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  • Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History by Barry Eichengreen
  • Nuno Ornelas Martins
Barry Eichengreen. Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History. Oxford: Oxford University Press, 2015. Pp. 520. $29.95 (hb.). isbn 978-0199392001.

Economists have essentially abandoned the idea of learning from history a long time ago. The current tendency to neglect history in economic analysis stands in contrast to Adam Smith’s Wealth of Nations, first published in 1776, regarded as the treatise that defined modern economic science. In The Wealth of Nations, we find much historical analysis following the eighteenth-century narrative style. The Methodenstreit, a late nineteenth-century dispute concerning the appropriate method to be used in economics, opposing Gustav von Schmoller to Carl Menger, is often pointed out as a crucial moment signaling the tendency for economists [End Page 226] to definitely neglect historical analysis in the likes of Schmoller and the German Historical School, while focusing on exact laws, as Menger advocated.

Of course, the contemporary mathematization of economics, which accelerated greatly during the mid-twentieth century and led to the mathematical approach that dominates the field today, is hardly compatible with the key tenets of the Austrian approach established by Menger. But the various debates on the role of history in economics have now been forgotten within modern mainstream economics, which is characterized by the use of mathematico-deductivist models. Such models are regarded as essential if economics is to become a proper science. So much so that historical analysis, if it is undertaken at all, is generally undertaken using quantitative analysis, so that it may be regarded as proper science within mainstream economics.

Barry Eichengreen’s Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History stands in contrast to contemporary mainstream economics by pointing out how much we can learn from history when attempting to understand the contemporary economic world. But, as the subtitle of the book reveals, a central tenet of Eichengreen’s argument is that the uncritical use of historical analogies can be as problematic as the lack of historical insight. In fact, it is not just the historical method that Eichengreen considers problematic; any method can lead to misleading results unless it is used under appropriate conditions. Mathematics has proved to be extremely useful in laboratory settings where closed systems are artificially created so that exact measurements can be undertaken. And mathematical models had already proved to be useful when analyzing the movements of heavenly bodies, which, at least during the human life span, constitute an approximately closed system that can be measured with some exactness. But social reality constitutes an open system that is often captured better by narratives than by mathematico-deductivist methods. Not only are such methods unable to account for the complexities of rapidly changing societies, they can also take on a life of their own, which can lead to distorted conclusions, as Eichengreen notes. Thus, Eichengreen (9) regrets that because John Maynard Keynes relied mainly on narrative methods, his teachings have been largely forgotten today; even his contemporary followers use essentially mathematical models in the belief that if government does not intervene, the economy will continue to function according to the model.

Eichengreen’s remark that Keynes’s contribution is sadly forgotten today suggests that in his view, Keynes’s so-called followers are actually neglecting important Keynesian insights at a methodological and theoretical level. This neglect also explains many of the failings of economic theory and methodology when [End Page 227] addressing the Great Recession that started in 2007–9. Eichengreen identifies several weaknesses in the theories and methods that guided economic decisions both before and during the Great Recession, all of which influenced misguided policies. Eichengreen focuses not only on specific contributions, but also on the shortcomings of the overall approach to economic theory, method, and policy stemming from the postwar Chicago economists, and the so-called freshwater economists (coming from universities around the Great Lakes region). Eichengreen also criticizes what he sees as the more sophisticated, but equally misguided, German emphasis on combating...

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