The Competitiveness of Nations in a Global Knowledge-Based Economy

2.0 Problem: A Flawed Ideology

2.0 Problem: A Flawed Ideology

2.1 Origins

2.2 The Standard Model

2.2.1 Epistemology

2.2.2 Limitations

2.3 Objective

* Index & Epithet not in published dissertation



Ideology 4:

A systematic scheme of ideas, usu. relating to politics or society,

or to the conduct of a class or group, and regarded as justifying actions, esp. one that is held

implicitly or adopted as a whole and maintained regardless of the course of events.

Oxford English Dictionary

2.0 Problem: A Flawed Ideology

1.         An ideology, for my purposes, is a system or set of ideas defining a distinct sector of the noösphere, i.e., of human thought, such as science, religion, politics, philosophy, economics, business & commerce, art & entertainment, etc.  Such systems adapt, grow, evolve, coevolve, mutate and/or become extinct over time.  Speciation occurs with new species forking off from a common stock.  In the West, the experimental sciences broke off from natural philosophy in the 17th century.  In the 18th century, Art and aesthetics separated from theology or metaphysics while economics broke off from moral philosophy.  Then, late in the 19th century, most of the other social sciences emerged out of moral philosophy.  Arguably such division and specialization of knowledge is a characteristic of maturing and stable human societies – civilized or otherwise.  Broadly defining those holding a specific ideology as ‘interest groups’:

the longer a society has been able to enjoy stability the more numerous will be the number of special interest groups it sustains.  Revolutions, foreign invasions and dictatorships, and so on, are inimical to the slow and difficult growth of special interest organizations.  (Beckerman 1983, 916-917)

2.         Ideologies, arguably, grow from a single idea that attracts more and more ideas, connects them, creating a web of thought that enframes human definition of a specific sector of the noösphere, or the noösphere itself, at a given point in time.  Intellectual mass accumulates until there is an ideological avalanche cum Kauffman (2000).  Obvious historical examples include mass religious conversions of entire societies, for example, from polytheism to Christianity in the Roman Empire; from Zoroastrianism and Christianity in Persia and the Byzantine Empire, respectively, to Islam; from Shinto and Taoism in Japan and China, respectively, to Buddhism.  Others, of course, include the Republican and Communist Revolutions.

3.         Ideology, as a system of ideas, provides a background or framework of subsidiary knowledge that can be taken for granted, that remains tacit, while one focally attends to a specific question, concept or idea (M. Polanyi Oct. 1962).  This is similar to the operation of ‘normal science’ identified by Thomas Kuhn.  Once a ‘paradigm’ has emerged in a natural science, focal attention shifts to ‘puzzle solving’ (Kuhn 1996).  Kuhn also observed that: “Over


time a diagram of the evolution of scientific fields, specialties, and sub-specialties comes to look strikingly like a layman’s diagram for a biological evolutionary tree” (Kuhn 1990, 7-8).

4.         It is important to note, however, that Kuhn’s ‘new’ philosophy of science (Idhe 1991, 11-44) has a more immediate relationship to ideology and the Cold War.  The 1962 first edition of Kuhn’s seminal text, The Structure of Scientific Revolutions, was written over:

a fifteen-year incubation period (1947-1962), during much of which he taught in the General Education in Science curriculum designed by Harvard President James Bryant Conant, who wrote the foreword to Kuhn’s first book and to whom Structure is dedicated. (Fuller 1992, 262).

5.         According to Steve Fuller, in his biography Thomas Kuhn: A Philosophical History of Our Times (Fuller 2000), Conant’s agenda was to protect: (a) funding for ‘pure science’ from the ‘dirty hands’ problems of the atomic bomb; (b) young scientists from pernicious Marxist influences; and, (c) academic science from “potentially antiscientific academics [by having them] become scientists themselves” (Fuller 1992, 241).  In this regard, Feyerabend, a noted philosopher of science of the day, in a letter written to Kuhn after reading the final draft described Structures as “ideology covered up as history” (Fuller 2000, 71, 90n).  In this light Fuller’s observation that “Good paradigms make good neighbors” (Fuller 2000, 7) takes on ideological or enframing implications.  Stay within your own ideology, within your own system of ideas.  Do not cross disciplinary, sub-disciplinary or speciality borders.  Do not trouble yourself with politics, it is another paradigm.  Respect your neighbours’ fences.  Trust the experts.  Arguably, the term ‘paradigm’ was for Kuhn a politically correct way of saying ‘ideology’.

