Shaping the future of heritage: Embracing the evolution of economic thinking

Banksy’s Girl with a Pearl Earring in Bristol (2014): new approaches are emerging from the recognition that current economic models failed to predict the crisis of 2008 in particular, and were fuelling greater social inequality and deprivation. (Photo: Jonathan Taylor).

Introduction

Economics, according to Lionel Robbins in 1935, is the study of ‘the allocation of scarce resources’. Economic thinking has been traced back millennia to the scholarly writings of ancient philosophers including the ancient Greek poet, Hesiod, who contemplated the scarcity of resources within his agricultural community and the need therefore to allocate labour, materials and time efficiently. While the core problem of scarcity still dominates today’s economic discourse, modern economics has evolved and, indeed, continues to evolve with its core concepts heavily debated, contested and new theories emergent. The heritage sector can and should actively participate in the emerging economic thinking as it will have an impact on heritage in future.

‘Economics is a discipline that shapes decisions of the utmost consequence, and so matters to us all.’ David Attenborough, Dasgupta, 2021

Economics is a powerful tool used by businesses and governments to guide decisions. These decisions have significant impacts on society and on future outcomes. The Culture and Heritage Capital Programme of the Department for Culture, Media and Sport (DCMS) aims to engage culture and heritage more actively in contemporary economic debates, theory and models to formalise the connection between culture and heritage and economics.

‘Economics is in a state of creative ferment that is often invisible to outsiders.’ Suresh Naidu, Dani Rodrik and Gabriel Zucman, 2019

In broad terms, modern economics in the global north has its roots in four epochs of economic thinking.

Classical Economics

Developed in the late 18th and early 19th century, classical economics is associated with the Scottish philosopher and economist Adam Smith. Smith’s basic contention was that markets, when left alone, work efficiently, as consumers working in their own interest will choose the producer that provides goods and services at the quality and price they demand. The market, through the process of competition, allocates resources efficiently and produces the best outcomes for society as a whole. Smith’s works were so influential he is known as the father of modern economics. Well-known economists, including David Ricardo and John Stuart Mill, continued to develop classical economic theories, emphasising the importance of free markets.

Neoclassical Economics

In the 19th century, neoclassical economics moved away from the empirical practice of classical economics, becoming more grounded in mathematical models. Like classical economists, neoclassical economists stressed the importance of free markets in delivering optimal outcomes, with the focus shifting to the concept of marginal utility. For example, a person would choose to spend money on goods or a service dependent on the marginal utility they receive from consuming one more unit of the goods or service. Value in this scenario depends on the final degree of utility. Key neoclassical economists include Alfred Marshall, William Stanley Jevons, Leon Walras and Irving Fisher.

In the early 20th century, Cambridge University economist John Maynard Keynes decried the classical perspective. He argued that markets do not always self-correct and aggregate demand is the most important driving force in an economy, measured as the sum of spending by households, businesses and the government.

Keynesian Economics

By the 1960s, Keynesian economics was the prevailing economic model. In the Keynsian model government intervention through fiscal policy (government spending and taxation) and monetary policy (central bank interventions) became necessary to address economic downturns.

Monetarism

This gained prominence in the 1970s, refuting key elements of Keynesian economics and bringing forward what was at the time a radical new approach based on neoclassical principles. Key economists including Milton Friedman, Anna Schwartz, Karl Brunner and Allan Meltz, held that governments could foster economic stability by controlling the supply of money that flows into the economy and allowing the rest of the market to fix itself. They argued for a return to the free market, including smaller government and deregulation in most areas of the economy (the neoliberal ideology). Monetarism was famously adopted by the US President Ronald Reagan and Prime Minister Margaret Thatcher, who were staunch proponents of this approach. Their policies have significantly shaped our societies and economic trajectories today. Monetarism faded in the 1980s and 1990s, as its ability to explain the economy seemed to wane, bringing forward a resurgence of neoclassical economics and new Keynesian economics.

Economics for the Future

More recently, new branches of economics are gaining voice such as behavioural economics, neuroeconomics, experimental economics, econophysics, evolutionary game theory, complexity economics, feminist economics, ecological economics, doughnut economics, economics of the common good, amongst others.

‘Economics is in a state of flux.’ David Colander, 2009

Through time, the primary cause of the demise of the prevailing schools of economic thought has been the inability to explain or predict economic crises. For example, Keynesian economics emerged during the 1930s and 40s in the aftermath of the Wall Street Crash and the Great Depression. Keynesian economics was seen to offer a deeper understanding of the crisis and provide new solutions to revive the economy. However, when this school of thought was also brought into question (as it failed to explain the economic crises of the 1970s) so Keynesian economics also fell out of favour, alongside the rise of monetarism and free market capitalism.

In 2008, the global economy was hit by a severe financial crisis taking economists by surprise. ‘We did not collectively predict the financial crisis and, worse still, we may have contributed to it through an overenthusiastic belief in the efficacy of markets, especially financial markets whose structure and implications we understood less well than we thought.’ (Angus Deaton, 2024). This has reignited the demand for a novel approach to economic thought that is more holistic in its approach.

