7
1933, came as it were out of a clear blue sky. But then, so do hurricanes’. Krugman’s alternative
metaphor, if there is no such thing as a ‘typical recession’, is that ‘recessions are more like
earthquakes than like hurricanes.’
15
Its seems that Krugman considers economic slumps to be
outside the influence of human beings, just like hurricanes or earthquakes. Just like with Adam
Smith’s invisible
[186] hand, Mankind is again in Krugman’s world view at the mercy of a pre-
Renaissance type of ‘Providence’ or ‘Faith’.
The idea that neoclassical economics is postmodernist is not new. According to McCloskey,
Friedman’s 1953 essay ‘was more postmodernist than one might suppose from slight acquaint-
ance with the text’
16
, or, as another author puts it: ‘Postmodernism is immanent in modern eco-
nomics’.
17
Postmodernism and standard economics indeed seem to meet in their quality of static
‘undicidability’ – in contrast with the cumulative dynamics of the historical school of econom-
ics. Krugman’s latest books are now making economics into dynamic undicidability. The con-
trast between this ‘postmodernist’ standard economics of today and the ‘modernist’ historical
school can be traced back through the centuries to their very origins; to the Renaissance and the
Enlightenment respectively.
18
Standard economic theory is a product of the mechanical and
quantifiable
Weltanschauung of the
Enlightenment, where aporia (indecision) is a result of a ra-
tionality which, in the absence of novelty, ‘will eventually enslave us to rules’
19
. Stage theories,
on the other hand, are products of the
Renaissance where new ideas, knowledge and leadership
move history along, building and unbuilding structures and stages in a Schumpeterian process of
creative destruction.
Stage theories are typical products of German economic theory
20
, of a type of theory which
Werner Sombart (Sombart 1929) calls
verstehende, as opposed to
ordnende economic theory, of
what Nelson and Winter (Nelson & Winter 1982) call appreciative economics.
[187] These theories
exerted their influence in Germany, but also in the United States in the period when US economics
was heavily influenced by German economics, a period which ended after WWII. Stage theories are
framed in an attitude of Zuerst war die Ganzheit: in the beginning there was ‘the whole’, from a
time where reality still was interpreted as obviously being interdisciplinary, from before Man started
fragmenting his approach to the world around him into different professions with scant communica-
tion between them. In this holistic approach to economics, whatever seems relevant -regardless of
what academic tribe a particular fact narrowly belongs to – is part of that profession. If, for example,
it seems that nutrition in a particular time and place seems important for economic development,
then the relevant part of nutritional theory is most obviously a part of economics. As is readily ad-
mitted by philosophers of economics today, this type of qualitative understanding has been lost in
post-WW II economics: ‘Scientism has damaged the ability to understand’.
21
The stage theories – as well as traditional German economics in general – also internalise
15
Krugman, op. cit., p. 5.
16
McCloskey, D., The Rhetoric of Economics, Madison, University of Wisconsin Press, 1985, p. 9.
17
Wendt, Paul, Comment on Amariglio’s ‘Economics as a Postmodern Discourse’, quoted in McCloskey, D.,
Knowledge and Persuasion in Economics, Cambridge, Cambridge University Press, 1994, p. 72.
18
For a more general discussion of these issues, see Reinert, Erik, and Arno Daastøl, ‘Exploring the Genesis of Eco-
nomic Innovations: the religious gestalt-switch and the duty to invent as preconditions for economic growth,’ in
European Journal of Law and Economics, Vol. 4, June 1997, pp. 233-283.
19
McCloskey, D., ibid, p. 72.
20
For an overview of German stage theories, see Kalveram, Gercrud, Die Theorien von den Wirtschaftsstufen,
Leipzig, Hans Buske, 1933.
21
McCloskey, D., ibid., p. 50.
8
what Alfred Chandler
22
put on the map of business economics in 1990: scale and scope. Stage
theories are fundamentally theories of non-equilibrium economics. They are fundamentally his-
tories of various aspects of the cumulative growth of human knowledge – of novelty – and its
impact on division of labour and its impact on scale, scope and geography of economies over
time.
It would probably be correct to say that stage theories are all
economic interpretations of his-
tory, although they may not all be
materialistic interpretations of history in the Marxian sense.
Edwin Seligman, the American social scientist, defined the economic interpretation of history as
follows: ‘We understand, then, by the theory of the economic interpretation of history, not that
all history is to be explained in economic terms alone, but that the chief considerations in human
progress are the social considerations, and that the important factor in the social change is the
economic factor. The economic
[188] interpretation of history means, not that the economic rela-
tions exert an exclusive influence, but that they exert a preponderant influence in shaping the
progress of society.’
23
Marx and Engels focused on one particular aspect of the economic stages,
on the conflict between social classes. As we shall see, this is only one of many aspects of which
stage theories lend themselves to analysis.
We personally tend to look at both the economics profession and political development in
general as having been stuck now during more than 100 years in an unrelenting fight between
what with time no doubt will be seen as two very strange and unproductive theoretical angles.
One set of theories, what we call today’s ‘standard theory’, which, because it was fundamentally
based on barter, created a static Harmonielehre – a theory of automatic social and economic
harmony. In this theoretical model all economic activities are alike and all wage earners of the
world will be equally wealthy. The other set of theories – the Marxist ones – focused on one par-
ticular aspect of the economic stages, on the fight between the social classes, and on a perceived
inherent impossibility of social and economic harmony, except in a hypothetical stage following
the dictatorship of the proletariat. During the 19
th
Century a third set of economic theories
claimed that it was not primarily the economic system that causes social injustice, but rather the
extra-economic, political and social factors that intervene in all economic processes. Existing
property relationships, and the consequent class struggles, were seen to be the result of histori-
cal-political development, not an automatic outcome of the mode of production itself. Social and
economic harmony could be created under any mode of production, but this required conscious
design of economic institutions, of trade policy and of elaborate mechanisms of income distribu-
tion. Main theorists in this third, now defunct, type of economic theory were Henry Carey in the
United States and Friedrich List and Eugen Dühring in Germany. Their view corresponds today
to Carlota Perez’ interpretation of the social challenges as the world economy moves away from
the Fordist mass-
[189]production stage of economic development and into a new stage based on
information technology.
24
The alternative 19
th
Century economic theories – the ‘Third Way’ – which refused both Eng-
lish classical, Anglo-Saxon neo-classical economics, and Marxism became in very short supply
22
Chandler, Alfred, Scale and Scope. The Dynamics of Industrial Capitalism, Cambridge, Mass. Harvard University
Press, 1990.
23
Seligman, Edwin, ‘The Economic Interpretation of History’, in Political Science Quarterly, Vol. XVII, 1902, p.
76, quoted in Ely, Richard,
Evolution of Industrial Society, New York, The Chautauqua Press, 1903, p 25-26.
24
Perez, Carlota, ‘The Social and Political Challenge of the Present Paradigm Shift’, in Reinert, Erik (Ed.), Evolu-
tionary Economics and Income Inequality, Aldershot, Edward Elgar, forthcoming 2000.