In any progressive subject, as the periphery of understanding expands and new questions appear, new ideas and theories to answer them are constantly being thrown up. In physics, for example, a new theory about the beginning of the universe or the nature of gravity seems to turn up at least once a month. In biology, some startling new development, requiring a correspondingly new insight, crops up about once a fortnight at the present time.
In economics, new theories are tardy– about once a generation if we’re lucky. In the 20th century, we have had Alfred Marshall and his geometric sales-demand curves, John Maynard Keynes and his consumer demand hypothesis. Joseph Schumpeter and his waves of supply-side creative destruction, Milton Friedman and his money circulation ideas . . . and that’s just about it. All of these have turned out to be subsidiary insights that haven’t lasted as something to take us bodily forward. None have built on top of previous theory — which is the way that scientific subjects tend to develop.
Because economics is in an impasse now — both in theory and in practice — I am beginning to think that a non-economist, but a genius in physics, Richard Feynman, might supply the answer. Some would say that he was second only to Einstein in the last century. Some would say that in his magnum opus — Feynman Lectures on Physics — that the most significant item is the importance he gives to the Principle of Least Effort, deriving it several times from different directions. The idea of Least Effort had been hinted at by philosophers and proto-economists for some centuries beforehand but Feynman was the first to give it fundamental value in the scheme of things..
Everything in physics, chemistry, mechanics, electro-magnetic radiation, thermodynamics and quantum tunnelling — that is, everything we know about the movements of things and can measure — can be rendered down into Least Effort. The earth’s ecosystem and, as a subset of it — man’s economic system, are physical systems in which the Principle of Least Effort applies. Neither the earth’s ecosystem nor man’s economic system can do any other than to proceed in due course to a condition of minimum use of energy.
The complement of that is that both shed as much energy as possible when getting there. Man’s economic system ditches surplus energy into the earth’s ecosystem and the latter, in turn, sheds its own excess energy (including man’s) as infra-red radiation, into outer space on cloudless nights.
Is world trade proceeding to such a steady-state? Yes! Has mankind’s economic system reached a steady-state? We don’t know. But considering that Japan’s has been paralysed for 30 years, ours has been slowing down for 20, and static for 6, then we might already be very close to it after 230 years of spectacular growth. We don’t know but it’s beginning to look suspiciously like it.
Now that Janet Yellen has come out of purdah for the last 6 tears in raising the Fed’s basic interest rate by 0.25%, this might initiate significant resumption of economic growth. But if it doesn’t in the next six months then we might as well start welcoming Richard Feynman into the Pantheon of Economics as well as Physics.