Category Archives: Economics

Dennis C. Rasmussen – The Infidel and the Professor: David Hume, Adam Smith, and the Friendship That Shaped Modern Thought

Dennis C. Rasmussen – The Infidel and the Professor: David Hume, Adam Smith, and the Friendship That Shaped Modern Thought

A highly enjoyable dual biography of David Hume and Adam Smith that mixes the personal and the intellectual. Rasmussen spends too much time on their religious beliefs for my taste, but still gives plenty of attention to more interesting topics. Hume was famously gregarious while Smith was intensely private, though their friendship was a close one. Despite some differences, they were also close intellectual allies who repeatedly defended each other from their many critics.

Hume gets the lion’s share of the book’s attention, mainly because Smith asked that most of his papers be burned after his death. His wishes were mostly respected, leaving less material for the historian to work from.


Benjamin Powell – Out of Poverty: Sweatshops in the Global Economy

Benjamin Powell – Out of Poverty: Sweatshops in the Global Economy

Powell has the audacity to evaluate policies by their results, not their intentions. In this book, anti-sweatshop activists come off poorly. Most of their favored policies, despite good intentions, have lousy results. The concluding chapters contain a host of economically literate alternatives, from freeing trade and immigration restrictions to cultural openness and exchange. Integration, not segregation.

Richard Posner – Antitrust Law, Second Edition

Richard Posner – Antitrust Law, Second Edition

A foundational text in modern antitrust regulation. From the 1890 Sherman Act up until about the late 1960s, antitrust policy was strictly for lawyers and politicians. Posner, though a lawyer, incorporated economic analysis into antitrust questions. This was a controversial departure at the time, and came to be called the Chicago School approach.

Unlike more populist analysts, Posner placed results above aesthetics. Do large market share, mergers, tying, charging high or low prices, and more cause consumer harm? If so, then antitrust enforcement is appropriate. If not, then not. It is an empirical question, not an emotional one.

The consumer welfare standard displaced the previous Brandeisian “big is bad” standard. Posner’s work is vulnerable to criticism on public choice grounds, and his command of economic analysis not perfect. But his influence has been largely positive, and greatly improved policy outcomes in an area badly in need of reform.

The story is not over, though. The Trump administration and progressive activists would both like to revive big is bad; the coming years will see who prevails in this next chapter.

On a personal note, back in college I once had lunch at the same table as Posner. This would have been around the time this book’s second edition came out, though I don’t recall it being discussed. The conversation mostly revolved around prescription drug reimportation regulations, a hot issue at the time. Had I been more knowledgeable about Posner’s place in the law-and-economics movement, I would have loved to pick his brain about improving antitrust policy and other legal areas.

Henri Pirenne – Economic and Social History of Medieval Europe

Henri Pirenne – Economic and Social History of Medieval Europe

Though written before Mohammed and Charlemagne, it continues the Pirenne thesis up through the 15th century.

Trade never stopped during the medieval period, but it was geographically confined for political, military, and religious reasons. Eastern goods such as cloths and especially spices all but disappeared from Europe. The ultra-high prices merchants could command for these goods made remaining long-distance trade very lucrative.

When political and cultural change in the Near East eventually let more trade through, it quickly led to the birth of modern finance and banking—though Europe’s own cultural restrictions, such as prohibitions on usury and a popular disdain for commerce, slowed the process.

It also led to both the rise and decline of the Champagne Fairs and similar big annual events. Long distance trade went from almost nothing to enough to support large annual fairs, then finally became commonplace enough to make faraway goods available year-round in every city, making the fairs obsolete. In a weird way, both the rise and the fall of the Champagne fairs were evidence of progress.

Italy, especially Venice, and the North Sea traders from the cities comprising the Hanseatic League were some of the biggest drivers of the economic revival. It is not a coincidence that the Renaissance began around this time.

Henri Pirenne – Mohammed and Charlemagne

Henri Pirenne – Mohammed and Charlemagne

The Pirenne thesis is that barbarian invasions didn’t collapse the Roman Empire in 476 AD—economic isolation did, two centuries later.

