In his 1902 Presidential Address to Section F of the British Association Edwin Cannan argued that economic theory is “a thing of very great practical utility”. But what did he mean? Utility to whom, doing what? He said that
I do not mean to argue that a knowledge of economic theory will enable a man to conduct his private business with success. […] But economic theory does not tell a man the exact moment to leave off the production of one thing and begin that of another; it does not tell him the precise moment when prices have reached the bottom or the top. It is, perhaps, rather likely to make him expect the inevitable to arrive far sooner than it actually does, and to make him underrate, not the foresight, but the want of foresight of the rest of the world.
The practical usefulness of economic theory is not in private business but in politics, and I for one regret the disappearance of the old name ” political economy,” in which that truth was recognised.
Such views would leave Cannon very confused and depressed if he was to return to New Zealand today. For a start given that economic theory is of little use to business he would be confused as to why most economics departments in this country are in business schools or the like. I’m sure he would expect them to be in with the other social sciences as it is with the LSE at which he taught for 30 years.
As to the usefulness of economics in politics I feel he would be depressed by the use of economics by politicians. Or more correctly the misuse of economics in politics.The relationship between economics and politics seems to amount to little more than the simple fact that good economics is bad politics. No matter what your favoured policies are they will be unpopular with enough voters to make sure they are never implemented. Which raises the question if all “good economic policies” are unpopular can we ever get anyone’s version of good policy implemented? Does politics gut all economic policy, no matter whether “left” or “right”, of all serious content? Are we doomed by the populist nature of politics to get crap economic policy no matter how we define good policy?
Also given that we are, unfortunately, in an election year, we need to take notice of the fact that whoever wins the next election the ability for them to be able to comprise on policies just to get a coalition together so that they can govern may be good politics, but it can also lead to to some very bad economics. Coordination of different areas of economic policy is important if they are not to end up working at odds with each other. Which means trading off one aspect of economic policy against another leads to bad policy. Unfortunately bad politics always beats good economics.Which I’m sure what not what Cannan would have hoped for.