INTRODUCTION

What is the role of history in the study of political economy? Perhaps its most important role in this context is as a test of theory and a source of new hypotheses. Ronald Coase, for example, famously challenged our understanding of public goods by exposing the hidden history of private light-houses when theory had imagined only public ownership.

History can also be informed by theory. With respect to regulatory capture, George Stigler once observed that important historical inferences about policy intent could be drawn from the economic theory of regulation. Noting that the “theory tells us to look…at who gains and who loses, and how much, when we seek to explain a regulatory policy,” he suggested that “the truly intended effects [of a policy] should be deduced from the actual effects.” Indeed, inferences of this sort have become common in the study of regulation.

One significant danger is that these two strategies may become intertwined – that historical inferences from theory may somehow make their way into historical tests of theory. Surely, such inferences cannot legitimately be adduced as evidence for the theory that generated them. To the extent that historical cases are regarded as support for a theory, they must be based on hard evidence, not on inference from the theory itself.