The absence of an empirically verified "balancing of forces" or "state of rest" in economic phenomena remains an embarrassment to the mainstream of a discipline that seeks quantitative precision and confirmation of theories using hard data. Equilibrium models that casually accept Jeremy Bentham's hedonistic utilitarianism and assume consumer rationality as well as maximization of utility subject to a budget constraint still grace the literature in leading professional journals. Despite voluminous research output that documents alternative firm motivation and strategy, businesses large and small still supposedly achieve equilibrium when they either maximize profit, revenue, or market share (or perhaps minimize cost). Despite the arguments of John Maynard Keynes to the contrary, macroeconomic models still seek the ideal equilibrium with a high rate of economic growth accompanied by little or no inflation and full employment. Despite the existence of multiple prices in numerous markets, students are still taught that a single price results from independently determined supply and demand equations.
In place of the static notion of equilibrium, the more dynamic circular and cumulative causation (CCC) framework has long held substantial promise of greater explanatory power while (and likely, because of) incorporating a far wider array of both economic and noneconomic variables. This article briefly surveys the origin of both concepts, illustrates in general terms the CCC method of analysis, documents recent research advances, and suggests some possible future applications.
Originally advanced in the physical sciences, equilibrium was uncritically adapted for use in a fledgling economics profession seeking scientific stature. The great scientist Isaac Newton (1687) depicted the universe as a mechanism that was understandable and potentially reducible to mathematical laws. (1) His law of gravity stated that heavenly bodies remain in motion because of a balancing of forces that prevent them from colliding, a rather impressive "equilibrium" in physics and astronomy. As a result, much like the spring of a clock (Canterbery 1987: 29), the universe functions smoothly and continuously in endless harmony. Its complex precision, the argument continues, was the work of a skillful, artistic Creator who, upon completing his project, left it alone to run itself. The perfection of this mechanism was due to laws of nature that, Newton believed, applied not only to the cosmos but also to the smallest of entities within it.
Attracted to the novelty and logic of Newton's arguments, many intellectuals sought to apply them to areas outside of physics. As the 18th century began, leading European thinkers became increasingly enamored of Newton's mechanistic view and of the prospect of scientific measurement. The task of humanity, some reasoned, was to assure that all activity was consistent with this natural law. Virtually no one questioned the legitimacy of applying principles that govern inanimate objects to living human beings. So impressive were Newton's analyses that extending them wherever possible simply seemed like the correct thing to do. Natural law led to the concept of a natural economic order. If a Supreme Being created a magnificent universe with all its components functioning so efficiently that further intervention was unnecessary, what possible justification could there be for interfering with the natural operation of the economy? With this leap of faith and dubious logic, minimal government intervention achieved a supposed scientific status that meshed nicely with existing cultural norms, further contributing to its acceptance and popularity.
With the passage of time, a relatively large group of economists has come to accept some scientific and economic concepts more than others but has consistently built upon Newton's equilibrium model. His development of the calculus enabled easy identification of maximum and minimum values. …