Einstein’s Economic Insights

Published on Feb 10th, 2012 by admin | 0
Einstein’s Economic Insights

To many of us who practice or teach the elements of the “dismal science” of economics, clarity about the truth of the facts of the science, is frequently seen as anti-social in nature. When the case is made for the optimal manner of the manufacture, financing, and distribution of goods and services it often contravenes the mores of the prevailing political climate, and can easily be shown to be beneficial to some and damaging to others. In short, economic theory often works against the broader beliefs of an egalitarian society in which the assumption of what is fair, just and equitable for all is confronted and confounded by the immutable laws of the self-interest of the individual.

Although he is known more widely for his work in physics, Albert Einstein (1879-1955), who was a German-born theoretical physicist and who developed the theory of general relativity, creating a revolution in physics was also a philosopher and no mean student of economics. Once, in 1934, when asked about the pernicious labor problems of the great depression he opined that there was certainly at least one general cause.

To wit:

If two factories produce the same sort of goods, other things being equal, that factory will be able to produce them more cheaply which employs fewer workmen- i.e., makes the individual worker work as long and as hard as human nature permits. From this it follows inevitably that, with methods of production as they are today, only a portion of the available labor can be used. While unreasonable demands are made on this portion, the remainder is automatically excluded from the process of production. This leads to a fall in sales and profits. Businesses go smash, which further increases unemployment and diminish confidence in industrial concerns and therewith public participation in the mediating banks; finally the banks become insolvent through the sudden withdrawal of accounts and the wheels of industry therewith come to a complete standstill.

With little fear of contradiction, could we not say that Einstein certainly understood clearly one of the major causes of the industrial cycle, and indeed, does his observation not resonate clearly in the current even more complex and interdependent world?

Leave a New Comment

You must be logged in to post a comment.