To understand what will happen in the future, it’s first necessary to
understand the past. History is like a train. It is propelled forward in
a certain direction with a great deal of momentum. It can’t turn on a
dime. If you can see where it’s coming from – and how quickly – then you
will have a pretty good idea about where it is going, at least in the
short term. In this blog I am going to write about (and recommend) some
of the books that have shaped my understanding of the past and what that
means for our economic future.
Economic events cannot be understood outside the political and social
context within which they occur. Therefore, an understanding of
economics must begin with an understanding of history. I enjoy reading
grand, sweeping history books and biographies best. One that I
particularly recommend is A Terrible Beauty: The People and Ideas That Shaped The Modern Mind,
by Peter Watson. This book covers all the important intellectual
breakthroughs of the 20th Century and it presents them in easily
digestible segments, generally two to three pages in length. It’s
brilliant. For me, it was a joy to read. For everything before the 20th
Century, Peter Watson’s Ideas: From Fire to Freud is also very
interesting – although I will admit I skipped most of the early “cave
men” chapters. Another great sweep of history is Millennium: A History of the Last Thousand Years by Filipe Fernandez-Armesto.
Paul Johnson is another one of my favorite historians. He has written
histories of the United States, of Christianity, of the Jews and many
others. But the one I read first (just after college) and loved best was
Modern Times: A History of the 1920s to 1980s (later updated
to the 1990s). It opened my eyes to the harsh realities of international
relations and to the horrors that occurred during mankind’s most
violent century to date. Johnson was one of Mrs. Thatcher’s favorite
historians.
Earlier this year, I read From Dawn To Decadence: 500 Years of Western Cultural Life 1500 to the Present,
by Jacques Barzun, published when he was in his 90s. It’s astonishing
that one man could know so much. Be warned this is not an easy read.
The French Revolution was a major turning point for Western
Civilization and a critical moment in the slow emergence of Democracy
and civil liberties. Simon Schama’s Citizens is a truly
wonderful account of that upheaval when the gutters of the Place de la
Concord in Paris ran red with the blood of the decapitated ancient
regime. The hard back is beautifully illustrated.
I read biographies of all the leaders of World War II. Churchill was my
favorite, although there is no question that they all (FDR, de Galle,
Hitler, Stalin and Mao) were extraordinary individuals who tremendously
impacted our world - whether for the good or for evil. Martin Gilbert
wrote the definitive biography on Churchill, although William
Manchester’s The Last Lion, about Churchill’s extraordinary youth, is a book I will never forget (and one that is easy to get through).
Over the last few years, I have read a string of biographies of
American presidents to try to form a better understanding of American
politics. David McCullough’s Truman and Robert Caro’s multi-volume biography of President Johnson were the best. I read volume three, Master of The Senate, and I’ve started volume four, The Passage of Power. They describe Johnson’s ruthless lust for power, how he obtained it and what it did with it. It’s an incredible story.
The global economy is powered by oil. Daniel Yergin’s The Prize
(a Pulitzer prize winner) colorfully describes the extraordinary
history of that industry by telling the stories of all the remarkable
characters who dominated it – by hook or by crook.
Bertrand Russell’s History of Western Philosophy is a classic. Finally, Ray Kurzweil explains the exponential growth in technology and what that means for our future in The Singularity Is Near, a book that fundamentally changed my understanding of where we are headed in the next few decades.
Now, let’s focus in on economics. I find biographies of economists to
be very useful in learning about the evolution of economic thought.
Biographies explain why and how economists developed their ideas and the
intellectual background against which those ideas emerged.
Here, a good place to start is with Robert Heilbroner’s The Worldly Philosophers: The Lives, Times and Ideas of The Great Economic Thinkers.
This relatively short book discusses the lives and ideas of Adam Smith,
Thomas Malthus, David Ricardo, Karl Marx, Thorstein Veblen, John
Maynard Keynes and Joseph Schumpeter. After that, read a biography of
Keynes. John Maynard Keynes was born at Cambridge, where his father was a
professor. He knew everyone who mattered in the final decades of the
British Empire. He had an extraordinary impact on his world (and ours).