6.         Glorification of the ‘pure’ scientist, demonization of public and private direction of science combined with trust in the free market was, however, an ideology Kuhn shared with chemist and philosopher of science Michael Polanyi.  Polanyi, however, went even further framing the natural sciences in terms of free market economics in his “Republic of Science” (Polanyi 1962b).  Kuhn, however, triumphed, initially at least, with ‘paradigm’ and its ideological accoutrements - the incommensurability of knowledge, the sociological nature of science and paradigmatic puzzle solving.  These restructured discourse in the philosophy of science, the humanities & social sciences as well as science policy.  Structures arguably became “one of the most influential books of this century” (Fuller 1992, 241).  With the knowledge-based economy, however, Michael Polanyi’s ideology has gained renewed intellectual and policy relevance.  Ironically, so has the seminal work of his brother, economic anthropologist Karl Polanyi whose The Great Transformation (K. Polanyi [1944] 2001) is the story of the birth


of the free self-regulating market in early 19th century Western Europe which some argue, including myself, bears directly on the emergence of the global self-regulating knowledge-based economy of the 21st (Munck 2002).

7.         And it is to the origins of this global knowledge-based economy, and the flawed ideology – market economics - underpinning it, to which I now turn.


2.1 Origins

1.         In 1995 the World Trade Organization (WTO) began operations and a new global economy was born (WTO 1994a).  Today, 2005, virtually all member states of the United Nations (UN) belong to the WTO with the notable exception of the Russian Federation.  Put another way, global regulation of political and military competition by the UN beginning in 1945 was extended to global regulation of economic competition by the WTO fifty years later.  This was possible only because of the global triumph of the Market over Marx.

2.         For the first time, virtually all nation-states agreed to abide by common rules of trade recognizing the WTO as final arbitrator of disputes and authorizing it to sanction countervailing measures against offenders of its rules.  Given the historical role of trade disputes fueling international conflict, the WTO compliments the UN as a bulwark of international peace, law and order.  

3.         As an international legal instrument, the WTO is a ‘single undertaking’, i.e., it is a set of instruments constituting a single package permitting only a single signature without reservation.  One of these instruments is the Trade-Related Intellectual Properties and Services Agreement (TRIPS, WTO 1994b) that constitutes, in effect, a global agreement on trade in knowledge, or more precisely, in intellectual property rights (IPRs) such as copyrights, patents, registered industrial designs and trademarks.  TRIPS is, however, but one part of the complex WTO package that includes the General Agreement on Tariffs and Trade (GATT) and twenty-six other technical agreements. 

4.         TRIPS, in turn, exists in the context of a constellation of international agreements, conventions, covenants and treaties administered by the World Intellectual Property Organization (WIPO 1979) a special subject agency of the United Nations.  TRIPS requires accession to some but not to all WIPO instruments.  In turn, WIPO instruments apply only to Nations-States that accede to them.  Generally, acceding States provide only ‘national treatment’ to citizens of other States, i.e., the same rights are extended as if they were nationals but the rights so extended are defined by each national legislature.  This treatment contrasts with


‘harmonization’, characteristic of other WTO efforts, e.g., definition of subsidies.  Currently ‘in force’ WIPO instruments, as well as TRIPS, ignore and thereby deny protection to ‘non-marketable’ intellectual property rights, e.g., aboriginal heritage rights (Farrer 1994; Chartrand 1995) including rights to traditional ecological knowledge or (TEK) as well as collective or community-based intellectual property rights in general (Shiva 1993).  Such ignored rights, together with commercial rights that have lapsed through time, constitute the public domain of knowledge from which any and all may freely draw. 

5.         In 1996, the Organization for Economic Cooperation and Development (OECD), whose members constitute the First World of developed, democratic market economies, published The Knowledge-Based Economy (OECD 1996).  The next year the OECD published guidelines for competitiveness in this new economy: National Innovation Systems (OECD 1997). 