‘The economics trinity of greed, rationality and equilibrium is giving way to a new trinity of enlightened self-interest, bounded rationality, and sustainability.’ David M. Kreps, 1997

‘If [Keynes] were alive this century and were to witness the scale of social and ecological crises that we currently face, he would no doubt be urging his fellow economists to create new models that reflect the knowledge, reality and values of our time. He would be right.’ Kate Rayworth, 2024

Calls for change to our economic thinking are being driven by the failure of our current economic models to account for two crucial elements of society today: firstly, inequalities of wealth and, secondly, the climate crisis and the ongoing depletion of natural resources.

Inequality

Up to the 1980s, economic growth was accompanied by falling inequality. However, since then, empirical evidence shows growing inequality within nations. Evidence demonstrates that high levels of income inequality might act as a catalyst for other social issues which detract from societal wellbeing. Economic models and decisions lack considerations of the distribution of the costs and benefits of economic activity among different groups within society, enforcing the concentration of resources and wealth.

‘Research studies show the link between higher inequality levels and more frequent economic downturns. Even so, as of now, most of the macroeconomic models used by central banks and financial firms for forecasting and decision-making don’t take inequality into account.’ (Boushey, H, 2019)

Climate Crisis and Depletion of Natural Resources

This is evidenced to pose an existential threat to life on earth. Evidence shows the close association between our current economic models, patterns of consumption and production, economic policies and climate change. In the UK, the Treasury commissioned the 2021 Dasgupta Review, which argues that the current focus on achieving economic prosperity remains focused on the accumulation of produced capital (roads, machines, buildings, factories, and ports) and what we call human capital (health and education) today. Natural capital (comprising all of the ecosystem services that UK natural assets provide, including soil, air, water and all living things) has not featured in this model of prosperity and growth, which has led to the demise of nature.

‘Over the period 1992 to 2014, the value of produced capital per capita doubled and human capital per capita increased by around 13 per cent, but the value of the stock of natural capital per capita declined by nearly 40 per cent.’ (Managi and Kumar, 2018, in Dasgupta, P, 2021)

Because economists have discovered ways to measure the value of human capital, not only to the individuals who acquire it but also to society at large, it is included in our economic models as a category of capital goods. Similarly, in the past decades, economists concerned with the trajectory of our natural environment have developed new theories, data and evidence.

Environmental economics and ecological economics, including doughnut economics and circular economics, are multidisciplinary fields that have emerged, aiming to address the incompleteness of our prevailing economic discourse. They have developed a narrative and methods for measuring the value individuals place on natural resources, the utility they gain from nature and their willingness to pay for nature. Natural capital is now a legitimate third category of capital goods measured in national accounts. The expectation is that, as natural capital is embedded into mainstream economic discourse and economic tools are developed, a step change will occur leading to the accumulation or stability of our natural resources rather than their continued depletion.

The Department for Culture, Media and Sport (DCMS), alongside partners including Historic England and the Arts Council, have set the intention to develop a similar concept of culture and heritage capital.

In his seminal writings between 2001 and 2014, David Throsby first introduced the concept of cultural capital in an economic framework, differing from that of Bourdieu’s sociological perspective in 1984.

Building on best practice from environmental economists and his existing seminal economic writings, Throsby differentiates between the ‘stock’ of cultural capital (the quantity of available capital) and the ‘flow’ that it creates (a stream of goods or services that may be consumed).

Throsby argues that intangible cultural phenomena, such as languages and traditions, can also be counted as assets in this sense. The cultural capital that is stored in these assets gives rise to both the cultural and economic value of the cultural goods.

In the past, economists reserved the term ‘capital goods’ more stringently than they do now, for they only included assets that are material (tangible) and alienable, where ownership is transferable. However, ‘extensive professional soul-searching since the global financial crisis of 2008 has focused on how economics can better integrate social sciences and elevate welfare and distributional issues.’ (Bhatt, G, 2024). Economics needs to continually evolve with the growing heterogeneous and complex ways in which society is organised if it is to provide explanatory power. Moreover, it needs to expand from current narrow definitions and measures of prosperity to include a broader range of elements of life that matter to people and that influence societal wellbeing. We need to move from narrow metrics of produced capital to broader, more complex multidisciplinary measures of individual and societal wellbeing considering multiple capitals, including culture and heritage capital.

The heritage sector has a rich body of knowledge, evidence and data that demonstrates people care about heritage and it enriches their lives. It is important to our sense of belonging, community and engagement and, in economic terms, heritage increases utility. Heritage is important to people; it has value even when it is not traded in markets. We must discover, nurture and grow culture and heritage to enable a thriving and sustainable economy and society. This means including heritage in our evolving economic narratives, models and economic tools, while maintaining and supplementing the heritage sector’s current tools and the social and political debates that necessarily steer decision making.

‘Economists could benefit by greater engagement with the ideas of philosophers, historians, and sociologists, just as Adam Smith once did. The philosophers, historians, and sociologists would likely benefit too.’ Angus Deaton 2024

This article originally appeared in the Institute of Historic Building Conservation’s (IHBC’s) 2024 Yearbook. It was written by Adala Leeson, Head of Social and Economic Research at Historic England. Opinions expressed in this paper are those of the author and are not necessarily those of Historic England. This work on Culture and Heritage Capital is supported by DCMS and the Arts and Humanities Research Council [grant number: AH/Y000552/1].

--Institute of Historic Building Conservation

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