History as the Lens for Economic Insight
The economic past tells us a great deal about the economic present, as Richard Hornbeck demonstrated for students in a recent Becker Brown Bag talk.
Hornbeck defined American economic history as applying economic theory and econometric methods to the study of the past. A new wave of economic history, including the work of scholars like Hornbeck, builds on the foundations set out by the late Nobel laureate Robert Fogel, but remains distinct in its use of history to study economics, rather than the reverse. The point, as Hornbeck remarked, is not that history repeats itself or that the past is exactly like the present. Rather, the reasons one wants to understand the past is to understand the similarities and the differences between the past and present.
By way of example, he noted that while the Great Depression is not necessarily the same as the recession of 2008, many of the precursors are similar—but in many ways, it’s also very different. What happened in the past yields interesting insights for every period after. The new wave of economic history is more focused on themes that played out throughout history that are playing out today. These scholars are looking to history to say what it is about today that’s new or surprising or different.
Of more practical use in a business environment, Hornbeck remarked that studying economic history is not about day-to-day business operations, but about understanding unique periods in which a major opportunity or challenge arises and determining how to respond—how to take advantage of those circumstances. Looking to how people have tried to deal with similar problems or opportunities in the past provides just some of many possible solutions.
Hornbeck went on to illustrate this point using the examples of the development of the railroads, the American Dust Bowl, groundwater availability, and urban development. The key to using economic history to better understand the present is to find what Hornbeck described as “ideal experiments,” such as those previously mentioned, that draw on similar themes to those of modern problems.