Economic history has contributed significantly to the formulation of economic theory. Among the economists who have found history an important source for their ideas are Smith, Malthus, Marx, Marshall, Keynes, Hicks, Arrow, Friedman, Solow, and Becker. Failure to take account of history, as Simon Kuznets (1941) stressed, has often led to a misunderstanding of current economic problems by investigators who have not realized that their generalizations rested upon transient circumstances. Nowhere is the need to recognize the role of long-run dynamics more relevant than in such pressing current issues as medical care, pension policies, and development policies.

There is a widespread impression today that the history of economics is a sequence of revolutions and counter-revolutions, successive schools rising to dominance just to be deposed in a crisis by another school. According to this view, paraphrasing Marx, all history of economics is a history of school struggles, punctuated by revolutions.

The economic policy issues that we debate today—trade policy, inflation, the proper role of government, the eradication of poverty, and the means of raising the rate of economic growth—have been discussed by economists for more than two centuries. Many of today’s economic policies—both the good ones and the bad—are the result of the ideas of those past economists. And many of today’s debates about economic policy can be understood only by those who have at least some familiarity with the ideas of earlier economists.
The giants of economic science during the past two hundred years have been men concerned with the critical policy issues of their time. They studied the working of the economy in order to advocate better economic policies. But despite their concern with policy, they were not polemicists or politicians but men who sought to persuade their contemporaries in government and in the broader public by analysis and evidence that would meet the standards of professional debate.

If economics is not to remain the victim of history, constantly attempting to apply its tool-kit, generally with a time-lag, to yesterday's developments which have become sufficiently visible to dominate the scene today, it must develop or rediscover this historical perspective. For this may have a bearing not only on tomorrow's problems, about which we ought, if possible, to think before we get swamped by them, but also on tomorrow's theory.

The idea of the State-controlled economy is not modern at all. It is very old; and not only very old, but refuted and superseded long ago. It is quite true that the great principles of capitalism and free enterprise were expounded and explored around the beginning of the nineteenth century. Newton discovered gravitation in the seventeenth century. Copernicus proved in the sixteenth century that the earth revolves round the sun. But these truths are not thereby "out-of-date". They are not refuted by the lapse of time. The errors which they replaced are errors still. It is the Socialists and the economic planners who are the Ptolemaics and the flat-earthers of the modern world. They have not moved on beyond capitalism: they have moved back before it. In order to find the parallels to their faith in state regulation and control of the economy you have to go back behind Adam Smith and his contemporaries to the elaborate management of trade in the guilds and boroughs of the Middle Ages or to the French bureaucrats of the seventeenth and eighteenth centuries.

Economics, we learn in the history of thought, only became a science by escaping from the casuistry and moralizing of medieval thought.

John Maynard Keynes may have had more influence on policy makers, Milton Friedman on citizens, Kenneth Arrow on economic theory, but Samuelson had more influence on the way economics is done today, and the purposes to which it is put, than any other economist of the twentieth century.

Economists might conceivably agree on the value of history for their discipline, but not historians about the value of economics for theirs. This is partly because history covers a much wider field. As we have seen, it is an obvious drawback of economics as a subject dealing with the real world that it selects out some and only some aspects of human behaviour as 'economic' and leaves the rest to someone else.

Economic theory, since the time of the Physiocrats, has endeavored to get rid of the human will and to explain economic phenomena in terms of physical and hedonic forces. The human will had been the main reliance of the Mercantilists and of the economic theory of the Church fathers. But the will was arbitrary, capricious and contrary to natural laws. There were two stages of these physical theories which attempted to get away from the will:-the natural rights arld physical equilibrium stage of foreordained evolution of Quesnay, Adam Smith and Karl Marx, and the natural selection stage of blind evolution that followed Darwin, whose distinguished exponent in economics is Veblen. The theorists of each stage attempted to get rid of the human will and to explain economic phenomena as the working out of natural forces, either foreordained or blind. It was a concept of society as the natural growth of a mechanistic equilibrium.

Economic history matters. Students of economics should read Charles MacKay and Charles Kindleberger, and should study the history of the Wall Street Crash as well as the theory and the mathematics required to formalize it.

In contrast to the natural sciences, where Isaac Newton and Albert Einstein made their major contributions, most economics masterpieces were written when the authors were middle aged. Adam Smith, Karl Marx, John Maynard Keynes, and Milton Friedman come to mind. However, Paul started much earlier, in his 20s; and, even now, his new articles influence the fields of economics and finance.

If all that divides Marx from the Classical Economists amounts to the historical character of economic categories, Marx need only historicize these categories, refusing to take them as fixed, absolute or eternal, but, on the contrary, regarding them as relative, provisional and transitory, i.e., as categories subject in the last instance to the moment of their historical existence. In this case, Marx's relation to Smith and Ricardo can be represented as identical with Hegel's relation to classical philosophy. Marx would then be Ricardo set in motion, just as it is possible to describe Hegel as Spinoza set in motion; set in motion, i.e., historicized.

My argument implies that, divorced from history, economics is a rudderless ship and economists without history have not much idea of where it is sailing to. But I am not suggesting that these defects can be remedied simply be getting some charts, that is by paying more attention to concrete economic realities and historical experience. As a matter of fact, there have always been plenty of economists ready and anxious to keep their eyes open. The trouble is that, if in the mainstream tradition, their theory and method as such has not helped them to know where to look and what to look for.

People love today to speak disdainfully about the liberalistic economy,' [Kautsky] wrote in his last work; 'however, the theories founded by Quesnay, Adam Smith and Ricardo are not at all obsolete. In their essentials Marxhad accepted their theories and developed them further, and he has never denied that the liberal freedom of commodity production constituted the best basis for its development.