History of Economic Thought

Econ 426, Binghamton University, Fall 2008

Instructor: Dr. Florenz Plassmann Office Hours:
LT 915 Monday, 11 – noon
Phone: 777-4304 Wednesday, 2:00 – 3:20pm
Email: fplass@binghamton.edu

Class Meetings: MWF, 9:40-10:40am, Room: SW 323

Textbook: Robert B. Ekelund and Robert F. Hébert: A History of Economic Theory and Method, 5th
ed., 2007, Waveland Press ($82.95).
You can use a copy of the 4th edition if you can locate one (I have seen them for as little as
$6 + S&H on the internet). I have also placed a copy of the 4th edition on reserve at the
library.

Course Web Page: http://bingweb.binghamton.edu/~fplass/econ426/

I will post study questions, lecture summaries, announcements, and grades on this web page.

Course Objective:
What is the purpose of studying the history of economic thought? An illuminating answer has
been provided by Mark Blaug, a contemporary expert in economic thought and methodology. He
wrote:
“[...] the history of economics reveals that economists are as prone as anyone else to
mistake chaff for wheat and to claim possession of the truth when all they possess are
intricate series of definitions or value judgments disguised as scientific rules. There is no
way of becoming fully aware of this tendency except by studying the history of economics.
To be sure, modern economics provides an abundance of empty theories parading as
scientific predictions of policy recommendations carrying concealed value premises.
Nevertheless, the methodological traps are so subtle and insidious that the proving ground
cannot be too large. One justification for the study of the history of economics, but of
course only one, is that it provides a more extensive ‘laboratory’ in which to acquire
methodological humility about the actual accomplishments of economics. Furthermore, it
is a laboratory that every economist carries with him, whether he is aware of it or not.
When someone claims to explain the determination of wages without bringing in marginal
productivity, or to measure capital in its own physical units, or to demonstrate the benefits
of the invisible hand by purely objective criteria, the average economist reacts almost
instinctively but it is an instinct acquired by the lingering echoes of the history of the
subject. Why bother then with the history of economic theory? Because it is better to
know one’s intellectual heritage than merely to suspect it is deposited somewhere in an
unknown place and in a foreign tongue. As T.S. Eliot puts it: ‘Someone said: “The dead
writers are more remote from us because we know so much more than they did.” Precisely,
and they are that which we know.’ ”
(Mark Blaug, Economic Theory in Retrospect, Cambridge: University Press, 5th ed, 1996, pp.703-704.)

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Course Outline:
This course deals with the development of economic thought and with the changes in economic
methodology over time. We will begin by examining the early developments of economic thought
that were based on Platonic and Aristotelian philosophies, and discuss how Aristotle’s ideas were
rediscovered in medieval scholastic thought. We will contrast the political philosophy of Thomas
Hobbes, whose ideas influenced Mercantilist economic writings, with the philosophy of John
Locke, the father of ‘Classical Liberalism,’ who provided the philosophical foundations for the
classical British economists Adam Smith, Thomas Malthus, and David Ricardo. In the late 18th
century, Jeremy Bentham developed the theory of ‘Utilitarianism,’ which was introduced into
Economics through the writings of John Stuart Mill. We will discuss to which extent
Utilitarianism shaped economic thinking, and whether it is still an integral part of modern
economic theory. We will explore the ideas of two 19th century heterodox economists, Karl Marx
and Henry George, before we finally analyze the impact that the “marginal revolution” at the end
of the 19th century had on mainstream economic thought. Mainstream economics became more
mathematical as a result of this marginal revolution, while many heterodox schools of economic
thought did not adopt such a mathematical focus. We will briefly examine the philosophy of
science as it can be applied to economic thought to determine whether some forms of analysis are
superior to others.

Requirements of the course:

I. Prerequisites:
Econ 160 AND 162 Principles of Micro- AND Macroeconomics
Econ 360 OR Econ 362 Microeconomic Theory OR Macroeconomic Theory
Econ 366 Statistical Methods
I strongly encourage you to take these requirements seriously. In this course we will rely on the
material taught in these classes to understand the differences between various schools of
economic thought; be assured that you will have difficulties following the lectures and the text
book if you do not know this material reasonably well. Econ 366 is an Economics Department
requirement for all 400-level classes, and I cannot waive it!
NOTE: Students who are found not to have met this requirement will be deregistered from
this course by the Economics Department. It is your responsibility to adjust your
schedule if you have registered for this course without fulfilling the prerequisites.

