I’ll tell you the truth: I know almost nothing about science. I know it’s incredibly important. And I know that scientists are daily changing the world and often making lives (including my own) significantly better. I’m thankful for science. But I just don’t understand it. My mind doesn’t work that way. Biology, chemistry, physics, and so on…all of them seem over my head. Electrons and neutrons, DNA and RNA, molecules and atoms, force and gravity. I can’t see any of these things and can barely understand them individually, much less how they all interact with one another. However, although social sciences are not nearly as complicated to understand as the physical sciences, many people still struggle to have firm grasps of even basic finance, economics, history, and politics…much less how they interact together. And yet understanding each of these subjects, and how they interact, is crucial to making sense of the world around us.
Take economics. This alone sends many Americans into an instant sleep. Further complicating things, there are at least two major schools of economic thought that are sometimes dramatically at odds with one another. To really understand the global economy, it is helpful to understand both Keynesian and Austrian economics. How is economics, if at all, related to some of the other social sciences? Well, economics is closely related to politics, as politicians often are in charge of writing laws that will affect the economy. Some laws might help reduce inequality, but might also reduce economic growth. Politics is partially about making decisions on those tradeoffs. Finance is also closely related to economics. The value of a nation’s currency will affect its exports and imports…and to have a successful economy, a nation must effectively and efficiently allocate financial capital. But economics is not only related to politics and finance, but also to history. Although the global economy is far different today than it was 50 or even 20 years ago, there are many lessons we can learn from the economic decisions that we and other countries have made in the past. But it’s also important to consider historical context when trying to compare two different eras and their relative economic performance. Many Americans discuss the economic growth of the 1950’s and 1960’s and try to compare it to today, without considering the tremendous economic advantage the U.S. enjoyed globally following the end of World War II. Understanding economics in isolation is not really sufficient to truly understanding the world around us.
History obviously applies to far more than just economic history; there’s also political and monetary (financial) history as well. In American political history, there are important things we can learn from our past mistakes and our past successes. We can learn from some of Richard Nixon’s world-changing foreign policy successes (such as easing tensions with the Soviet Union and bravely forging the relationship between the United States and Communist China). And we can also learn from his domestic failures (such as the Watergate scandal, as well as closing the gold window). Which leads me to my next point: one critical thing most people know very little about is the history of monetary and banking policy. The United States did not have a central bank for most of its first 140 years of existence. Most people also know little about how in the past the U.S. often attempted to fix the value of the dollar to a certain amount of gold, before letting the dollar float against gold in the 1970’s. They know little about the real significance of using fiat currencies or the potential for easy devaluation of the currency by governments. Indeed, Americans know little about past global currency wars or the potential resulting economic fallout. Simply knowing major historical events, without how they affected (or were affected by) economics, finance, and politics provides something far short of a clear picture of the world.
Finally, people need to understand the connection between politics and finance. We can see the difficult (and sometimes seemingly shady) relationship between bankers and politicians. Politicians are In charge of making rules to regulate and (hopefully) make the financial industry safer. However, politicians also want banks to loan out money to the real economy so that it can grow. So, on one hand, politicians have to be very careful to make sure that banks don’t take unnecessary and potentially devastating risks…but they also have to try and pass policies and create an environment that encourages banks to make smart loans. The relationship between finance and politics is both complicated and crucial to building a successful country.
Some people know a lot about history. Or a lot about politics. Or a lot about economics. Or a lot about finance. But few people truly know a lot about all four of these social science disciplines, much less how they interact with one another. When one finally begins to truly understand how they are all related, the world begins to become so much clearer.