Robert Skidelsky …

is a British historian who has written lots of reviews in the New York Review of Books, including a recent one of Niall Ferguson’s book “The Ascent of Money”. Below are some paragraphs I like from his review.

A final reflection on Ferguson as a historian. He is overimpressed by economics. Many historians feel that history is in some way inferior to the more exact sciences; the thought that he can “do” economics gives the historian an expanding sense of mastery. I know the feeling, because I’ve lived through it myself. Economics, especially in its mathematicized form, purveys a peculiar vision of society. Society to the mathematicians is a market imperfection. Among other imperfections, the idea is that allocation of resources is not as efficient and information for making choices is not as complete as they should be.

This delusive, but powerful, idea suggests that behind the imperfection lies perfection, a world in which the future will be perfectly known and therefore hold no surprises. Mathematics is the inheritor of the platonic ideal; and mathematically driven financial innovation is its handmaiden. At one time philosophers projected their utopias, and the early economists followed suit. Keynes was perhaps the last one who indulged in utopia building. In his essay “Economic Possibilities for Our Grandchildren” (1930), he looked forward to a time when the economic problem was solved and an age of abundance and leisure had arrived in which people would cultivate the arts of life.

Ferguson realizes that mainstream economics is flawed, but then veers away to what I think is the dead end of “behavioral economics” and false analogies between financial evolution and Darwinian natural selection. Behavioral economics claims that we are “wired” to behave “irrationally”; theories purporting to derive from Darwinism claim that finance follows the law of the “survival of the fittest,” whereby firms fitted to their environment flourish and weaker ones go to the wall—a process that inevitably involves “creative destruction.” These attempts to explain the rise of money in terms of natural processes strike me as being both morally and philosophically naive.


Originally published at Wilmott and reproduced here with the author’s permission.