Mercantilists and Classicals: Insights from Doctrinal History

E conomists typically view their discipline as a progressive science in which superior new ideas relentlessly supplant inferior old ones in a Darwinian struggle toward the truth. Thus it came as something of a shock when Milton Friedman challenged this belief in the May 1975 issue of the American Economic Review. In response to the question “What have we learned in the past 25 years?”, Friedman argued that what monetary economists have learned since 1950 are hardly new ideas but rather a rediscovery of old ideas inherited from David Hume and his contemporaries more than 200 years ago. Three years later, the British economist Ivor F. Pearce shocked his readers even more. He denied that the Keynesian Revolution had contributed a single new or useful idea to monetary economics. Instead, he insisted that “human history is guided not by new ideas, for there are none,” but rather by “some ephemeral sub-group of . . . old ideas.” Such old ideas, “often believed to be new,” are “seized upon as the . . . solution to whatever difficulties immediate experience has made to seem important, and congealed into a crust of dogma by endless repetition and obeisance” (Pearce 1978, p. 93). The above sentiments express what every doctrinal historian knows, namely that much of what passes for novelty and originality in monetary theory and policy is ancient teaching dressed up in modern guises. To be sure, the increasing application of mathematical modeling has given these concepts greater rigor and precision. Likewise, better data and more powerful empirical techniques have improved our statistical estimates of the relevant quantitative magnitudes. Still, the basic ideas themselves often remain much the same. Thus instead