6.         Creation of the WTO and recognition of the knowledge-based economy by the OECD initiated an avalanche of change.  Almost immediately, rapid institution building began, continuing to this day, in public and private sectors around the world.  A new specialty emerged – ‘knowledge management’, not to be confused with its predecessor - information management; the ‘Chief Knowledge Officer’ (CKO) is becoming an hierarchical feature of multi- and trans-national corporations; governments are creating knowledge ministries, departments and agencies; ‘knowledge audits’ are being conducted by firms and nation-states around the world (Malhorta 2000); and, nation-states themselves are designing ‘national innovation systems’ (NIS) to generate and market new knowledge (OECD 1997).  Even a standardized lexicon or vocabulary is being drafted to guide public and private sector discussion and debate (American National Standards Institute and the Global Knowledge Economics Council 2001). 

7.         Only time will tell whether all this conceptual and institutional activity is a passing policy fad or marks a true evolutionary leap in economic development and thinking.  What is certain is that knowledge is now recognized as a strategic asset in the competitiveness of nations.  What is equally certain, however, is that the ‘Standard Model’ of economic thought is theoretically inadequate to deal with this new economy.


2.2 The Standard Model

1.         Economics has what I will call a ‘Standard Model’, i.e., a generally accepted theoretical model.  It is taught in geometric, mathematical and deductive terms using standardized textbooks in first and second year university courses around the world from Adelaide, Beijing, Budapest, Cambridge, Cape Town, Moscow, Paris, Saskatoon, Stockholm to Washington D.C. 


2.         The Standard Model was developed during the last quarter of the 19th and first quarter of the 20th centuries particularly in the hands of Alfred Marshall (1842-1924) at Cambridge University (Marshall 1920).  Alternatively known as the Marshallian, Neoclassical or Perfect Competition Model, it fulfils Descartes’ requirement of a science in that it uses deductive logic based on a set of key assumptions whose conclusions are subject to geometric and mathematical proof.  The resulting ‘paradigm’ led, I infer, Thomas Kuhn to single out economics among the other social sciences as best approximating ‘normal science’ (Kuhn 1996, 161).

3.         It is important to note, however, that while Alfred Marshall contributed, among other things, the iconic centerpiece of the Standard Model, the ‘X’ formed by demand and supply curves (often called the ‘Marshallian scissors)’, Marshall himself held a much more subtle, complex and biological view of the economy.  As with the work of many great economists including Adam Smith, some of Marshall’s work became part of the canon while other parts were forgotten.  This includes his “emphasis on the contribution of knowledge to capital, the relationship between various forms of organisation and knowledge and the importance of ‘the tendency to variation’ in generating progress” (Loasby 1990).  As will be seen, however, Marshall’s biology was limited by the science of his time, specifically to the Darwinian principle of natural selection through ‘survival of the fittest’.  More recent findings such as coevolution and coconstruction were not available to him and will play a critical role in my subsequent distinction between the competitiveness and fitness of nations.


2.2.1 Epistemology

1.         Unlike the other humanities & social sciences, economic epistemology, i.e., its theory of knowledge, is rooted not in Platonic or Aristotelian idealism but in Epicurean sensationalism.  As noted by Marshall (1920, 628), the most influential successor of Adam Smith (1723-1790) was not an economist but rather Jeremy Bentham (1748-1832), a radical reformer who formalized Utilitarianism as a comprehensive philosophy (Clough 1964, 605).  Bentham’s epistemology is based on the atomic materialism of Epicurus (341-271 B.C.E.).  He acquired this view from the De Rerum Natura (On the Nature of Things) by the Roman Epicurean poet Lucretius (99-55 B.C.E.), whose work, unlike those of Epicurus, survived the fall of the Roman Empire and the censorial fires of the Church. 

2.         Like Epicurus, Bentham believed that physical sensation was the foundation of all knowledge.  Knowledge, including preconceptions such as ‘body,’ ‘person,’ ‘usefulness,’ and ‘truth’, form in the material brain as the result of repeated sense-experience of similar objects.  Ideas are formed by analogy between or compounding such basic concepts (O’Keefe 2001). 


3.         The idea that the physical brain records and processes (engrams) sensations into higher order constructs such as consciousness is a contemporary conclusion of cognitive and neuro-psychology (Freeman 1999).  It can be explained through ‘circular causality’.  A higher, macro or ‘transcendent’ order of physical nature results from a specific relationship between micro-parts that, once attained by chance, natural selection or otherwise, cause the resulting macro order to feed back on these parts to maintain itself.  This involves not just a mutual reinforcing feedback (homeostasis) between a whole and its parts but also maintenance of the relationship between the parts themselves.  In philosophical terms, circular causality creates a self-perpetuating epiphenomenon, i.e., a secondary phenomenon accompanying another and caused by it.  Or, in aesthetic terms: “if we can regard beauty as a certain unity of diverse elements, perhaps harmony can be understood as the relation of these parts to the whole, and rhythm as their relation to one another.” (Dorter 1973, 74-75)

4.         For Bentham sense experiences involved a unit measure of pleasure and pain called the ‘utile’ from which the philosophical school of thought known as ‘Utilitarianism’ emerged.  Utiles would eventually, according to Bentham, be subject to physical measurement and he proposed a ‘felicitous calculus’ of human happiness.  One corollary of the utile, however, is that customs, traditions and taste cease to be independent variables.  Compulsory standard education would ensure, Bentham believed, that everyone’s customs, traditions and taste would eventually become identical and therefore irrelevant. 

5.         Even aesthetics shrank to analysis of pleasurable sensations evoked by a work of art.  A thing is beautiful because it pleases, it does not please because it is beautiful (Schumpeter 1954, 126-7).  This, combined with Benthamite emphasis on functionality, meant application of artistic effort was “irrational”.  In industrial design and architecture, this aesthetic reached its logical conclusion in the aphorism form follows function, the Bauhaus and the glass and steel towers of the International School of Architecture (Hughes 1981).

6.         In the hands of Francis Ysidro Edgeworth (1845-1926) Bentham’s felicitous calculus of human happiness was married to Newtonian calculus of motion and reduced to geometric expression subject to mathematical proof in his Mathematical Psychics (Edgeworth 1881).  This geometry and its related calculus permitted erection of what became the Standard Model in economics.  It is important to note that use of calculus defines the Standard Model as mechanical rather than biological in nature, i.e., the calculus of motion, in this case, of human happiness.

7.         The budget (income and prices) constrains maximization of pleasure by the individual consumer yielding a demand curve while the cost constrained profit maximization of the firm


yields a supply curve.  When put together in the ‘Marshallian scissors’ of supply and demand, a determinant geometric, mathematically precise equilibrium emerges.  It is an ideology framed by an ‘X’ - the intersection of market supply and demand curves - marking the spot where human happiness is to be found, where, at one and the same time, consumers maximize their self-interest and producers their profits; everyone is happy here - if one accepts certain very strict assumptions.

8.         For my purposes, three assumptions are relevant.  First assume all consumers and producers have ‘perfect knowledge’ in which case, of course, there can be no market for knowledge since everyone has it freely and perfectly.  Second assume that human beings are strictly rational, i.e., they are constantly calculating and weighing the relative probabilities of present and future pleasure against present and future pain.  Third, while utiles cannot be physically measured let us assume they can be reified, i.e., an abstraction made concrete, in the form of money.  The presence of money brings pleasure; its absence brings pain.  It is ironic that the Standard Model in economics achieves what Plato, speaking about Art, feared most, that: “not law and the reason of mankind, which by common consent have ever been deemed best, but pleasure and pain will be the rulers in our State” (Plato 1952, 433-434).

9.         Unlike the Standard Model in sub-atomic physics (Cottinham & Greenwood 1998), however, the economic model is not empirical, i.e., it does not reflect nor pretend to reflect observable reality.  Furthermore, it is not experimental, i.e., controlled conditions cannot be maintained nor results replicated.  Rather, the Standard Model in economics is normative, specifying conditions under which perfection can be attained, providing the benchmark against which economic reality can be judged, e.g., the cost of monopoly.  It is therefore a ‘theory of value’ reflecting the origins of economics as a branch of moral philosophy (Boulding 1969).  In this sense, the Standard Model of economics is indeed an ideology.

10.        Beyond normative and pedagogic uses, however, the Standard Model also serves as a ‘straw man’.  By changing component assumptions, economists use the Standard Model to generate different outcomes.  It is these outcomes rather than those of perfect competition that are generally compared with economic reality, e.g., independent discovery of solutions for monopoly and monopolistic competition by Chamberlin (1933) and Robinson (1933). 


2.2.2 Limitations

1.         Nonetheless, according to the Standard Model, a knowledge-based economy is a virtual contradiction in terms, an oxymoron.  First, knowledge is treated as a public good, i.e., it is non-


excludable (once ‘out there’, e.g., published, one cannot easily be excluded from knowing).  It is also non-rivalrous (your consumption does not reduce the quantity available to me).  Excludability and rivalrousness are necessary assumptions of the Standard Model to internalize all costs and benefits in the market price.  Accordingly, how can something be exchanged in a market, i.e., bought and sold, if one cannot stop others from taking it for nothing and, if they do, one’s inventory is not thereby reduced?  The answer is to create and use intellectual property rights like copyrights, patents, trademarks and registered industrial designs.  Such rights, however, must be imposed by the State, thereby breaking one of the implicit tenets of the Standard Model – no government involvement in the economy.

2.         Second, knowledge exhibits increasing returns, i.e., if the quantity of capital and labour remain fixed but knowledge grows, output will increase continuously.  New knowledge developed endogenously within a firm or nation through tinkering and refining the production process contributes as does new knowledge developed exogenously to both.  Also, through increasing division and specialization of knowledge, suppliers improve the quality and/or reduce the price of inputs decreasing the cost of final output.  The productive effects of this increasing division and specialization of knowledge is most apparent in what Marshall called ‘industrial districts’ (Marshall 1920, 271) or what today we call ‘clusters’ (Martin and Sunley 1996, 282).  Put another way, knowledge feeds on knowledge. 

3.         As a factor of production, knowledge therefore contradicts two fundamental axioms of the Standard Model: (i) eventually diminishing marginal product, i.e., if at least one factor is held constant then addition of a variable factor yields eventually diminishing marginal product, and, (ii) decreasing returns, i.e., even if all factors are variable in the long-run, as the size of the firm increases eventually diminishing returns kick in due to crowding and congestion.  Without these axioms, a deductively derived equilibrium price/quantity market relationship cannot be determined and therefore the profit maximizing position of a firm cannot be calculated.  Furthermore, non-diminishing marginal product and increasing returns are incompatible with a perfectly competitive outcome leading instead to monopoly – the bête noir or ‘black beast’ of mainstream economic theory.

4.         Third, technological change, generally recognized as the major contributor to economic growth and development over the last three or four centuries, is, in economic theory, the effect of any new knowledge on the production function of a firm or Nation-State.  The nature and source of the knowledge is not a theoretical concern; only its effects on the production function.  However, new knowledge has many sources and varying effects.  It may be productive,


 increasing output on the shop floor; it may be managerial, reducing cost or increasing sales; or, it may be entrepreneurial, realizing a vision of future markets, products and/or other opportunities.  It may flow from the natural and engineering sciences (physical technology), the humanities and social sciences (organizational technology) or the Arts (design technology).  In economic theory, however, it does not matter what form new knowledge takes; it does not matter from whence it comes; the only thing that matters, is its mathematical impact on the production function.  With such a monotonic definition of technological change, how can one account for, let alone foster, the division and specialization of knowledge that characterizes a knowledge-based economy?

5.         Fourth, in mainstream theory, knowledge is treated as an intermediate, not a final good in consumption.  It is utilitarian, i.e., it is an input into the production of final goods intended to satisfy human wants, needs and desires.  Even if treated as a final good, however, knowledge is subject to the mainstream injunction: “De Gustibus Non Est Disputandum”, i.e., taste is not disputable (Stigler & Becker 1977).  Knowledge may, however, be non-utilitarian, valued in-and-of-itself satisfying the basic human need ‘to know’.  Furthermore, knowledge, expressed as taste, is critical to consumer choice through product design and hence to competitiveness.  As Marshall observed “increasingly it is the pattern that sells the thing” (Marshall 1920, 178).  He also observed a close relationship between marketing and production, a relationship not formally recognized in mainstream economic thought even today (Marshall 1919, 181).  If knowledge is treated simply as an input, how can one account for ‘style’ especially in consumer goods that constitute the bulk of economic activity? 

6.         Fifth, mainstream economic theory only admits knowledge generated through reason, specifically by calculation of benefit and cost, or what I call calculatory rationalism.  Optimizing behaviour, i.e., minimizing cost and maximizing output, relies on reason alone.  Among other things, this ignores Adam Smith’s conviction about moral sentiments, e.g., business trust and confidence.  Such sentiments display significant cultural differences.  In animistic Japan, for example, a business card is not just a card with a name but also a receptacle for the identity, spirit or soul of its name sake.  To disrespect the card is to disrespect the person and no business will likely be done.  Similarly, as noted by Adam Smith, the Spanish economy is Spanish and the British is British.  Hence Spain has its unique siesta when businesses and shops close in the hot afternoon and re-open in the cool of the evening, sometimes until midnight.  Without knowledge as trust, confidence and custom, how can there be a market?  How is foreign trade possible?


7.         Sixth, mainstream theory assumes producers and consumers possess symmetrical and/or perfect knowledge.  In the case of risk, i.e., uncertain knowledge about future states of the world, it is assumed expressible as a knowable probability function and it is resolved into options, e.g., insurance (Loasby 2002).  When economists assume asymmetrical knowledge, i.e., when someone knows but others do not as in cases of insider trading, then problems of opportunism arise and mainstream theory crosses into game theory wherein ignorance can be cured but at the price of the Standard Model itself.  Only a few economists have treated true uncertainty, i.e., ignorance of future states of the world (Knight 1921; Keynes 1936; Hayek 1937; Shackle 1973, Loasby 2003).  Ignorance is the opposite of knowledge, i.e., the want of knowledge.  To deal with true uncertainty, ignorance or surprise these few admit the ‘entrepreneur’ as possessing a non-rational form of knowledge – intuition or revelation – expressed by Keynes as ‘animal spirits’ (Keynes 1936, 161).  Like some ancient priest-king, the entrepreneur ‘knows’ the future and leads his people (investors, managers, workers and consumers) into it – right or wrong - to success or failure.  In a way, modern prophets seek profits.  If, however, one assumes there is only certain (or probabilistic) knowledge, how can there be a market for new, i.e., unknown knowledge?  How can there be an entrepreneurial role different and distinct from that of an owner of capital, manager or worker? 


2.3 Objective

1.         In summary, the Standard Model treats knowledge as a probabilistically certain, culturally blind, monotonic, rational public good that enters the production function of a firm or Nation-State as an input.  It does not, however, recognize knowledge as a final, highly differentiated output, i.e., as an end in-and-of-itself.  Even within this constrained framework, however, knowledge generates increasing returns and disruptive innovations incompatible with the perfectly competitive outcome.  Thus, technically, with respect to knowledge at least, the Standard Model is a flawed ideology.

2.         There is, however, also great disquiet around the world about an ideology that reduces human choice to atomistic calculation of profit and loss, not just in the marketplace, but in all human activities ranging from marriage and child rearing to art, education and culture.  It is an ideology framed by the ‘X’ of intersecting market supply and demand curves marking the spot where human happiness is to be found. 

3.         Before the Republican Revolution, the economy was embedded in society through guilds and a class structure of subordination by birth.  Today, some fear that human society is


being embedded into a global economy in which everything is for sale – hearts, kidneys, lungs as well as the entire natural and human built environment – as Karl Polanyi suggested in The Great Transformation (2001).  Such lingering concerns may be genetic fragments of a not quite dead Marxism or remembrances of forgotten roots – equality, fraternity and liberty.  In a way, the Republican Revolution sought political freedom for the individual and in the process spawned the free self-regulating market as its economic corollary.  The Communist Revolution, on the other hand, sought economic freedom for the individual (each according to one’s need) through a centrally controlled command economy and spawned the one-party Leninist state as its political corollary.  Arguably both forms of freedom – political and economic - are required to realize human potential.

 4.        It was not, and is not, however, just the far Left that has concerns about Bentham’s felicitous calculus and the Standard Model.  Joseph Schumpeter called it “the shallowest of all conceivable philosophies of life that stands indeed in a position of irreconcilable antagonism to the rest of them” (Schumpeter 1954, 133).  John Maynard Keynes went further identifying its dangerous ideological flaws:

I do now regard that as the worm which has been gnawing at the insides of modern civilization and is responsible for its present moral decay.  We used to regard the Christians as the enemy, because they appeared as the representatives of tradition, convention and hocus-pocus.  In truth, it was the Benthamite calculus, based on an over-valuation of the economic criterion, which was destroying the quality of the popular Ideal.  Moreover, it was this escape from Bentham, ... which has served to protect the whole lot of us from the final reductio ad absurdum of Benthamism known as Marxism. (Keynes 1949, 96-7)

5.         In effect every subsequent generation of economists has attempted to distance itself from the pernicious influences of Bentham and his hedonics.  Thus “what is more important for the structure and scope of modern economics is the neutralising of utility in the ‘flight from psychology’, which resulted in the formal treatment of both rationality and equilibrium as internal consistency” (Giocoli 2003).   There are, however, two significant implications to this flight.  First, without a psychological foundation there is, in effect, no economic epistemology, no economic theory of knowledge.  And if there is no economic epistemology, there can be no knowledge-based economy.  Various attempts have been made to solve this problem including von Hayeks’ The Sensory Order (Hayek 1952) as well as insights of new sub-disciplines such as behavioural, cognitive, evolutionary and experimental economics as well as game theory and industrial dynamics.  Second, without the utile reification of happiness into the presence or absence of money is not possible.  Arguably one of the strength of the Standard Model is that


 reification brings economics out of the clouds down into the pocketbook and wallet of the individual consumer.

6.         Due in part to the technical and moral inadequacies of the Standard Model, public policy debate about the knowledge-based economy, at least to this and some other observers (Cowan, David & Foray 2000), exhibits a ‘thinness’ of content and context.  My purpose is to deepen or ‘thicken’ this debate (Ryle 1968; Alder 1998, 503) and foster more effective national adaptation to the mutagenic environment of a knowledge-based economy where, quite simply, knowledge feeds on knowledge. 

7.         We are living through a second Cambrian Explosion (Kauffman 1995, 199) but this time of knowledge flowing from the scientific revolution beginning some 500 years ago.  The resulting avalanche of knowledge about the natural world, and the associated human ability to manipulate it, has had a visible and very species specific outcome.  In 1500 of the Common Era, three years before Leonardo Da Vinci began the Mona Lisa, some 400 million individuals lived, mostly from hand to mouth and a tsunami or epidemic away from extinction, in ten or so distinct civilizations spread out over five relatively isolated continental and sub-continental land masses (Durand 1977).  Five hundred years or twenty-five generations later, a global self-regulating market economy of over 6 billion human beings is actively engaged in re-designing the ecology, geography and geology of all seven continents, harvesting the ocean depths, polluting the mountain peaks and encircling the globe with hundreds of artificial satellites plus one inhabited space station as well as probes to other planets and to the stars themselves, e.g., Voyager I launched in 1977 is now in interstellar space (NASA 2003).

8.         In this presentation I will explore the evolutionary economic impact of knowledge and in the process, hopefully, revivify economic epistemology (Parker 1993).  Before doing so, however, I need to define the ideological posture from which my methodology flows. 

9.         I did my undergraduate and master’s program at Carleton University, Ottawa, Canada receiving a B.A. Hon. (1971) and M.A. (1974) in economics.  I was heavily influenced by the work of Giles Paquet particularly in linking streams of economics thought including economic history and those of Kenneth Boulding with the French tradition of cultural anthropology, e.g., Claude Levy Strauss and Lucien Levy Bruhl.  It was, however, my B.A. Hon. advisor, Richard C. Vanderberg, who directed me towards American Institutionalism (Blaug 1996, 700-703).  Vanderberg received his doctorate from the University of Wisconsin at Madison, arguably the home of American Institutionalism.  He introduced me to the work of Thorstein Veblen, John R. Commons and W.C. Mitchell whose work fuelled my career as a ‘real world’ economist


considering the cultural (Veblen), legal (Commons) and statistical (Mitchell) nature of economic reality.  Of American Institutionalism, Mark Blaug in his classic Economic Theory in Retrospect (1996) writes:

… no discussion of methodology in economics is complete without a mention of that greatest of all efforts to persuade economists to base their theories not on analogies from mechanics, but on analogies from biology and jurisprudence. (Blaug 1997, 700)

As will be seen, I continue and hopefully strengthen this tradition being one of the “few economists today who would consider themselves disciples of Veblen, Commons and Mitchell’ (Blaug 1997, 703).  To my list of masters I must add the Canadian economic historian and communications theorist, Harold Innis who, together with Schumpeter, can arguably be considered members of an Institutionalism much wider than ‘American’. 

 10.       Since graduation, however, I have worked mainly in public finance and in an obscure and only recently recognized sub-discipline, Cultural Economics.  Classified as category ‘Z000’ by the American Economics Association, the ‘zoo’ engages the economics of the arts, religion, social norms and economic anthropology.  Following Kenneth Boulding’s seminal article “Towards a Cultural Economics” (Boulding 1972), I practice what amounts to interdisciplinary study within economics itself, weaving together findings from agricultural economics, industrial organization, institutional economics, labour economics, legal economics, micro- and macro-economics and public finance, among others, as they relate to the Arts and culture generally.  My ideological bottom line is that maximizing, i.e., economic, behaviour takes place within the context of culture and law.  If you do not account for culture, you end up in the cannibal’s cooking pot; if you do not account for law, you end up in jail.  Neither is a maximizing outcome.   

11.        The fact that a sub-discipline concerning culture and economics was not formally recognized until the early 1990s reflects, I believe, the effect of the great schism in Western economics.  By the mid- to late-19th century, economics had formally split into two opposing camps, each serving as the base for an ideological program and reflecting, among other things:

·      conflicting theories concerning the impact of culture or stage of cultural development on economic behaviour - yes for Marxists, no for the mainstream;

·      conflicting theories of value, specifically whether labour was the only productive factor as Marxists believed or, whether capital was the most productive as the mainstream contended;


·      conflicting beliefs in the efficacy of collectivist solutions to political economic problems such as the role of the Party as revolutionary vanguard and the dictatorship of the proletariat versus individualist solutions such as pluralistic democracy and the market mechanism; and,

·      conflicting theories about the legitimacy of private property deemed exploitive by the Marxists and essential by the mainstream. 

12.      It is ironic that it is only the sanctity of private property that separates Bentham from Marx (Keynes 1949, 96-7).  According to Marshall (1920, 628, ft 2), it was the terror of the French Revolution that stopped Bentham from embracing public ownership of all means of production and consumption.  For Marx, revolution was, of course, the means to achieve that very end.  In a sense, Marx was the son Bentham never had.  It is also ironic that the end point, the point omega, of the Standard Model is perfect competition in which no one exercises market power, all costs are internalized in market price, all benefits are captured by the consumer and there is therefore no role for the State: the same outcome as under perfect communism with the Marxian withering away of the State. 

13.        The schism is also, to my mind, the reason why the philosophy of technology did not become formally organized as the Society for Philosophy and Technology until 1983 (Idhe 1991, 4).  Arguably, Marxism is a philosophy of technology with its emphasis on the technological imperative.  Quite simply, as with culture, it was not politically correct in the Anglosphere to make it the subject of formal academic study.  As pointed out by Idhe, however, in western Europe significant strides were made after Marx with respect to the philosophy of technology (1991).  Resolution of this schism is a subsidiary objective of my presentation. 



3.0 Methodology: Trans-Disciplinary Induction

The Competitiveness of Nations in a Global Knowledge-Based Economy