Teaching & Learning History of Economic Thought (HET): Some Observations

The following is a short reflection and response to the lectures, questions, and conversations at the recently concluded 3-day HET workshop at MIDS, Chennai. In personal conversations, many people thought that HET is about economic ideas that originated in a particular context. 

That is, Smith’s economics is a response to his sociopolitical context. And therefore, the implication is that Smith’s political economy be placed in a museum—an archaeological site that we visit occasionally. Another implication to this appears to be that HET is not relevant to contemporary thought because our context is different from that of Smith’s. 

Such an approach to HET, to me, makes it a rather dead subject. Consequently, in the economics curriculum, it serves other core papers such as micro and macro by providing it with context/history and thereby improving student learning/understanding. Yes, this is important, but it makes HET an instrumental subject. However, that, per se, is not an issue because all knowledge in one way or the other are instrumental. 

I see 3 problems with such a view. 

One, it is a reductionist approach because it reduces ideas to the context, be it intellectual (i.e., texts, speeches) or sociopolitical (i.e., laws, wars, conflict). How do we then account for human ingenuity and creativity? Also, how do we understand classics—that have a timeless quality? Or, are we saying that there is nothing in economics that may be applicable across time and space? [On the question of applicability of economic theory, see the discussion in Chapter 6 of my macro book.] 

The second problem is that such a reductionist view of HET inevitably succumbs to the linear view of intellectual progress. Wherein the ideas of Solow are better than Smith objectively speaking and that the ideas of Solow are more relevant to us because, in terms of calendar time, Solow’s work is closer to us than Smith’s. 

The third problem is that we are okay about marginalized ideas remaining forgotten. Studying ideas—texts written by women (and folks whose texts were not popular)—remain invaluable for contemporary thought and action. This perhaps depends on how comfortable we are about ignoring the ideas of our ancestors. (I am currently reading The Penguin Book of Feminist Writing edited by Hannah Dawson; the first text belongs to 1405 and the last one to 2020.)

HET: Understanding Economics

HET allows us to organize past ideas in a meaningful manner. The simplest organizer is that of calendar time. But ideas are forgotten, revived, exhumed, bolstered, expelled, popularized for a variety of reasons and so a simple chronological account cannot provide a sufficient historical account of economic ideas. 

We need to have other ways of organizing so that we understand not only the past better but also the present. Another organizing principle among historians of economic thought is that of ‘school of thought’ or ‘paradigms’. For instance, HET books discuss ‘classical’ and ‘neoclassical’ general equilibrium (Harvey & Gram 1980); ‘neoclassical’, ‘Keynesian’ and ‘Marxian’ (Wolff & Resnick 2012); ‘classical political economy’ and ‘supply and demand theories’ (Bharadwaj 1986). 

Many historians of economic thought, including me, reject the ‘neoclassical’ label. This is because it suggests that there is continuity between ‘classical’ (associated with economists such as Quesnay, Smith, Ricardo) and ‘neoclassical’ (associated with economists such as Say, Walras, Marshall). The analytically satisfactory label is ‘marginalist’—because of their reliance on concepts such as marginal utility, marginal cost, etc. 

HET tells us that competing ideas have always existed; we often only learn about those that have been popular/dominant. For instance, Ricardo disagreed with Say that exchange value is determined by use value. And today’s microeconomics textbooks teach us that commodity prices are determined by cardinal/ordinal utilities. When Keynes and Sraffa were writing, the economic ideas of Marshall were dominant and those of Smith and Ricardo were forgotten. HET allows us to understand that the evolution of ideas has been anything but linear. 

And today as well, research happens in all schools of thought—contrary to what is implied in mainstream textbooks on micro, macro, econometrics, labour. 

The study of HET

We study the world by dividing it into different parts; for instance, the physical and social worlds. Or the natural sciences and human sciences. Or physics and economics. Economics may be further sub-divided into micro and macro. Or labour and ecological economics. 

Within HET, scholars sometimes distinguish between ‘history of economic analysis’ and ‘history of economic thought’ where the former is a subset of the latter. We can find economic thought in Arthashastra but there is no evidence of any theorizing/analysis. 

Another division in HET is that between the internalists and externalists although I think that most of us operate somewhere in that spectrum. The internalists study economic ideas by focusing on previous economic ideas and on the logical framework of that ideas. For example, when studying Ricardo, we read his texts and the texts he was influenced by such as Smith’s Wealth of Nations. My 2021 article ‘On “effectual demand” and the “extent of the market” in Adam Smith and David Ricardo’ is an example of this. When an externalist studies Ricardo, they include his social and political context and interpret his ideas as responses to them. A good example of this is Timothy Davis’s Ricardo’s Macroeconomics: Money, Trade Cycles, and Growth (2005). A good biography warrants a synthesis of the externalist and internalist approaches. 


HET allows us to understand the ebb and flow in dominant paradigms. It makes us aware that history is replete with debates across as well as within paradigms. Indeed, debates spur knowledge production. While most economics textbooks suggest consensus, economics journals (both orthodox and heterodox) suggest dissensus. There are conceptual debates, refinements, revivals and contextual critiques, challenges, applications. Furthermore, adopting an HET perspective in the teaching of microeconomics and econometrics will provide the learner with a critical grounding in history, politics and philosophy. 

I thank Thair Ahmed for helpful comments.

Frank Ramsey and the Rate of Interest

I first came across Frank Ramsey in the preface to Piero Sraffa’s classic Production of Commodities by the Means of Commodities: Prelude to a Critique of Economic Theory (1960). My recent interest in Ramsey is primarily motivated by the following news. Cheryl Misak, a philosopher based at the University of Toronto has recently completed a biography of Ramsey. This blog post provides an introduction to Ramsey’s life and his contribution to the growth theory literature. [It was reassuring to notice that I first blogged about History of Economic Thought (HET) explicitly more than 10 years ago.]