Robert Skidelsky was given a peerage for his three volume biography of
Keynes. D. E. Moddridge did a good job in one volume.
Alan Ebenstein wrote an entertaining biography of the Austrian
economist, Friedrich Hayek. There is also an interesting biography of
Joseph Schumpeter, Prophet of Innovation and Creative Destruction
by Thomas McCraw. Finally, Harvard professor Richard Parker wrote a
great biography of John Kenneth Galbraith which did an excellent job of
describing the intellectual development of the economics profession in
the United States during Galbraith’s long life, as well as clearly
explaining Galbraith’s own work.
Now, for some of the economic books that made history during the 20th Century. Ludwig von Mises published The Theory of Money and Credit
in 1912. It can be considered the bible of Austrian economics. Among
much else, it explained the role played by credit in creating economic
booms and busts. Also in 1912, Irvine Fisher – probably the greatest
ever American economist – published The Purchasing Power of Money, the most eloquent explanation of the centuries-old Quantity Theory of Money, the theory upon which Monetarism was built.
Keynes’ General Theory of Employment, Interest and Money was
published in 1936. It lead to the “Keynesian Revolution” between World
War II and the 1970s. Keynes would not have approved of Keynesianism –
at least not as it has been practiced. In the General Theory, Keynes
argued that governments should run budget deficits during severe
economic recessions to stabilize the economy and then pay down the
government debt with budget surpluses during economic upswings. That
never happened. Politicians ran budget deficits in bad times and in good
times - and destroyed Capitalism in the process. Keynes wrote
beautifully. His Essays in Persuasion and Essays in Biography are a
pleasure to read. During his lifetime he was recognized as the greatest
intellect in the English speaking world.
Friedrich Hayek and Joseph Schumpeter were also from Austria and like
von Mises they all immigrated to America to escape the upheavals in
Europe that culminated in the Second World War. Hayek wrote two great
books (that I have read and others that I haven’t). The Road to Serfdom (1944)
did more to reverse the rising tide of Socialism (especially in
England) that anything else ever written. It sparked a
counter-revolution that inspired Mrs. Thatcher in England and people
like Milton Friedman in the United States. The Constitution of Liberty
(1960) expanded on his theme that Capitalism and individual liberty are
inseparably linked.
Schumpeter wrote three brilliant books. In Business Cycles
(1939) he argued that the business cycle was driven by waves of
innovation. There he coined the term “creative destruction” do describe
the process through which Capitalism creates economic growth. In Capitalism, Socialism and Democracy (1942) he wrote that he believed it was inevitable that Socialism would replace Capitalism – although he regretted it. A History of Economic Analysis
can only be described as magisterial. It begins with the Greeks and
ends when Schumpeter died in 1950. This is more of a reference book than
something that can be read cover to cover.
John Kenneth Galbraith wrote many books, some more profound than others. Of the ones I have read, The New Industrial State
(1967) was by far the most impressive. In it he argued that by the
early 1960s, Capitalism had evolved into something different, something
he called The Planning System which was dominated by a few oligopolistic
corporations in every industry and underwritten by government spending.
It makes a very persuasive case.
Last and least is A Monetary History of the United States, 1867 – 1960
by Milton Friedman and Anna J. Schwartz, published in 1963. This is a
great book, but I describe it as “least” among the ones I have mentioned
because it concluded that the Fed could have prevented the Great
Depression if it had prevented the Money Supply from contracting in 1931
when the banks began to fail. This argument became conventional wisdom,
persuading almost everyone, including Ben Bernanke. It led policymakers
to believe there could be no crisis so severe that they could not
handle it by creating more money. This created an atmosphere that the
banking industry took advantage of to have their industry deregulated.
Of course, it was financial sector deregulation that lead to the credit
boom that has left us teetering on the brink of a New Depression when
it bust in 2008.
So, there you go. Read all that and not only will you know where we are
coming from, you will also have a pretty good idea of where we are
likely to go next.
Tell Amazon I sent you!
By the way, I’ve been in the US for the last couple of weeks promoting
The New Depression. On August 20th, I was interviewed on CNBC Squawk Box
in New York. Here’s the link:
