1703. Economic formalism becomes the new rules of the game.

provocation #39

Economics begin early, as accounting, perhaps as notches on a stick and then keeping track of cattle, oil and grain in communal storehouses.

This led to contracts and taxes and on to trade and the development of risk models, all well developed by  China, Greeceand Rome.

Adam Smith lifts the village market and division of labor to universal principles and the purpose being a

“branch of the science of a statesman or legislator [with the twofold objectives of providing] a plentiful revenue or subsistence for the people … [and] to supply the state or commonwealth with a revenue for the publick services.”

But as Smith ‘s contemporary, David Hume wrote

“It is a violent method, and in most cases impracticable, to oblige the labourer to toil, in order to raise from the land more than what subsists himself and family. Furnish him with manufactures and commodities, and he will do it himself. Afterwards you will find it easy to seize some part of his superfluous labour, and employ it in the public service, without giving him his wonted return. Being accustomed to industry, he will think this less grievous, than if, at once, you obliged him to an argumentation of labour without any reward.”

Because of the movement of science into numerical analysis, and this method was being extended into things like the circulation of blood, some saw the possibility that economics could be paraphrased in mathematical terms. From Smith to Ricardo to Marshall (and the bracketed Keynes) to Samuelson. This was a relatively small number of people with a huge impact on society. Their attraction to formalism and competitive careers in the Academy had a huge impact on society.

The resulting models became more abstract and left out everything that could not be quantified. The shift in focus was from markets in food and land to financial markets where the numbers were easier.

The academics needed careers and bureaucracies needed more sophisticated planning.

But as the descriptive models of the flow of interest, prices, wages, replaced the broader discussions of the political economy, the descriptions became the new rules of the game. These developments from Adam Smith on. Had a huge impact on the nature of society as the game of Financial economics became the core game of society.

The question has to be, who was this for? It would make economics look like a science about another natural object and hence out of the reach of politics, whereas politics was about pesky distribution and justice.

We have a constantly changing economy (Schumpeter)) and an economics of equilibrium and rationality that is completely static,

So far, many agree. But

What should we change the rules of the game to?

And how can we do it?


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