II. Grades:
Your grade will be based on two midterms (30% each), and one cumulative final exam (40%).
If you are on the boundary between two grades at the end of the semester, my subjective
judgment will be influenced by your class participation. Although this does not mean that
participation is required, it is my experience that participation is extremely helpful. The more
active you are in class, the more interesting the material will become. I am always willing to
spend time discussing current events that relate to this course or to economics in general. But
you need to tell me what you want to discuss!

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III. Exam dates:
The midterms and the final exam will be on the following days:
▪ Midterm 1: Friday, September 28
▪ Midterm 2: Friday, November 7
▪ Final Exam: TBA (check BU Brain)
Before you decide to take this course, check that your personal schedule does not conflict
with these dates.

IV. Missed Exams:

(1) Midterms: If you miss a midterm, then I will automatically substitute your final exam grade
as the missing midterm grade. There will be no make-up midterm exams.
Note: ▪ If you show up for a midterm and receive the question sheet, then you need to finish
the midterm and the grade counts (i.e. no substitution). NO EXCEPTIONS!
▪ Don’t take this as an invitation to skip the midterms. You might have a bad day when
you take the final (for example, because you were busy studying for your other
exams), and every midterm helps you to spread the risk of getting a bad grade in the
course. In past semesters, most of the students who received D’s and F’s in my classes
decided not to take the midterms!

(2) Final exam: The following is the Economics Department policy regarding make-up final
exams:
ALL make-up final exams in Economics will be given Friday, December 19 from 8:00 to
10:00 AM. All officially scheduled final exams are linked from the Registrar’s website and on
the BU Brain – check NOW for conflicts. If a conflict exists you may request a make-up
exam from the instructor of ANY of the conflicting courses. If you choose to request a make-
up exam for an economics course, a sign-up list to request the make-up exam will be available
in class after the add/drop deadline – ask the instructor. Students MUST make their request for
a make-up exam in economics NO LATER THAN FRIDAY, October 3.

It is the student’s responsibility to learn from the instructor if the request has been approved.
Only students who are approved may take a make-up final exam. Students who have not
requested a make-up exam in an economics course by October 3 will be required to resolve
conflicting exams with the instructor in one of their other courses.

Make-up exams are approved ONLY for the following conditions:

▪ Conflicts with the OFFICIAL final exam schedule (e.g. exams at the same time or more
than two exams within 24 hours).
▪ DOCUMENTED personal illness or family emergency.

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V. Miscellanous:
(1) Under no circumstances will I give you a passing grade in this class only because you might
need such a grade to graduate. Grades will neither be based on need nor on effort, but solely
on evidence that you understand the material.
Do not ask for “extra credit assignments” at the end of the semester if your grades are not
sufficient for a C-. I would have to give everybody the opportunity to earn such extra credit, in
which case it would stop being “extra” credit.
The following table shows the distributions of final grades in Econ 426 during the past 7 years.
Note that there is a fair number of As but also several grades of C- and below. In my
experience, those students who do not earn a grade of C or better either do not spend enough
time on this class or have insufficient knowledge on Intermediate Theory.

Past grade distributions for ECON 426, History of Economic Thought

Year Enrollment: A A- B+ B B- C+ C C- D F Mean
Spring 2000 33 6 2 1 5 4 3 5 3 3 1 B- (2.67)
Spring 2001 33 4 2 3 6 9 1 1 7 0 0 B- (2.70)
Spring 2002 39 11 1 5 4 4 0 5 7 2 0 B (2.84)
Spring 2004 39 9 3 1 12 5 2 1 0 2 4 B- (2.78)
Spring 2005 40 6 0 4 3 9 5 11 0 0 2 B- (2.60)
Spring 2006 40 5 6 4 8 2 0 5 3 4 2 B- (2.65)
Fall 2007 16 8 2 1 0 1 2 2 1 0 1 B (3.09)

