Stories of Error and Vice Matter: Path Dependence, Paul David, and Efficiency and Optimality in Economics

Abstract: History books are full of success stories. Intellectuals are interested in such stories because they are important in human history – they are important especially for those who are willing to know more about how we have reached the peak points of human civilization. History books, however, do not always credit issues of human failure and error. The social element – that is, the set of undesirable consequences of the imperfect character of human doings – are thus left out as irrelevant. Oddities and wrongheadedness, for instance, are not at the forefronts of human notice. They are seen only as peculiarities to be corrected sooner or later. Human failure and error are important as they are often left uncorrected in time. That is to say, we keep repeating the same errors through time. Uncorrected errors of the past sometimes generate undesirability, dissatisfaction, and disappointment in the future, because such errors prevent us from producing pragmatic solutions to practical problems in the economy and society. They prevent us from reaching “the general equilibrium.” They prevent us from getting at “the fundamental truth.” The world is, therefore, not the best of all possible worlds. The world, unlike the portrayals of neo-classical economics in general and Paul Samuelson in particular, is a world of transaction costs, as Ronald Coase argued, in the form of human failure and error. Consequences of such errors, which do not disappear easily and without causing further trouble, make the idea impossible – the idea that perfection in the world of humans is achievable. I illustrate in the paper that there are such errors in human history that cause path dependence in the economy and society. Many errors in the past, I argue, are not corrected – they linger. History is therefore not only a bunch of success stories in the form of efficiencies and optimizations. History is also the stories of error – stories of path dependence. And such errors, too, should matter for historical economists.