BY JAMES P . PROUT
BOOK REVIEW
How Economics Explains the World : A Short History of Humanity By Andrew Leigh Mariner Books 228 pages with photos , notes and index $ 26 . oo
As I write this , large scale , across-theboard tariffs are back in the discussion of US economic policy . Whether they will be levied or not remains to be seen , but for many economists , the deleterious effects of tariffs are crystal clear . They raise prices for consumers , while doing little to spur long-term innovation and growth .
So how is it that another — but apparently more influential — group of economists holds different views ? If economics is a science , where are the immutable laws that govern the interactions and outputs of economic activity ? Where are the formulas that will show how fiscal and monetary actions result in a given outcome ? Absent these , how can economists argue that they deserve to be heard at all ?
Dr . Andrew Leigh , an Australian politician , economist and professor , in his book , How Economics Explains the World : A Short History of Humanity , wants us to understand how economists view the world . His title is rather grand — humanity is a big topic , after all — but even for the cognoscenti of the financial history community , it is useful sometimes to recalibrate our understanding of economics . For Professor Leigh , economics is a social science that “ studies how people maximise [ sic ] their wellbeing in the face of scarcity .” In less than 200 pages , he gives us a tour of history from an economic perspective and ends up in 2025 , with a discussion of current issues . It is a fun read , and worth the effort , particularly for those who might be looking for a way to begin understanding the field .
Leigh first sets out the three themes that he argues are crucial to grasping how we got where we are today : incentives , specialization and innovation . He returns to these motifs throughout the book .
Geography was crucial to the earliest efforts of people to organize the acquisition and exploitation of needed resources . Settlers in the Indus Valley ( c . 3300 – 1300 bce ) made advances in farming based upon leveraging the plough to cultivate greater acreage . Early migration was motivated by people seeking to employ farming tools in more fertile , higher-yielding lands . According to Leigh , this pattern was more eastwest than north-south . Trade increased as migratory patterns accelerated . Money was a product of innovation , making economic interactions easier than bartering .
Improvements in transportation like the sail in the 1600s expanded the arena in which economic activity was conducted . This brought more wealth and well-being to most . For others , however , not so much , writes Leigh . Instead of investing in new geographies , in some cases it became more attractive to extract and export resources . Human chattel from Africa could be acquired for very little , and traded elsewhere for more . Many economies today still have what is termed “ the resource curse ,” in that they are rich in oil or minerals but lack a way to turn this advantage into lasting progress .
We are quickly propelled into the Industrial Revolution of the 1700s and 1800s . New innovation , longer life spans and greater mobility all contributed to rising wealth . This , in turn , led to not just more investment , but new modes of spurring investment and spreading risk , like insurance and stock companies .
Here is where Leigh begins to introduce the names and thoughts of “ modern ” economists we all know , or should know . Of course , he starts with the big man himself , Adam Smith . John Stuart Mill , Jeremy Bentham and Thomas Malthus make appearances . He rightly sources most of their work in the study of philosophy . As we arrive in the 20th century — with Marshall , Keynes , Hayek , Samuelson , Friedman , etc .— philosophical approaches are augmented with mathematics and econometrics . Data and statistical analysis become the touchstone of modern economics .
After discussing the re-ordering of the global economy post-WW II , and the stunning economic progress in some economies after the war , Leigh touches on developments in other countries , such as China , India and Cuba . Each of these economies operated with their own , very distinct , speeds and priorities . The last several chapters bring us to the recent past . These are more conceptual than historical . The dominance of market-based thinking , central bank influence , inflation , inequality and climate change all get their due .
While I earlier called the book “ a fun read ,” don ’ t get the wrong impression — there are a lot of complicated ideas covered quickly . It is an excellent stepping stone for readers to go further on their own . There are some sidebars throughout the book — creativity , the Medicis , AI , gender gap , etc .— which are interesting and break up the narrative . As an aside , Thomas Piketty gets a mention , Karl Marx does not . I guess that ’ s capitalism in the 21st century .
Economists have generally been thought to have big egos . Professor Leigh doesn ’ t seem to be in that camp . He acknowledges how difficult forecasting can be , and that economists don ’ t have the sure answers we seek as we look into the future . He is a hopeful and helpful writer , positing that economics can help us “ live better lives .” And , by the way , he doesn ’ t like tariffs .
James P . Prout is a lawyer with more than 30 years of capital market experience . He now is a consultant to some of the world ’ s biggest public companies . He can be reached at jpprout @ gmail . com .
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