(2) You should consider not taking this class if

▪ you are not interested in the History of Economic Thought, and only take this class to fulfill
a requirement. Unlike in other Econ classes, we will not discuss tools that will help you to
solve economic problems. Instead, we will investigate the historical and philosophical
foundations of the theories that we propagate as economists. You need to be interested in
the “why?” and not just in the “how?”
▪ you are not willing to put considerable effort into the study questions. I will not collect the
assignments and I will not post any answer keys. I expect you to answer the questions on
the basis of the book, your lecture notes, the web links on the course webpage, and your
understanding of the material. If you do not try to solve the questions on your own, then
you will be unable to answer the questions in the midterms and in the final exam.
(3) Every semester I encounter students who do not drop my courses by the official drop date
(September 5), and later try to convince Academic Advising to approve a late drop. It is my
experience that Academic Advising very rarely approves late drops, and I want you to be
aware that I will not give you an incomplete if this happens. I will only give incompletes in
case of a true emergency (for example, documented personal illness).
(4) Academic dishonesty on an examination will result in a score of zero. NO EXCEPTIONS!
(5) Please let me know as soon as possible if you have a disability that requires special
accommodation for lectures or exams.
If you have permission to use additional time for in-class exams, let me know well in advance
so that I can supply adequate accommodation—do not wait until the evening before the exam.

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 Readings on Reserve at the Library and on the Web:
Author Title Call Number Library Web
st
Blaug, Mark The Methodology of Economics (1 ed) HB131.B56 c.2 X
rd
Blaug, Mark Economic Theory in Retrospect (3 ed) HB75.B665 1978 X
A History of Economic Theory and Method
Ekelund/ Hébert th th X
(note that this is the 4 ed., not the 5 )
Gaffney, Mason and
The Corruption of Economics HB98.2.G334 1994 X
Fred Harrison
George, Henry Progress and Poverty HB171.G272 X
Heilbronner, Robert The Worldly Philosophers HB76.H4 1999 X
The Legacy of Scholasticism in Economic
Langholm, Odd HB79.L363 X
Thought
Lindsay, A. D. Karl Marx’s Capital: An Introductory Essay HB 501 M37 L5 1973 X
Malthus, Thomas An Essay on the Principles of Population HB861.E7 1970 X
Marx, Karl Capital: A Critique of Political Economy HB501.M36 1977 X
Marx, Karl Manifesto of the Communist Party HX276.M313 1973 X
Mill, John Stuart Principles of Political Economy HB161.M6 X
Perlman, Mark and The Pillars of Economic Understanding:
HB75.P453 1998 X
Charles McCann Ideas and Tradition
The Principles of Political Economy and
Ricardo, David HB161.R5 X
Taxation
An Inquiry into the Nature and Causes of the
Smith, Adam AC7.S59 1976 v.2 X
Wealth of Nations
Smith, Adam The Theory of Moral Sentiments AC7.S59 1976 v.1 X
Note: Links to the material on the web are on the course web page.

You will notice that my lectures generally do not follow the textbook very closely. You should always read the
whole chapter of the book by Ekelund and Hébert, even those topics that we did not discuss in class. (We will
discuss the most important topics in each chapter, but lecture time is too short to mention everything that is worth
mentioning.) Unfortunately, their book has very little information on political philosophy. I have placed some
useful links to the relevant philosophers on the course webpage (mostly links to the online Stanford Encyclopedia
of Philosophy).
The readings on reserve are supplemental. That is, there is no specific date at which you should be reading them,
but you should plan to look at/read at least some of them. They provide interesting additional insights that will
help you to better understand the development of economic thinking.
The weblinks lead to original texts (e.g. to Smith’s Wealth of Nations), while the books on reserve at the library
are mostly additional analyses of the History of Economic Thought. You might want to consult them to get a
viewpoint different from the one provided by our textbook. For example, the book Economic Theory in
Retrospect by Mark Blaug contains fairly detailed analyses of the works of famous economists, but some might
find it a bit difficult. The same applies to Schumpeter's History of Economic Analysis. The book by Perlman and
McCann is very readable and does a wonderful job of relating economic and philosophical thought, but it requires
that you have had some previous exposure to philosophy—otherwise is might be somewhat overwhelming.
Heilbronner’s book is also quite readable, but its distinctive Marxist flavor makes it somewhat lopsided. There
are also several other books on the History of Economic Thought on the shelves at the library if you want to get
into a topic in more detail.

