|
|
This is a limited free preview of this book. Please buy full access.
Ever since Adam Smith, economics has modeled itself on the physical sciences, especially Newtonian mechanics. Smith was so impressed with Newton’s system that he called it “the greatest discovery that was ever made by man” [Smith, 1795, 105]. Over one hundred years later, Vilfredo Pareto, one of Veblen’s contemporaries, was still talking about economics in terms of Newtonian mechanics. Pareto wrote that “the problem of pure economics bears a striking likeness to that of rational mechanics” [Pareto, 1897, 490].
By modeling itself on Newtonian mechanics, economics was led down the path to equilibrium analysis. As every student of economics knows, equilibrium analysis is central to mainstream economics. Even growth theory, which would seem to be about anything but equilibrium, is often discussed in terms of a steady-state, which “represents the long-run equilibrium of the economy” [Mankiw, 2003, 186]. There are even jokes about it: “Old economists never die; they just lose their equilibrium.” Evidently for an economist, losing one’s equilibrium is the end of the road.
For some purposes, equilibrium analysis is useful. But to Veblen, the really important questions in economics were self-evidently not about equilibria. The most striking feature of a market capitalist economy is its rapid pace of change. All other known economic systems seem sluggish in comparison. Why is it that economists spend so much time on static equilibrium analysis when the most obvious feature of the economy is constant upheaval and change? As Veblen put it, “The question now before the body of economists is not how things stabilise themselves in a ‘static state,’ but how they endlessly grow and change” [1934, 8].