One peculiar aspect of modern marginalist economics is its obsession with equilibrium. I was recently re-listening to an excellent lecture given by Joan Robinson in Stanford in 1974 entitled ‘What is Wrong With Neoclassical Economics?‘. The entire lecture is about the inability of marginalist economics, which is obsessed with equilibrium positions, to deal with historical time. I would add to this that even a dynamical economics that used differential equations would also be unable to incorporate historical time — the simple fact is that mathematics cannot be used to do history and economics done correctly and with any relevance to the real world is basically an applied historical methodology.
Now, what really struck me was the Q&A section at the end of the lecture. The sheer amount of hostility — outrage even — directed at what Robinson had just said was astonishing. Her complaints seemed to strike a chord with a lot of the economists in the room. “But you can’t fault the logical consistency of the models!” said one, with an obvious tone of distress in his voice (around the 21 minute mark of the second half of the lecture).
It was the question of another that really hit home for me though. “How is it possible,” he asks around 22.30 minute mark in the second half of the lecture, “that a decentralised system in which individual decision-makers communicate only through the market and only through price signals, how might it be possible for such a system to produce a coherent result?”
What a strange question, I thought to myself. Robinson just spent over an hour telling them that such an approach — an approach that sought an equilibrium result in material that was historical by nature — was completely inadequate to the material that economics deals with. Also from what Robinson had just said surely the person asking this question would understand that she was saying that such a framework — where “individual decision-makers communicate only through the market and only through price signals” — is a completely inadequate way to understand an historical process like the actual formation of exchange relationships at any given moment in time.
No one in the audience could really refute what Robinson was saying either — or at least no one tried. (This is something I often encounter when criticising marginalist methodology, by the way; supporters don’t really engage; they either accept what you’re saying and then pretend you never said it or they babble incoherently about how there is no alternative framework). So, what thought process could lead someone to simply ignore what she had said and continue to pose the naive question of equilibrium? And then it struck me: the question that the interlocutor was asking was not logically based, rather it was emotionally based.
You see, the notion of equilibrium — of a “coherent result”, of an answer, a solution, a True State of the Universe — is a well-recognised mythic construct among anthropologists and social historians. They have noted how, in many different contexts, human beings try to form narratives about the universe with which to guide their lives which give them such results. To take one of the most interesting examples consider the following quote from Roy Porter’s fantastic history of medicine The Greatest Benefit to Mankind: A Medical History of Humanity from Antiquity to Present,
In traditional medicine, as I have said, health is a state of precarious balance — being threatened, toppled and restored — between the body, the universe and society. More important than curing is the aim of preventing imbalance from occurring in the first place. Equilibrium is to be achieved by avoiding excess and pursuing moderation. Prevention lies in living in accord with nature, in harmony with the seasons and elements and the supernatural powers that haunt the landscape: purge the body in spring to clean it of its corrupt humors, in summer avoid activities or foods that are too heating. (p39)
One also finds slightly more advanced articulations of such concepts in early Hippocratic medicine as well as in elite medieval medicine. But, as Porter notes, the same concepts could be found in extremely primitive folk medicine — among tribes-people and in early villages. Thus we can only conclude that such ideas arise from some deep, unconscious strata of the human mind.
What significance does this idea of equilibrium have? Why is it a concept which we so readily wish to apply to those things that we identify with — whether the human body or society at large? It seems to me that it provides a sort of emotional comfort. Robinson’s interlocutor wanted a “solution”. He was clearly disorientated by the chaos of the economic world as he saw it and wanted a solution on a blackboard that would bring order to this chaos. Nothing could be more of an affront to how he conceived the world than to be told that his methodology could not even begin grasp the material he was trying to digest.
Equilibrium in economics, as in folk medicine, is a fantasy construction — and a rather primitive one at that. It is the mark of a mind that cannot process anything complex and relatively disordered. But if the Q&A section of Robinson’s lecture shows anything it is that the vast majority of the time people with the temperament needed to become mathematical marginalist economists actually do not have the capacity to do real economic work. That is a very sad state of affairs. But it also puts us in that strange position where we must recognise that the very form that economics took after World War II is leading the discipline to interminable ruin.