Toward The Next Economics and other Essays (by Peter Drucker)

• Toward The Next Economics
• Saving The Crusade: The High Cost Of Our Environmental Future
• Business & Technology
• Multinationals & Developing Countries: Myths and Realities
• What Results Should You Expect?: A User's Guide to MBO
• The Coming Rediscovery Of Scientific Management
• The Bored Board
• After-Fixed Age Retirement Is Gone
• Science & Industry: Challenges of Antagonistic Interdependence
• How To Guarantee Non-Performance (Public Service Program)
• Behind Japan's Success
• A View of Japan Through Japanese Art

In its four-hundred-year history economics has passed through four major changes in its world view, its concerns, its paradigms. It is now in the throes of another, its fifth "scientific revolution."

Economics today is very largely "The House that Keynes Built." Even in the English-speaking world only a minority of economists are Keynesians in their specific theories. But the great majority, perhaps even in the Communist countries, are Keynesians in their "mind-set," in what they see and consider important, in their concerns, in their basic assumptions. They tend to define themselves largely through their relationship to Keynesian economics, are "near Keynesians" or "non-Keynesians" or "anti-Keynesians." Their terminology—Gross National Product, for instance, or money supply—assumes the economic aggregates on which Keynesian economics is based. The views of economic activity, economic policy, economic theory which Keynes around 1930 propounded—or at least codified—have, fifty years later, become the familiar environment, the home-ground of economists regardless of persuasion. The Keynesians may not muster the biggest battalions. But they have occupied the commanding heights and thereby define the issues.

Yet both as economic theory and as economic policy Keynesian economics is in disarray. It is unable to tackle the central policy problems of the developed economies—productivity and capital formation; indeed, Keynesian economics must deny that these problems could even exist. Nor is it able to provide theory that can encompass, let alone explain, observed economic reality and experience. And it has been proven to be entirely irrelevant to the economic needs and challenges of developing Third World countries, if not harmful to them.

Indeed, the two theoretical approaches which alone during these last ten or fifteen years have shown consistent predictive power are both incompatible with the Keynesian model: the theories of the Canadian-born Columbia University economist Robert Mundell, and those of the "rational expectations" school. Mundell, after thorough empirical studies, concluded more than ten years ago that Keynesian policies do not work in the international economy. He correctly predicted the failure of currency devaluations to correct the balance of payments, stem inflation, and improve competitive position. The "rational expectations" school goes even further; it postulates that governmental, that is, macro-economic, intervention is not just deleterious; it is futile and ineffectual.

But these new approaches are equally incompatible with pre-Keynesian theories, whether NeoClassic or Marxist. What makes the present "crisis of economics" a genuine "Scientific Revolution" is our inability to go back to the economic world view which Keynes overturned. To be sure, most of the economic theorems, economic methodologies, economic terms found in the textbooks today will be found in the textbooks tomorrow. They will only be reinterpreted—the way quantum physics reinterprets Newton's Optics. After all, Keynes did not discard a single theorem of classical economics. He even retained "Say's Law," according to which savings always equal investments; it became a "special case." And one of the most advanced tools of modern economics, Input-Output Analysis, goes back to the first attempt at economic analysis, the Physiocrats' Tableau Economique more than two centuries ago. But as economic world view, or as economic system, the earlier theories—e.g., the disciplined orthodoxy of the "Austrians"—will not do. What made Keynes so compelling fifty years ago even to a doubter (as I must confess myself to have been even then) was the new vision he forced on us; we suddenly had to see a whole new reality—and that reality is still with us and will not disappear. The Next Economics will be "post-Keynesian." It cannot ignore Keynes, but it will have to transcend him.

There may be no "Economics" in the future. Totalitarian regimes, while greatly concerned with the economy, do not tolerate the postulate on which any discipline of economics must base itself: economic activity, though constrained and limited by non-economic rationality, concerns, and values, constitutes a discrete and separate sphere. Totalitarian regimes cannot accept economic activity as autonomous, internally consistent, and "zweckrational" within its boundaries. In a totalitarian regime, economics inexorably becomes a branch of accounting.

But if there is a future economics, it will differ fundamentally from the present one. We do not yet know what the economic theories of tomorrow will be. But we do know what the main problems, the main concerns, the main challenges will be. We do not know the Next Economics; but we can outline its specifications.