I recently read an article that mentioned how philosophy is intrinsically rooted in time:
“At the beginning of the nineteenth century Hegel wrote that every philosopher is a child of his time and none can jump over his own shadow: every philosophy, then, is “its time grasped in a concept.”… [Hegel] also holds that philosophy is essentially retrospective, a reflection of a historical moment or movement that when it finally takes philosophical form is essentially already over. This doctrine marks a distinction between what is “really” happening in the political, social and economic world and the subsequent reflection of this in philosophy (religion, art, law, etc.).”
-Raymond Guess, "The Idea of a Critical Theory"
This makes a lot of sense. By the time someone has been able to synthesize a full philosophy about a topic, it may have already past or become commonplace. An example I will use from a public policy standpoint is women’s right to vote. The suffrage movements began in the 1848, 72 years before women were given the right to vote in 1920. If you were just learning about this piece of law, you might not realize it had been an issue for 72 years, and by the time it was reflected in law had become quite well known/commonplace.
You can apply this reflection to almost any law—think about marijuana legalization, which is favored by a majority of Americans, but will have become a commonplace topic by the time it is approved on the federal level. The same goes for gay marriage, civil rights, abortion, and more. Any law is then essentially retrospective. Rarely are laws seen that aim to act for the future based off of no past—it just wouldn’t make sense!
So how does this relate to economics?
The same criticisms that can be applied to philosophy are relevant to economic models. The Lucas critique, made famous by Noble award-winner George Lucas, revolves around the idea that any economic policy based off of macroeconomic models and historical data will invalidate itself. When an economic policy is developed, macroeconomic models based on the current state and historic data are used to make policy predictions. Once the policy is implemented, however, the framework upon which the model is based is no longer relevant, as the current state has changed! This ultimately means that these models will be inaccurate and potentially not act as they were predicted to.
The Lucas critique is the precise reason that many economic policies struggle to have an effect. Unless a policy is modeled around individual behavior and preferences, then aggregated, we can’t predict what people will do. A model composed of the compiled preferences of millions of people (more microeconomic, think small) will inherently be more accurate than wild postulations about the economy without considering the people that make up that economy. As fun as it is to theorize about the implications of low interest rates¹, without including the people who will be affected by these rates in our model we could be totally wrong! Whether the topic is philosophy, economics, or politics, the most effective policies and beliefs will be shaped by considering individual actors rather than generalizing in the hope of achieving simplicity.
The Lucas critique duly traces back to the idea that philosophy and economics are very closely linked. Theories for both subjects are inherently rooted in their current time, and reflective of the past. Unfortunately, many people don’t seem to realize that while people like Adam Smith and Keynes were brilliant, their ideas are rooted in their own time! When you next hear a historic quote or philosophy, ask yourself how the climate of the era might have effected that belief.
Examining the context behind ideas is not only critical to understanding those vastly different from us in the present or past, but also to shaping the future. So next time you hear a past economic theory or old quote, try and think about how this idea might be relevant (or irrelevant) today. After all, we are all a “child of our time”.
¹It’s not that fun.
Money represents a social agreement, which has implications for how we value wealthy people. Bitcoin replaces the need for this social agreement with technology, and in doing so challenges the values we ascribe to wealth.