The New Republic has reprinted a wonderful Depression-era essay by John Dewey about the collapse of what he calls the “romanticism of business”:

But it was just at this point that the new romanticism of business so cleverly came in. Human imagination had never before conceived anything so fantastic as the idea that every individual is actuated in all his desires by an insight into just what is good for him, and that he is equipped with the sure foresight which will enable him to calculate ahead and get just what he is after. Nor did the imaginative flight pause with this conclusion. All the work of the world, from the most ordinary to the most extraordinary, is presided over by this omnipresent deity of calculating reason, who through his uniform presence in each separate individual is summed up by integral calculus into a virtually omniscient mind. Through its beneficent and overruling power, self-interest becomes a social lubricant instead of a cause of friction, and the zeal of each one to get ahead of everybody else promotes the general welfare. If there are those who seem to be left out of its distribution, there is always the assurance that the ways of Providence are proverbially mysterious.

It is characteristic of romance, of the glamorous and imaginative projection of excited emotion, to remain outside the sphere of argument. One is either inside the romance or outside it. It is true and is the standard of truth, if you are inside; it is silly or insane, if you are outside. Thus, when one says that the present world crisis is merely the consequence of the general acceptance of the particular romance which has gone by the name of business, one speaks from the outside. It is commonly assumed that the explanation of the economic crisis must be itself economic. So it must—if one stays inside the business dream. Since it is part of the dream that cool, far-sighted intelligence controls the operation of the energies and instruments by which desires are satisfied, one within the dream must seek for a rational explanation. From outside the romance, that fact itself gives the key to the explanation; we cannot call gambling an exercise of cool and calm rationality without sooner or later tripping up.

It’s a great essay. Like most of Dewey’s work: highly recommended, and highly difficult to summarize — so I’ll stay a bit more general. Dewey says that the Great Depression was a refutation of the romance that is economics. I’d say that today we’re in a similar position. The Financial Crisis made a mockery of the core institutions, people, and ideas that constitute the field of modern economics. It exposed the field as unable to do arguably its most important job as a descriptive social science — predict social phenomena. And it proved it unable to perform arguably its most socially beneficial function as a policy tool — prevent massive economic calamities.

It’s clear that just as our national economies will be restructured in the wake of the Crisis, so too must the discipline of economics itself.

To use Dewey’s word, modern economics is a” romance. “More than most social theories, it relies on an idealized picture of the world, one rife with bias, normative assumptions and “spiritual” depictions.  More than just a set of tools, economics is, as New Yorker writer John Cassidy says, an “austere theory of human behavior.” To economics, people are like black boxes. They have no psychologies, no values, no histories, no cultures. They buy and sell in marketplaces; they never get free lunches; and they act with perfect rationality and relentless greed. Assuming these things, we can explain everything. It’s a fairly brutal idea — the outwardness, the cool rationality, the greed — but it’s also inspiring. Like Marxism, it promises to endow man with the tools to conquer his world. But it does that only by dissolving the thick and complex social bases that constitute that world; it aspires to elevate man only by reducing him.

I don’t want to get overly polemical here. (I’m sure I already have!) The fact is, I have a huge amount of respect for economics and the tools that it’s given us. We couldn’t live without those tools, of course. But the other fact is, economics is not sufficient. Not only do its prevailing theories fail to explain and predict our world, but the moral assumptions behind those theories often have the terrible effect of providing a glossy academic justification for a lot of what is gross in our world — voracious human greed, inequality, the institutional monopoly of elites, etc. I’ll state it in this way: by believing wholeheartedly in the romance that is “economic man,” we’d lose too much — too much experimentalism, too much creativity, and too much of the human daring and improbable striving that fail to fit in its models.

Added: Of course it’s true that not all economic theories rely on absurd human behavior models that tend to legitimate opportunism and greed. But most of them do. Behavioral economics is a great counter-example and success story, and its rise supports the fundamental point that the field is going to be changing substantially in order to deliver correctives to its models. As I say in the comments: that’s a good thing! Where economics will be ten, fifteen years from now we can only guess. But it will almost certainly be better. Economists and students that are using neuroscience and pyschology to correct the delusions of those models are indeed fighting the good fight, and they should be applauded.

Photo credit: Columbia Record

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