Most barbarians wanted to assimilate, not destroy. They eventually became soldiers, senators, and even emperors who gave their lives fighting for the Empire, sometimes against their own former countrymen. Government and everyday life stayed pretty much the same after Romulus Augustus’ 476 overthrow.

The real change happened about two centuries later, when Arabs conquered most of the southern, eastern, and western Mediterranean. The new conquerors were uninterested in trading with the Romans, and mostly ignored them. This isolated the old Empire from existing long-distance trade.

Isolation from trade caused Europe’s economic decline, as the archaeological record shows (later historians have since confirmed this in detail). Papyrus was replaced by costlier parchment, and churches were lit by ineffective wax candles instead of oil-burning lamps. What once was open became isolated, and that’s what caused the Dark Ages.

Highly recommended, and relevant to today’s trade and immigration policy debates.

Charles de Secondat Baron de Montesquieu – The Spirit of Laws

Charles de Secondat Baron de Montesquieu – The Spirit of Laws

One of the most important texts of the French Enlightenment. Interested in human progress, Montesquieu sought out larger laws of history that might explain why some countries are rich and others poor, why some have despotic governments while others use a lighter touch, and why social customs differ—and how this might affect future progress.

Montesquieu also offers a defense of free trade, which he called doux commerce, or sweet or gentle commerce. The theory is that trade and economic interdependence foster peace and prevent war, a sentiment U.S. Secretary of State Cordell Hull very much had in mind in attempting to rebuild post-Depression trade infrastructure and prevent World War III.

Montesquieu also offers an early version of the quantity theory of money. Finally, he in ludes lengthy narrative histories of Roman and French law.

If all that sounds a little scattershot, that’s because it is. The book almost has a stream of consciousness quality, as though Montesquieu, like Montaigne before him, simply wrote down whatever arguments and facts he had in his head as he sat at his desk.

Sharon Bertsch McGrayne – The Theory That Would Not Die: How Bayes’ Rule Cracked the Enigma Code, Hunted Down Russian Submarines, and Emerged Triumphant from Two Centuries of Controversy

Sharon Bertsch McGrayne – The Theory That Would Not Die: How Bayes’ Rule Cracked the Enigma Code, Hunted Down Russian Submarines, and Emerged Triumphant from Two Centuries of Controversy

Really good. Bayesian reasoning isn’t as complicated as it sounds—it’s an approach, not a standardized equation. It is a way of calculating the odds of something happening when you don’t know much about it, and learning as you go.

Bayes himself, part of the 18th century Scottish Enlightenment, used the example of dropping a ball on a random spot on a flat table, and finding out blind where it is. Have a friend drop other balls at random and report whether they are to the left or right of the original ball. With each drop, you learn more and can use that to better suss out where the original ball is. For example, if every dropped ball is to the original’s left, then you know it is somewhere on the far right of the table.

This way of thinking turns out to have many applications, from population censuses to deciphering codes to finding lost airplanes and submarines, to making more accurate cancer diagnoses, to the autocorrect in your smartphone, to Google’s language translators and targeted advertisements.

It also has enormous implications for certainty in quantitative reasoning—it is often more useful to have an approximate answer to the right question than a precise answer to the wrong question. But this lack of pure certainty has led many quantitative analysts to reject Bayesian reasoning, to the point where his name has until recently been almost unmentionable in polite circles. This mindset is similar to the Nirvana Fallacy in economics.

Besides putting this old boys’ club mentality its proper place, McGrayne tells the stories of Bayes and Simon LaPlace, the French Enlightenment mathematician who independently discovered Bayesian reasoning and probably deserves most of the credit.

She also introduces and humanizes many of the other major and minor personalities involved in Bayesian reasoning’s long and treacherous history, from Alan Turing, who cracked the Enigma code during World War II, to some of the more tradition-minded scientists who preferred precision at accuracy’s expense.

But she keeps in mind that Bayesianism is one useful tool among many in the scientist’s toolkit. Bayesianism is not gospel, and there is a need for human judgment too, a point Stephen Ziliak and Deirdre McCloskey make in their book The Cult of Statistical Significance.