Ramsey was born in 1903. In the year 1920, he read around 45 books, which included Karl Marx’s Capital, Sidney Webb and Beatrice Webb’s The History of Trade Unionism, J. A. Hobson’s The Industrial System, J. S. MiIl, and Alfred Marshall’s Industry and Trade. At the age of 19, he was commissioned to review Ludwig Wittgenstein’s Tractacus Logico-Philosophicus (1922), a significant treatise in philosophy, for the journal Mind; the review was published in 1923. Subsequently, he was commissioned to translate Wittgenstein’s work into English. In Wittgenstein’s later work, Philosophical Investigations, there is an explicit acknowledgement of Ramsey. He was acknowledged for his critique/interventions of Bertrand Russell’s and Alfred Whitehead’s Principia Mathematica in a new introduction by the authors. Sraffa, in his PCMC, had acknowledged Ramsey for mathematical help. In 1929-30, Ramsey met with J. M. Keynes, Sraffa, and Wittgenstein to discuss the theory of probability advanced by Keynes and Ramsey and also to discuss Freidrich Hayek’s theory of business cycles. Ramsey also had a close engagement with AC Pigou, a leading marginalist economist who was also the target of criticism in Keynes’s General Theory. Ramsey died in 1930.’

Under the patronage of Keynes, who was the editor of the’ Economic Journal, Ramsey published in it articles on the ‘theory of taxation’ (1927) and the ‘theory of saving’ (1928). In my 2019 article which critically evaluated the Nobel contributions of Paul Romer and Nordhaus, I had highlighted that Nordhaus employs a marginalist growth model drawing from Ramsey (without further comment). Ramsey’s question was the following: how much should a nation save today for future consumption tomorrow so as to maximise consumption across generations’ Nordhaus employs the optimal growth model with environmental protection as an important constraint. And, the rate of interest is seen as a price which equilibrates the society’s time preference. In other words, the rate of interest equilibrates the society’s preference for the future with that of the present. The policy implication when marginalist economists have a significant say in practical matters is as follows. Since the (actual) rate of interest captures the time preference of the society, this rate can be used to decide how much of current gross domestic product (GDP) should be devoted to environmental protection. In effect, not enough resources are being allocated to mitigate climate change and undertake environmental protection.’

Ramsey’s optimal growth theory also underlies Thomas Piketty’s position on economic growth. In his 2015 article in the American Economic Review, he writes that in the standard model ‘where each individual behaves as an infinitely lived family, the steady-state rate of return is well known to be given by the modified ‘golden rule’ r = + ‘ g (where is the rate of time preference and is the curvature of the utility function)’ (p. 2). The reciprocal of is the intertemporal elasticity of substitution which captures how much the representative family wishes to smoothen consumption over time. He uses this to point out that in general (marginalist) economic theory, we arrive at the r>g result–the focal argument in his book Capital in the Twenty First Century (2015; for a critical assessment see Thomas 2017). Furthermore, ‘in steady-state each family only needs to reinvest a fraction g/r of its capital income in order to ensure that its capital stock will grow at the same rate g as the size of the economy, and the family can then consume a fraction 1 ‘ g/r‘ (p. 3). To a marginalist (or neoclassical) economist, as Joseph Stiglitz wrote in an article in 1974, ‘interest rates are just intertemporal prices’ (p. 901).’

Therefore, for both Nordhaus and Piketty, interest rates are ‘intertemporal prices’ which allocate today’s income between today’s consumption and tomorrow’s consumption (today’s saving). As Ramsey (1928) writes, ‘The more we save the sooner we shall reach bliss, but the less enjoyment we shall have now, and we have to set the one against the other’ (p. 545). It is also interesting to note that their use of optimal growth models yields vastly different policy suggestions. While Nordhaus is conservative in his proposals for environmental protection, Piketty is progressive in his proposals to tax wealth.’

The rate of interest in Ramsey, as in Alfred Marshall, is a reward for waiting. Therefore, inequality in Ramsey necessarily arises from the heterogeneity of tastes or preferences; if a family is (relatively) more patient, it saves more than the (relatively) impatient one, and ends up owning all the capital stock (Attanasio 2015). How does this conception differ from the notions of interest rate found in Marx and Keynes’ For Marx, the rate of interest is the part of surplus value which is expropriated by the financial capitalist; the source of it is from the value added by labour. Keynes views the rate of interest as an expression of the preference for liquidity. To conclude, is the conception of the rate of interest found in Ramsey satisfactory for understanding a competitive economy’


Attanasio, Orazio P.’ (2015), ‘Frank Ramsey’s Mathematical Theory of Saving’, The Economic Journal, 125 (March), pp. 269’294. https://doi.org/10.1111/ecoj.12229

Duarte, Pedro (2017), ‘Frank Ramsey’, In: Robert Cord (ed.) The Palgrave Companion to Cambridge Economics, Palgrave Macmillan, vol. 2, pp. 649’671.

Monk, Ray (1990), Ludwig Wittgenstein: The Duty of Genius, London: Vintage Books.’

Stiglitz, Joseph E. (1974), ‘The Cambridge-Cambridge Controversy in the Theory of Capital; A View from New Haven: A Review Article,’ Journal of Political Economy, vol. 82, no. 4, pp.’ 893903.

Further reading

Collard, David (2011), ‘Ramsey, saving and the generations’, Generations of Economists, London: Routledge.’

[Most of the contents of this post was informally discussed with my Economics colleagues at Azim Premji University on 19th February 2020.]