From John Mackey, the CEO of Whole Foods, in an essay in Be the Solution, p. 79:
the classical economists became enchanted with the efficiency and the productivity of the industrial enterprises that they studied. Industrial and machine metaphors became the primary metaphors used to explain how the world really worked since this reflected the Newtonian scientific world-view that came to dominate the consciousness of the age. Every business was seen as a type of machine with various inputs and profits being the output.
…at the beginning of the Industrial Revolution, capital was quite scarce. The ability of successful enterprises to accumulate profits and the redirection of accumulated capital by the entrepreneirs and investors into new and promising opportunities was largely unprecedented in history. Therefore, it wasn’t too surprising that classical economists became enamored with the importance of profits, because profits had historically been very rare and they were essential to the continued improvement and progress of society. Industrial Age entrepreneurs had discovered a form of a “perpetual motion machine”–enterprises organized to maximize profits and through the reinvestment of these profits, the promise of indefinite continued growth.
What struck me about the first paragraph was the natural inclination of an economics discipline that was formed during the Industrial Revolution to view businesses and economies as machines. You think of a machine as something that should work most of the time, and if it is not working it needs to be fixed or re-designed altogether. You think of a machine as operating according to precise mathematical laws. I am reminded of the Obama Administration economists using a multiplier of 1.54 for government spending. At some level, they have to know that this is baloney. But there is enough comfort with using the machine metaphor that people are willing to talk about multipliers with this sort of false precision.
Also, textbook economics views businesses as machines for transforming inputs into outputs, which is why it is almost impossible for them to explain what entrepreneurs do.
The second paragraph speaks to the importance of profits and capital accumulation in classical economics. I think of Karl Marx as the ultimate example of this, but so is neoclassical growth theory.
My sense is that economics is straining to get out of the machine-metaphor straitjacket. Perhaps it will manage to escape some time in the next twenty years.
READER COMMENTS
Troy Camplin
Mar 26 2009 at 9:42am
The economy is more like an environment full of different species. If a species becomes maladapted to the changing environment, it becomes extinct; it if adapts, it survives. Mutations/innovations result in new species — which contribute to the changing environment. There is a reason why economy and ecology both start with the greek oikos.
JP
Mar 26 2009 at 10:01am
This is fascinating. I wonder if the machine metaphor has something to do with the average person’s inability to believe that the services of a CEO can be worth millions of dollars, while having no trouble accepting that the services of a pop singer can be worth that much.
Art Woolf
Mar 26 2009 at 11:14am
Your link to the book is bad.
[Thanks, Art! I’ve fixed it now.–Econlib Ed.]
3waver
Mar 26 2009 at 12:24pm
Great post.. I think Alvin Toffler studied industrial thinking and its effects on economy really well.. That is the subject of our blog in fact;
http://thirdwaveiscoming.blogspot.com
Hayek ties into this worldview pretty nicely through his distributed pricing mechanism.
ed
Mar 26 2009 at 1:59pm
JP asks a great question–if a firm is just a machine, then anybody could run it.
It certainly seems that Marxists make that mistake, seeing managers and entrepreneurs only as parasites who steal the workers’ surplus, rather than value-creators.
Richard Pointer
Mar 26 2009 at 3:47pm
Russ Roberts talks about this all the time. Biological systems were the first analogies taken by early economists like Smith, according to Roberts. In fact in one podcast Roberts talked about how Darwin looked to economics for ideas.
Out of Control is a good book for understanding this but so is most of Hayek.
Hugo Pottisch
Mar 27 2009 at 5:05pm
The dots are there – the connections are not. Has any economist ever opened a real ecology textbook… extend the phenotype. Practice consilience. Economists would be be surprised what they find, I think.
If the machine view is dangerous to economics – it is even more dangerous when it comes to the ecology – the largest market on the planet. The Selfish Gene by Dawkins and On Human Nature by E O Wilson are also of more use than any mechanical Objectivism. Behavioral economist and those interested in the nature of culture should also enjoy The Electric Meme by Robert Augner.
Out of Control, as recommended by Richard, is indeed also a good book. Hayek and von Mises have intuitively come close to making economics a natural BSc rather than a social BA. Yet many of their writings show little respect for the ecology (although much more than the average economist today). Austria and Germany at the time were too distracted with Freud and one feels a strange absence of Darwinian ideas in otherwise good scientific thinkers. E.g. Hayek and von Mises famously thought of nature as something to protect for esthetic, sentimental and “wellness” reasons.
I can’t wait as we de-velop from simple master to advanced machine to complex nature… from simply god to advanced human to complex animal. Only twenty years to go – would be great.
Hugo Pottisch
Mar 27 2009 at 7:39pm
PS: I like Mackey. A lot. He is a practicing libertarian not a demanding one. He is also vegan.
I really enjoyed the discussion between him and the liberal Michael Pollan on the Future of Food – which in reality was a discourse into “can big companies be good”.
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