The Mirage of An Economics of Knowledge

1 Once upon a time, say around the era of David Ricardo and Karl Marx, political economy was primarily concerned with the production of national wealth. This ―classical‖ notion tended to hang on long into the 20 th century, well after the invention of neoclassical economics in the 1870s (Mirowski, 1989, chap. 7). Nevertheless, there was no denying that within neoclassical economics, exchange had displaced production as the primary topic of interest; this informed the definition of economics articulated by Lionel Robbins that its proper subject was the ―allocation of scarce means among given ends‖. But subsequently something rather extraordinary happened around the middle of the 20 th century, gaining momentum as the century waned. More and more, economics at the cutting edge (as opposed to the textbooks) became relatively cavalier about treating trade as static allocation, and instead became all wrapped up in the image of the market (or the agent) as a processor of information or knowledge. I am not just referring here simply to or assertions that knowledge was the source of all economic growth (Romer, 1990), or endless arguments over whether rationality is ―bounded‖ or not (Conlisk, 1996). I mean instead that, if your goal in life was to get published in a highly-ranked economics journal, you could no longer safely cast your analysis in terms of the old familiar trope of static allocation. As Kenneth Arrow (in Colander et al, 2004, p.292) put it: ―one of the biggest differences between 1950 and 2000 is the much greater role now given to the role of knowledge and information.‖ Economists now bandy about the term ‗information' in their papers almost as freely as they had once resorted to the term ‗prices'. Clearly something epoch-making had happened to economics, but what precisely was it? Had the avant-garde imperiously consigned all that had gone before to a bonfire of the vanities? Sometimes the more impetuous amongst the cognoscenti wrote as though it did: There is no single new Law of Economics… The world is not convex; the behavior of the economy cannot be described as if it were solving a (simple) maximization problem; the law of supply and demand has been repealed (Stiglitz, 1985, p.22) 2 In other instances, various notables hastened to reassure the rest of us that nothing had really changed at all, and that, contrary to most impressions, the info-fascination was just a minor variation on …