The Power Elite and Its Tools
How To Do Economic History
by Joseph T. Salerno
ntroduction to History of Money and Banking in the United States: The Colonial Era to World War II
In this volume, Murray Rothbard has given us a comprehensive history of money and banking in the United States, from colonial times to World War II, the first to explicitly use the interpretive framework of Austrian monetary theory. But even aside from the explicitly Austrian theoretical framework undergirding the historical narrative, this book does not “look” or “feel” like standard economic histories as they have been written during the past quarter of a century, under the influence of the positivistic “new economic history” or “cliometrics.”
The focus of this latter approach to economic history, which today completely dominates this field of inquiry, is on the application of high-powered statistical methods to the analysis of quantitative economic data. What profoundly distinguishes Rothbard’s approach from the prevailing approach is his insistence upon treating economic quantities and processes as unique and complex historical events. Thus, he employs the laws of economic theory in conjunction with other relevant disciplines to trace each event back to the nonquantifiable values and goals of the particular actors involved.
In Rothbard’s view, economic laws can be relied upon in interpreting these nonrepeatable historical events because the validity of these laws – or, better yet, their truth – can be established with certainty by praxeology, a science based on the universal experience of human action that is logically anterior to the experience of particular historical episodes. It is in this sense that it can be said that economic theory is an a priori science.
In sharp contrast, the new economic historians view history as a laboratory in which economic theory is continually being tested. The economic quantities observed at different dates in history are treated like the homogeneous empirical data generated by a controlled and repeatable experiment. They are used as evidence in statistical tests of hypotheses regarding the causes of a class of events, such as inflations or financial crises, that are observed to recur in history. The hypothesis that best fits the evidence is then tentatively accepted as providing a valid causal explanation of the class of events in question, pending future testing against new evidence that is constantly emerging out of the unfolding historical process.
One of the pioneers of the new economic history, Douglass C. North, a Nobel Prize winner in economics, describes its method in the following terms:
It is impossible to analyze and explain the issues dealt with in economic history without developing initial hypotheses and testing them in the light of available evidence. The initial hypotheses come from the body of economic theory that has evolved in the past 200 years and is being continually tested and refined by empirical inquiry. The statistics provide the precise measurement and empirical evidence by which to test the theory. The limits of inquiry are dictated by the existence of appropriate theory and evidence…. The evidence is, ideally, statistical data that precisely define and measure the issues to be tested.