The Magazine

Surprise and Creativity

Notes toward a new economics

Aug 5, 2013, Vol. 18, No. 44 • By GEORGE GILDER
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Kristol saw that this vision repeated Herbert Spencer’s translation of Darwinian evolution into an economic ethic. Seen as engaged in a struggle for survival governed by the laws of the jungle, Kristol wrote, economic man could be neither a creative entrepreneur nor an acceptable vessel of a good society.

As Kristol declared in a memorable essay: “The fact that for several decades after the Civil War, the Darwinian ethic, as popularized by Herbert Spencer, could be taken seriously by so many social theorists represents one of the most bizarre and sordid episodes in American intellectual history.” So much for Spencer, but also less explicitly but inexorably, so much for all the prevailing schools of economic thought. Without exception all provide models of economic activity driven chiefly by self-interested agents responding to their environments in a process that could be well summed up as “survival of the fittest.”

At the time, I believed I had discovered a way out of all these dilemmas. I would show that capitalism is intrinsically altruistic and moral. To succeed in gaining profits, entrepreneurs must be oriented toward the needs and wants of others. Capitalists were givers, not takers, and their successes “expanded the circles of human sympathy.” I devoted several early chapters of Wealth and Poverty to an attempt to prove my case through anecdote and anthropology. Popular in the Reagan White House, this défi d’enfant attracted the attention of my target. Writing in National Review, Kristol praised the book but crisply deflated my claim that altruistic morality could be seamlessly grafted onto the body of classical economic thought.

Compounding the political problem of defending an amoral system inspired by Darwinian biology, according to Kristol, was a spurious claim of determinism inherited from physics and mechanics. Describing an “impasse” of economic theory, Kristol wrote in 1980, “The dominant ‘scientistic’ model tends to drift ever further away from economic reality. .  .  . There is not the slightest reason to think .  .  . that post-Keynesians, fiddling with their ‘cybernetic’ model [of feedback mechanisms], can do any better than Keynesians with their ‘Newtonian-mechanical’ model” or the neo-Austrians with “an anarchical (or libertarian) world that is, in its own way, a construct of a rationalist utopian vision.”

In their mimicry of physics, economic theories tended to imply the impossibility of growth. As Kristol put it, “One of the axioms of any such model is that economic growth is in principle no different from physical change. .  .  . [H]uman beings could no more affect the governing laws than the activity of an atom could affect the laws of physics.” Yet physical change is neither cumulative nor progressive. It tends toward deterioration.

Thus Kristol pushed me to a second central preoccupation of my book (and of Knowledge and Power)—the sources of growth. Giving shape to my argument was an aperçu of Princeton’s Albert Hirschman in an early issue of the Public Interest in 1967. Presaging a longstanding concern of Kristol’s, Hirschman wrote: “Creativity always comes as a surprise to us.” If it didn’t, we wouldn’t need it and planning would work. Wealth and Poverty became a paean not only to altruism but also to creation and surprise.

In Wealth and Poverty, I identified the error of economists as founding their theory on the mechanism of market exchanges themselves rather than on the creative activity that makes them possible. Conventional economics violates a key philosophical principle. It subordinates a higher and more complex level of activity—the creation of value—to a lower level, its measurement and exchange. In their desire to found a Newtonian science of political economy, generations of economists inflated the instrumental mechanism of trading into a complete economic universe. Newton’s “system of the world” became Adam Smith’s “great machine” equilibrating supply and demand, in which there is little or no room for creativity and surprise, for the unpredictable activities of entrepreneurs making entirely new things.

Despite these passing insights, I failed in Wealth and Poverty to respond effectively to Kristol’s challenge. There remained in my implicit model of the economy both the optimizing homunculus and the visionary creator, and no particular way to integrate their different roles in the economy.

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