The pattern of technological progress has been found to be surprisingly consistent. New technology has to clear various hurdles before attracting funds for its commercial development. A successful project that gets fully exploited grows fast, all the time getting detailed improvements and added features. Eventually, progress begins to slow, returns from further R&D diminish and the technology begins to stagnate, before being replaced by something totally new and different which starts the whole process off again. The graph of this progression is the S curve, starting at the tail of the S, going through a rapid growth and tailing off, before being replaced by a new S.
About 30 years ago, when Friedman’s fixation on maximising shareholder wealth was beginning to be widely adopted, S curves were a trendy form of strategic analysis. They had been applied to many industrial sectors, studying the introduction, development and replacement of technologies, all following discernible S curve progressions. However, the idea was not then applied to theoretical development.
In the case of economic theory, three S curves are clearly discernible: classical, Marxian, and neoclassical. The Marxian theory was in the end not successful and never became the main thread. However the neoclassical thread which became the mainstream a century ago, has received massive development, with many detailed ‘improvements’ and added features, perhaps the last major one being Friedman’s.
Not all the added features, however, proved to be improvements. And the improvements that were developed and adopted, for example, the Keynesian variation, did not all survive as permanent features. Nevertheless, the broad picture is discernible. And it seems clear that the neoclassical S curve is well into the phase of diminishing returns. The question is what will replace it.
From the perspective of enterprise management, there is no problem. Organisation theory and the study of organisational behaviour, offer far more realistic models of firms. And the way markets work is well understood by marketeers. Moreover, the kernel of these concepts is our understanding of humans and how they behave, which are far better understood through social-psychological insight, rather than the childishly oversimplified model of self-interest maximisation. All of these understandings have been to some extent invaded by the neoclassical virus, which would need first to be eradicated.
Working out how these different approaches could be combined in a coherent and realistic model of the whole economy might be a suitably challenging academic study for theoretical economists. In the meantime, people, firms, markets and whole economies, could be liberated from neoclassical repression.