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 How to do well in this class:
(1) Understand that this class is not a memorization course! If you try to cram the night before the
exam, you will get a crummy grade! Even if you did memorize everything that I said in class, you
will not do well in this course!
Why is that? This course will teach you the historical and philosophical foundations of modern
economics. Philosophical reasoning is often too complex to memorize it; you rather need to
understand the internal logic of the arguments. Class time is too limited to cover the philosophical
arguments in exhaustive detail, so you need to work through them on your own in order to master
them.
(2) Spend enough time on this class! As a rule of thumb, you should spend 3 hours per week for each
credit that you take. This class carries 4 credits, so you ought to plan to work on average 12 hours
per week for this class. (3 hours in class, and 9 hours outside of class.)
(3) Come to class regularly, and keep up with the readings! All of the topics in this course are
closely related to each other, and we will always rely on the material that we have covered early in
the semester. If you miss classes without making up the missed work, you will be lost later on.
The material is too complex to understand it during the day or night before an exam! Solve the
study questions that I will post on the web! They are not meant to torture you, but to help you to
prepare you for the midterms and the comprehensive final.
(4) Read the assigned readings before class and read them again after class; don’t rely solely on
your notes! If you come to class unprepared, you are likely to get lost and bored. If you have
spent some time with the material before we talk about it, you are in a much better position to
identify difficult points and ask for clarification. If, on the other hand, you see the material in class
for the first time, then you will spend too much time digesting the new stuff, and not enough time
thinking about it. The course web page has a tentative outline of all class periods.
(5) Be critical! Don’t believe the theories that you will be confronted with in this class only because
somebody with a Ph.D. presents them to you. I invite you to challenge my preconceptions and
beliefs in the same way in which I intend to challenge your beliefs. Being critical helps you to
better understand new ideas and permits you to place them within your own system of beliefs.
and most importantly:
(6) Ask questions in class if you don’t understand something! If you have a question, it is very
likely that some of your classmates have the same question but don=t dare to ask. There are NO
stupid questions. Don’t be intimidated to speak up in class. Your questions are necessary
feedback for me to see if I am too fast or too slow. If nobody asks questions, then I have to assume
that everyone understands the material, and I will go on to the next topic.

(7) Come and talk to me if you begin to feel lost! Economics can be a bit tricky, and every semester
I encounter students who are lost and too lethargic to do anything against it. Don’t wait until the
midterm or (even worse) until the final exam to seek for help; come as early as possible.

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 Course Outline:
I. Introduction Chapter 1

II. Pre-Classical Thought:

a. Greek Political Philosophy—Plato and Aristotle
b. Scholasticism Chapter 2
c. Enlightenment Political Philosophy—Hobbes and Locke
d. The English Mercantilists Chapter 3
e. The French Physiocrats Chapter 4

III. Classical Economics

a. Adam Smith Chapter 5
b. Thomas Malthus Chapter 6
c. David Ricardo Chapter 7
d. Jeremy Bentham
e. John Stuart Mill Chapters 8 and 9

IV. Heterodox Economists in the 19th Century

a. The Historical School Chapter 10, pp.234-237
b. The Early Socialists Chapter 10, pp.228-234
c. The Philosophy of Georg Friedrich Hegel
d. Karl Marx Chapter 11
Reading: Lindsay, “Karl Marx’s Capital”
e. Henry George
Reading: Gaffney, “The Corruption of Economics”

V. Economic Methodology
a. Popper, Kuhn, Lakatos, Feyerabend
b. Bayesian Updating
Reading: Blaug, “The Methodology of Economics”, Chapters 1+2, 5

VI. The Marginal Revolution and the Begin of Neoclassical Economics

a. William S. Jevons and Carl Menger Chapter 13
b. Edgeworth, Böhm-Bawerk, Wicksell, Clark, Fisher, Knight Chapter 14
Reading: Plassmann and Tideman, “Frank Knight’s Proposal to End Distinctions Among
Factors of Production and His Objection to the Single Tax.”
c. Léon Walras Chapter 16
d. Alfred Marshall Chapter 15

The chapters refer to the 5th edition of Robert B. Ekelund and Robert F. Hébert: A History of Economic
Theory and Method. A detailed lecture-by-lecture outline is on the course webpage.

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