) some of the books that have shaped my understanding of the past and what that means for our economic future.
Economic events cannot be understood outside the political and social context within which they occur. Therefore, an understanding of economics must begin with an understanding of history. I enjoy reading grand, sweeping history books and biographies best. One that I particularly recommend is A Terrible Beauty: The People and Ideas That Shaped The Modern Mind, by Peter Watson. This book covers all the important intellectual breakthroughs of the 20th Century and it presents them in easily digestible segments, generally two to three pages in length. It’s brilliant. For me, it was a joy to read. For everything before the 20th Century, Peter Watson’s Ideas: From Fire to Freud is also very interesting – although I will admit I skipped most of the early “cave men” chapters. Another great sweep of history is Millennium: A History of the Last Thousand Years by Filipe Fernandez-Armesto.
Paul Johnson is another one of my favorite historians. He has written histories of the United States, of Christianity, of the Jews and many others. But the one I read first (just after college) and loved best was Modern Times: A History of the 1920s to 1980s (later updated to the 1990s). It opened my eyes to the harsh realities of international relations and to the horrors that occurred during mankind’s most violent century to date. Johnson was one of Mrs. Thatcher’s favorite historians.
Earlier this year, I read From Dawn To Decadence: 500 Years of Western Cultural Life 1500 to the Present, by Jacques Barzun, published when he was in his 90s. It’s astonishing that one man could know so much. Be warned this is not an easy read.
The French Revolution was a major turning point for Western Civilization and a critical moment in the slow emergence of Democracy and civil liberties. Simon Schama’s Citizens is a truly wonderful account of that upheaval when the gutters of the Place de la Concord in Paris ran red with the blood of the decapitated ancient regime. The hard back is beautifully illustrated.
I read biographies of all the leaders of World War II. Churchill was my favorite, although there is no question that they all (FDR, de Galle, Hitler, Stalin and Mao) were extraordinary individuals who tremendously impacted our world - whether for the good or for evil. Martin Gilbert wrote the definitive biography on Churchill, although William Manchester’s The Last Lion, about Churchill’s extraordinary youth, is a book I will never forget (and one that is easy to get through).
Over the last few years, I have read a string of biographies of American presidents to try to form a better understanding of American politics. David McCullough’s Truman and Robert Caro’s multi-volume biography of President Johnson were the best. I read volume three, Master of The Senate, and I’ve started volume four, The Passage of Power. They describe Johnson’s ruthless lust for power, how he obtained it and what it did with it. It’s an incredible story.
The global economy is powered by oil. Daniel Yergin’s The Prize (a Pulitzer prize winner) colorfully describes the extraordinary history of that industry by telling the stories of all the remarkable characters who dominated it – by hook or by crook.
Bertrand Russell’s History of Western Philosophy is a classic. Finally, Ray Kurzweil explains the exponential growth in technology and what that means for our future in The Singularity Is Near, a book that fundamentally changed my understanding of where we are headed in the next few decades.
Now, let’s focus in on economics. I find biographies of economists to be very useful in learning about the evolution of economic thought. Biographies explain why and how economists developed their ideas and the intellectual background against which those ideas emerged.
Here, a good place to start is with Robert Heilbroner’s The Worldly Philosophers: The Lives, Times and Ideas of The Great Economic Thinkers. This relatively short book discusses the lives and ideas of Adam Smith, Thomas Malthus, David Ricardo, Karl Marx, Thorstein Veblen, John Maynard Keynes and Joseph Schumpeter. After that, read a biography of Keynes. John Maynard Keynes was born at Cambridge, where his father was a professor. He knew everyone who mattered in the final decades of the British Empire. He had an extraordinary impact on his world (and ours). Robert Skidelsky was given a peerage for his three volume biography of Keynes. D. E. Moddridge did a good job in one volume.
Alan Ebenstein wrote an entertaining biography of the Austrian economist, Friedrich Hayek. There is also an interesting biography of Joseph Schumpeter, Prophet of Innovation and Creative Destruction by Thomas McCraw. Finally, Harvard professor Richard Parker wrote a great biography of John Kenneth Galbraith which did an excellent job of describing the intellectual development of the economics profession in the United States during Galbraith’s long life, as well as clearly explaining Galbraith’s own work.
Now, for some of the economic books that made history during the 20th Century. Ludwig von Mises published The Theory of Money and Credit in 1912. It can be considered the bible of Austrian economics. Among much else, it explained the role played by credit in creating economic booms and busts. Also in 1912, Irvine Fisher – probably the greatest ever American economist – published The Purchasing Power of Money, the most eloquent explanation of the centuries-old Quantity Theory of Money, the theory upon which Monetarism was built.
Keynes’ General Theory of Employment, Interest and Money was published in 1936. It lead to the “Keynesian Revolution” between World War II and the 1970s. Keynes would not have approved of Keynesianism – at least not as it has been practiced. In the General Theory, Keynes argued that governments should run budget deficits during severe economic recessions to stabilize the economy and then pay down the government debt with budget surpluses during economic upswings. That never happened. Politicians ran budget deficits in bad times and in good times - and destroyed Capitalism in the process. Keynes wrote beautifully. His Essays in Persuasion and Essays in Biography are a pleasure to read. During his lifetime he was recognized as the greatest intellect in the English speaking world.
Friedrich Hayek and Joseph Schumpeter were also from Austria and like von Mises they all immigrated to America to escape the upheavals in Europe that culminated in the Second World War. Hayek wrote two great books (that I have read and others that I haven’t). The Road to Serfdom (1944) did more to reverse the rising tide of Socialism (especially in England) that anything else ever written. It sparked a counter-revolution that inspired Mrs. Thatcher in England and people like Milton Friedman in the United States. The Constitution of Liberty (1960) expanded on his theme that Capitalism and individual liberty are inseparably linked.
Schumpeter wrote three brilliant books. In Business Cycles (1939) he argued that the business cycle was driven by waves of innovation. There he coined the term “creative destruction” do describe the process through which Capitalism creates economic growth. In Capitalism, Socialism and Democracy (1942) he wrote that he believed it was inevitable that Socialism would replace Capitalism – although he regretted it. A History of Economic Analysis can only be described as magisterial. It begins with the Greeks and ends when Schumpeter died in 1950. This is more of a reference book than something that can be read cover to cover.
John Kenneth Galbraith wrote many books, some more profound than others. Of the ones I have read, The New Industrial State (1967) was by far the most impressive. In it he argued that by the early 1960s, Capitalism had evolved into something different, something he called The Planning System which was dominated by a few oligopolistic corporations in every industry and underwritten by government spending. It makes a very persuasive case.
Last and least is A Monetary History of the United States, 1867 – 1960 by Milton Friedman and Anna J. Schwartz, published in 1963. This is a great book, but I describe it as “least” among the ones I have mentioned because it concluded that the Fed could have prevented the Great Depression if it had prevented the Money Supply from contracting in 1931 when the banks began to fail. This argument became conventional wisdom, persuading almost everyone, including Ben Bernanke. It led policymakers to believe there could be no crisis so severe that they could not handle it by creating more money. This created an atmosphere that the banking industry took advantage of to have their industry deregulated. Of course, it was financial sector deregulation that lead to the credit boom that has left us teetering on the brink of a New Depression when it bust in 2008.
So, there you go. Read all that and not only will you know where we are coming from, you will also have a pretty good idea of where we are likely to go next.
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By the way, I’ve been in the US for the last couple of weeks promoting The New Depression. On August 20th, I was interviewed on CNBC Squawk Box in New York. Here’s the link: