On war and economics

9 Sep, 2020 at 12:31 | Posted in Economics | 3 Comments

They soon found out how difficult the subject was, and felt justified in evading the problem by again directing their principles and systems only to physical matters and unilateral activity. As in the science concerning the preparations for war, they wanted to reach a set of sure and positive conclusions and for that reason considered only factors that could be mathematically calculated …

It is only analytically that these attempts at theory can be called advances in the realm of truth; synthetically, in the rules and regulations they offer, they are absolutely useless. They aim at fixed values; but in war everything is uncertain, and calculations have to be made with variable quantities. They direct the inquiry exclusively toward physical quantities, whereas all military action is intertwined with psychological forces and effects. They consider only unilateral action, whereas war consists of a continuous interaction of opposites.

Models may help us think through problems. But we should never forget that the formalism we use in our models is not self-evidently transportable to a largely unknown and uncertain reality. The tragedy with mainstream economic theory — and the ‘theorists’ that Clausewitz criticised — is that it thinks that the logic and mathematics used are sufficient for dealing with our real-world problems. They are not. Model deductions based on questionable assumptions can never be anything but pure exercises in hypothetical reasoning. And that kind of reasoning cannot establish the truth value of facts. Never has. Never will.