Future in the Past: Georgescu-Roegen between Gossen and Kahnemann

16Jul11

Would you believe that one would invest years of time and energy to study an older economics writer in the hope to get the Nobel Prize? Well, that sounds pretty unlikely… Everyone in the history of economics community complains that the field is so disregarded these days. The Nobel prize, don’t even think about it.

And yet… Nicholas Georgescu-Roegen edited the English translation of Gossen’s book The Laws of Human Relations (1983), and wrote a lengthy introduction to it. His work is a major piece of scholarship on an otherwise obscure early writer -Gossen was a German proto-marginalist of the mid-nineteenth century, praised by Jevons and Walras but presented only as a minor precursor in most of the subsequent literature. Georgescu’s essay on Gossen is the most elogious appraisal he ever wrote of any economist. The striking thing is that he is said to have put a great deal of time and effort in this project as part of his hope to receive the Nobel Prize.

Let’s be clear, it’s not that Georgescu believed historical work would earn him a Nobel in economics. No. His strategy was more subtle: he wished to convey the message that Gossen was unjustly ignored by his contemporaries, just as Georgescu himself felt that his own contributions to the economics discipline were insufficiently recognized. His belief that he fully deserved the Nobel was one that he widely voiced among colleagues at Vanderbilt University.

My point, in a paper that I have recently presented at the Summer Institute for the History of Economic Thought (University of Richmond, Jepson School of Leadership Studies) is that it was not only self-identification with a forgotten older writer that motivated Georgescu’s editorial enterprise; I show that his original plan was to build a theoretical model revolutionising the economic theory of utility and consumer choice, inspired by suggestions he found in Gossen.

His key idea, in a nutshell, was to better incorporate time and cognitive limitations into economic theory: consider that knowledge is local only (no omniscient consumer!) and preferences are slowly formed over time as the consumer gains knowledge of goods, and experiments with them. Past choices contribute to create standards against which currently available options are assessed, and new choices are made, creating a form of path-dependency. The sequence in which choices and experiences are made hardly depends on innate tastes (which may not exist at all), but on a hierarchy of needs of biological and (even more) of social and cultural origins.

Gossen could help indeed: he had built his theory of utility and consumer choice entirely on time, with the idea that if economics is about scarcity (a commonsense in the discipline since the beginning), the main source of scarcity is not some material shortage but the finiteness of time available to us humans. Gossen had come close to ideas of path-dependency and endogenous preference formation due to the passing of time and cumulation of experiences, despite the rudimentary mathematical tools that were available to him at the time.

To discuss this, my paper relies upon previously unused archival material (the Nicholas Georgescu-Roegen papers collection at Duke University) to reconstitute the genesis and evolution of Georgescu’s work on Gossen, providing evidence that its completion took almost twenty years and was very convoluted. It was because of personal circumstances and of analytical difficulties that emerged as reflection progressed, that Georgescu’s initial theoretical interests gradually faded away and the nature of the project changed. The personal motive of self-identification with Gossen, absent at the beginning, gained prominence over time.

What happened, then, to Georgescu’s initial theoretical ideas? Did they disappear completely -or to put it differently, did economics miss an opportunity to explain consumer choice better, once and for all? Well, in fact no. At the very same time that Georgescu was giving up his theoretical dreams (late 1970s – early 19080s), another part of economics rediscovered them independently. Behavioral economists came up with the principles of reference-dependence, adaptation, framing effects and loss aversion, to name but a few, that do account for the relevance of time and path-dependency as Georgescu had suggested. What’s more, they do so with new evidence and new tools, mainly experiments -now widely accepted within the discipline, but which Georgescu deeply mistrusted. Little by little, the economics of consumer choice did change, pretty much in the direction that Georgescu had tried to indicate.

This is, then, a story of multiple discovery -and by the same token, we are taliong here about the sociology of science as much as about economics or its history. At about the same time in history, a profound need to renew consumer theory shook the very bases of the older orthodoxy, and took very different forms. One, more traditional, relied on the study of a past author and the tools of abstract mathematics -that Georgescu loudly criticised but continued to use all his life. The other, perhaps more deeply revolutionary as it developed the new tools of experimental research, did not dismiss the mainstream altogether, but tried to integrate its results into it . The former gave birth to a masterpice of scholarship and a deep reflection on the economics of consumer choice, but did not provide much input for further research; the latter gradually came to the fore and is now a well-accepted part of economics.

Georgescu, then, could not strictly speaking claim the merit of new discoveries about consumer theory for just himself. And yet, he came close to anticipating a big revolution in economics -the one for which, years later, Kahnemann did receive the Nobel prize.

My draft paper is available here.

The slides I used to present my work at the Summer Institute are here.

A webcast of my presentation is also available: