Economics should fail better

from Peter Radford

Let’s have fun. Let’s pitch Beckett against Nietzsche. First the philosopher:

“The mitigation of our customs is the consequence of our weakness”.

Now the playwright:

“Try again. Fail again. Fail better.”

Nietzsche seems to be arguing that it is a sign of weakness to modify, water down, or otherwise tamper with tradition. He makes no statement about how those traditions emerged, what their purpose is, or even whether they are useful. He is simply, apparently, urging their continuation. More: he is defending our rigid and total adherence to them. He sees such adherence as a virtue of strong willed character. Those customs must stand as infallible statements of our worth. To do without them, or even to modify them, is, somehow a revelation of our weakness.

Beckett is much less strident.  He is advocating a fallible approach. He recognizes failure. Indeed he longs for it. He sees that strength can come from repeated failure as long as lessons are learned and that the next failure is more approximate to success. He accepts success as an illusion: he seems to argue that there is no success, just a series of ever more refined failures.

The two visions could not be more contradictory. Nietzsche exudes power and concreteness. Beckett lauds modesty and trial. Nietzsche is carved into rock. Beckett is lost in a cloud.

I see it thus: Nietzsche is profoundly pessimistic. He sees the past as containing all we need to know, and that our customs represent a bulwark against something not worth knowing. In contrast, Beckett is profoundly optimistic. He sees the past a long trail of bold attempts that fell short, and as a ladder we are climbing towards something eminently worth knowing.

The one is expressing a commitment to the past, the other a commitment to the future.

I see this as a metaphor for the current state of economics. There are many who want to rely on the bulwark of orthodoxy. It stands a worthy edifice, testimony to decades of intellectual struggle, and contains some hard won truths. But it isn’t progressing. It has no commitment to the future. Its advocates regard it as settled doctrine and tinker with its details and avoid confronting its failures.

I include many so-called heterodox economists in this category as well. They seem committed to their own version of the past. They too want to avoid heroic failure in the manner Beckett urges.

This conjoint backward looking commitment prevents economics from learning and thus progressing. It infects all discussions with a sterility that no manner of invective or revelation of error can overcome. It reduces to a kind of intellectual trench warfare wherein the best anyone can hope for is to capture a few precious yards at enormous cost, and for no purpose. After the attack a new stalemate ensues and everyone forgets both the victory and its cost.

The capital debates of the 1950’s and 1960’s are an example of this.

The two sides battered each other. Enormous effort went into each attack and riposte. A giant cloud of intellectual dust was raised. A yard or two was gained. The battle raged until the neoclassical view was sufficiently pummeled and shown to be in error. Viewed objectively the defeat ought to have been decisive. A giant hole sits at the center of what is now orthodox theory. The aggregation problem, issues of substitution, and, ultimately, the inability to derive the return to capital from market forces should surely have been a pivotal moment in the development of post-war economics.

But it wasn’t.

The two sides parted ways. Those neoclassical economists most involved conceded defeat and then went about their ways as if nothing had happened. Aggregation of disparate elements of capital was accepted under the rubric of simplification, and the whole return to capital error was swept under the rug where it was forgotten.

Beckett would have been horrified at the lack of learning. Nietzsche would have applauded the continuation of custom.

As for me: I see both sides as being locked in mortal combat over territory long beyond its worth. We still lack a good definition of capital, which is odd given the endless references by both advocates and critics to our capitalist economy. We still use production functions built upon antiquated views of factors of production. It’s as if the entire twentieth century never existed and that all we need to ponder are the same questions that vexed Ricardo and Marx. They still stand tall as the best defender and critic of industrial capitalism. All the rest is adornment and detail.

No one seems to contemplate a role for energy as a basic factor. Nor does knowledge much enter the equation except via the backdoor of technology now and again. Yet to my eye the entire trajectory of our modern economy has been defined by those two factors. The discovery, use, and deployment of sources of energy and knowledge has allowed us to transform our basic resource substrate into the torrent of wealth that has lifted us all. Unequally perhaps, but equality is an allocation issue not a transformation issue. Shoehorning both transformation and allocation into one theoretical structure is placing too great a burden on it unless it is sufficiently general. In which case the old triumvirate of land, labor, and capital is too specific and too redolent of ideological position. Besides they are proxies for the more general, and modern, triumvirate of resource substrate, energy, and knowledge.

Energy and knowledge provide the work necessary to transform the incoherence of the resource substrate into the coherence of product. A better way to describe this is, perhaps, to say that we do work to instill order. It is from order that we create wealth because we can use ordered resources but not disordered resources. Indeed our consumption of the product of order is simply the disordering or the undoing of the prior transformation.

The distribution of that wealth is not subject to this order-to-disorder cycle. It is an arbitrary outcome of social, institutional, political, cultural, class, gender, and other factors. It does not arise ‘naturally’ from transformation.

Using ideologically loaded words such as labor and capital in both the transformative and allocative models simply muddies our thinking. It masks the contextual origins of classical theory, and it denies the worth of, inter alia, the Marxist, Keynesian, and feminist critiques. It betrays a past still deeply embedded in our intellectual tradition. There is no amount of effort that will squeeze gold from that lead. We need to move on.

We need to embrace the weakness Nietzsche so abhorred. We need to fail better.

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