May 18, 2009

What Should Every Econ Grad Student Read?

We sat round the table discussing what is missing from the reading lists of today's graduate students in economics. Today's syllabuses concentrate heavily on stocking up their mathematical and econometric toolkit. I don't have a problem with that. On the contrary, I regret the technical deficiencies in my own background, and I regret them more as it becomes less likely that I'll ever make them good.

Still, we worried: do today's syllabuses neglect a broader understanding of how institutions have evolved and of what history shows? What should every economics graduate student read?

There has been a lot of comment recently on how to educate today's kids in animal spirits, neuroeconomics, and behavioral stuff. But that was not at the centre of our concern, important though it is (I wrote about it recently here). This is a correction that is already under way. When Thomas Sargent says that rational expectations is "oversimplified," it won't take long to trickle down into advanced macro.

What bothered us is deeper issues: are today's graduate students learning, discussing, and debating how successful market economies have evolved, and how and why markets work, what stops them working, and how best to let them work?

One suggestion was that the graduate students should all read The Wealth of Nations by Adam Smith (1776). The only Nobel laureate at the table (for this was Stanford) dismissed the idea with a wave of the hand. "Too eighteenth century," he said.

Overawed, I kept my mouth shut. Here is what I thought afterwards.

My first recommendation is an article called "The Use of Knowledge in Society" by Friedrich von Hayek (1945). Here, Hayek explained how markets economize on information. In a market economy, supply and demand allocate resources without outsiders or superiors needing to possess complete information about individual preferences or firms' capabilities. Bureaucracies, in contrast, need to know everything about you, me, and everyone else, before they can make decisions. Where market economies thrive on information, bureaucracies choke on it -- something that I see daily, sitting in the Hoover Archive among the milliions of documents bequeathed to history by the Soviet command economy.

Having read that, a natural question, particularly in our present-day context, is: what should be done when markets nonetheless fail? Here I turn to Oliver Williamson (1985), who proposed the idea of the "impossibility" of selective intervention. Most people think we should aim to combine the best of market forces and political action (I do too). Let the market economy do its wonders where it can; where it can't, let the government intervene and fix things. Williamson points out that in principle this cannot work out. The reason is that there is intrinsic uncertainty about where political action can allocate resources better than markets. If you give politicians the power to intervene selectively, it is certain that some of their interventions will make things worse. (And they do! Look around you!) As a result, no government, democratic or otherwise, can commit to intervene only when the result will improve social welfare.

Despite this, governments do intervene. When they do, do they improve things on balance? An essential handle on this question is provided by an article on "The New Comparative Economics" by Djankov et al. (2003). I do not know whether this article has truly founded a "new comparative economics" but it does conceptualize and model a fundamental idea. This is that every society faces its own trade-off between losses from political action and inaction. The absolute losses can be large or small, depending on each society's institutional arrangements, but every society has its own optimum. There is no guarantee that an optimum will be reached, however. Learning where we are in relation to our own optimum is similar to understanding whether we are suffering from too much or too little intervention.

Finally, although selective intervention is impossible, government have historically intervened and have often required the advice of economists to do so wisely. And they will continue to do so. Therefore, graduate economists need to understand how their advice can affect both economic policy and the economic lives of millions. In particular, every graduate student should know more about the Great Depression. No one has written a better account than Peter Temin (2000), and the story he wrote ten years ago has vivid, extraordinary relevance for the present day. I hope he is proud of it; he should be.

Unless you have a better idea ...


  • Djankov, Simeon, Edward Glaeser, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2003. The New Comparative Economics. Journal of Comparative Economics 31:4, pp. 595-619.
  • Hayek, F.A. 1945. The Use of Knowledge in Society. American Economic Review 35(4), pp. 519-30.
  • Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. In four volumes. Edinburgh.
  • Temin, Peter. 2000. The Great Depression. In The Cambridge Economic History of the United States, Volume III: The Twentieth Century. Edited by Stanley L. Engerman and Robert E. Gallman. New York: Cambridge University Press, 2000
  • Williamson, Oliver E. 1985. The Economic Institutions of Capitalism. New York: The Free Press.

- 3 comments by 1 or more people

  1. himmelwerft

    This is very strange. In Russian university economic departments (and I think in all of them, because the standard is a state education plan) Adam Smith, Ricardo, Marx, Keynes and Galbraith at the very least are the very core mandatory program reading for any student. Hayek was optional, but a few articles were mandatory.

    By the way, wanted to note that “Guns and Roubles” is very, very good (at least the parts I managed to read from it which were in free access). Thank you for your historical works very much.

    15 Jun 2009, 06:43

  2. Mark Harrison

    The history of economic thought has been in secular decline in most British and North American departments for many years, and we do not teach it at any level. I have mixed feelings, in so far as there is a lot in the history of thought that (even) I would find pretty tedious. My impression is that there would be little demand for it if our students were free to choose, and freedom of choice is something that I favour generally. If we are going to coerce our students, we should do so minimally. Hence my question: what is the minimum they need to have contact with, that can help them to a deeper sense of what economics is and what economists can achieve?

    17 Jun 2009, 20:20

  3. Judith Shapiro

    I support everything said here, which I came across whilst googling for contemporary comments on Hayek for our visit day for undergraduate offer holders. I assume it is a dead thread, but still, as a fan of this blog I thought I would write it, if only just for Mark.

    Therefore, one informative caveat, which also support the view “We” means Warwick I assume.

    History of Economic Thought is taught at LSE (EC311) History of Economics: How Theories Change originally by Mary Morgan in Economic History and now by a newly hired lecturer who did her PhD in economics at Exeter. A visting Australian has taught it also. Having a good-sized market for it (it is a completely free choice) does require size, and I can report that at least 45 do choose it every year, and it has to be capped at 60. However, only a minority of these are doing our “straight” BSc Economics. Some of those choosing it are trying to reduce the number of technically demanding final year courses, but also amongst those opting for it are some PhD bound students, even though I chide them that taking it is a luxury. (One who fortunately did not listen to me is on her way to Princeton in the autumn).

    I think its great that the extent of our market makes this division of labour possible (and if a graduate student does not recognise that reference they have learnt soemthing. That said, I don’t think it is necessay. I support the argument that history of economics is now as relevant to economics as history of physics to physicists. It can be absorbed in the same way, as extra reading, as Mark is proposing.

    I will not comment now on the question of what should be required for Russian students, about which I know something. I don’t think the present course is what would be most valuable. I used to teach the required History of Economic Thought course for gradaute students when I was a young American assistant professor in the late medieval period. Making it compulsory was a pretty good way to destroy it.

    18 Apr 2010, 09:30

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I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).

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