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Alfred Nobel, who hated economics "from the bottom of my heart" 

What is economics? Is it a science? Haven't all its failures of prediction and political guidance proved its lack of respectability? The current financial crisis also reveals a deep crisis of economics. We seem to be witnessing the dismantling of an approach that, at least in its shallow mainstream version, has to make a series of absurd assumptions in order to reach any conclusion — with both the assumptions and the conclusions being astonishingly out of touch with reality. Its scholars have come to use mathematical logic as some sort of l'art pour l'art, falling into the trap of technicality rather than aiming at the wider horizon of an all-encompassing social science.  

"Competent economists are the rarest of birds...The master-economist must possess a rare combination of gifts...He must be mathematician, historian, statesman, philosopher — in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man's nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician."  

We owe this job description to John Maynard Keynes and the situation hasn't changed since he wrote it nearly a century ago. The scarcity of good economists has indeed been a constant plague of humankind. 

This is not to say that all economists are by nature technocrats who fail to recognise the relevant questions. This would just not be true. The verdict of narrowness and non-scientific shallowness cannot be directed against those economists who have made their career outside the mainstream, the so-called "orthodoxy" — in institutional economics, for example, or in public choice, in law and economics, game theory and behavioural finance. In these relatively new and innovative fields, scholars have been endeavouring to fill the gaps in mainstream theory, hoping to contribute to what should one day be a better and more fruitful mainstream. The goal is a body of theory that would be able to answer more relevant questions about how mankind can peacefully live together in society, granting personal autonomy and economic progress for all, building on the institutional achievements of Western civilisation, such as individual liberty, the free market and the rule of law.

It therefore seemed worthwhile to interview as many as possible of the living recipients of the Nobel Prize for Economics, as I have done in my new book Roads to Wisdom (Elgar, 2009). Nobel laureates are terrific subjects of analysis if one seeks to grasp the backgrounds and inspiration that create true excellence, especially in a field such as economics, where fruitless and shallow technical brilliance can turn out to be so harmful. The Nobel Prize in Economics does not really deserve its name. It was instituted as late as 1968, by the Swedish Riksbank and its full name is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The man who invented dynamite, made a fortune and dedicated it to the ongoing promotion of scientific excellence, clearly seeking not to leave the world with a merely destructive legacy, had not included the field of economics in his will. Actually, he hated economics, as he said, "from the bottom of my heart". For a physical scientist, to whom hard data and precision were vital, this is quite understandable. Economics, as a social science, cannot discover eternal laws. It has to deal with ever-changing and inherently complex phenomena.

The fake genealogy of the Nobel Prize in Economics doesn't however impair its importance. The prize is, of course, no guarantee of quality. But it is better than many other indicators, because the phenomenon of self-perpetuating elites plays itself out less negatively here than elsewhere in academia. In order not to misjudge whether some areas of research or some pieces of work have really had a measurable impact on economics, the prize tends to be handed out very late in an individual scholar's career. A welcome side effect of this is that career choices are not being corrupted. On average, Nobel laureates in economics are 67 when they receive the prize. The oldest to receive it was Leonid Hurwicz, at the age of 90, in 2007.

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Don Gooding
October 17th, 2009
1:10 PM
Thanks for this perspective - it resonates with me, as someone re-entering economics after a career in the economic trenches (aka business). You validate my own discomfort with economic orthodoxy, and it's invigorating to hear about intellectual entrepreneurs forging new paths while remaining humble about what we don't yet understand.

Business Ph.D., liberal arts BA
October 4th, 2009
3:10 AM
I do agree that in recent decades, to a disturbing extent, a large majority of PhDs in economics have been awarded to philistines. In my experience, the typical economists under 50 scorns the liberal arts requirements typical of North American undergrad degrees, and has a naive scientistic admiration for science and math. They do know some math and statistics, but seldom know any science. Properly taught, science can be highly humanizing. A society run by the public policy prescription of the typical economist trained in the past 20-30 years is a society that would edge towards terminal conflict, self-destruction, and bureaucratic fascism. The views of academic economists about departmental and university politics are not a pretty sight. Economists believe that administrators should enjoy a maximum of discretion, forgetting that such discretion is likely to result in administrators' feathering their own nests and trampling on the rights of others. Keynes could write beautifully for the wider educated public, but he forgot that fact when he wrote the General Theory. At the same time, he also was fast forgetting technical economics. Hence the General Theory was badly written. It began to make sense with Hicks's IS-LM model. We did not really understand what Keynes was on about until Pigou and Modigliania worked out the full algebra and calculus details in 1943 and 44. Our ancestors eventually settled on Keynes having worked out the consequences of assuming certain "rigidities" in wage and price setting. When Keynes wrote, what came to be called classical or "market clearing" macroeconomics was poorly understood. It was Pigou and Modigliani who began to clarify the opposition between Keynes and the Classics. I should grant that rabid Keynesians often asserted that Keynes had said much more than this. I do not blame the current recession on decentralised market economies, or cowboy financial markets, or "capitalism." I blame it on the American bipartisan obsessive belief that dysfunctional people will clean up their acts if they become homeowners. Several million mortgages were granted to people who were very poor risks. When they were unable to meet their payments, house prices began to fall, which given the laxity of American creditor-borrower law, only made things much worse. Deep down, we do not know why the UK, Ireland, Canada, the USA, Australia, and New Zealand remain growing innovating societies under the rule of law and democratic due process. That many of the grand old men of neoliberal economics today were New Dealers and socialists when they were 20 is a telling indicator of the great ideological sea-change that has taken place over the past 70 years. We all believe in decentralised markets regulated by business law. Note the economic and political difficulties many post-Communist nations have had since 1990. I suspect that there are other unstated institutional assumptions underlying our political and economic order.

September 27th, 2009
9:09 PM
Lord Keynes was all of these capacities and more. His General Theory whilst not set in concrete overcame the Classical Economists dream time and proven the Chicago school of free marketeers as worse than dreamers, because their teachings led to plunder.

September 27th, 2009
12:09 PM
The institutional achievements of Western civilisation, such as individual liberty, the free market and the rule of law. It is probably the reigning assumption of the free market which is primarily at fault in the current crisis. Markets are rarely free, and to the degree that they are, instability is as common a result as equilibrium.

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